TONY BLAIR will try to heal a rift with France and break the impasse over the EU’s budget by backing a special “globalisation fund” aimed at helping workers to cope with competition from China and India.

Downing Street yesterday confirmed that the Prime Minister will endorse the fund at a special summit at Hampton Court tomorrow aimed at pulling the EU out of its crisis. Mr Blair hopes that the proposed fund will prove sufficiently attractive to France that it will induce President Chirac to compromise eventually on the EU budget.

However, the strategy already appears to be in trouble, with big contributors to the EU budget — Germany, the Netherlands and Sweden — signalling that they are opposed to it.

The dispute is one of several powerful disagreements between countries about the direction the EU should take that threaten to derail a frenetic 48-hour campaign by Mr Blair to build consensus on modernising the Union.

He is braced for a hostile reception today at the European Parliament, when he explains to sceptical MEPs how he has been using his presidency to put his vision of reforming the EU into practice. He raised hopes in the Parliament with a lofty speech in July on how the Union should respond to its economic and constitutional crisis, but has been criticised for having failed to deliver.

At Hampton Court he hopes to get the 25 EU leaders to agree on how the Union should respond to the challenges of globalisation.

The Prime Minister’s spokesman said: “What we hope to achieve is an overall strategic consensus on the direction for Europe, and then to use that consensus to shape the hard work of the next two months.”

However, consensus could be difficult to reach because France claims support for its protectionist “social model”.

Downing Street believes that such consensus is essential for breaking the deadlock over the budget for 2007 to 2013, which it hopes to do at the summit in December. In June a summit to agree the budget broke up in acrimony after Britain refused to give up its rebate and France refused to countenance any curbing of farm subsidies. Mr Blair said he would be prepared to compromise on the rebate only if the EU agreed to modernise by giving more priority to research and development than agriculture.

The Prime Minister is now trying to patch up relations with France with the surprise endorsement of the globalisation fund, aimed at helping to retrain workers hit by global competition, a few months after having opposed a similar idea. He said: “I strongly support the globalisation fund. The aim is not protecting jobs, but protecting workers.”

However, the fund, which was meant to be a centrepiece of the Hampton Court summit, is being opposed by Germany and other large net payers. An EU diplomat said that Germany was sceptical for three reasons: it was unclear how the money would be spent; it was an attempt to create an extra resource outside the EU budget; and Berlin had no more money.

Another diplomat said: “Countries like Sweden don’t like this proposal because it rewards those who are failing.”

Mr Blair’s spokesman insisted that budget negotiations would not be part of the Hampton Court summit, and that there was no point in restarting them until agreement had been reached on the future direction of the EU. “We have to get the strategic vision and direction for Europe, and then resolve how to reflect that in the budget. We have to get the cart and the horse in the right direction,” he said.

The European Commission, working closely with Downing Street, has prepared a study for the summit which emphasises the urgency of reform. The report, called European Values in the Globalised World, gives warning that “growth is slowing, structural unemployment is high, inequalities are rising. Our economic success and financial viability of our social systems — pensions, welfare, health — is called into question.” It concludes that “the status quo is not an option”.

Other issues to be discussed at the summit include higher education, illegal immigration, energy supplies and coping with the ageing population.

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