Blair leads move off Europe's farm

BRUSSELS - After torpedoing the European Union's proposed agricultural subsidy budget, British Prime Minister Tony Blair is picking up allies in a campaign to tilt EU spending from supporting farmers to modernising the region's sluggish economy.

Blair is seeking to exploit French President Jacques Chirac's sagging fortunes to break the EU's 50-year bias towards agriculture.

The bloc's 105 billion ($178.5 billion) annual budget went on "too much old policy, too little new policy", Dutch Finance Minister Gerrit Zalm said after the Netherlands joined Britain and Sweden in blocking the seven-year financing package.

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

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. He will outline his strategy to the European Parliament on Friday.

British growth will outpace the economies that share the EU's single currency for the 13th year this year. The European Commission forecasts growth rates of 2.8 per cent in Britain, 2 per cent in France, 0.8 per cent in Germany and 1.6 per cent in the 12-nation euro region overall.

Forty per cent of EU subsidies are spent on meat, dairy and sugar price supports or for "rural development". France claims a quarter of the 44 billion farm budget, twice its share of the bloc's 450 million population.

France's farm entitlement was part of a grand bargain at the beginning 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.

"Be careful about describing this as a British problem because I don't think it's true," Swedish Prime Minister Goeran Persson said. "It was a problem for those who defended the old agricultural policy."

Chirac, the main defender of farm subsidies, is battling for his political survival after calling and losing the French referendum on the EU's constitution that last month made France the first founding member state to reject an EU treaty. Chirac's popularity has plummeted to 28 per cent, the lowest since December 1996.

In Germany, a survey last week found 75 per cent of voters expect Chancellor Gerhard Schroeder to be defeated in September elections by the Christian Democratic Union's Angela Merkel. The German conservatives have indicated they will lean more towards the British stance on the EU than France's.

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 a year gives Blair a lever in his bid to scuttle a 2002 agreement to keep farm aid unchanged and steer EU spending towards 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 to boost their standard of living.

So far, France and the eastern Europeans have not 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.

Incomes in eastern Europe range from 42 per cent of the EU average in Latvia to 77 per cent in Slovenia. Poland, the largest eastern country, is at 46 per cent of the average.

Blair, a leading proponent of the eastern expansion, said he would put the rebate on the table as long as the EU reconsidered the "bizarre" attachment to agriculture - a strategy that shows signs of sinking in with eastern European leaders.

- BLOOMBERG