Mandelson urges Blair to abandon Thatcher's hardline stance on rebate

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Peter Mandelson has urged Tony Blair and his ministers to stop using Margaret Thatcher's hardline negotiating tactics in their battles with the European Union.

The British member of the European Commission distanced himself from the Government's fight to preserve the £3.4bn a year rebate on its EU contributions, arguing that it would get a better deal from Europe if it adopted "a change of tone and substance".

Mr Mandelson's intervention came as Mr Blair warned Jacques Chirac to be realistic and "live in the 21st century'' ahead of their showdown over the rebate in Paris today.

Mr Blair, who delivered a similarly uncompromising message to the German Chancellor, Gerhard Schröder, in Berlin yesterday, made it clear that there will be a stand-off at the EU summit in Brussels on Friday unless the French and Germans relent over Britain's rebate won by Margaret Thatcher two decades ago.

But last night Mr Schröderrejected Mr Blair's efforts to persuade France and Germany to accept reform of the Common Agricultural Policy as a price for discussing the British rebate.

Telling Mr Blair to stick to agreements, Mr Schröder said: "There is no space for national egotism of whatever nature."

The German Chancellor made it clear that Germany wanted to go ahead with the European constitution in spite of Britain's decision to suspends its referendum. On Mr Blair's demands for a review of European financing and reform of the CAP, he said: "Germany does have a habit of sticking to agreements and contracts signed. When we talk about the agriculture compromise, that deal was struck in 2002. It was explicitly signed and described as part of a financial agreement for 2007-13."

Mr Mandelson told a Fabian Society meeting in Londonthat Britain should avoid "old conservatism" on Europe. He said: "Ministers must be consistent and courageous in their reformism, and be prepared, in the context of a deeper rethink about the EU's budget, to look at reforming Britain's rebate. For a start it is surely wrong to ask the poorer new accession states to pay for any part of the rebate."

The EU trade commissioner and former cabinet minister added: "In Brussels, Britain has sounded neo-Thatcherite as though nothing has changed from the 1980s. Both tone and substance need now to change if the British Government is to command attention and win the backing it seeks on the Continent. A greater effort must be made to get this right during the UK presidency [of the EU] which starts in a few weeks' time."

Mr Blair, standing alongside President Vladimir Putin of Russia, used his bluntest language so far to emphasise that he cannot surrender the rebate without compromise from France over its payments from the CAP.

The Prime Minister said: "In relation to the discussions in Berlin and Paris, I will be diplomatic but firm. The context for these discussions is one in which two countries have voted against the European constitution. Why? Because people in Europe do not feel sufficient attention is being paid to their concerns.''

He added: "When we are discussing the future financing of the European Union let us bear that in mind and let us realise therefore we cannot discuss the existence of the British rebate unless we discuss the whole of the financing of the European Union, including the fact that 40 per cent of it is still going on agriculture when only 5 per cent of the citizens are employed in that way. We have to ask ourselves, is, in the early 21st century, a budget formulated in this way the answer to the problems of Europe today? I don't think it is.''

French officials said that reducing the British rebate had to be part of any solution to the EU's future funding, accusing Britain of "adding another crisis" on top of the problems over ratifying the proposed EU constitution.

n Discord between Britain and France over the rebate may cost millions of Africans' lives if attention is diverted from next month's Gleneagles summit of the G8 group of richest nations, ActionAid has warned.