The European Union will face a budget crunch early next year after talks between member nations and the EU parliament broke down over the power the legislature should have in influencing nations' budgetary decisions.

Some member states like Britain and the Netherlands want to contain the European parliament's clout in setting budgetary policy and keep essential powers in their own capitals.

The failure early Tuesday came despite agreement that the budget could only expand by 2.9 percent next year to match austerity efforts in member states.

The collapse of the talks means a new budget will not be agreed before the start of the new year. The EU will therefore start 2011 living off monthly allowances which cannot exceed the 2010 equivalent.