Blair triumphant, but price is high

TONY BLAIR was the first to declare victory, but at the end of one of the hardest-fought European Union summits in recent years, it was an older, more experienced leader who had real reason to smile.

After a night of haggling ina Berlin hotel, Mr Blair emerged to face the press early yesterday morning, having secured the future of his prized, pounds 2bn budget rebate.

But Jacques Chirac, the French President, made his mark more firmly by scaling down reform of Europe's multi-billion-pound common agricultural policy (CAP).

The leaders of the 15 member states were warned when they arrived at the conference venue that they would have to stay as long as it took. Several times, the ill-tempered talksteetered on the brink of collapse, but the Kosovo crisis focused minds.

When the Dutch premier, Wim Kok, emerged first from the Intercontinental Hotel just before 6am, the deal had been done. By that time, however, the text of the conclusions had been carefully pruned of its more radical ideas.

Ironically, by Mr Blair defending domestic political interests to the hilt, Britain may have helped to sacrifice the best chance for much-needed agricultural reform in years.

The UK has long called for reform of the 37-year-old CAP. Its very existence created the financial injustice that the rebate aims to resolve - it inflates prices artificially and stimulates production. Unlike France, which has more than a million farmers, the UK's larger, more efficient farms have never gained substantially.

But on this occasion, defence of the British budget rebate, negotiated by Margaret Thatcher in 1984, was the political priority, rather than reform of the CAP.

The eventual compromise shared the pain: Mr Blair made two concessions worth at least pounds 150m. They involved the surrender of gains due to come about from changes in the way revenue for the EU is collected and assessed, and exempting some spending in eastern Europe from the terms of the rebate when enlargement takes place.

But with Germany demanding a cut to its pounds 8bn annual net contributions, the British offer was hardly enough. A new device was created whereby 10 nations will increase the proportion of the cash that they pay to fund the rebate, to help to reduce the burden on the four big net-contributors, Germany, Austria, the Netherlands and Sweden.

Even with this in place, Gerhard Schroder, the German Chancellor, can hope only for a windfall of around euros 700m (pounds 467m) a year by 2006.

France, one of those on the receiving end of increased demands to fund the rebate, pressed harder for a climb-down over agricultural reform. Then Paris relented in its attacks on the British rebate.

In the early hours of yesterday, Mr Chirac managed to delay reforms to the dairy sector, curb the planned cuts in guaranteed prices for cereals (from 20 per cent to 15 per cent) and in beef (from 30 per cent to 20 per cent) plus veto plans to cut the compensation paid to farmers, year on year.

Perversely, the Chirac plan saves money because the reforms, which require compensation, are expensive in the short-term. But when heads of government attended a summit in Bonn last month, many criticised a preliminary deal struck by farm ministers as insufficiently rigorous. Now Mr Chirac (a former agriculture minister) was persuading heads of government to move sharply in the opposite direction.

When he appeared before the media at 6.30am, Mr Chirac declared himself "happy to have been able to redesign - so to speak - the farm policy package".

Mr Blair, in turn, appearing at a press conference held in an underground cinema, seemed no less chuffed.

One statement, however, rang rather hollow. "This is," Mr Blair declared, "a good result for Europe; when Europe succeeds, Britain succeeds too."