Facing elections in three months time and fighting for his political survival after 16 years in power, the German Chancellor is under pressure to return from the summit today with a pledge that Germany will be given a British-style rebate on its pounds 7bn annual contribution to EU coffers.
Chancellor Kohl said: "We want a fairer share of the burden-sharing. The financial system is not all right." His demand triggered a similar call from the Dutch, Swedes and Austrians who also argue they are paying beyond their means.
But any cap on the German contribution would mean Britain and other governments would have to pay in billions of pounds a year more.
Tony Blair repeated yesterday that the British rebate negotiated by Mrs Thatcher in 1984 is not negotiable. An alternative way forward, he said, would be to slash the amounts the EU spends on agricultural subsidies as a way of trimming waste.
The "discount" Britain is entitled to averages at around pounds 2bn a year which cuts its annual net contribution - the total after grants and other payments to Britain are deducted - to around pounds 2.3bn a year.
The Spanish, Irish and other big recipients of EU aid also vehemently rejected any change in the status quo. But Jacques Santer, the European Commission president, appeared to suggest that the British rebate could be up for grabs. "All the cards have to be put on the table. If one country is paying less, other countries have to pay more."
Germany foots almost one-third of the EU's bills. But against the background of soaring unemployment, German public opinion is increasingly hostile to what is viewed as an unfair share of the burden.
Werner Hoyer, the German European Affairs minister, told reporters: "Mr Kohl does not care about deadlines for a decision on this. He simply wants to make sure that nobody leaves Cardiff failing to understand that we are deadly serious about this. It is not an election gimmick".
Mr Kohl exploited a summit discussion on how to pay for EU expansion into eastern Europe to put his demand on the table, echoing Mrs Thatcher, who in 1984 pushed EU leaders into granting the UK an annual rebate worth two-thirds of its contribution to the budget.
Mr Kohl made clear the plan to admit five east European countries early in the next century is not negotiable. Yet he said Bonn is not willing to bear the brunt of that expansion.
The current budgetary system favours countries with a large dependence on agriculture and regional funding. For example, Ireland is the biggest beneficiary in per capita terms, while Germans get the rawest deal.
No decision on revamping the EU's financial system is expected until next year but Bonn's warning will cause alarm among the smaller member states.
The 15 leaders are expected to agree in their summit conclusions today that a summit in March under the chairmanship of Germany will be the deadline for sweeping reforms to the two biggest EU spending areas, farm policy and regional grants. This is the context in which a new deal on the budget could be thrashed out.
An unpublished report from the European Court of Auditors, meanwhile, warns that to extend the British budget abatement system to Germany and other "paymaster" countries would be impossible without a massive transfer of costs onto the shoulders of the poorest nations.