EU Budget negotiations are always tough, but this time discussions to thrash out the bloc's future spending plans are expected to be particularly challenging.

EU27 leaders are meeting in Brussels to try to resolve disputes over the seven-year budget, known as the Multiannual Financial Framework (MFF), which covers the period 2020-2027.

Member states are adapting to a union that is reduced in size, with the loss of the United Kingdom post-Brexit, which was a major contributor.

The bloc is now facing a budget shortfall of between 60-75 billion euros, and must decide whether to increase the contributions of other member states, or slash its spending.

There are also tensions between some countries who are net payers into the budget, and others who are net beneficiaries.

A group known as the frugal four- Austria, the Netherlands, Sweden and Denmark- are urging restraint in EU spending plans. They believe long-term contributions should remain at one percent of the EU's gross national income (GNI), rather than the Commission's proposed 1.11 per cent.

The Austrian Chancellor Sebastian Kurz said over the weekend in an article for the Financial Times that the "UK's departure is a reason for financial restraint – we simply have to 'cut our coat according to our cloth'".

But other eastern and southern countries that rely on EU funding want to keep agricultural and regional development spending at current levels.

Normally the frugal four would have an ally in Germany, but Berlin has taken a softer line this time around. Chancellor Angela Merkel has indicated she would accept increases to current levels of spending if it provided investment for new priorities such as defense and climate change.

EU Council President Charles Michel is trying to find a compromise between the warring sides, and is trying to work a miracle with this emergency summit. He's held a flurry of bilateral talks with all sides involved in the dispute, and is hoping to be able to push a deal through this weekend.

An internal MFF compromise, leaked in early December, proposes a budget of 1.07 percent of member states' gross GNI.

For some, this will still be far too high. But for others, it won't be enough.

Some are even warning that positions on either side are hardening so quickly that a 'no deal' situation might be possible by the end of the year. This critical summit at the Council could just be the start of a long battle ahead.

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