France puts EU enlargement on the line in bid to save farm subsidies

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The EU's new former Communist countries are to be offered further concessions tomorrow under new plans designed to isolate France and clinch a deal in a tense negotiation over the EU's budget.

Britain, which holds the presidency of the EU, is also prepared to reduce the value of the UK's rebate and probably to make that change permanent.

With the row over the budget due to reach a climax at a summit starting on Thursday, France issued a veiled threat to hold up future enlargement of the EU unless there is a deal over EU spending for 2007-13.

Paris is resisting British demands that a review of EU spending in 2008-9 should lead to concrete changes to the EU's Common Agricultural Policy before 2013. Instead of fighting on two fronts at once, Tony Blair will seek to bring on board the eight ex-Communist nations which stand to lose billions in subsidies under spending cuts proposed by the UK.

By putting forward an increase in EU expenditure, Britain hopes to rally the Eastern European countries behind its revised proposal before seeking to pressure France into agreeing to a wide-ranging clause reviewing agriculture spending.

One British source said: "Is France really saying that it is going to hold up a funding deal for the whole of Europe? We think the new members will gradually come round to the idea that a deal this week is in their best interests. If we don't get one now, they might have to wait a long time."

So far London has offered to trim €8bn off the value of the UK rebate over seven years, and most EU countries agree that this is not enough. Yesterday the European Commission president, Jose Manuel Barroso, appealed for Mr Blair to make "further changes" to the rebate and ensure that they are permanent and will not need re-negotiation in 2013.

That demand, echoed by France's foreign minister, Philippe Douste-Blazy, has been accepted in principle by Mr Blair, though the Treasury is thought to be fighting a rearguard action.

Tomorrow' s revised proposals from the UK are expected to reverse some of its proposed cuts of €24bn from a spending plan put forward in June. That will involve increasing the overall ceiling of EU spending which Mr Blair had wanted cut from 1.06 per cent of the EU's gross national income to 1.03.

The revised plans will be important because, if they come close to mollifying the new member states, including Poland, there is a good chance of a deal at the summit on Thursday and Friday.

It is not clear how much additional cash Mr Blair is willing to surrender, over and above the €8bn already offered over the seven-year period, though perhaps a further €2bn could be ceded in the summit negotiation.

As France prepared for the diplomatic endgame, its foreign minister, M Douste-Blazy, sought to put on hold a decision to give the former Yugoslav republic of Macedonia the status of a candidate for EU membership.

Paris argues that the EU needs to agree on finance for the expansion it undertook last year, and to hold a wider debate on its future institutions next year, to reassure the public before launching any new wave of expansion.

M Douste-Blazy said that the decision on Macedonia should be deferred for six months until a broader examination of future enlargement takes place. But he denied taking Macedonia hostage in the negotiations over the long-term EU budget.

The real issue between Britain and France remains the UK insistence that a mid-term review of spending should lead to cuts in farm subsidies before 2013 as the UK wants.

British officials said the proposed review would put the future of the UK rebate on the table as part of a sober, sensible discussion about the CAP. "That would be much better than the current game of chess," one said.

Mr Blair's spokesman said: "I think people recognise that the proposal we are putting forward is a serious one. What's important is that people recognise that we do have to make decisions at some stage."

Yesterday Mr Blair met Anders Fogh Rasmussen, the Danish Prime Minister, at Downing Street and spoke by telephone with his counterparts from the Czech Republic and Slovakia.

Christine Lagarde, the French trade minister, said that France would not allow any concessions on the CAP during the World Trade Organisation ministerial summit starting in Hong Kong today.