The European Union’s only elected institution, which is forced by treaty to meet in Strasbourg 12 times a year, froze further payments on the €10.5 million annual rent due to its host city. Strasbourg has caused further resentment by refusing to co-operate with an investigation into the scandal, the biggest to engulf the Parliament, which is likely to be referred to the police.

Strasbourg is alleged to have overcharged the rent on two buildings — the Winston Churchill and the Salvador de Madriaga — by between 10 per and 40 per cent since 1979. It is estimated that the European Parliament was overcharged by €2.7 million last year alone.

The inflated rent is also likely to have caused the European Parliament to overpay for its main building in Strasbourg, the Louise Weiss, which was acquired from the city in 2004 for €450 million. Its price tag was based on local rents.

The financial scandal is highly embarrassing for an institution that prides itself as the ultimate watchdog against EU financial wrong-doing.

The Parliament yesterday refused to sign off its own annual budget and began an investigation into how much it had overpaid and whether there was fraud involved. There is an intense row brewing within the Parliament, with MEPs accusing its officials of knowing about the overpayments but doing nothing.

Jan Mulder, the Dutch MEP responsible for budgets, said: “I am very surprised. We knew nothing about it. We have been taken for a ride.”

The buildings are owned by SCI Erasme, a Dutch pension fund, that lets them to the city, which in turn sublets them to the Parliament. The Parliament pays the rent to the city authorities, who appear to have been raking off a substantial share before remitting the balance to the Dutch company.

The scandal has provoked a bitter showdown between the French city and the Parliament.

Strasbourg has outraged MEPs by refusing to co-operate with the investigation by denying access to its internal budget documents, which would show how much money it made from the Parliament and where it went.

Hans-Peter Martin, an Austrian MEP on the committee investigating the scandal, said: “It means a complete lack of trust between the Parliament and the city of Strasbourg. The loss to the taxpayer is at least €30 million and possibly as much as €150 million. It’s all wheeler-dealing. Everyone is on the gravy train.”

MEPs, who are normally based in Brussels, have repeatedly tried to bring to an end the costly Strasbourg circus, when 732 MEPs, 3,000 staff and a fleet of lorries filled with crates descend on the French city for four days once a month.

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