Felipe and John agree to disagree

On the steps of the neo-classical Moncloa Palace, it was all very much on a first-name basis: 'Well, Felipe, thank you very much indeed. It's very nice to be back in Spain again,' said John Major.

The word from inside, however, was that the Spanish Prime Minister's response to some of Britain's EC financing proposals were as chilly as the air on the steps outside. Madrid was always likely to be the most thorny stage of Mr Major's trans-European tour aimed at identifying the areas that will need most attention if the Edinburgh summit is not to end in shambles. And so it apparently turned out to be.

After yesterday's meeting Mr Major, before flying on to Lisbon, told the press: 'We have managed to identify many areas of difficulty. The areas of difficulty are beginning to become sharper.' It was assumed he meant sharper in focus, rather than getting worse.

For Mr Gonzalez, those areas generally cover everything to do with British and Danish delays to the Maastricht treaty. More specifically, he is not at all happy with Britain's 'compromise' financing package, tabled by the Chancellor, Norman Lamont, in Brussels on Friday. Under it, Spain would get significantly less cash, and diluted over a longer period, from the cohesion fund, which is to bring poorer EC nations into line with their wealthier partners within the next few years.

However, Mr Major insisted that some countries that had criticised the British proposals in advance had later been surprised by their generosity. 'In some instances, apologies, very generous apologies, have subsequently been offered and accepted by us.'

He was obviously not referring to Spain. 'We consider the presidency's (Britain's) budgetary proposals insufficient,' Mr Gonzalez said in answer to questions after yesterday's meeting. Standing alongside his guest, he was unlikely to use the blunter terms being bandied about by his ministers earlier - 'stingy' and 'mean' were the most common. 'So what we need is a process of open discussion that will permit a compromise, and that's what we want in Edinburgh,' Mr Gonzalez said.

Mr Major slipped in a gentle reminder that the cash Spain and the other poorer EC nations were complaining they would not get enough of was a much better deal than they were on at present.

'There is of course no cohesion fund at the moment,' Mr Major noted. 'We agreed in the Maastricht negotiations that there would be a cohesion fund and we have put forward proposals as to how the cohesion fund might build up in resources between now and 1999.'

Mr Gonzalez was said to be refusing to give his blessing to enlargement of the Community until he got satisfaction on the budgetary issue. But Spain was prepared to 'make an effort so that Edinburgh is a summit with results. Obviously, we need good results. We need to clear up political uncertainties in the Community, because these uncertainties are weighing on the economic situation.'

LISBON - Portugal's Prime Minister, Anibal Cavaco Silva, told Mr Major that Lisbon rejected Britain's future EC financing proposals and said that the Community could not admit new members without an agreement, Reuter reports.