Budget Commissioner Janusz Lewandowski said talks that are about to start on the EU budget, now worth about €130 billion annually, could be the most difficult in the bloc's history following the global economic crisis.
Agriculture subsidies account for more than 40% of the EU's budget. A fierce battle is expected over their future as the Union tries to overhaul its budget, and an annual rebate cherished by Britain could be under threat.
The European Commission will publish proposals on the future of the farm subsidies next month.
"A hot budget season will start from October. These may be the most difficult negotiations in [the EU's] history," Lewandowski, a liberal economist and Poland's former privatisation minister, told Reuters in an interview.
"We are living in special times, when national budgets are subject to painful cuts, which creates a lot of frustration."
The talks will coincide with efforts to cut budget deficits across the EU to below a cap of 3% of economic output after governments boosted spending to fight the crisis.
The overhaul could cut the EU's Common Agricultural Policy (CAP), which critics say unfairly protects European farmers against foreign competition and wastes funds that could be used more productively elsewhere.
"Farm spending should constitute about a third of EU spending and not its main part," Lewandowski said.
"To defend the credibility of the budget, we must support the trend of falling farm spending. But it is defended by a strong lobby and will remain an important part of the European budget."
The negotiations, which start in earnest early next year after the Commission makes proposals on the overall reform of EU expenditure, will determine the shape of the EU's long-term budget for seven years from 2014.
France, a major farm aid beneficiary, is expected to lead efforts to defend agricultural subsidies. Net payers to the budget, such as Austria and Germany, are likely to call for austerity while poorer, Eastern European countries seek aid.
More spending on research and development
Lewandowski said funds for research, development and innovation should increase - a view likely to please some of the richer EU countries, such as Sweden and the Netherlands.
Lewandowski said spending should be put aside to help the EU enhance its global role, but did not say how much.
He promised to defend EU aid funds to its poor regions against expected demands for cuts by richer countries.
Lewandowski dismissed reports that the Commission had backed a new pan-EU levy to help fund its budget, such as a financial transaction tax or a levy on airfares, although the issue could be considered in the overhaul of the budget revenue system.
Efforts to simplify the way the budget is collected could involve ending all rebates, such as the British one, which is now worth some €5 billion annually.
Britain secured the rebate in 1984 as compensation for receiving little benefit from farm aid, but the size of the EU's farm aid has since fallen substantially.
Lewandowski said he would fight for restraint on administrative spending. A planned increase in such spending next year, despite cuts in most of the 27 member states, has prompted severe criticism in some countries.
He called for a moratorium on the creation of new EU institutions and bodies.
"The Union must not try to solve its problems by creating new institutions all the time. The credibility of the European project is at stake. We have come to the wall here. And we need a solid audit of existing institutions," he said.
(EurActiv with Reuters.)