Jose Manuel Barroso: 'Britain brings a lot to the European Union but it should also accept that it gains a lot'

The Monday Interview: European Commission president

An ally over the war in Iraq and a fellow free-marketeer, Mr Barroso got the top job in Brussels last year with the help of Mr Blair. But when the British presidency of the EU proposed cutting a seven-year EU spending plan put forward in June by €24bn (£16bn), Mr Barroso likened Mr Blair to the Sheriff of Nottingham (in this case stealing subsidies from poor East European nations to fund the rich UK's budget rebate).

Days before Thursday's make-or-break summit, the Commission president has emerged from talks in Downing Street. Mr Barroso, a former Portuguese prime minister, is proud of his good relations with the British premier but "certainly made my points clear" at No 10. "Everybody has to move," he says, adding that the British, holding the rotating EU presidency, have a "special responsibility".

Mr Barroso is in the London offices of the Commission. Mr Blair is about to give a press conference but Mr Barroso has heard it from the horse's mouth. He thinks a deal is possible this week especially since the UK accepts the need to revise its proposal before the summit, but it will be difficult.

In June Mr Blair blocked an EU budget because it demanded cuts in the UK budget rebate but left farm subsidies untouched. He has scaled down ambitions for reform of the Common Agricultural Policy but wants lower overall spending. Not only does the UK propose deep cuts in subsidies to the EU's ex-communist members, but it took a big chunk out of Commission spending in programmes from research and development to consumer protection.

So did Mr Barroso feel betrayed when he saw what Mr Blair was planning? "No. I don't think in personal terms. It is not a question of emotion. I understand very well we are in a negotiation."

But his warning is stark. Another row and political crisis could block future EU expansion, marginalise Britain, deprive it of its natural allies in Eastern Europe and sabotage prospects of a deal on freeing global trade. Overall, this is a test of Mr Blair's credibility in the EU and a defining moment for Britain's place in Europe. All this from a man who, as Portugual's Prime Minister, stood with Mr Blair at the Azores summit over the US-led invasion of Iraq.

Though he prefers speaking French Mr Barroso is fluent in English and is aware of linguistic nuances. At one point he uses the word "compromise", then checks himself. "You don't like that word. I'm told by my British advisers compromise has negative connotations."

He understands British politics too. Though he acknowledges there is a public opinion problem, he urges Mr Blair to be bolder in explaining the cash will be spent on things the UK likes. "There is a great contradiction stating a great ambition for Europe in terms of a larger Europe, a reform-minded Europe, an open Europe in terms of trade and to forget about that ambition when it comes to the budget, and to have a mini-Europe approach. I hope our British friends have the courage to explain this. Going on with further enlargement without being able to set this financial perspective for this EU of today of 25 raising to 27 - let's be frank we are not credible."

Mr Barroso says some nations claim the planned accession of Bulgaria and Romania in 2007 is impossible under the Blair plan and that they are right. "With that level of budget we cannot accommodate those two. You have to understand this." Enlargement is "a project with a historic dimension with a strategic dimension for the future of the world" he says, yet EU leaders are "discussing zero zero point of the budget forgetting about the big picture".

Once a Maoist student activist, Mr Barroso is now firmly on the centre right, working with Mr Blair on economic reform. But he argues: "There is a contradiction between the stated goals of ambition for a modern, open, enlarged Europe and the lack of ambition in terms of the means to achieve it."

The UK backs calls for more EU work on anti-terrorism, migration and an energy strategy but will not put its money where its mouth is. A bigger budget is, Mr Barroso says, in the "interests of all of us and I would dare to say, also of Britain. Britain was always a champion of this cause of enlargement and what we are now discussing is can we afford an enlarged Europe?"

Moreover Britain's relations with the 10 nations that joined the EU last year is at risk. They are desperate for a deal to free up billions of euros of subsidies. Mr Blair wants to slash €14bn off spending in the new member states (including €5.7bn in Poland). As a consolation the UK suggests relaxing rules on how new members can spend the cash. "Some of them told me the real problem is not about money, it is about respect."

Instead of a two-tier system with special rules for the new nations (allowing them to spend cash on housing rather than emphasising competitiveness) the Commission wants new regulations to be based on wealth, not length of EU membership. The new nations "resented that [proposal] very much. They thought of it as a kind of first- and second-class categories in terms of spending. This appears, to many, as discrimination."

The Commission president believes failure of this week's summit would contaminate global trade talks which reach a crossroads this week in Hong Kong. That is not just because of the political acrimony that would accompany a breakdown, but because countries rely on the EU for social measures when globalisation causes job losses. "Those countries making a sacrifice to open themselves [to global trade] ... will not be ready to do it if they are not supported. If there is no [EU] financial agreement ... the conditions for a more efficient [trade] round will not be there, Europe will be paralysed, trying to solve this. There will be no conditions for ambitious results in terms of trade if we do not get a fair agreement on the financial perspectives."

At the heart of the budget problem lies a deep Anglo-French rift, with Paris insisting Tony Blair gives up €6bn more than he has offered on the rebate, and London demanding a spending review that might lead to cuts in farm subsidies so important to France before 2013.

Asked whether the anti-reformist and protectionist tendencies in Paris are not the real problem Mr Barroso laughs. "Don't put me in that Franco-British game! What I can say is that when I ask everybody to move everybody has to move, all member states, of course. I recognise the presidency has a special responsibility." That is a coded call on Mr Blair to offer more cash from the rebate, which is worth about €5bn a year and, under the UK plans, would rise to €7bn. But on the spending review Mr Barroso is with Mr Blair.

Mr Barroso was the first to propose such an idea and says options should remain open, including real changes before 2013. "If we are wise we don't close ourselves in a rigid system but leave possibilities as open as possible while remembering a decision must be taken unanimo usly. But we should be as open as possible in that review clause."

Perhaps Mr Barroso's most forceful argument is that Mr Blair's - and Britain's - standing in the EU is on the line. "Mr Blair said at the beginning of his mandate he wants to put Britain at the centre of Europe. If the deal is not achieved this will not be credible. Does Britain want to be seen as an important but periphery country, or a power shaping the future of Europe? That's the strategic point and there is a great opportunity here."

But is Britain at ease in the EU at all? Mr Barroso laughs, before acknowledging the UK's public opinion problems. "The role of true, responsible, leadership is to explain the difficult issues and not give up in the face of irrational arguments. The rational argument I am sure, from a European point of view, is to have Britain as a very important member.

"Am I hurting British sensitivities when I say this?", he says with a loud laugh. "To say Europe is important for Britain, can I say this?". He answers the question himself. "I am saying the truth. We need Europe and we need Britain. Britain brings a lot; it should also accept that it gains a lot."

The CV

* Born: 23 March 1956, Lisbon

* Education: 1981: University of Geneva (master in political science). 1978: University of Lisbon (law)

* Family: Married to Margarida Sousa Uva, with three children

* Career: 1978-81: Lecturer at the faculty of law, Lisbon University. 1981-85: Lecturer at the political sciences department of Geneva University. 1985-87: Secretary of State for Home Affairs in Portugal. 1987-92: Secretary of State for Foreign Affairs and Co-operation. 1992-95: Minister for Foreign Affairs. 1995: Chairman of the foreign affairs committee of the Assembly of the Republic, Lisbon. 1999: Elected as president of the PSD party (Portuguese Social Democrats) - becoming leader of the opposition. 2002-04: Elected Prime Minister of Portugal.

2004: Became president of the European Commission