EU chief warns `lot to do` for deal to avoid British exit

Brussels: European leaders have a lot of work to do at a summit in Brussels to reach a deal to prevent Britain becoming the first country to crash out of the bloc, EU president Donald Tusk warned Friday.

British Prime Minister David Cameron urged his counterparts at the start of a two-day meeting to reach a "credible" reform deal that would allow him to hold a referendum on EU membership in June.

But in the face of concerns from France and eastern European countries, Tusk warned that the first day of talks had left much more to do to reach an agreement to rule out a so-called "Brexit".

"For now I can only say that we have made some progress but a lot needs to be done," Tusk told a brief press conference.

With the clock ticking, Tusk went immediately into overnight face-to-face talks with Cameron and European Commission President Jean-Claude Juncker in a bid to overcome the final hurdles to a deal.

Tusk was also due to meet French President Francois Hollande, Belgian Prime Minister Charles Michel and Czech Prime Minister Bohuslav Sobotka.

Hollande has reservations about Cameron`s demands for safeguards for countries that do not use the euro currency, while Michel objects to calls to exclude Britain from the EU`s goal of "ever closer union".

The Czech premier meanwhile leads a group of four Eastern European countries that object to Cameron`s request for a limit to welfare benefit payments for EU migrants working in Britain.Spanish Prime Minister Mariano Rajoy meanwhile said he was optimistic about the chances of a deal when the EU summit resumes at around 1000 GMT on Friday morning.

"I think it is going well. I hope that tomorrow we will have a deal," Rajoy told reporters.

Meeting his counterparts as the summit began, Cameron said called for a "sort of live and let live" approach to reach a deal.

He urged them to secure "a package that is credible with the British people", adding that the issue of Britain`s place in Europe "has been allowed to fester for too long" and that there was now a chance "to settle this issue for a generation".

Three years after Cameron announced he wanted to reset Britain`s ties with the European Union, the talks are going down to the wire with highly technical disagreements in all key areas.

But the principle behind them goes to the heart of the EU -- the British vision of a loose trade union versus the post-war European federal ideal -- and tests the EU as it faces a colossal influx of migrants fleeing war in the Middle East.

Hollande said earlier that he wanted an agreement and that it was "possible" -- but warned that "no country can have the right to veto" eurozone states.

The issue raises particularly sensitive questions around banking regulation as Britain is home to the City of London, one of the world`s leading financial centres.Cameron won crucial backing Wednesday from German Chancellor Angela Merkel, and arriving for the summit she said she was "happy to do everything to create the conditions for Britain to remain part of the European Union."

Cameron, under pressure from eurosceptics in his centre-right Conservative Party and a hostile right-wing press, says he will back a `Yes` vote in a referendum expected this June if he can cut a deal in Brussels.

Failing that, he has said all options are open, refusing to rule out the possibility that Britain could become the first country to leave the EU in its more than 60-year history.

Brussels has offered an "emergency brake" to limit benefits for new migrants for four years, which Britain could invoke if its welfare system is overwhelmed by the inflow of workers, as it believes it has been.

But Poland and other eastern European member states who have hundreds of thousands of citizens in Britain bitterly oppose such a change, saying it would discriminate against them and undermine the EU`s core principle of freedom of movement.

Cameron has staked his political reputation on winning the referendum in the hope of ending a feud over Britain`s place in the EU that has plagued his Conservative Party for decades.

Britons voted overwhelmingly in favour of staying in the EU in a 1975 referendum, just two years after joining.

Recent opinion polls suggest a narrow lead for those who want to stay in the EU but there does seem to have been a modest increase in the `No` camp. Many voters are thought to be undecided.