Blair faces more cuts in rebate to secure EU deal

Tony Blair appeared to be paving the way last night for a further climbdown over the £3.8bn British rebate to rescue the EU budget deal from collapse.

The Prime Minister is believed to be prepared to put the rebate up for negotiation in return for a commitment to a mid-term review of the Common Agriculture Policy (CAP) in 2009.

Mr Blair is holding intensive talks face-to-face at Downing Street or by telephone with 12 EU leaders over 24 hours in an attempt to broker a deal. Britain has already offered the 10 accession countries some of its rebate to enhance their economies, in return for a 10 per cent cut in their overall budgets.

However, a succession of prime ministers emerged from Number 10 yesterday rejecting the British proposal, forcing Mr Blair to think again. Mr Blair was accused by Eurosceptics last week of a betrayal for offering part of the rebate secured by Margaret Thatcher to the accession countries. He knows he will be pilloried for exchanging it for a promise to review the CAP, rather than a firm commitment to scrap farm subsidies.

France has so far resisted British pleas for a mid-term review, but Angela Merkel, the German Chancellor, and Jacques Chirac, the French President, were holding talks last night about the extent to which they could force Britain to surrender the rebate in return for a pledge on long-term CAP reform.

There were signs that Britain could move next week when Jack Straw, the Foreign Secretary, tables fresh proposals. The Prime Minister's official spokesman said: "It is a normal part of the process that you put forward proposals, you hear people's views and you then have another look at what you are proposing. The Prime Minister has made his position clear that there cannot be fundamental change in the rebate unless there is fundamental change in the CAP. That's why we place so much importance on a mid-term review and that remains a core plank of our proposals."

Goran Persson, the Swedish Prime Minister, said after meeting Mr Blair: "It is not enough. It will not fly. They have to present something new. I am convinced they will. There will be a deal, just because we need one."

Poland and Spain emerged as key opponents of the British package yesterday, with the government in Madrid threatening to veto the UK blueprint. Downing Street warned this could delay plans for providing new money for the accession countries for two years.

Poland will be hit hardest by British plans to slash spending on structural and cohesion funds in the new member states, absorbing 25 per cent of the proposed reductions. Yesterday, the country's European Affairs Secretary, Jaroslaw Pietras, launched a direct attack on Mr Straw, who has argued that the package still exceeds the cash given to rebuild post-war Europe under the Marshall Fund.

"A comparison between the spending on the cohesion policy in the new member states and the Marshall Plan is an abuse," Mr Pietras wrote in the Gazeta Wyborcza newspaper, arguing the British plans are "heading in the wrong direction". He added: "Britain, the EU presiding country, submits a budget proposal in which the funds for the countries with poor financial positions are reduced, the level for the developed countries is left unchanged and the only state whose situation becomes visibly better is Britain itself."

Britain says the new countries are unlikely to be able to spend all the cash earmarked, and has put forward proposals to relax the rules on how it can be spent.