Germany starts to exact revenge for summit collapse

Germany, Europe's biggest paymaster, demanded a curb on massive EU subsidies yesterday, just two days after two big potential beneficiaries, Poland and Spain, thwarted German-backed plans for an EU constitution.

In a letter to the European Commission, Germany, France, Britain and other big net contributors called on the EU to limit its spending to current levels. The effect would be that subsidies to Spain would have to be cut back substantially after 2006, if the Poles are to get significant injections of cash to regenerate their economy.

The move will raise the political temperature further after the disastrous weekend summit, in which Spain and Poland blocked a proposed change in the EU's system of decision-making. Some diplomats saw the initiative as an act of instant revenge.

Germany and France both backed the idea of a "pioneer group" of countries forging closer integration together, and had pressed for the constitution to be agreed. Their anger with Poland and Spain was reflected in the timing of yesterday's letter. Germany has long-warned the Spanish and Polish not to hold up talks on the constitution beyond the end of the year, arguing that they would be more complicated if conducted alongside future financial negotiations. That was seen as an implicit threat to cut subsidies if the countries did not knuckle under. Britain, Sweden, the Netherlands and Austria joined the initiative in a bid to limit their own financial contributions, although Denmark, another net contributor, decided against signing.

The message being sent by Germany is unmistakable. Berlin provides about one fifth of EU funding but is still bearing the costs of reunification. With Poland and nine other, mainly former Communist nations due to join the EU next year, more nations will be left competing for a similar pot of money, if plans for the ceiling go ahead. One diplomat from an acceding country argued: "This sends completely the wrong message. If this was supposed to be a punishment it is exposing the EU's realpolitik."

The move will touch a raw nerve in Spain, which has been the biggest beneficiary of EU regional subsidies. By contrast, France's huge subsidies from the Common Agricultural Policy are protected in the short term because of an agreement a year ago on future agricultural spending.

In their letter, France, Germany, Britain, the Netherlands, Austria and Sweden said average expenditure during the next EU budget period of 2007-2013 should be stabilised at current levels, and should not exceed 1 per cent of gross national income (GNI). The current annual budget of nearly €100bn (£70.46bn) is equivalent to around 1 per cent of GNI, even though the legal ceiling is much higher at 1.24 per cent. The European Commission rejected the request last night, arguing that it was incompatible with requests from member states for the EU to take on new tasks.

Romano Prodi, the President of the European Commission, said in a statement: "We will study these ideas seriously but, with only 1 per cent of gross national income, it will simply not be possible to do what these member states, and all others, expect from us."