EU talks break up without rebate deal

European budget talks collapsed in disarray last night, after an isolated Tony Blair rejected a last-ditch compromise plan designed to avert a new political crisis.

European budget talks collapsed in disarray last night, after an isolated Tony Blair rejected a last-ditch compromise plan designed to avert a new political crisis.

After 14 hours of tense negotiation, France and Britain failed to resolve a battle over the fate of its budget rebate and future spending on farm subsidies.

Coming just weeks after two referendum "no" votes on the European constitution, yesterday's dismal failure plunged the EU into a new period of uncertainty and cast a long shadow over Britain's presidency of the EU, which starts on 1 July.

However, Tony Blair avoided the humiliation of having to yield the deal, because a clutch of other countries objected to different parts of the package.

According to British officials, the Netherlands, Sweden, Spain and Finland said they could not accept the package and Denmark and Italy abstained.

In a dramatic eleventh-hour gesture, a group of new EU member states offered to surrender up to ¤1.6bn (£800m) in their subsidies to rescue a deal. However, that was not enough to salvage an agreement.

As a blame-game broke out over who was responsible for the summit's failure, Mr Blair stood alone in his struggle to maintain the rebate won by Margaret Thatcher 21 years ago.

Mr Blair's spokesman described a final text as worse than an earlier one they had rejected, saying: "What was proposed is a guaranteed change in the rebate without any guaranteed change in the Common Agricultural Policy (CAP)."

Luxembourg, which chaired the summit, tabled a compromise which would have shaved about ¤18bn off the rebate over the 2007 to 2013 funding period. But Mr Blair rejected the proposal on the grounds the wording would protect spending on the CAP until 2013 to meet France's wishes.

Earlier, the French President Jacques Chirac offered to drop objections to the spending blueprint and cut a further ¤6bn off farm spending if the UK agreed to freeze its budget rebate.

"A freeze is not enough, but if it is a compromise, like all compromises, we'll have to accept that it doesn't make everyone happy," an aide to the President said.

But M. Chirac's offer was dismissed by the British, which saw the move as an ambush aimed at casting Mr Blair as the scapegoat for the summit's failure. A British source said: "We need a firm guarantee that the process of reform of the CAP begins ­ not warm words." Officials insisted Britain was not isolated, saying some other countries had objections to the financial package, but were unable to point to any country backing Mr Blair's fight to safeguard the rebate.

Under Luxembourg's plan, the British refund would have been frozen slightly above its current value. But the idea was blocked by Mr Blair. Although it promised a "constructive reflection" that could lead to reform of all aspects of the EU budget, the review would also take account of a 2002 agreement to preserve farm subsidies until 2013.

Mr Blair's spokesman said it was "ambivalent to say the least"and could be used by France to block the reform Britain is seeking.

The Netherlands, which makes the highest per capita contribution to the EU, was also demanding more concessions, as was Sweden. Jean-Claude Juncker, Luxembourg's Prime Minister, spent much of yesterday seeking to buy off their concerns to isolate Mr Blair.

But the mood of gloom set in almost as soon as talks began yesterday, when Mr Blair told MrJuncker that he was sticking to a tough line over the rebate.

In blunt exchanges, Mr Blair was left isolated over the rebate, worth ¤4.6bn a year, with even traditional allies turning on him. Silvio Berlusconi, the Italian Prime Minister, attacked Mr Blair's attachment to the rebate, saying he "is looking to the past. He ought to be looking to the future. We need a more modern Europe."

There was a full-frontal assault from M. Chirac, who circulated comments critical of one plan on the table before his dramatic about-turn last night.

At issue was a plan which would freeze the rebate but not eliminate it until 2013 ­ and then only if there were reform of the CAP. At that stage, M. Chirac described the plan as "insufficient" and rejected any link between an end to the rebate and changes to the CAP.

Mr Blair hinted Britain might surrender contributions to its rebate by 10 EU members who joined last year. He was not prepared to see the rebate cut without a pledge on CAP reform.

An angry Tony Blair told a post-summit press conference that Britain was not isolated at the talks and launched a thinly veiled attack on France for trying to divert attention form its rejection of the EU constitution by putting the spotlight on to the British rebate.

"If it was such an attempt, it failed," he said. "I think people know what the issues were here. I don't think they were fooled by any of the tactics or manouevres."