TONY BLAIR will pit his authority as a newly elected leader against the weakened heads of Germany and France next week by demanding a fundamental overhaul of the way the European Union spends its money and conducts itself.

But, with the Brussels summit next Thursday and Friday fast becoming a trial of strength, Mr Blair will tell President Chirac and Gerhard Schröder, the German Chancellor, that they cannot allow the increasingly furious row over the budget to divert attention from the problems that Europe faces after the French and Dutch rejections of the constitution.

Gordon Brown joined Mr Blair yesterday in delivering some of the most bitter diplomatic exchanges across the Channel in years, telling M Chirac that he could not “wish away” Europe’s real problems.

As Mr Blair dug in over the budget rebate and M Chirac and Herr Schröder firmly rejected his demand to review spending on the Common Agricultural Policy, British officials accused the two leaders of using diversionary tactics to make Britain the bad boy of the summit rather than face up to the facts.

“The truth, is they will not get away with it,” a source close to Mr Blair said. “Most of the others there won’t want just to be talking about the budget. They will want to know how M Chirac intends to help them to avoid getting ‘no’ votes in their own referendums if he is so keen that they should go ahead with them.”

Mr Blair is to try to turn the battle over the budget into a much bigger debate during Britain’s imminent EU presidency about reforming Europe’s economy and making the union more relevant. Mr Blair will hold talks with his two adversaries in Berlin and Paris early next week. The French Government, furious with Mr Blair for postponing the British referendum in advance of the summit, denies that it is using the budget as a smokescreen to avoid talking about the constitution.

Privately, diplomats asked whether Mr Brown was behind Britain’s more aggressive attitude. It was his remarks in a breakfast interview that made clear Britain that was heading into a pivotal confrontation.

“To suggest that the problem that Europe faced, or that the referendums were lost or unemployment is 10 per cent because of the British rebate is to wish away problems that Europe must face up to,” he declared.

The UK had contributed twice as much to the EU as France over the past 20 years. But thanks to the unreformed Common Agricultural Policy, France was expecting €9 billion (£6.5 billion) for its farming alone by 2013, he said.

“When one country for one item of policy is taking up such a huge share of the EU budget, then there are bigger issues to discuss before you can reach a settlement than simply discussing, as one or two countries want to do, the British rebate.”

He added: “What I am saying, and Mrs Thatcher would agree with me, is that the problem that brought into being the British rebate was the huge amount of money spent by the European Union on agriculture: 40 per cent of the budget for only 5 per cent of the employees.

“We are not going to negotiate away the rebate. That is simply not up for negotiation. We have said very clearly that not only is the rebate justified, but if in the national interest it was necessary to do so, we would have to use our veto.”

Mr Blair said the rebate could only ever be considered if the EU cut its agriculture spending. “If you have a fundamental review of how Europe spends its money, then of course everything then is open to debate. What is not open to debate is a situation where you go back to Britain being penalised.”

Lord Kinnock, the former EU commissioner, backed Mr Blair’s demand for radical CAP reform in return for the rebate, and accused M Chirac of playing a “diversionary game” by challenging the rebate.

M Chirac and Herr Schröder met to plan tactics in the Elysée Palace. M Chirac said: “I’m not disposed to compromise on the unanimous accord reached in 2002 on the Common Agricultural Policy and it is a question that I am not prepared to revisit.” He added: “Our British friends must be aware of how things are changing, and therefore of the necessity of a greater fairness in the burden carried by each member.”

Herr Schröder said the CAP should be ring-fenced and joined M Chirac in demanding a curb on the British rebate. “We are fully behind the idea of a constructive compromise,” he said. “However, this cannot mean just a one-sided effort by France and Germany.”

The weakened Franco-German couple have revived their nations’ faltering partnership over the past week. They are joining forces against a British Prime Minister who is seen on the Continent to have emerged from the referendum debacle as master of Europe.

A front-page headline in Le Figaro declared: “Blair has Europe in his hands.” The Prime Minister was now savouring his revenge against M Chirac’s past manoeuvres, it added.

Times Recommends

• A doctor, a daughter and a man called Johnny
• Mona Lisa's smile may have belied ill health
• ‘Parasite economy’ lies behind Greek tragedy