Guy Verhofstadt, leader of European parliament group that includes Lib Dems, says EU should raise its own revenues
Nick Clegg's main ally in the European parliament has called for Britain's multibillion-pound EU rebate to be scrapped as part of a plan to strip EU leaders of their powers to set the EU budget.
As EU leaders gathered for a second day of talks, Guy Verhofstadt called for the EU to be given powers to raise its own revenues as a way of ending what he called "this Turkish bazaar" in the negotiations.
"If own resources [tax revenues that go directly to the EU] are further developed then the rebate shall disappear," the former prime minister of Belgium said at the summit. The British rebate was worth €3.6bn in 2011.
"The whole income of the union shall be based on own resources. There are no national contributions. If the national contributions disappear in the future there is no rebate necessary."
Verhofstadt is the leader of the Alliance of Liberals and Democrats for Europe (ALDE), the third largest grouping in the European parliament whose members include the British Liberal Democrats.
The former Belgian prime minister spoke out as EU leaders met in despondent mood after Herman Van Rompuy, the president of the European council, presented a new set of budget figures late on Thursday night. He proposed a modest cut in the overall budget for 2014-2020 from €973bn to €971bn.
Van Rompuy proposed an €8bn increase in agricultural spending and a €10.6bn increase in cohesion funds to help develop poorer regions, mainly in eastern Europe.
The president of the European council proposed paying for these by cutting the Connecting Europe project to build up transport and energy links across the EU by €4.5bn. Cameron had pressed for this to be cut by €20bn. A bid by Cameron to cut EU administration costs by €6bn was ignored.
There were signs of tensions between France and Germany – the traditional motors of EU integration. Angela Merkel, the German chancellor, is pressing for restraint while François Hollande, the French president, is demanding more funds for agriculture.
Cameron, who appears to be forming something of an alliance with Merkel, said the Van Rompuy plans did not go far enough. He is demanding a further €50bn in cuts.
As he arrived for the summit on Friday morning, Cameron said: "I don't think there's been enough progress so far. There really is a problem that there hasn't been the progress in cutting back proposals for additional spending.
"It isn't the time for tinkering. It isn't the time for moving money from one part of the budget to another. We need an affordable spending cut. That's what's happening at home and that's what needs to happen here."
Verhofstadt, who believes the EU should be turned into a federalist United States of Europe, wants to overhaul the whole system and strip EU leaders of their right to set the budget by ending national contributions to EU coffers. He would do that by raising the amount of tax revenue that goes automatically to the EU.
Verhofstadt called it "a budget based on national contributions so this Turkish bazaar can stop finally. If there is a direct financing with own resources in the future – be it VAT, be it airport duties, be it taxation on agricultural products, be the financial transaction tax or even a carbon tax – then this stops."
The former Belgian prime minister said that failure to agree a budget would serve as a reminder that the eurozone crisis was caused by the failure to agree a political union. "It is a bad message for the ongoing crisis because the main source of the euro crisis is not Greece. The main source is the lack of a real economic, fiscal and political union. The main instrument for a real economic and political union is a budget. A budget of 1% [the proportion of the current budget as a share of EU GDP] is not very convincing for the markets."
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