Five countries said on Saturday the EU's budget should be frozen until 2020, highlighting a new source of policy divisions that could spark a funding battle between the region's western states and their poorer peers in the east.

Britain, France, Germany, Finland and the Netherlands -- all net contributors to EU coffers -- said in a joint letter that increases in the bloc's communal long-term budget should not exceed the rate of inflation after 2013.

European public spending can not be exempted from member states' considerable efforts to get their public spending under control, the letter, addressed to European Commission President Jose Manuel Barroso and released by the French presidency, said.

British Prime Minister David Cameron had flagged the call for a budget freeze at a news conference on Friday following an EU summit that, while paving the way for a permanent euro zone financial rescue scheme, pointed up lingering deep internal divisions over how best to tackle the region's debt crisis.

The five states can expect strong opposition from Poland and other emerging European countries when talks between the EU's 27 governments on the next long-term budget, which runs from 2014 until at least 2020, get under way in mid-2011.

'NO CUTS IN AID'

Polish Prime Minister Donald Tusk said his country, which along with others like Bulgaria and Romania receive aid to help modernize their regions, would resist funding cuts.

What is the most important from our point of view is for the budget not to be reduced significantly, because we believe the funds flowing to Poland and other countries help us fight the crisis, Tusk said on Thursday.

While the views of all EU states carry the same weight in deciding long-term budgets, a minority of net contributors managed to push through a similar initiative the last time the funding came up for negotiation in 2005.

Handouts in the 2014-2020 period might need to be spread more thinly if as anticipated the EU takes in new members from the western Balkans, but Tusk took cheer from the fact that despite Cameron's efforts, the summit's conclusions did not make any reference to budget cuts.

One diplomat said Britain has scaled down its demands as it initially wanted to trim the budget to 0.85 percent of the bloc's output, compared with the current 1 percent.

Next year's budget is worth 126.5 billion euros, with more than 40 percent of it going on agriculture and a third on aid to poor regions.

The joint letter was signed by French President Nicolas Sarkozy, German Chancellor Angela Merkel, British Prime Minister David Cameron, Dutch Prime Minister Mark Rutte and Finnish Prime Minister Mari Kiviniemi.

(Reporting by Leigh Thomas; writing by John Stonestreet; Editing by Marcin Grajewski)

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