BRUSSELS (Reuters) - European Union officials are examining legal options to side-step a possible British veto on the bloc's long-term budget, in a bid to weaken Prime Minister David Cameron's trump card in the talks, diplomats said.
Britain is one of several net contributors including Germany and France demanding deep reductions to EU spending plans worth more than 1 trillion euros between 2014-2020, which they say are at stark odds with austerity-driven spending cuts at home.
Under pressure from Eurosceptics in his own party to deliver a real terms cut, officials believe Cameron is the most likely to make good on a threat to veto a deal at a summit of EU leaders in Brussels starting next Thursday.
Germany and others fear that would throw future EU spending into chaos, distract from more important efforts to shore up the faltering euro zone and undermine market confidence in Europe at a sensitive time.
"The British are the only ones who consider it potentially acceptable to pull everything down around them at the summit," said one EU diplomat, speaking on condition of anonymity.
"The EU institutions are thinking of ways legally to get around a British veto," he said.
If there is no deal on a long-term budget, EU governments would have to set annual budgets based on 2013 spending with a 2 percent increase for inflation, which could end up costing Britain more in net contributions than at present.
Crucially, such annual budgets only need the approval of a weighted majority of EU governments, meaning Britain wouldn't hold a veto.
The approach would be complex and raise legal questions over funding for multi-annual EU projects, but the presidents of the European Council and European Commission believe the alternative could be years of deadlock, one official said.
"They are telling people that there is no way out if there is not an agreement next week, and therefore it's vital to get some sort of deal," said the official, who asked not to be named due to the sensitivity of the issue.
"In this context, they are having to examine other options for the budget."
While EU officials draw up contingency plans for a possible British veto, Germany remains focused on trying to find a compromise seven-year deal that Cameron can successfully sell to sceptical British lawmakers.
British officials have been vague on the exact figure that would satisfy their call for a real terms freeze in EU spending, which negotiators hope will leave Cameron some wiggle room at the summit.
European Council President Herman Van Rompuy took a step in Cameron's direction on Wednesday, when he proposed to trim about 80 billion euros from the spending total and maintain Britain's EU budget rebate, first won by Margaret Thatcher in 1984.
The cuts are unlikely to be enough to satisfy Britain, Sweden, the Netherlands and others, who have called for reductions in the range of 100-200 billion euros from the European Commission's original blueprint.
Some officials involved in the negotiations say leaders will need to find about 20 billion euros in further cuts to meet the bottom range of reductions demanded by the main budget contributors and head off a British rejection.
That would increase the likelihood of a veto by France, which is already furious at deep cuts to farm subsidies in Van Rompuy's proposal and fears more reductions in agricultural spending as leaders chip away at the total figure.
"This proposal in no way constitutes a basis for negotiation that is acceptable for France in terms of ceilings on spending proposed for the common agricultural policy," French Prime Minister Jean-Marc Ayrault said in a statement.
Further cuts to EU cohesion spending - used mainly to fund infrastructure projects in poorer eastern European member states - could also stiffen opposition in countries such as Poland, Hungary and the Czech Republic.
But officials believe it will be hard for the biggest beneficiaries such as Poland to veto a deal, and they say France is far less likely that Britain to derail the talks.
"France would find it very hard to veto if Germany and others are ready to do a deal," the EU diplomat said.
Additional reporting by Catherine Bremer in Paris and Andreas Rinke in Berlin; Editing by Paul Taylor