EU infuriated as Blair digs in his heels

TONY BLAIR angered Britain's European partners last night by blocking agreement on an EU-wide savings tax, as his positive approach to the Europe came under fire after France's refusal to lift its ban on British beef. European Commission officials accused Mr Blair of scuppering a compromise on the savings tax at the EU summit in Helsinki to pacify British anger at the continuing beef crisis.

"We thought we had a deal on tax but the beef row blew it out of the water," said a Brussels source. "We have bent over backwards to help Britain but this has been thrown back in our face. Is Mr Blair really any different to Margaret Thatcher?"

Last night the summit agreed a face-saving formula under which the EU will set up a working group to try to break the deadlock over the savings tax by next June. Mr Blair and the Chancellor Gordon Brown hailed the review as a sign that Britain was winning the argument that tax evasion had to be tackled on a worldwide rather than EU basis.

But the commision was furious that no deal was reached in Helsinki and accused Britain of stalling tactics. Frits Bolkestien, the EU tax commissioner, said a worldwide agreement would "like waiting for hell to freeze over".

The row over the savings tax was one of several set-backs which marred the Helsinki Summit. An expected break-through to allow Turkey to join the EU failed to materialise when the Turkish Government reacted coolly to the terms on offer. In a last minute attempt to salvage Turkey's application, Javier Solana, the EU's foreign policy chief, left last night for talks in Ankora.

Despite the mounting humanitarian catastrophe in Chechnya, EU leaders failed to agree anything more than a review of Europe's contacts with Russia, although France demanded tougher action against Moscow. However, the summit approved plans to set up an EU rapid reaction force of 40-60,000 to carry out crisis intervention and peacekeeping in the world's trouble spots.

Mr Blair was clearly exasperated by France's refusal to allow British beef exports to resume. But he vowed not to pander to Britain's Euro-sceptic press by abandoning his policy of "constructive engagement" with Europe. The Prime Minister dismissed Tory demands for retaliatory action against France as "absurd", warning that a trade war would merely "put thousands of British workers on the dole".

But he added: "We will be tough whenever Britain's interests need to be defended, which is why we have made it clear we are not having a withholding tax that drives the eurobond market out of London." Other EU member states were furious and warned of retaliation against Britain. Germany said Mr Blair's tactics would strengthen demands for the introduction of qualified majority voting on tax policy.

Meanwhile, Mr Blair bluntly told Lionel Jospin, the French Prime Minister, his country was "wrong" on beef, during a brief exchange in the margins of yesterday's meeting.