Blair breaks ranks to defend US in Iraq row

Tony Blair's hopes of ending Europe's divisions over Iraq suffered a setback yesterday when the EU attacked America's decision to ban countries that opposed the war from bidding for reconstruction contracts in the country.

The European Commission announced that it would investigate whether the US's actions over the $18.6bn (£10.6bn) of construction work breached the rules of the World Trade Organisation.

But Mr Blair defended the Bush administration's decision, saying: "This is American money. It is for the Americans to decide how they spend their own money."

The Prime Minister claimed that EU members who opposed the war, including France and Germany, were now rallying behind the efforts to rebuild Iraq. He pointed to a "positive" declaration by the 15 European leaders yesterday backing US plans to speed up the transfer of power to the Iraqi people and pledging the EU's support for "the political andeconomic reconstruction of the country".

Mr Blair said: "Whatever people's views about the war, most people understand Iraq is a far better place without Saddam and that it is now necessary to try and develop Iraq as a prosperous and democratic country."

But the summit's declaration was overshadowed by the row over the contracts ban. Chris Patten, the EU's external relations commissioner, said acidly: "It is another triumph for Pentagon diplomacy." He said America's efforts to persuade the rest of the world to join the rebuilding effort in Iraq would not be helped by the decision, which would also made it harder for him to win EU funds for Iraq.

Romano Prodi, the European Commission president, said the dispute "doesn't help harmonise our relations", adding that some of the countries excluded from bidding on contracts were major Iraqi creditors.

Javier Solana, the EU's foreign affairs representative, criticised Washington's decision as fundamentally unfair. "You are saying that countries cannot participate on tenders and, at the same time, you are asking those same countries to co-operate, to give money, to fight off the debt," he said.

But Mr Solana insisted the dispute would not impede the rapprochement between the EU and US following disagreements over the war. "That difficulty is overcome. A long time has elapsed since the crisis started. We are in a very good atmosphere," he said.

Jacques Chirac, the French President, and Gerhard Schröder, the German Chancellor, expressed concern at their countries' exclusion. Mr Schröder said rebuilding Iraq was a global task, adding: "International law has to be applied and restrictions are not helpful on the issue."

President George Bush retorted sharply: "International law? I better call my lawyer."