Blair attacks France for freeze on farm reform

Franco-German agreement on agriculture spending creates rift between London and Paris

Tony Blair launched a scathing attack yesterday on French efforts to preserve Europe's controversial agriculture policy, as leaders agreed plans to freeze farm spending from 2007 to help fund EU expansion.

On the back foot, after a Franco-German deal which restrains spending but staves off pressure for far-reaching change, Mr Blair insisted that reform of farm subsidies remained "inevitable".

As relations between London and Paris took a nosedive, the French President, Jacques Chirac, responded with another attack on the UK's annual £2bn budget rebate, and argued that, without a Franco-German axis, the EU would "grind to a halt".

The Prime Minister, clearly irritated at being on the outside of the Franco-German deal, nevertheless fell in behind the plan brokered by Mr Chirac and Gerhard Schröder, the German Chancellor. The blueprint, which opens the way to EU enlargement, will freeze the total farms budget between 2007 and 2013 to ensure there is no cost explosion when 10 new members join the Union.

The EU leaders had to overcome a last-minute hitch as France and Germany rowed over whether or not agriculture spending, due to hit €45.3bn (£28.5bn) in 2006, would be able to rise in line with inflation after 2007. Eventually they agreed that increases would be no more than 1 per cent, meaning that in real terms farm payments may go down.

But before leaving the Brussels summit Mr Blair insisted: "We understand the issues that countries have and their concerns about the protection of their farming industry but in the end the world is only moving in one direction – and that is of liberalisation. The CAP does damage to the developing world and its maintenance in its present form is inconsistent with the commitment we have given to the developing world and we have to make sure that there is change."

Mr Blair argued that the European Commission already has a remit to proceed with agriculture reform. Moreover, under World Trade Organisation negotiations the EU had to be able "to make an offer on agriculture reform", he said.

In many respects the deal shaped by the EU heads of government last night was satisfactory for the UK because it guarantees a cap on agriculture costs and does not rule out reform of the Common Agricultural Policy. The document makes no mention of the UK's annual £2bn rebate, although Mr Chirac later told journalists that it was the last unreformed element of expenditure.

But after yesterday's agreement by the 15 heads of government the EU can go ahead with an offer to farmers from the 10 applicant countries of 25 per cent of the direct subsidies which go to their EU counterparts in 2004, phasing in the full 100 per cent over a decade. The EU leaders also agreed on €23bn in aid up to 2007 to develop the poorest regions of the new members.

Another battle looms in 2006 when the new, enlarged EU debates the next financial package. At that point the UK budget rebate will be on the agenda. Diplomats were divided over the prospects of the revived Franco-German axis, particularly after yesterday's dispute over the detail of what the two leaders had agreed. The next test is whether they can agree on ideas for the future of Europe. One diplomat commented: "We have managed to start the Franco-German motor but there is not guessing how long it will take to stall."