Blair Urges Chirac to Be Realistic on Rebate

Britain's row with France over the £3.2bn EU budget rebate escalated yesterday when Tony Blair called on Jacques Chirac to be "realistic" about his demands for a British gesture.

Setting the scene for a chilly encounter between the two leaders in Paris today, Mr Blair said he would be "diplomatic but firm" in insisting that France give up some of its generous EU agricultural subsidies if Britain is to give ground.

Calling for fellow European leaders to agree to a budget fit for the 21st century at a European summit later this week, Mr Blair said after talks with Vladimir Putin: "We are happy to have this discussion but it has got to be on a realistic basis and it cannot be on the basis that ignores the reasons that gave rise to the existence of the rebate."

Downing Street is irritated with Mr Chirac for attempting to deflect attention away from the no vote in the French referendum on the EU constitution by portraying Britain as the troublemaker in Europe.

Ministers decided to go on the offensive last week after Mr Chirac called on Britain to make a "gesture of solidarity", while ruling out any cut in subsidies to French farmers.

With Britain under fire across Europe, the prime minister was also criticised from an unexpected quarter last night when Peter Mandelson waded into the row.

In a Fabian Society speech, the European trade commissioner said: "In Brussels, Britain has sounded neo-Thatcherite as though nothing has changed from the 1980s."

He said that ministers must be prepared to accept wide-ranging reforms of the rebate - including exempting poorer countries from funding the annual £3.2bn payment.

Mr Mandelson's remarks, which were aimed in particular at the chancellor, Gordon Brown, and the foreign secretary, Jack Straw, opened up two possibilities: first, that he is using Britain's row with France and Germany to highlight his European credentials; second that he is floating ideas - such as exempting the 10 new countries from funding the rebate - which are privately welcomed in No 10 but not in the Treasury.

French ministers dismissed Mr Blair's attempt to link the British rebate to agricultural spending. Philippe Douste-Blazy, the foreign minister, said at a meeting of foreign ministers in Luxembourg: "The common agricultural policy has completely changed since 1984 [when the rebate was introduced]. It was 50% of the budget, it is now 40% and it will be 33%."

In his attempts to find allies Mr Blair last night met the German chancellor, Gerhard Schröder, in Berlin.

However, Germany ruled out reopening the EU budget on agriculture saying a deal had been struck in 2002 that could not be reopened.

Mr Schröder said: "As far as Germany is concerned we stick with the agreement struck."

He called for a compromise over the rebate. "We are prepared to do our bit. And I don't think there is any space for national egotism of whatever nature."