EU leaders set for crucial budget summit 7 February 2013 Last updated at 03:43 European Union leaders are due to begin a two-day summit in Brussels to try to strike a deal on the next seven years of EU spending. High EU expenditure at a time of cutbacks and austerity across the continent is the main issue dividing the 27 member states. They failed to reach a compromise at a similar summit last November. The BBC's Europe editor Gavin Hewitt says the summit will almost certainly demand cuts in EU administration. However, whatever is agreed still has to go to the European Parliament and MEPs are big backers of EU spending, he adds. The EU Commission - the EU's executive body - had originally wanted a budget ceiling of 1.025tn euros (£885bn; $1.4tn) for 2014-2020, a 5% increase. In November that was trimmed back to 973bn euros and later revised down to 943bn euros. However, with other EU spending commitments included, that would still give an overall budget of 1.011tn euros. The UK, Germany and other northern European nations want to lower EU spending to mirror the cuts being made by national governments across the continent. The mood now remains cautiously optimistic but the Germans, who like to downplay expectations ahead of summits, are saying the talks will be "difficult and divisive." " Downing Street said on Wednesday that Prime Minister David Cameron was intent on seeking an agreement to lower EU spending. "The UK's position is unchanged since the November European Council - spending needs to be reduced further than the proposals on the table," a spokesman said. The prime minister said in the [House of] Commons that he thought a deal would be difficult. That's not saying that it can't be done. The EU budget negotiations are always traditionally fairly difficult. Compromises Another grouping, led by France and Italy, wants to maintain spending but target it more at investment likely to create jobs. French President Francois Hollande told reporters on Sunday that conditions were "not yet in place" for a deal but also signalled that Paris was prepared to make compromises. He and German Chancellor Angela Merkel held talks in Paris on Wednesday before attending a France-Germany football match. Mrs Merkel's spokesman said she and President Hollande had had "a short but intense meeting... to see what kind of agreement could be made." Mrs Merkel - seen as the powerbroker in the summit - has already acknowledged that the talks will be "very difficult." In Brussels, a European Parliament spokesman warned that more severe cuts would leave the commission unable to do its job as the EU integrates more deeply in response to the financial crisis. "How can we imagine that an EU institution can ensure a proper banking union with a budget that is cut by whatever billions in figures we hear, here and there?" said spokesman Olivier Bailly. At the moment, there is a need for a reality check between the requests that are sent to the commission, the council, the parliament, or the European Central Bank, and the budget - the means - that are given to these institutions to fulfil their commitments. The split in the EU reflects the gap between richer European countries and those that rely most on EU funding. The argument for higher spending is supported by many countries that are net beneficiaries, including Poland, Hungary and Spain. Others, mostly the big net contributors, argue it is unacceptable at a time of austerity. Germany, the UK, France and Italy are the biggest net contributors to the budget, which amounts to about 1% of the EU's overall GDP. Analysts say failure to reach an agreement on its seven-year budget would mean the EU falling back on more expensive annual budgets.