Blair Denies Climbdown Over Eu Deal

The French president, Nicolas Sarkozy, today outfoxed his EU counterparts by winning an agreement to scrap a proposed phrase suggesting it was an objective to achieve a market "where competition is free and undistorted".

The change from what had been written in the rejected constitution gave Mr Sarkozy a domestic political victory that will allow him to claim that the EU no longer worships solely at the altar of anglo-saxon markets.

In a referendum, the French rejected the previous constitution on the grounds that it rejected a social Europe.

The change - largely spotted late by other leaders - may be more symbolic than real, because 13 other references to the primacy of competition remain in the treaty of Rome.

British government lawyers told an alarmed Tony Blair that the change would have no practical impact on rulings by the European court of justice.

Mr Blair broke away from the Brussels summit to deny bowing to French pressure.

As the wording of the protocol appeared to provoke a flashpoint between the French and British - despite an earlier face to face meeting between the prime minister and Mr Sarkozy - British officials insisted that other references to free trade in the new treaty still guaranteed the internal market.

There were unconfirmed reports that a ten minute phone call with Gordon Brown saw disagreement on the issue between the incoming prime minister and Mr Blair.

Mr Blair appeared before reporters outside the summit to defend the dropping of the words "free and undistorted" from the protocol to the new treaty.

The leaders agreed to drop the reference in the preamble, but agreed that a protocol "which ensures the legal basis of the internal market" will be added to the treaty.

This morning, it was thought that Mr Blair had dropped UK opposition to French demands for a watering down of the protocol on competition within the EU.

There was immediate speculation that he may have decided not to fight the French position in the hope of securing Mr Sarkozy's support in the battle for his own "red line" demands for the treaty.

Mr Blair's official spokesman said the PM was satisfied that the EU's commitment to competition was protected by the 13 other references within the draft treaty.

The French were concerned that including it in the preamble would make competition an official goal of the EU rather than a means of attaining the bloc's aims.

The CBI deputy director general, John Cridland, said the apparent climbdown on the wording was "a regrettable and frustrating last-minute development".

"It is not just a cosmetic change - it represents a long-term threat to free competition and will strengthen the hand of protectionists within the EU in the years ahead," he added.

Meanwhile, Mr Brown did not rule out holding a referendum on any deal achieved this weekend.

"If it were necessary, there should be a referendum," he told the BBC. "What we have got to do is look at what comes out of these discussions. We've set down pretty clear red lines. The negotiations are going on, it would be premature to pronounce."

Earlier one concrete consensus emerged from the fraught summit, as the 27 heads of government agreed to a new single post to run EU foreign affairs.

A "high representative for foreign policy" will combine the jobs of the foreign policy chief, Javier Solana, and the external relations commissioner, Benita Ferrero-Waldner.

The new high representative would chair meetings of EU foreign ministers and head a combined external action service drawing on both national and EU diplomats, with agreement coming after Britain dropped its reservations on those points, diplomats told Reuters.

However, other sticking points, notably Poland's intransigence on reducing its voting rights, remain. The German chancellor, Angela Merkel, has met the Polish president, Lech Kaczynski, three time in the past 12 hours on the issue.