TONY BLAIR and Jacques Chirac are set for an icy Paris showdown today after the Prime Minister accused the French President of living in the past and France lost its fight to save the ill-fated constitutional treaty.

As their dispute over Britain’s EU budget rebate and the constitution took relations to their lowest point for years, Mr Blair responded to M Chirac’s refusal to hold a joint press conference with him today by letting it be known that he would stage one on his own at the British Embassy in the French capital.

In a fresh twist last night, Mr Blair was told publicly by Peter Mandelson, his close ally, that he must be prepared to reform the British rebate as part of a deeper rethink about the EU budget.

In an intervention that some ministers described as unhelpful, the EU Trade Commissioner and fervent European pre-empted future negotiations by saying that it was wrong to ask the poorer accession states to pay for any part of the British rebate. He also admonished ministers for their “neo-Thatcherite” tone in dealing with Brussels, and said that it should change when Britain assumes the EU presidency next month if it wanted to make progress.

The pressure on Mr Blair mounted last night when Gerhard Schröder, the German Chancellor, called on him to compromise in the budget dispute, but ruled out any big changes in the agricultural budget before 2013. He backed M Chirac’s stand that the deal on agriculture done in 2002 could not be reopened, as Mr Blair had suggested.

Herr Schröder said: “We need to get our act together and strike a fair compromise where everybody needs to chip in.”

There was, however, a boost for Mr Blair when Herr Schröder backed Britain’s desire to see overall spending capped at 1 per cent of the EU’s gross national income.

Mr Blair and M Chirac’s confrontation comes as the fallout from the French and Dutch rejections of the constitution began threatening EU policies across the board. Ministers shelved plans to press on with the ratification process, Britain intends to use its EU presidency to demand a radical overhaul of the Common Agriculture Policy (CAP), and several member states have begun questioning the pace of EU enlargement before Turkish membership talks.

M Chirac’s move over the press briefing was an unprecedented rebuff for a visiting prime minister. But Mr Blair, in Moscow for talks with President Putin, eschewed diplomatic niceties by directly attacking the French leader’s intransigence. He accused M Chirac, by focusing attention on the rebate, of closing his ears to the message from his voters when they rejected the constitution.

Mr Blair raised eyebrows on arriving in Berlin last night by going straight into lengthy talks with Angela Merkel, the conservative opposition leader who is well placed to defeat Herr Schröder in the general election in September. The Prime Minister appeared to be heading for victory in his efforts to get the constitution kicked into the longest possible grass. Foreign ministers yesterday abandoned plans to approve the constitution by the end of 2006, and left it to individual countries to decide whether to hold their referendums.

“The context of this discussion is one in which two countries have now voted against the EU constitution,” Mr Blair said. “Why? Because people in Europe did not feel that sufficient attention was being paid to their concerns about Europe and its future.

“Now, when we come to discussing the future financing of the EU, let us bear that in mind. And let us realise, therefore, that we cannot discuss the existence of the British rebate unless we discuss the whole of the financiang of the European Union.

“It is not that we approach this simply saying, ‘Britain says no and that is an end to the discussion.’ We are happy to have this discussion. But it has got to be on a realistic basis and it cannot be on the basis that ignores the unfairness that gave rise to the existence of the British rebate.

“The future financing and reforms of Europe must mean fundamental changes, in particular in respect of the Common Agricultural Policy and the amount of the budget that it takes up each year.”

In Paris there was talk of bad blood between the two leaders. Philippe Douste-Blazy, the new French Foreign Minister, said that Britain had no alternative to dropping its refusal to trim the budget rebate that it has enjoyed since 1984.

He said that the crisis in Europe caused by the French and Dutch rejection of the EU Constitution made it vital to show that the Union could settle its next six-year spending plan at this week's summit. “We are more than ever condemned to a compromise. The British must take into consideration the circumstances in which they obtained their 'cheque' in 1984. They were in serious recession at the time. Today, their growth is strong.”

Mr Blair is expected to tell M Chirac that he will not hesitate to wield Britain’s veto even if all 24 other EU states press him to drop the rebate. He will only consent to reduce it if France accepts cuts to the CAP, which benefits France far more than any other state.

While most other EU states dislike the rebate, M Chirac has made a personal cause out of combating it over the past two weeks. His aggressive approach is seen by diplomats and some French politicians as a diversion from the humiliation that voters inflicted on him in the referendum on May 29.

WHO PAYS WHAT
Net contribution to the EU budget per capita 2003
France £19
UK £42
Common Agricultural Policy receipts per capita 2003
France £117
UK £45

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