Blair and Chirac at war

Britain's battle with France over the future of Europe threatened to turn into full-scale war today.

First Tony Blair went on the attack demanding an explicit "guarantee" that the EU would rethink its entire spending habits, including the huge sums devoted to the Common Agricultural Policy.

Then the French president turned his guns on Britain. He contemptuously rejected Mr Blair's plea, saying there could be no link between the "cheque Britannique" - Britain's £3 billion rebate from the EU - and his cherished farm handouts.

The clash came as 25 EU leaders gathered to agree a new budget in Brussels, with the talks dominated by the struggle for power between the British and French leaders.

Mr Chirac demanded the scrapping of the cashback deal won by Margaret Thatcher and accused Britain of failing to pay its fair share. In a statement, he said Britain had no right to cling to a 21-year-old deal that did not reflect its wealth.

Rejecting a freeze in the rebate, he added: "We require a more substantial reduction, and in a re-examination of the EU finances in 2013, the disappearance of the rebate." Mr Blair has already turned down a rebate freeze on the grounds that it goes too far.

On the CAP, Mr Chirac said: "I am opposed to a deal which singles out the CAP from all the other expenses of the Union."

He also made a thinly-veiled threat to retaliate against moves by Mr Blair by halting the process of enlargement that would allow more members to join the EU. The warning was implicit in his statement that the current agriculture budget was at the heart of the treaties that invited poorer countries to become full EU members.

Before Mr Chirac's onslaught, Mr Blair had been in talks with summit chairman Jean-Claude Juncker, as the 25 leaders struggled to strike a deal on the £70 billion annual budget.

He told Mr Juncker, the Luxembourg prime minister, he was prepared to debate the rebate - but only in tandem with a wider review that covered Mr Chirac's cherished CAP.

British officials made clear that merely talking about agriculture reform was not enough. "Outcomes are what matter," said one.

"The priority for us in trying to reach any deal, or in assessing any deal is that it guarantees that the process of reforming the EU budget has begun," said the Prime Minister's official spokesman.

"The Prime Minister has made it clear explicitly that he

if there is a fundamental reform of the EU budget."

Downing Street appeared to slightly soften its line, saying the rebate could be considered as part of a an overall review of EU finances, rather than singling out farm subsidies.

But prospects for a deal today looked bleak and Sweden's premier Goran Persson became the first to admit the leaders were at loggerheads and should postpone the decisions to next year.

"It is better to take a year more and continue to negotiate than to go for one more bad compromise" he said.

Mr Chirac has the backing of Ireland and other countries that benefit from farming subsidies.

But British diplomats said Mr Blair was gaining support from Sweden, Holland and the Italy during private talks. The big fear among Downing Street aides was that Mr Chirac would press the rebate to a vote - forcing Mr Blair to use Britain's veto and become isolated.