European policy makers head into their second confrontation thisweek saying they're likely to fall short of agreement on aseven-year budget plan just as they failed to strike a deal onGreek debt.

German Chancellor Angela Merkel told lawmakers in the nationalparliament in Berlin today that budget talks slated for a summittomorrow may slide into next year. France rejects cuts to farmsubsidies, and the U.K. demands a spending cut.

“There are deep divisions between the member states,” IrishPrime Minister Enda Kenny said in the Dublin parliament today.“There are fears that it will not be possible to get a deal.”

The 27 European Union leaders are preparing to square off overthe budget in Brussels tomorrow after euro-region financeministers' efforts to agree on a debt-reduction plan for Greecefoundered. More than 11 hours of talks ended without a deal earlythis morning as a bloc of top-rated creditors led by Germanyrefused to write off a portion of their aid loans.

That stance meant the finance chiefs were unable to scrapetogether enough funds from other sources to help alleviate Greece'sdebt burden, set to hit 190 percent of gross domestic product in2014.

Greece's fiscal woes have defied three years of rescue efforts,rekindling doubts about Europe's crisis-containment strategy andmaintaining a cloud over the euro, postwar Europe's signatureeconomic accomplishment.

“We have a series of options on the table on how to close thefinancing gap,” German Finance Minister Wolfgang Schaeuble toldreporters. “We discussed the issue very intensively, but since thequestions are so complicated we didn't come to a finalagreement.”

Schaeuble told German lawmakers that the issue of the Greekfunding gap was solvable and possible solutions include reducinginterest payments on its bailout loans, suspending payouts through2020 on its second rescue package, or having the European CentralBank buy 9 billion euros ($11.5 billion) of the country's Treasurybills, according to four people who attended the briefing. Anotheroption is for the EU's bailout fund to finance Greek governmentpurchases of 10 billion euros of its own debt.

Greek bonds rose for a ninth day, the longest run of gains sincethe nation's debt was restructured in March, with investors bettingan agreement to unlock rescue funds would be reached at an anotheremergency finance ministers' gathering Nov. 26. The yield on Greek10-year notes fell 37 basis points to 16.73 percent at 3:30 p.m. inBrussels.

Debt Sustainability

Finance ministers failed to tackle the dual task of steering anextra 32.6 billion euros to Greece through 2016 while finding a wayto tame the resulting increase in Greek debt, already the highestin Europe and deemed “unsustainable” by the International MonetaryFund.

“Further technical work on some elements of this package” isneeded, Luxembourg Prime Minister Jean-Claude Juncker said in astatement. He stopped short of predicting a deal at the nextmeeting, which will come after the budget summit that risks furtherinflaming tensions between the richer north and poorer south.

The sovereign debt crisis, which has seen creditor countries inthe north demand austerity from the south as a condition for aid,is aggravating the negotiations over the EU budget which has to beagreed upon every seven years.

The U.K., where Prime Minister David Cameron is facing a surgeof anti-European sentiment both in his party and in the electorate,is leading the push for European austerity including salary cutsfor EU officials while Spain is seeking to protect its subsidies asit battles a five-year slump. France, which this week was strippedof its top credit rating by Moody's Investors Service, is resistingcuts to farm aid, which account for about 60 percent of EUspending.

EU President Herman Van Rompuy will present a revised proposalat the start of a meeting, which is slated to begin at 8 p.m., anEU official said today. He told European leaders in a letter sentyesterday he has arranged for the summit to be extended ifnecessary in order to push through a deal.

“Let there be no mistake,” Van Rompuy said in the letter. “Theabsence of an agreement would be harmful for all of us.”

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