President Sarkozy’s sleight of hand in removing one of the European Union’s key objectives almost slipped through the final meeting of the 27 nations’ top diplomats preparing for the Brussels summit.

The so-called sherpas took five hours on Tuesday night to go through the draft German proposals line by line. It was a Hungarian diplomat who saw that something was missing.

The failed EU constitution proposed that the EU shall have “an internal market where competition is free and undistorted”. The phrase was included to make free competition one of the objectives of the EU, upgrading its status from the Treaty of Rome, where it features as a sub-clause.

Minutes from Tuesday’s meeting seen by The Times show that, near the mid-point of the discussions, the Hungarians drew attention to the redrafted statement. It included commitment to the internal market but omitted the phrase “where competition is free and undistorted”.

The Hungarian questioned whether this would affect EU competition policy – a huge area of European Commission activity combating cartels and illegal state aid that could distort fair trade.

Immediately the Spanish representative observed that it seemed to change one of the principles of the EU and called for it to be looked at further.

The discussion moved on, with no comment from Kim Darroch, the British representative, but British officials insist that they began work on analysing the significance of the change the next day.

José Manuel Barroso, President of the European Commission, set his lawyers to work on Thursday and was sufficiently concerned to raise the change as one of his key discussion points at the round-table dinner on Thursday evening. But it was only after news of the move broke late on Thursday that Mr Sarkozy admitted that he had persuaded the Germans to edit the treaty language.

Once the cat was out of the bag, opposition increased within the European Commission, especially at the department of Neelie Kroes, the Competition Commissioner.

Mr Barroso explained to Mr Sarkozy yesterday that the status quo – the position of the Treaty of Rome – would have to be bolstered with a protocol to the new treaty. The pair sat together over lunch until late into the afternoon. Mr Sarkozy, who had discussed the matter with Tony Blair earlier, agreed to the compromise, although not before the French media had acclaimed a successful feat of summitry at his first European Council.

The episode is revealing about the summit debutant Mr Sarkozy and his economic doctrine, “Sarkonomics”. Compared with previous French presidents, he is a business-friendly reformer. But he has never hidden his traditional French belief that trade is too serious to be left to mere markets – or the European Union.

Mr Sarkozy won the election in May with promises to shield France from what the country sees as the hostile force of globalised trade. Like Britain, he also needs the treaty to be sufficiently different from the failed constitution to avoid holding a referendum.

For more than a decade, supposedly unfair competition from low-cost nations inside and beyond Europe has been blamed as the underlying cause of France’s domestic ills.

The first line of defence must be the European Union, but Mr Sarkozy insists that it is failing. He earned credit in the campaign with his argument that the union is acting like an innocent among predators when it aspires to scrap all internal and external barriers to trade. He has ensured the ire of Brussels – and Britain – with his demand that the EU must impose tariffs on “unfair” imports.

Mr Sarkozy’s chief villains are the United States and the emerging world giants led by China. He has waged a campaign against the EU Commission and Peter Mandelson, its British trade chief, for feebleness in the face of US pressure on farm subsidies and protection of its entertainment industry. He accuses China of forcing down its currency to flood Europe with its goods while the European Central Bank turns a blind eye to the “overvalued” euro. Never one to beat about the bush, Mr Sarkozy has repeatedly called for Mr Mandelson to be stripped of the job of negotiating trade for Europe.

Mr Sarkozy hardened his interventionist views with the French “non” in the referendum on the European constitution in 2005. Voters in France and the Netherlands rebelled because Europe was failing to protect them from the harsh winds of globalisation, he and the rest of the political world concurred.

On the night of his May 6 election victory, Mr Sarkozy sent a message to European leaders: “Do not remain deaf to the anger of the people who view the European Union not as a protection, but as the Trojan Horse for all the threats that are contained in the transformations of the world,” he said.

Sarkonomics mixes state intervention with a supply-side desire to lighten regulation. For example, he supports government promotion of “national champions” in industry while also pushing for further privatisation of state companies such as Areva, the nuclear energy giant. “In some economic sectors, the market isn’t the be-all and end-all,” Sarkozy said in a TV interview in March. “The market sees short term.”

Already agreed

— Permanent President A powerful new post to chair European Council meetings, held for two-and-a-half years and renewable for an extra term. Tony Blair has denied he wants to be first.

Status agreed

— Smaller European Commission Ends the practice of every member state having commissioner. Instead two thirds (18) will hold top jobs in Europe. Designed to streamline EU.

Status agreed.

— Amending previous treaties Idea of a constitution dropped, along with references to EU flag and anthem, to stop the treaty looking like the basis of a European superstate. Instead, the reform treaty will update previous European agreements, not replace them.

Status agreed

— Single legal personality The constitution carried a formal statement that would give the EU treaty-signing powers but it was objected to by several countries including Britain as giving the appearance of too much power.

Status dropped

— EU Foreign Minister A single figure to represent the EU internationally, combining the role of the current High Representative and the Foreign Affairs Commissioner. Britain wanted limits on powers to ensure that job would not conflict with national foreign ministers – and never threaten Britain’s seat on UN Security Council.

Status agreed after Britain retreated

— Common Foreign and Security Policy The EU constitution proposed shifting the decision-making basis for common foreign and security policy, which would threaten the British veto. Britain and others wanted guarantees in the new treaty that policy would still be decided intergovernmentally, preserving the veto.

Status British position agreed

— Tax and benefits One of Britain’s “red lines” was to retain a veto over anything that would influence the tax or benefits system.

Status easy to meet because there were no serious proposals for harmonising welfare systems

— European Parliament A limit of 96 on the number of MEPs for large countries, meaning that Germany will lose three MEPs, and on the minimum number of MEPs for small countries of six.

Status agreed

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