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Germany wants its money back

Germany and the Netherlands have told other European governments they want their money back.

Theo Waigel, the German finance minister used the first round of talks on what will happen to EU finances as the bloc expands into Eastern Europe, to fire the opening shots in what promises to become a bitter row. He was backed by Gerrit Zalm, the Dutch minister who went so far as to threaten to veto enlargement if the net contributors to the pounds 60bn annual budget are not given a fairer deal.

The move threatens the special budget rebate won by Margaret Thatcher for Britain in 1984 when she shocked fellow EU leaders by thumping the table and demanding that the UK, one of the smallest direct beneficiaries of EU handouts, should have its cash returned. Clearly concerned that Britain's rebate could now come under scrutiny, Gordon Brown, the Chancellor, called instead at the weekend for a radical reduction in spending on agriculture. "The debate must start to focus on whether money is being properly used," he said.

Spain, Greece and Ireland, which receive several times more in direct aid than they put into the EU budget, accused the Germans and Dutch of calling into question the solidarity principle on which the EU is founded. Charlie Mc Creevy, Ireland's finance minister, said the Union would cease to exist if every member state wanted back exactly what it put into the budget.

Germany, for years the EU's paymaster, contributes around 25 per cent of the total budget based on a formula under which member states pay in up to 1.27 per cent of their GDP. German reunification led to a big increase in the size of German GDP and a corresponding increase in its EU dues. Among the net contributors, Germany claims to pay around 60 per cent of the bills.

Now, desperate to slash the country's huge public deficit in time to qualify for monetary union in 1999, Bonn is casting around for every last pfennig.

Mr Zalm, meanwhile, who insists his country is not even among the five richest EU nations, circulated figures at the meeting claiming the Netherlands pays most in terms of per capita income. But the Dutch figures were dismissed by officials from poorer countries as "lies" because they include millions of pounds in customs duties which the Netherlands, one of the EU's biggest transit countries, receives on imports destined for other countries.

Germany and the Netherlands have enlisted support from newcomer Sweden which also wants a root-and-branch budget reform.

But Jacques Santer, the EU Commission President, reminded the bigger countries that the benefits or costs of membership of the EU could not be quantified purely in terms of the budget. The modernisation of Athens airport, he pointed out, was paid for out of the EU's regional fund but the construction contracts went to Dutch and German firms.

Mr Santer has now promised to bring forward an objective assessment of each country's payments and receipts from the Brussels budget.