EU summit: The dinner from hell

Blair isolated over Britain's rebate as vital EU summit begins in Brussels with acrimony the main course on the menu

Tony Blair sat down for one of the most difficult diplomatic dinners in the history of the EU as leaders of the 25 member states locked horns against the background of a fierce conflict over the bloc's spending plans.

Tony Blair sat down for one of the most difficult diplomatic dinners in the history of the EU as leaders of the 25 member states locked horns against the background of a fierce conflict over the bloc's spending plans.

Seated along the table from the French President, Jacques Chirac, his bitter rival in the budget battle, Mr Blair went into yesterday's four-course dinner of scallops and veal determined to defend the rebate on Britain's EU contributions, which is under attack from 24 other nations.

Although isolated over the future of the British rebate, which is worth €4.6bn (£3bn) a year, the UK was not the only country preparing for tough negotiating, and the Netherlands, Sweden and Poland lined up to reject the plan on the table.

As the heads of government arrived yesterday afternoon, Jean Asselborn, the Foreign Minister of Luxembourg, which holds the EU's rotating presidency, described the meeting as "one of the most difficult summits we have ever had". Reeling from the aftershock of twin referendum "no" votes in France and the Netherlands, EU leaders heard a chorus of appeals to strike a deal and send a political signal that the EU is still working.

A deadlock today would cast a shadow over Mr Blair's presidency of the EU, which begins in two weeks and would call into question his ability to drive through key reforms in the next six months. But Mr Blair's spokesman rejected the need for a speedy deal, saying categorically: "We do not need a deal at this summit - things can continue." And the Foreign Secretary, Jack Straw, rejected plans to freeze the rebate until 2013, then link its reform to that of agriculture spending, as "not acceptable to us". He argued: "The rebate is fully justified and if necessary we will use the veto."

Downing Street pointed to negative comments about the deal from the Netherlands and Sweden as evidence that several countries favour a wholesale examination of EU financing rather than a hastily cobbled-together agreement.

As leaders prepared for their dinner on the eighth floor of the Justus Lipsius building in Brussels, one official said: "It will be tense, these things usually are. But we will not know until Friday morning if there is a chance of success."

France and Germany were lined up squarely against Mr Blair and, before arriving in Brussels, the German Chancellor, Gerhard Schröder, said there was "absolutely no real justification" for the British rebate.

But there was better news for Mr Blair from the German opposition Christian Democrat leader, Angela Merkel, who said Mr Schröder was wrong to put pressure on Britain to give up its EU rebate without pressing France to curb its agricultural subsidies as well.

Meanwhile, from the Swedish Prime Minister, Goran Persson, there was pessimism. He said: "I don't think there will be a deal on the budget. I think the differences are too big. The budget is still too big. Some countries like Sweden have a net contribution that is too big, so I am not optimistic about a deal."

Luxembourg's plan would freeze the British rebate at €4.6bn as opposed to increasing it throughout the funding period to an average of around €7bn, involving a loss of more than €14bn over the seven years. Britain says that, without being inflation-proofed, and with other effects from the latest proposals, the UK would be €25bn worse off.

The UK was expected to offer to forgo the contributions made to the rebate by the 10 new countries that joined the EU last year. That would cost around €3.5bn over the seven-year period but would not be enough to satisfy France. Another possibility was that Britain might agree to freeze the rebate, as long as the costs of inflation were built in to stop it being cut in real terms.

Summit sticking points

THE BRITISH REBATE

The British rebate on its contribution to the European Union was won by Margaret Thatcher in 1984 and has been jealously guarded since. Jacques Chirac, the French President, wants the rebate to be phased out, or at least frozen at €4.6bn (£3bn) until 2013. The other EU countries agree.

COMMON AGRICULTURAL POLICY

Subsidies under the CAP eat up 45 per cent of the EU's budget. France, whose farmers are the biggest beneficiaries of the CAP, is spearheading opposition to cuts demanded by Tony Blair. Mr Blair is backed by Sweden, the Netherlands and Finland. M.Chirac is backed by a majority of the other members.

THE BUDGET

The EU spends about €1bn a year, or 1.1 per cent of member states' GDP. The European Commission would like that figure to rise to the equivalent of 1.26 per cent in the budget for 2007-2013. This is thought unlikely to succeed.

THE EU CONSTITUTION

'No' votes from the French and the Dutch have thrown the constitution into turmoil. Ten countries have ratified the treaty but EU leaders appear to be leaning towards putting future ratifications on ice. Portugal, the Czech Republic and Denmark are considering postponing their referendums.