Leading article: A rebate that can no longer be justified

Jack Straw got a limp joke out of a meeting of Europe's foreign ministers in Brussels yesterday that he chaired. At the end of another deadlocked discussion on the EU budget the Finnish foreign minister said: "As there is nothing new to discuss, I have got nothing new to say." The Finn, said Laughing Jack, deserved an award for making the shortest speech at an EU meeting.

The trouble is that this is not a joking matter. The stalemate comes about because the 24 other members of the EU want Britain to give up the £2bn-a-year "rebate" it gets on its contributions to the EU's running costs. After years of blank refusal Tony Blair has signalled that he will negotiate on the rebate - but only if France agrees to further reform of the Common Agricultural Policy from which French farmers receive £6bn a year in subsidies.

Two things are clear here. The first is that the CAP badly needs further reform. It currently spends 40 per cent of the total EU budget although agriculture employs only 5 per cent of the EU's population and contributes less than 2 per cent to its GNP. The second is that the EU budget needs to be reshaped to take into account the needs of the 10 new nations that joined last year. Britain was an enthusiast for this enlargement, and it must be prepared to face up to the costs of that.

The key question is whether these two factors should be linked. The British government has tried to make that linkage, but without success. This is mainly because, while the budget is up for review, the CAP is not. Current levels of farm subsidies are fixed until 2013 as a result of a Franco-German stitch-up on agriculture. Tony Blair may not like that, but he agreed to it in 2002 and is now enduring the consequences. In trying now to link these two issues Britain is in a minority of one, and is rapidly losing goodwill across the continent.

Mr Straw said yesterday that the British EU presidency will table fresh proposals to break the deadlock early in December, just a fortnight before the final deadline. Other European leaders are wary, fearing some last-minute wheeze will be sprung, leaving them little time for manoeuvre. This is a high-risk strategy. If the talks collapse because of insufficient time, it would leave a nightmare scenario. With no long-term budget the EU would be back to the old system of annual budgets agonisingly negotiated in last-minute battles with the European Parliament.

Britain might keep its rebate, and the French their farm subsidies. But long-term financial planning would become impossible for the new members from eastern Europe. If that happened Britain's presidency of the EU would be deemed a failure, and quite rightly too.