UK, France clash over EU rebate

Luxembourg - British Prime Minister Tony Blair rejected a long-term freeze on Britain's widely attacked rebate from European Union coffers yesterday ahead of showdown budget talks with French President Jacques Chirac in Paris.

Luxembourg Prime Minister Jean-Claude Juncker, trying to broker a deal in time for an EU summit this week, spelled out at a meeting with Blair that he proposed pegging the rebate at its pre-enlargement level of e4.6 billion (R37.7 billion) a year in the 2007-2013 budget.

"What the presidency are proposing is a freeze of the rebate," Blair's spokesperson told reporters on a plane to Paris after the British leader met Juncker in Luxembourg.

"That is not acceptable to us."

A freeze would cost Britain between e25 billion and e30 billion over seven years and still leave it paying one-third more than France net into Brussels coffers, he said.

The European Commission calculates the British rebate will soar to some e8 billion a year by 2013 if the mechanism negotiated by Margaret Thatcher in 1984 was perpetuated.

The total EU budget is e106.3 billion this year and the British get e5.1 billion back, chiefly because they receive relatively little in farm subsidies and regional aid.

London is isolated in the 25-nation bloc in clinging to its refund, nearly 10 percent of which is now paid by the poorest EU members from eastern Europe which joined last year.

Blair has signalled he might compromise but only if France gives ground on the substantial EU farm subsidies it receives. Chirac has refused, saying the common agricultural policy (CAP) budget was settled in 2002.

"We have continued to argue that there has to be a wider review (of EU spending)," the British leader's spokesperson said. "We believe that the current budget is distorted by the CAP."

Prospects for a deal seem dim. Blair stood his ground in talks in Berlin with German Chancellor Gerhard Schröder, who has joined Chirac in pressing Britain to give up the rebate.

Schröder demanded his European partners abandon "national egotism" for a "fair compromise".

"Of course everyone wants a deal that is fair," Blair responded. "But we have to look at fairness in respect of the whole way Europe is financed."

One of Blair's closest political allies, EU trade commissioner Peter Mandelson, said on Monday it was wrong for the poor new member states from eastern Europe to have to contribute to a cash refund for wealthy Britain. It was not clear if this foreshadowed a British concession.

A delay in securing a budget deal would put urgently needed public investment in those former communist states in jeopardy.

Chirac faces milder pressure from some French politicians to compromise. Francois Bayrou, leader of the centrist UDF party and a frequent Chirac critic, said Paris was right to defend farms subsidies but had to give ground in other areas.

Still reeling from French and Dutch rejections of the EU constitution in referendums, Europe faces the prospect of financial gridlock if it fails to reach a budget deal at a summit in Brussels on Thursday and Friday.

Swedish Prime Minister Goran Persson said yesterday the deadline for EU states to ratify the constitution should be extended from November 2006 after the French and Dutch votes and Sweden might delay its own parliamentary ratification, due in December, unless the summit produced clarity on the way forward.

Britain takes over the rotating six-month EU presidency on July 1, but its partners do not see it as an honest broker on the rebate, making a budget deal improbable on Blair's watch.

Britain won its rebate when it was one of the poorer EU countries and got little back from Brussels in farm subsidies, which at the time made up 75 percent of the EU budget.

Britain is among the richest now, and farm payments now account for 43 percent of the budget, and are falling.