The Prime Minister came under pressure over handling of the withholding tax and the continued French ban on British beef during a Commons statement on last weekend's EU summit in Helsinki.
During angry exchanges, William Hague, the Conservative leader, attacked Mr Blair's policy as one of "astonishing naivete. You came to office saying you would never allow this country to be isolated in Europe. You thought all you had to do was concede and cave in to gain the goodwill of our European partners.
"But two and a half years later you've got nothing in return for your caving in and concessions. You are the first British Prime Minister to return from a summit isolated and empty-handed."
But Mr Blair insisted that to have reopened the dispute with France over British beef would have been "tactical ineptitude on a grand scale". Dismissing Mr Hague's approach as "completely fatuous", he said the European Council had agreed on a "sensible way" forward on the withholding tax.
"There is an increasing recognition that it is no good adopting measures in the EU if the only impact is that market savings moves outside the EU. So we have insisted that proposals for an exchange of information on the basis that involves more than just EU countries should be examined."
Member states had also reached "historic" decisions on EU enlargement, which would have been "unimaginable until the very recent past and it is one that we would embrace". But Mr Hague claimed "the greatest example" of Mr Blair's "tactical ineptitude" was "the fiasco of the beef ban - proof that Labour in Europe isn't working".
It was "pathetic" to say the ban had been lifted "in law" when beef was still banned in the two biggest countries of Europe - France and Germany.
Uncertainty over the withholding tax was damaging for the City. "Wasn't Helsinki the chance to end this uncertainty and shouldn't you have not just vetoed the tax but insisted that it would never be introduced by the back door through qualified majority voting?"
But the Prime Minister told Mr Hague: "All that you are doing in the name of strength is actually weakness because you have chosen not to stand up to the ultra-Thatcherites who now run your party.
"You have taken what used to be - whatever your politics - a serious political party of government and you have turned them into the equivalent of a religious sect. It is that error of judgement from which all your errors stem, whether it is renegotiating the Treaty of Rome that gives us an exit route out of the EU, whether it's blocking enlargement or whether it is absurd positions on every single policy in relation to Europe."
Charles Kennedy, the Liberal Democrat leader, said Britain would not lead in Europe until it was "more unambiguous" in its commitment to the single currency and "about being fully plugged into the European project as a whole".Reuse content