Chirac digs in to defend French vision of EU against Blair's free-market liberalism

A defiant French president, Jacques Chirac, has demanded a series of concessions to water down controversial British-backed plans to open up a largesector of the European economy to fresh competition.

A defiant French president, Jacques Chirac, has demanded a series of concessions to water down controversial British-backed plans to open up a largesector of the European economy to fresh competition.

The so-called "services directive" is designed to break down the barriers to trade in services ­ which accounts for 70 per cent of European jobs ­ and allow firms from one EU nation to offer services in another.

Britain is an enthusiastic supporter of the plan which, it argues, could create 600,000 jobs, but the proposed legislation is acutely unpopular in France. The French fear east European firms could move into their markets, offering cut-price services by employing people under their own terms and conditions.

M. Chirac's position is particularly difficult because of uncertainty over the result of France's referendum on the EU constitution in May. Two opinion polls have recently predicted a "no" vote.

The French president wants guarantees that the directive will allow only fair competition and that it will not be used to permit "social dumping" ­ where countries cut taxes and reduce social provision to undercut each other.

He also wants clarifications that sensitive public sector services such as health will be excluded from its scope. And he wants to protect "cultural diversity" ­ which is code for being able to subsidise and defend France's audio-visual sector, including the French-language film industry.

Yesterday's summit clash was also being seen as a key trial of strength as Paris and Berlin dug in to defend their social model against a more liberal-free market alternative pioneered by Tony Blair.

In France the proposed directive has become a symbol of an ultra-liberal drift in the EU, encouraged by the European Commission president, Jose Manuel Barroso.

Last night Tony Blair's official spokesman, backed the proposed law, arguing: "We believe the services directive is a good thing because it will open up services across Europe".

However he left himself open to possible compromise, arguing that France had the right to air its concerns, adding: "let's see where we get to".

Crucially, M Chirac is not calling for the proposed law ­ which was conceived by the previous European Commission ­ to be completely scrapped, while some of the pledges he is seeking have already been given by Mr Barroso, who has already promised to review the directive.

Jean-Claude Juncker, the prime minister of Luxembourg which holds the EU presidency, has indicated a compromise can be found. He defined his position as "yes to liberalisation of services but no to social dumping".

In his battle to water the directive down, M Chirac can rely on a range of supporters including Denmark's premier, Anders Fogh Rasmussen, who argued: "Denmark is clearly against the proposals, but we are not alone in our criticism.

"So I expect several countries will join forces at the summit and demand a number of changes,"

Diplomats are waiting to see whether M. Chirac will respond to criticism from Mr Barroso who has accused France's political class of failing to explain the purpose of the legislation.

On Monday Mr Barroso said: "If French public opinion is confused, I'm sorry, it's not our fault. I can't accept the idea that because there's a referendum in a country, we can't carry on with our work programme."

The issue of the directive has overshadowed the main purpose of the summit which is to relaunch the so-called Lisbon strategy designed to revive Europe's stagnant economy.