Bruce Anderson: Blair must confront Chirac's Stockholm syndrome and secure the British rebate

The EU is a bike: stop pedalling and it falls over. The constitutional crisis is becoming a currency crisis

Not long after the Battle of Waterloo, there was a grand reception in Paris. Fouché and Talleyrand, those two aged masters of corruption and survival, arrived together, arm-in-arm. This was witnessed and commented on by someone who knew his Milton: "Sin, supported by Death".

Not long after the Battle of Waterloo, there was a grand reception in Paris. Fouché and Talleyrand, those two aged masters of corruption and survival, arrived together, arm-in-arm. This was witnessed and commented on by someone who knew his Milton: "Sin, supported by Death".

Messrs Chirac and Schröder are not in that league. Their dinner in Berlin on Saturday was an absurd spectacle, not a sinister one. "Frivolity, supported by Futility" would have been apposite. If the two men had any political self-knowledge, they would have paraphrased the Russian Grand Duke who said that between the revolution and the firing squad, there was always time for a bottle of champagne. In their case, it would have been "between the referendum and the eviction from office".

That would not have been on the agenda. The two futile leaders would have been looking for someone to blame, and M. Chirac would have provided two candidates. First, Georges Pompidou, the French President who allowed Britain to join Europe. Second, the British.

Jacques Chirac has never been at ease with the British. Like many Frenchmen, he cannot forgive us for the War. He cannot bear the thought that Hitler danced in Paris, not in London, and that the invasion force which liberated France set off from British soil. It may be a variant of the Stockholm syndrome, in which prisoners become psychologically dependent on their captors, but it is certainly odd that so much of the French political class resents the British far more than the Germans.

Resentment of the British will now be high on the French menu. Over the next few weeks, M. Chirac will insist that the British rebate is at the root of Europe's troubles. Up to now, in his dealings with the French President, our PM has been wet. Despite repeated warnings from the secret services that M. Chirac cannot stand him (it is reassuring to know that we bug the Elysée Palace), Tony Blair insists on sucking up to the old rogue. He even talks French to him. That is a bad mistake. Show-offs always come across as insecure.

If our PM is going to use French, he ought to imitate a member of the Sykes family - Yorkshire landowners - who had an argument with a French railway official in the Gare du Nord before the war. "Mon bon homme, je voudrais avoir vous savoir qu'en bon native Yorkshire, je suis un espêce de Prince, et que je ne suis pas un homme de trifler avec."

Even if M. Chirac thinks that he may be able to trifler avec Tony Blair over the British EU budget contribution, our PM could not yield. If there were any move to abate the British rebate, our electorate would have a simple and overwhelming response: "Why is there a net contribution in the first place?"

The Prime Minister has no choice. To defend the British rebate, he will be forced into Thatcherite language. If he is wise, he will demand to know the whereabouts of a handbag, no doubt scuffed from frequent use, which has been gathering dust in a Whitehall cupboard for the past few years (unless the Foreign Office sneaked it out one night and burned it in the courtyard of King Charles St).

Mr Blair may as well get used to imitating Mrs Thatcher. In defending the British rebate, he cannot expect to find allies. French diplomats in Eastern Europe will have been instructed to bribe the locals with British money. In the course of extracting her rebate, Margaret Thatcher reduced several of her early European summits to rubble. The endless chorus of: "I want my money back" drove Helmut Schmidt, Giscard D'Estaing and others beyond fury. But she got her money. Giscard tried to take his revenge with his constitution.

From 1 July, Mr Blair holds the EU Presidency. He will have to defend his money: our money. He had not planned to spend his six months having rows, but he cannot avoid them. There is only one way to turn all this to Britain's advantage. The PM ought to remind the Eastern Europeans what they should be seeking from Europe.

Forget the French-inspired fantasies of a couple of hundred million euros carved from the British rebate. Concentrate on free trade in goods and services, where they can deploy their competitive advantages: low wages and low taxes. Against French and German protests, Britain must help the East Europeans to secure their entitlements under the single market. If that happens, the conflicts will last far longer than the British presidency. The Europhiles have always insisted that the EU was a bicycle: stop pedalling and it will fall over. They were right. It has. The constitutional crisis is rapidly becoming a currency crisis. The survival of the euro is now in question.

That raises one basic problem: redenomination. Those who devised the euro set out to make it as hard as possible to unscramble. Let us assume that the Dutch and the Germans decided, rightly, that they would be better off with the guilder and the mark. (How long will the Germans put up with being treated like a mixture of children, mental defectives and war criminals; denied any say in the crucial decisions as to their political destiny?)

If the strong economies did leave the euro, there would be a crisis of redenomination. Any pension-fund manager who believes that he is as safe to hold Greek sovereign debt as he is with Dutch, because both are denominated in euros, would face a painful reassessment. If the profligate nations were restored to their rightful weak-currency status, their euro liabilities would be unsustainable. If the euro were to survive as a basket currency for feeble economies, trading at parity with the old drachma, debt denominated in euros would lose most of its value. Either way, there would be an expensive lesson for the pension-fund clients. Thank God we British kept out of the euro mess.

A few years ago, I heard Peter Lilley explain why there would never be a European single currency. Mr Lilley could have been a superb teacher of economics. He made it all so lucid and so compelling. A single monetary policy for the whole of Europe; nonsense on stilts. But Peter Lilley overlooked one point. The euro-nomenklatura is as gluttonous for nonsense as a Strasbourg goose for corn or Jacques Chirac for perquisites.

The denouement of the euro-degringolade will be amusing to watch, from the safety of the right side of the Channel. But there are two caveats. First, the euro's weakness will saddle us with a strong currency. That will only work if we keep our supply side and our labour market as free as possible. If this brings us into conflict with EU regulations, we should treat them as the French and Germans treated the stability pact.

Second, Europe is like malaria, or herpes. It may lie dormant; it never completely goes away. But we Eurosceptics can allow ourselves a brief interlude of complacency. After eight years of a Europhile Premier with a large majority, we are much better off than we might have feared.