COPENHAGEN -- Denmark is optimistic that the European Union can still seal a deal by the end of this year with up to 10 states to join the bloc, its prime minister said on Monday.

Days before taking over responsibility for steering the 15-nation EU through one of its most ambitious projects in decades, Prime Minister Anders Fogh Rasmussen said the expansion should not be delayed by squabbles over money.

"Enlargement costs less than one thousandth of the EU's total GDP," Rasmussen told Reuters in an interview.

"I'm optimistic because I refuse to believe that European leaders will be short-sighted enough to let this fraction block a necessary, historic decision," said Rasmussen, elected last November to head a center-right government.

Rasmussen expects Brussels to complete all the enlargement negotiations with the mainly East European candidate countries by the end of September, except on the thorny issue of budget and agriculture.

EU member states are divided over whether to extend farm subsidies to the new members, but Rasmussen said he did not expect any countries to make agreement on enlargement conditional on a reform of the EU's expensive common agricultural policy.

Rasmussen said failure at a summit in Copenhagen in December to clinch a deal would postpone enlargement to after 2006 and cause severe political and economic setbacks in candidate states.

"It would be a betrayal and a mistake if the EU was unable to decide on enlargement due to internal disagreement about farm policies for instance." Rasmussen said he hoped to conclude talks with 10 candidates -- Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Estonia, Latvia, Lithuania, Cyprus and Malta.

Rasmussen said a solution to the Cyprus conflict, which has divided the Mediterranean island along ethnic lines since 1974, would be an advantage but not a condition for granting Cyprus membership.

"The Cyprus conflict will not be allowed to block enlargement, but the EU will be uneasy about letting in an unsolved border problem," said Rasmussen. He said he preferred the United Nations to continue to mediate in the Cyprus question rather than the EU taking over.

One factor which will determine whether Rasmussen succeeds in his goal of seeing EURO-outsider Denmark preside over a deal on enlargement is completely out of his hands -- the outcome of a second Irish referendum on the EU's nice treaty.

A referendum in Ireland last June rejected the treaty, which implements reforms needed before the end of 2002 to admit more states. A second "no" would jeopardize enlargement, he said.

"I don't have a plan B in case of a 'no', but it would be a serious blow to enlargement," he said.

Rasmussen said he supported Spain's efforts to fight illegal immigration to the bloc, which will be the main topic at a summit in Seville on June 21-22.

"There is a stronger drive in the EU to take action against the abuse of asylum and immigration rules," Rasmussen said.

The increased focus on immigration fits well with Denmark's own priorities and Rasmussen will follow up on the Spanish initiative when his country takes over the EU's rotating six-month presidency on July 1.

Last month Rasmussen's government passed a controversial plan to limit immigration with the help of votes from the vehemently anti-immigrant Danish People's Party.

The law, which Rasmussen says could be a model for European nations, makes it harder to win asylum and cuts welfare to immigrants.

In 1992, Danes rejected the Maastricht Treaty on increased cooperation but approved the accord in a fresh plebiscite in 1993 after winning opt-outs from the single currency and from joint defense and legal and asylum policy.

"I want Denmark to become a full member of EU and the opt-outs damage Danish interests, but they will only have a limited impact on the Danish presidency," Rasmussen said.

"I will not set a timetable for a referendum (on whether to abolish the opt-outs). I will not set a specific date or year." Previously Rasmussen had said a referendum was some years away and would be unlikely until after a new EU treaty was negotiated in 2004.