Blair gains allies for EU budget overhaul.

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Blair Gains Allies for EU Budget Overhaul After Summit Waterloo

June 20 (Bloomberg) -- U.K. Prime Minister Tony Blair, after torpedoing the European Union's proposed budget over agricultural subsidies, is picking up allies in a campaign to tilt EU spending from supporting farmers to modernizing the region's sluggish economy.

In his biggest European gamble since being reelected to a third and final term, Blair is seeking to exploit the sagging political fortunes of French President Jacques Chirac to break the EU's 50-year bias toward handing out money for agriculture.

The bloc's 105 billion-euro ($128 billion) annual budget goes for ``too much old policy, too little new policy,'' Dutch Finance Minister Gerrit Zalm said in an interview after the Netherlands joined the U.K. and Sweden in blocking a new seven-year financing package at a weekend summit in Brussels.

Ending on the 190th anniversary of Napoleon's defeat by a British-led force at Waterloo just south of Brussels, the failed budget talks set the stage for a reckoning between Britain and slower-growing France over how to boost the economy and use Europe's weight in the world.

`We are going toward a much more deregulated, free-market Europe,'' said Emmanuel Ferry, senior economist at Exane-BNP Paribas SA in Paris. ``The French conception of European construction is weakening. The British agenda will be strengthened by French weakness.'

Blair to Rule

By a quirk of the calendar, the power to resurrect the talks over the 2007-2013 budget now rests with Blair, who takes over the 25-nation EU's rotating presidency for six months in July. Blair will outline his strategy to the European Parliament on June 23.

U.K. growth will outpace the economies that share the EU's single currency for the 13th year in 2005, the European Commission predicts. It forecasts growth rates of 3.0 percent in Britain approximately 2 percent in France, 0.8 percent in Germany and 1.6 percent in the 12-nation euro region overall.

Forty percent of EU subsidies are spent on meat, dairy and sugar price supports or for ``rural development'' under policies as old as the EU itself. France claims a quarter of the 44 billion- euro farm budget, twice its share of the bloc's 450 million population.

France's farm entitlement was part of a grand bargain at the origins of the EU, when a war-chastened Germany agreed to finance French agriculture in exchange for access to the French market for its industrial goods and cars.

Old and New

``Be careful about describing this as a British problem because I don't think it's true,'' [/b]Swedish Prime Minister Goeran Persson said in an interview after the summit.[/b] ``It was a problem for those who defended the old agricultural policy.''

Chirac, the principal defender of farm subsidies, is battling for his political survival after calling and losing a French referendum on the EU's constitution on May 29 that made France the first founding member state to reject an EU treaty.

Chirac's popularity has since plummeted to 24 percent, the lowest since December 1996, according to an Ifop poll published in Le Journal du Dimanche yesterday. Ifop surveyed 1,884 people from June 9 to 17. No margin of error was given.

In Germany, 75 percent of voters expect Chancellor Gerhard Schroeder to be defeated in September elections by the Christian Democratic Union's Angela Merkel, an Allensbach survey for Frankfurter Allgemeine Zeitung showed last week.

``Tony Blair is hoping that after a change of government in Germany, the CDU will fall more in line with his thinking. Clear signs are that they will'' Daniel Gros, director of the Centre for European Policy Studies in Brussels, said in an interview.

De Gaulle, Thatcher

Britain boycotted the six-nation drive to found the EU in the 1950s, was blocked by Charles de Gaulle from joining in 1963 and 1967, and fought for a decade after entering in 1973 to cut its payments to the EU budget.

A rebate won by Margaret Thatcher in 1984 and now worth about 5.2 billion euros annually gives Blair both a liability and leverage in his bid to scuttle a 2002 agreement to keep farm aid unchanged and steer EU spending more toward research, innovation and small-business promotion.

Chirac counterattacked by deriding British ``egoism'' in holding up the budget, painting Blair as the enemy of the eastern European countries that joined the EU last year and are counting on subsidies from Brussels to boost their standard of living.

So far, France and the eastern Europeans haven't been natural allies. Chirac told eastern backers of the Iraq war to ``be quiet'' in 2003, and has blamed lower eastern taxes and wages for luring jobs away from France.

Bizarre Attachment

Incomes in eastern Europe range from 42 percent of the EU average in Latvia to 77 percent in Slovenia, EU data show. Poland, the largest eastern country, is at 46 percent of the average, compared with France at 113 percent.

Blair, a leading proponent of the eastern expansion, said he will put the rebate on the table as long as the EU reconsiders the ``bizarre'' attachment to agriculture -- a negotiating strategy that shows signs of strong support with eastern European leaders.

Decades-old farming priorities are ``difficult for us to understand,'' Estonian Prime Minister Andrus Ansip said in an interview. Yet ``it's also difficult to explain why we have to take part in the British rebate.''

Without a budget pact before the start of 2007, projects from a Prague airport subway line to a Baltic high-speed rail link would be in limbo. The last budget, for 2000-2006, was set nine months in advance.

``The next attempt will be successful,'' Slovak Prime Minister Mikulas Dzurinda said in an interview. ``I believe that under the leadership of Tony Blair -- we will get there.''

Gros said any move to curb agriculture payments will face resistance in Poland, a country with a fifth of its labor force in farming and more dairy cows than the 15 old EU members combined.

``There is a need for some reforms in the financial system, but solidarity and cohesion are also very relevant to the concept of European integration,'' Czech Foreign Minister Cyril Svoboda said in an interview.

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