JACK STRAW, the Foreign Secretary, denounced critics of Britain’s budget rebate as deluded after failing to persuade other governments of the merits of retaining it.

European foreign ministers broke up their meeting last night after three hours of budget talks without making any progress, leaving Britain isolated by the 24 other member states and threatening to wield its veto.

Relations between Britain and France plummeted to a new low when the French minister for Europe directly accused Britain of “defying logic”.

Mr Straw insisted that it was not the £3 billion rebate that was the source of Europe’s problems, but the “fundamentally distorted” budget that give £7 billion in agricultural subsidies to French farmers every year. He gave warning that Britain would veto the EU’s entire seven-year budget if France did not agree to curbs on agricultural subsidies in return for any reductions in Britain’s rebate.

The budget was “as wasteful as it was unfair”, Mr Straw said, but he won virtually no support from other countries.

The budget dispute will reach its climax at a summit in Brussels on Thursday, with Tony Blair undertaking a frenetic diplomatic tour of France, Germany and Luxembourg in an attempt to avert an ambush by other European leaders.

The summit is meant to resolve the two problems engulfing the EU: searching for a way forward after French and Dutch voters rejected the Union’s first constitution, and agreeing a seven-year budget for the period 2007 to 2013.

The British Government is increasingly frustrated by a campaign by Jacques Chirac, the French President, and Gerhard Schröder, the German Chancellor, to focus on Britain’s rebate, which No 10 believes is an attempt to divert attention from the French-inspired constitutional crisis.

Last week, M Chirac and Herr Schröder held a joint appeal to Britain to give up its rebate, but in a clear reference to them, Mr Straw retorted: “The rebate is not the issue and people are deluded if they think it is the issue.”

Mr Straw stepped up the Government’s attempt to throw the ball back into France’s court by insisting that the rebate was justified because France receives one quarter of the EU’s €40 billion (£27 billion) annual agricultural budget. M Chirac and Herr Schröder ambushed the Prime Minister in 2002 with a decision to keep Common Agricultural Policy (CAP) spending at the current level until 2013.

Mr Straw said: “The rebate is a symptom of a fundamentally distorted budget system that continues to give the UK the lowest receipts per capita of any country because our agricultural sector is efficient and relatively small.”

He said that the CAP could not be justified: “The budget is unfair to poorer countries in the rest of the world, because over 40 per cent of the proposed spending will go on CAP to sustain high prices for continental farmers and to keep out cheaper imports from Africa.”

Catherine Colonna, France’s Europe minister, said: “It is one thing to express a point of view and another to justify it. The British position defies EU logic and undermines European solidarity.”

Mr Blair’s tour starts tonight in Berlin when he meets Herr Schröder, setting the scene for a showdown in Paris tomorrow with President Chirac.

As if tensions were not already running high enough after the fallout of the “no” vote in France on the EU constitution, No 10 announced yesterday that the two would not hold a joint press conference after their talks.

European leaders continued to urge Britain to agree to a compromise. Herr Schröder made clear that he would hold Britain responsible if a deal is not reached on the EU’s budget. Asked if a deal might be possible without a British move on the rebate, he said: “That will not be possible, given that all must make compromises.”

José Manuel Barroso, President of the EU Commission and on most issues a close ally of Mr Blair, turned against the Prime Minister over the rebate. “We are no longer where we were 20 years ago,” he said. “Britain is much more rich. There are ten new countries that are poorer, much poorer, and it would not be fair for them to support proportionally more of the burden than Britain.”

Karl-Heinz Grasser, the Austrian Finance Minister, said: “It would be completely absurd if we net-payer states would have to pay an even larger British rebate. They will have to change their stance or there will be no consensus.”

Alexander Kwasniewski, President of Poland, gave a warning that the EU must not be plunged into an even deeper dispute, saying: “We’re all obliged to help rescue Europe.”

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