Angry Blair to confront German leader over BMW's behaviour

Tony Blair will today tackle Gerhard Schröder, his German counterpart, over BMW's handling of the Rover sell-off, but will seek to avert a diplomatic row on the issue.

Although the main business of the "dot.com summit" of European Union leaders in Lisbon will be economic reform, the Prime Minister is expected to discuss the Rover case with Mr Schröder this morning in the margins of the meeting.

Mr Blair is expected to stress that the anger over BMW's behaviour should not affect wider relations. "He will want to reassure the German Chancellor that this is a matter between us and the company, which will not have any effect on the relationship between the two governments", one British source said.

Government sources stress that relations between London and Berlin have been boosted by last week's decision by the upper house of the German Parliament to approve the lifting of the ban on British beef.

Last night, Mr Blair was due to hold talks with the Irish Prime Minister, Bertie Ahern, amid renewed optimism that the stalled peace process may be revived. However, there is unlikely to be any significant development ahead of this weekend's crucial meeting of the Ulster Unionist Council.

EU leaders, meanwhile, face an embarrassing situation over how to deal with the Austrian Chancellor, Wolfgang Schussel, following the decision by the 14 member states to sever bilateral political contacts because of his coalition with the far right. It was unclear how the normal "family photo" of leaders would be handled.

But on the summit's main agenda item, there were signs of growing consensus and Downing Street is hoping that the gathering will help persuade the public that Europe is reforming. One British official said that Lisbon "will do for the EU what the single market did for the EU in the 1980s".

Initiatives expected to be agreed include a plan to give all schools internet access by 2001 and every teacher IT training by 2002. Boosting education and training, and raising the proportion of women in employment, will also be targeted. As well as pushing liberalisation of key markets, the EU leaders are expected to coordinate research and create a legislative framework for e-commerce.

Francis Maude, the shadow Foreign Secretary, accused Mr Blair of "saying one thing" at the summit, where he will call for an American-style enterprise economy, but "doing another" by backing EU directives which would increase red tape and steps towards a common tax policy in Europe.