Blair and Chirac square up over EU cash

TONY Blair last night tested Europe's fragile political unity to breaking point as he forced the collapse of talks on a new European Union budget, twice rejecting French-backed compromise deals.

As his personal battle with France's President Jacques Chirac reached a new level of bitterness, Mr Blair refused deals that would have eroded Britain's annual rebate from the EU budget because he was not given an accompanying guarantee that there would also be a fundamental overhaul of the EU's multi billion pound farm subsidy programme.

But Mr Blair was not alone - four other countries, Spain, the Netherlands, Sweden, and Finland, signalled that they also could not support what was offered.

"What has been proposed is a guaranteed change in our rebate without any guarantee of a change in the overall budget," Mr Blair's spokesman said last night. "That is unacceptable."

The Prime Minster risked diplomatic isolation at the end of a day of accusation and counter-accusation during which the French president accused Britain of failing to show "solidarity" and "fairness" by insisting on keeping the 3 billion reduction in its EU membership fee.

The budget crisis, a result of forces unleashed in the death of the European constitution at the hands of French and Dutch voters, now threatens to run on for months.

British officials were unrepentant, also revealing Mr Blair had blocked a fresh request for the UK to increase its payments to the EU.

On the eve of the 190th anniversary of the Battle of Waterloo, Britain and France were once again pitted against one another in a struggle to determine which will shape the future of the continent.

And once again, Belgium provided the battlefield, this time the EU's drab concrete headquarters in Brussels.

Underlining the sour relations between them, the British and French leaders did not meet one-on-one during the two-day summit. Instead they communicated through intermediaries and by speeches in the group meetings of all 25 EU leaders.

Mr Chirac - wounded by the death of the EU constitution - yesterday mounted a rearguard action to rally support around a plan that could cost Britain 6 billion over the 2007-2013 budget period.

The fight over the budget has become a symbol of a broader conflict over what the EU should be: a broad free-market association of open economies or a politically integrated and protectionist "social Europe".

Mr Blair has insisted he would only accept any change to the rebate if it were accompanied by a wider reform of the EU budget, and especially cuts to the Common Agricultural Policy subsidy programme.

This gives French farmers about 7 billion a year, more than a quarter of the EU's total farm spending. And Mr Chirac, badly in need of domestic support, cannot afford to anger France's powerful farm lobby.

The directly opposing domestic pressures on Mr Blair and Mr Chirac last night brought the summit to an end without an agreement, something the European Commission has warned will mean a leadership crisis that could paralyse the EU.

Any hope of an amicable Anglo-French settlement vanished at the first formal meeting of the day. Mr Chirac made clear that not only was he not backing off his attacks on the rebate, he wanted Europe to go further than had been suggested by Luxembourg, the current EU president.

Mr Chirac said the Luxembourg compromise of freezing the rebate, letting it be eroded by inflation over time, was "not enough - we have to have a more substantial cut."

As for Mr Blair's suggestion of linking the rebate to the CAP, that was also unacceptable, Mr Chirac said. The future of the rebate "must not in any way" be conditional on changes in other parts of the budget.

The aggressive French position raised eyebrows in Brussels, but by the evening it appeared that Mr Chirac may have been intentionally exaggerating his opposition to the rebate in order to make a carefully choreographed climbdown later.

Late in the afternoon, he summoned a handful of trusted French journalists to his suite at the Conrad Hotel. There, speaking on condition he be identified as "a French aide", he told them that he would, after all, be willing to accept the Luxembourg compromise.

That was a challenge to Mr Blair: either accept the Luxembourg deal or risk being completely isolated and forced to veto the budget agreement.

Jean-Claude Juncker, the prime minister of Luxembourg, last night frantically tried to broker a deal in a string of one-on-one meetings, first with Mr Chirac and then with Mr Blair.

Mr Blair's officials accept that any cut in the rebate would only be acceptable to the British people and parliament if it were accompanied by a major overhaul of the EU budget. But the wording of the final proposed agreement did not give Mr Blair enough assurance that the CAP could be renegotiated.

The sticking point was a minor phrase that could have blocked any move to alter a deal on farm subsidies reached in 2002. Because the document proposed last night promised to "take into account" that earlier deal, Downing Street said it could have been a legal bar to CAP reform.

Mr Juncker then tried an 11th-hour revision of his original suggestion. Downing Street dismissed the second offer as "even worse" than the first.

Disputing French suggestions that Mr Blair was in a minority of one last night, British diplomats insisted other leaders were indeed prepared to stand with the Prime Minister in opposition to the Luxembourg deal.

Jan Peter Balkende, the Prime Minister of the Netherlands, has been warned by his own parliament not to accept any deal that did not deliver a €1.5 billion cut in the country's EU membership fees.

Per head of population, the Netherlands is the biggest single contributor to the EU, and Dutch voters' rejection of the EU constitution earlier this month has injected a strong eurosceptic tone into its politics.

Sweden also appeared to back the case for a wider budget review. Gorran Persson, the Swedish Prime Minister, said that the EU should take another year to conduct a thorough review of its financial priorities.

Mr Blair's official spokesman told reporters last night that Italy and Spain were also coming over to the British side, although officials from both countries refused to confirm that.

Support from other nations over the budget is crucial to Mr Blair, not least because he takes over the EU presidency in July.

To take on the six-month leadership role having just vetoed an agreement by the other 24 EU members could weaken Mr Blair's presidency from the start.