Tony Blair has defied trade union accusations that he had betrayed Labour's traditional supporters by forging an alliance with right-wing governments in Europe, including Silvio Berlusconi's far-right coalition in Italy.
Mr Blair's row with the unions overshadowed his campaign – during a two-day summit in Barcelona – to persuade fellow EU leaders to take steps towards an American-style, flexible economy.
The unions, whose relations with Labour have sunk to their lowest point since the party came to power in 1997, accused Mr Blair of trying to "export" a pro-business agenda dictated by the Confederation of British Industry (CBI).
After John Monks, the TUC general secretary and normally a Blair loyalist, derided Britain's alliance with Italy to oppose more workers' rights as "bloody stupid", the Prime Minister retorted that Mr Monks was "mistaken"and out of touch with centre-left opinion.
At a hastily-convened press conference in Barcelona, Mr Blair replied: "John [Monks] is a good friend and colleague. I just think he's mistaken about this. I work with leaders from right around the world, whatever their political party or government. I do not choose presidents or prime ministers.
"A large part of the centre-left takes a more modern view of this. They know we have to combine measures to help business and enterprise and, at the same time, make a big investment in education, schools, technology and science. The record in Britain speaks for itself."
Gordon Brown, the Chancellor, added: "We are not going to be diverted as a government from our pro-competition, pro-enterprise agenda. This is the way forward for the British economy. It is the way forward that is creating more jobs and higher standards of living."
A spokesman for Downing Street said it was "not ashamed at all" of having a dialogue with "whatever governments agree with our position" and that if there was an opportunity of holding a meeting with Mr Berlusconi, "we will take it". As the summit began, Mr Blair was seen talking to his Italian counterpart.
But other union leaders endorsed Mr Monks's argument that the drive for deregulation, and the lack of commitment to social rights for workers was weakening enthusiasm for British membership of the euro.
John Edmonds, general secretary of the GMB union, argued: "Our members back the euro but they are so disillusioned with Tony Blair at the moment that it will be very hard to mobilise support behind this euro crusade."
Bill Morris, leader of the Transport and General Workers Union, said it was difficult for Mr Berlusconi to be a friend of Britain when he had far-right politicians in his coalition government. Mr Morris warned that Britain was drifting towards an American model of a long hours culture and reduced social benefits. He said: "The Department of Trade and Industry is now the provisional wing of the CBI. What the CBI wants, the DTI delivers."
The British Government and the centre-right administrations of Italy and Spain are seen as the EU's most enthusiastic advocates of free market reforms. Mr Blair has fought hard in the past three years to forge a series of alliances, including a link with the Spanish centre-right premier, Jose Maria Aznar, to promote the British agenda of deregulation and increased flexibility.
Meanwhile, Downing Street tried hard to play down expectations of a breakthrough at the summit, which Mr Blair last year described as a "make or break" event.
Two years after EU leaders agreed on ambitious plans to make the EU the world's most competitive economic bloc by 2010, the pace of change has disappointed many.
Yesterday, the Prime Minister's spokesman said the Barcelona meeting was make or break in the sense it would determine whether the EU maintains "the momentum towards 2010". The acid test of that is likely to be proposals to bring competition into the EU's energy markets, a plan that was being fought fiercely by France
Diplomats predicted a compromise deal that would see a timetable for the opening up of the non-domestic energy market and a commitment to the principle of total liberalisation.
But France has been digging in by demanding the deal covers only the "corporate"sector of the market, offering only to "discuss" extending it to domestic consumers in 2007.
The EU leaders were urged to speed up their reform efforts by the president of the European Parliament, Pat Cox, who pointed to the speed with which the Strasbourg assembly has accelerated its legislative push.Reuse content