Day two for EU leaders

The latest proposal Friday morning is expected to set an absolute budget ceiling of 960 billion euros ($1.3 trillion). The plan, submitted by EU President Herman Van Rompuy, reportedly leans more in favor of British Prime Minister David Cameron's calls for stringent cuts.

A formal agreement is expected to be finalized later on Friday, but there could be hours of more bargaining still to go.

Marathon talks

The difficult discussion on a bloc-wide budget from 2014 until 2020 got off to a late start on Thursday, as various leaders split into groups for preliminary talks.

German Chancellor Angela Merkel had warned that success was not guaranteed even at the second attempt, after a previous budget summit ending without agreement last November.

"We cannot say yet if there will be an agreement," Merkel said on arrival. "The positions are still quite far from each other. Whether we will reach a common position in the end or whether we get into a situation where a majority has to agree annual budget tranches - I cannot say today."

Austerity or stimulus?

The budget is spent on a variety of projects including agricultural subsidies, development aid, infrastructure projects, research, and the so-called Cohesion Fund, which aims to bring less wealthy members of the bloc in line with EU leaders. The money is paid for on a country-by-country basis, based on population and gross domestic product. Though a large total figure, especially over seven years, the EU budget amounts to a little over 1 percent of the bloc's annual economic output.

The opening figure of 1.025 trillion euros proposed by the European Commission was trimmed by around 50 billion euros in November.

Cameron has been perhaps the highest-profile advocate of stringent cuts to the proposed budget.

"When we were here last November, the numbers that were put forward were much too high," Cameron said before the talks. "They need to come down - and if they don't come down, there won't be a deal."

France counters

French President Francois Hollande, meanwhile, has said that he would not support a deal that did not preserve agricultural subsidies and projects designed to stimulate the economy, saying they were crucial while Europeans battled high unemployment and faltering economic growth.

"If some [cuts] are reasonable, I will try to persuade them," Hollande said, "but only up to a certain point."

Van Rompuy said before the marathon talks that he was confident that a final compromise could be reached.

msh/dr (AFP, AP, dpa)