Twelve locked in battle over EC hardship hand-outs: Rich and poor of Europe have to decide how to spend pounds 132bn for regional development - Two British areas qualify for highest grants

THE European Community was locked last night in a fight for money that exposed all the old political animosities between rich and poor. The row threatened to degenerate into open discord between the EC's poorest member states because Ireland is threatening to block any deal if money it has been promised is diverted to other regions.

Britain looks certain for the first time to enter the official EC hardship league with the designation of Merseyside and the Highlands and Islands as two of the poorest regions in the Community, a decision which will enable the two areas to draw on EC funds worth more than pounds 1bn and pounds 260m respectively until the end of the century. Northern Ireland already qualifies for hardship status.

As the Twelve struggled to agree how to divide the pounds 132bn available for regional development, each member state struggled to persuade the others that they deserved hardship status.

The lion's share of regional funding, nearly pounds 80bn is spent on hardship regions. Many countries have been lobbying for a relaxation of the criteria to qualify for such status. As the row intensified last night, countries started to form teams the better to advance their individual causes.

The EC's four poorest countries, Greece, Spain, Portugal and Ireland, which (with the exception of pockets of Spain) are so badly off that the whole country qualifies for hardship status, are already guaranteed the bulk of the money.

But they cannot agree on how the cake should be shared. Ireland argues that it still deserves the same proportion - calculated by Dublin at pounds 8.6bn. But the other three argue that they are entitled, because of larger populations, to even more. France is an unlikely ally in that it would like to see Corsica regarded as a special case akin to the 'poor four'.

But the money cannot be stretched far enough to meet everybody's requirements. 'If we really stick to this shopping list, we can throw out any ideas of an economic rebirth; this does not square with the need to cut public spending,' complained Alain Lamassoure, the French European Affairs Minister.

EC member countries are obliged to match the EC's regional spending money, a requirement the British government has often tried to dodge, leading to clashes between Whitehall and Brussels.

Brussels has already served notice that it will not tolerate the practice of using EC money to substitute for national contributions in the future.

But beyond the row about hardship is the desire of governments to get their hands on the money earmarked for industrial and regional decline. For Britain, this offers potentially richer pickings and London wants greater control over such funds.

In this battle it has unusual allies such as Italy, which is keen for political reasons to direct funds to the north, as well as old friends such as Germany.

One thing the Twelve are agreed on: their refusal to sign a deal and sort out the exact figures. As the figures got more specific, so the arguments increased.

'This is a political decision and we need to see something specific that goes beyond technical criteria,' warned the Irish Foreign Minister, Dick Spring, holding out the threat of a veto. The same menace was made by the Netherlands, which insists the region of Flevoland falls within the hardship critera.

Time is running out. A deal must be agreed in the next few days, or the European Parliament, which must give its approval, will be in summer recess. By the time it returns, the Maastricht treaty is likely to have been ratified and the parliament will then insist on using new powers under the treaty to scrutinise the funding deal for several more months. That will mean that no one gets any money.