Leading article: The danger of a double defeat for Tony Blair

This week, both issues mesh together and the stakes are high both for Britain and for Europe. If Mr Blair, who must chair the EU summit, cannot pull off an agreement on the EU's future budget, which means brokering a compromise between his own government's demands on Britain's rebate and France's refusal to give ground on agricultural spending, the chances recede of the Hong Kong talks getting far.

The outlines of the logjam are well known. France will not accept cuts to farm subsidies before 2013. Paris and most member states believe the real injustice in EU financing is Britain's rebate, now worth about €5bn (£3.4bn) a year.

But apart from leaving the legacy of Britain's presidency in tatters, failure in Brussels also threatens to wreck the chances of success at the Word Trade Organisation talks, because here, too, farm subsidies are the sticking point. Developing countries such as Brazil will not commit to the trade liberalisation Mr Blair contends is so vital to global prosperity unless the EU dismantles much of the tariff wall protecting Europe's farmers. And the EU's flexibility to offer any concessions at the Hong Kong negotiating table will be constrained further if there is political paralysis in the EU and ongoing acrimony between Britain and France.

Mr Blair, who has been justly criticised for mishandling the budget talks and alienating Britain's allies in eastern Europe by trying to secure cuts in EU spending at their expense, has belatedly moved to end the impasse. He has offered about €8bn off the rebate over seven years in exchange for a lower overall EU budget and an agreement to review all EU spending in 2008, and has hinted that he may offer more.

To get a budget deal this week and so strengthen Peter Mandelson's hand in Hong Kong as Europe's trade commissioner, the Prime Minister needs to build fast on any emerging common ground. As Jose Manuel Barroso, the European Commission President, suggests in his interview in today's Independent, there is now widespread support for a review in 2008-9 of all EU spending, including agriculture, as long as there is also movement on the question of the British rebate. As he puts it, "everybody has to move".

This will mean standing up to the Eurosceptics for whom the rebate is a sacred cow. If a bigger cut to the rebate achieves agreement which could lower farm subsidies before 2013, Mr Blair should brave the sceptics' fury and slice away.

If the Prime Minister makes headway in Brussels, no one can then blame him for any failure of the WTO talks. But if the Brussels summit ends in acrimony, and the ripples of that are felt far off in Hong Kong, Mr Blair will have incurred a double defeat from which at this stage in his political life it may be hard to recover.

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