Blair delays reforms to repair rift with Brussels

Tony Blair, who was blamed by several EU countries for the summit's failure, may wait until October to outline plans for how the EU should be funded from 2007-13. He has offered to reduce Britain's £3bn a year rebate in return for cuts in the Common Agricultural Policy (CAP), possibly through a wholesale review of EU spending by 2008.

Officially, the Government says there would be little chance of progress while the EU machine grinds to a halt for its two-month summer break. Privately, ministers believe they would have a better chance of a budget deal if there is a change of government in Germany, where an election is expected in September.

By the autumn Gerhard Schröder, a close ally of the French President Jacques Chirac, may have been ousted by Angela Merkel, leader of the Christian Democrat opposition, who has forged a good working relationship with Mr Blair. The delay means a new attempt to thrash out a deal may not take place until a summit in Brussels in December.

Britain, which takes over the EU's rotating presidency for six months from today, promised to "work hard" to resolve the budget crisis as it spelt out its plans in a White Paper yesterday. The document warned that, under proposals by the European Commission to abolish the rebate, Britain would have become the highest net contributor to the EU budget by 2013. It said: "The Government will do its best to secure an agreement and to make sure that it is one that meets the needs of the new member states."

Calling for cuts in CAP spending, Jack Straw, the Foreign Secretary, said: "The rebate is an anomaly, but it is an anomaly on an anomaly. What we are seeking to do is to address that so the case for the rebate then withers away. Meanwhile we will maintain our position."

He told the Commons that handing farm subsidies back to national governments had not been ruled out as a long-term radical solution but warned total freedom could not be handed to nation states without risking seeing subsidies rise.

"What is key is that the amount spent on the CAP is progressively reduced. If there were a renationalisation – and it's not at the moment one of the proposals we make – it would have to be within the context of a European regulatory framework because otherwise you could find the renationalisation led to an increase in the level of subsidies."

The Foreign Secretary said the EU must "adapt to survive and prosper" in a world much changed from when it was founded 50 years ago. In a conciliatory message to Britain's EU partners, he said the Government would seek to conduct the debate on the EU's future in an "open, inclusive way, giving our own views strongly but fully respectful of the views of others".

Although ministers believe a deal is possible, other EU governments are less optimistic. Adam Rotfeld, the Polish Foreign Minister, who tried to broker a compromise between Britain, France and Germany on Tuesday, said yesterday that the prospects of a deal during the next six months were shrinking.

"From what I saw at the meeting in Warsaw, I would have to lie to say that these countries [France and Germany] want dialogue," he said. "Britain showed readiness to talk but for France and Germany it is too early after what happened at the Brussels summit. It makes a deal much more difficult."

Brian Cowen, the Irish Finance Minister, said Mr Blair was unlikely to get a budget deal because he was determined to overhaul the farm subsidies that make up some 40 per cent of the EU budget.

"We can restore a more constructive atmosphere. Mr Blair has all the political skills necessary to achieve that," he said, adding: " That's a precursor to what will be detailed negotiations which might take place during this presidency, possibly more likely under the Austrians [who take over from Britain in January]".

Ireland, like some other EU members, not only has to pay towards the British rebate, but it will also have to help fund concessions demanded by other net contributors, including the Netherlands. That, according to senior diplomats, means big obstacles remain in the path of any deal.

Liam Fox, the shadow Foreign Secretary, denounced the Government's White Paper as "all talk, and all posturing".

He said the British presidency offered a chance to support real reform of the EU such as re-structuring the institutions and changing the distribution of powers, including bringing powers back from Brussels to the people of Europe.

"Real reform would mean radical overhaul of the CAP and an end to the assumption that the budget can only ever move in an upward direction. Real reform requires substance," he said.

For the Liberal Dem-ocrats, Nick Clegg said it was essential that the tone in which the Government talked about reform did not appear to be hectoring or condescending.

1998: arrogance, incompetence - and spin

When Tony Blair takes over the presidency of the EU today, it will be his second time. It is a fair bet he will want to forget his previous term in 1998, one associated with arrogance, incompetence, and – of course – spin.

Elected by landslide in 1997, New Labour assumed it could teach the EU a thing or two. But even before the presidency began the UK had caused a diplomatic incident with, of all things, its choice of logo. Pictures drawn by children represented each member state and Italy was a pizza and a slice of salami. Rome formally complained.

That hiccup was as nothing compared with the indigestion that struck a summit to decide on the head of the European Central Bank. The meeting was ill-prepared because the UK, outside the single currency, was simply not in the loop. Belgium's Jean-Luc Dehaene was so exasperated he led colleagues off to eat in a local restaurant.

Good work was undermined by hype, such as when Alastair Campbell produced a list of 45 presidency achievements. He was accused of claiming credit for work that had been under way for years. His bombastic and confrontational style also went down badly with non-British journalists.

To cap it all, the presidency was run on a shoe-string. Meetings were held in cramped facilities without enough phones. A Cardiff summit was adorned with sponsors' logos. Even journalists' drinks allowances were cut.

Stephen Castle

Britain's agenda

A DEAL ON THE EU BUDGET 2007-13

The top priority because east European countries are desperate for a deal that will help them prepare for big subsidies. Tony Blair wants to trade reform of the British budget rebate for a scaling back of the Common Agricultural Policy. The French President is unlikely to accept this after last month's bitter summit row in Brussels. Deadlock remains the most likely outcome

REFORM OF THE CAP

The key item is reform of the sugar sector. The Commission has outlined plans but member states must agree, hopefully by November. A battle is certain.

ENLARGEMENT

Membership negotiations with Turkey are due to start on 3 October. Despite growing reservations about the merits of Turkish membership, the talks are likely to start as planned, forming one clear achievement for the British presidency. Whether they are ever concluded is another matter.

DOHA DEVELOPMENT AGENDA

Mr Blair wants a deal that leads to global economic growth with better access to markets for developing countries. But this is beyond the control of EU, let alone the UK as its president, and depends on other key players such as the US and developing nations.

THE SERVICES DIRECTIVE

Designed to free up the massive EU market in services, this piece of planned legislation has assumed symbolic as well as practical importance. Mr Blair sees it as vital to help revive the sluggish European economy. France is almost certain to block any progress; the French referendum "no" vote came about partly because of fears that the directive would cost jobs in France.

CUTTING RED TAPE

The UK is highlighting the need for impact assessments before EU legislation is proposed and a review of current law. This is a three-year programme. The European commissioner Gunther Verheugen is already behind such ideas, which will continue to make progress in the next six months.

COUNTER-TERRORISM

A Blair priority but work will be low key and unspectacular. Areas for progress include a new European evidence warrant, rules on retention of telecommunications data, and stricter security for EU travel documents.

FINANCIAL SERVICES

Largely focused on implementing a Financial Services Action Plan which is already adopted. Low key.