WRAPUP 9-EU leaders struggle to narrow gap on new treaty

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By Carsten Lietz and Jan Strupczewski

BRUSSELS, June 21 (Reuters) - European Union leaders struggled to narrow their differences on Thursday on a reform treaty for the 27-nation bloc and said it was too soon to tell whether they could reach a deal at a two-day summit.

Prospects of agreement to overhaul the EU's complex decision-making structures hung in the balance over tough demands from Poland and Britain, diplomats said.

Polish President Lech Kaczynski "froze the debate" by ruling out any compromise on a planned re-weighting of voting powers, Czech Prime Minister Mirek Topolanek told reporters. Britain said it was not ready to back down over its "red lines".

German Chancellor Angela Merkel, whose country holds the EU presidency, told reporters the leaders remained at odds but wanted a deal.

Kaczynski held one-on-one talks late into the night with Merkel and French President Nicolas Sarkozy, who is trying to broker a compromise at his first EU summit.

"No one said they do not want to conclude tomorrow," Merkel said. "There was broad agreement that we would make all necessary efforts to reach an agreement. Is that possible? It's not possible to say tonight."

Merkel hopes to secure a deal to launch negotiations on a new treaty to replace the EU constitution rejected by French and Dutch voters in 2005, and help the Union function more smoothly following its enlargement.

Failure could increase divisions in the EU by prompting a small group of states to press ahead with closer integration, leaving others behind, and making richer countries more reluctant to aid poorer newcomers.

Leaders had mixed opinions on the chances of a breakthrough when they sit down together again for lunch on Friday.

"I think we are close to a conclusion," said Danish Prime Minister Anders Fogh Rasmussen.

"There have been no moves so I am a bit pessimistic," said Finnish Prime Minister Matti Vanhanen.

PROSPECTS UNCLEAR

Prospects for a deal after years of wrangling over the division of power between Brussels and member states seemed to grow this week after Poland softened its opposition to proposed voting system changes which it says would favour bigger states.

Polish Foreign Minister Anna Fotyga told reporters at the end of the first day of the summit that "none of the proposals we heard today were new. We are analysing them."

Warsaw has waged a fierce campaign against the German proposals, at times making references to its suffering under Nazi German occupation.

But Fotyga also said Poland might be able to win equivalent influence if it could not change the voting system.

British Prime Minister Tony Blair, the other leader who could scupper a deal, said on arrival that Britain would sign up to a treaty only if four key demands were met.

"The four areas we have set down, we do need satisfied and we do need satisfied in full," Blair, at his last EU summit, said of British efforts to maintain sovereignty in foreign policy, justice, migration and human rights.

Luxembourg Prime Minister Jean-Claude Juncker said: "The big problem will not be Poland. It will be the United Kingdom."

Nearly all EU capitals favour a "double majority" formula in the constitution draft requiring 55 percent of member states representing 65 percent of the EU population to pass decisions. Poland argues that favours bigger countries, especially Germany.

Polish negotiator Marek Cichocki said conditions had been created for a summit deal of some kind, but added some issues might have to be held over to an inter-governmental conference.

Eighteen EU nations have ratified the constitutional treaty, but there is broad agreement to cut it significantly, to allow France, the Netherlands and Britain to avoid referendums that their governments might lose.

Some key institutional arrangements are set to be kept, such as creating a president of the European Council of governments elected for 2-1/2 years instead of the current six-month rotating presidency which has grown unwieldy in the enlarged EU.

Britain does not want to be legally bound by any treaty on the bloc's Charter of Fundamental Rights, which includes a broadly defined right to strike.

It also wants to shrink the powers of a proposed EU foreign minister, seeks an opt-out from EU justice cooperation and opposes obligatory social security payments to migrants.

Keywords: EU TREATY/