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By : Fraser Nelson - Political Notebook December 04, 2005

SAY what you like about Jacques Chirac, but he knows how to handle the European Union (EU). The President of France has a strict negotiation strategy: if it doesn’t benefit my country, forget it. I won’t sign.

If the EU tells him it’s illegal to ban British beef? Tough. If Brussels imposes a fine for his non-compliance? “Let them invade: we’re not paying a cent.” If anyone suggests cutting farm subsidies? “Non, non et non.”

Tony Blair, by contrast, defines success in achieving a deal through compromise. For years, he used parts of Britain’s sovereignty as bargaining chips. Now he is offering cold hard cash, in the form of the UK budget rebate.

Taking such gold out of the sack certainly dazzled the eastern Europeans with whom he was negotiating – they know the rebate has been the crown jewels of Britain’s EU relationship since it was secured by Margaret Thatcher in 1984. It has been a national trophy, fiscal proof that Britons will not be taken for idiots by Brussels and will pay their fair share, but no more. Now, Blair has a new definition of “fair share” and worries that the deal was a little too good for Britain and must go. In Budapest last week, Foreign Office officials explained that the 1984 rebate deal meant Britain would be “the second-smallest net contributor to the EU by 2013”. Crucially, this is now regarded as a bad thing by Blair.

It’s hard to imagine Chirac losing sleep over the prospect of France making too much of a saving in its contributions to Brussels. But it bothers Blair, who sees the rebate through pan-European eyes and, above all, wants to broker a deal.

The Thatcher deal saw the return of two-thirds of the difference between what Britain pays the EU and what it receives back. Even today, Britain remains the No 2 EU contributor. Naively, the Iron Lady, Margaret Thatcher, said she wasn’t bothered about the formula used for the refund. So the EU kept charging Britain the full whack, distributed its money among member states – then asked each country to send London a refund. It was a convoluted, but ingenious refund system, designed to sow resentment by giving the entirely false impression of countries subsidising Britain. Chirac has been fulminating for years against the “cheque Britannique”. If the rebate was paid from Brussels, there would be far less angst. This accounting trick was in 1984 designed to bend the will of a more suggestible British prime minister who would follow Thatcher. The EU saw Blair coming.

For years, Blair refused to negotiate on the rebate without fundamental reform of the protectionist Common Agricultural Policy (CAP). “You cannot discuss the rebate without discussing the causes for the rebate,” he rightly said. But last week, Blair caved in. The new UK position is that Britain wants to pay as much of its national wealth to the EU as France and Italy. Crucially, it has accepted that the rebate formula is inherently unfair, and needs to change. This is a major psychological shift in Britain’s relationship with the EU: Blair is embarrassed at the terms of the 1984 Fontainbleau deal and does not want the sharp increase in the rebate – due as the EU budget covers new members.

So as he chairs the EU summit in Brussels later this month, he can expect to be taken to pieces by wolves like Chirac, who realise Blair has now conceded that British taxpayers should take more of the strain in future. Hence Blair has departed from the UK’s national interest. His job was to defend the rebate at all costs, until such times as serious CAP reform was on the table. It is not, so he has settled for the allure of doing a budget deal while he holds the EU presidency.

All this fuss is about the EU budget for 2007-13, and Blair has given in to French demands that farm subsidy should be protected – and that the axe must fall on development money due to new member states. It’s worth remembering that the European Commission has good claim to be the largest fraud-prone organisation outside Africa – just ask its official auditors, who have refused to sign off its accounts for 11 years.

And where is the urgency for a deal? Certainly not popular support: last summer, Brussels commissioned the world’s biggest opinion poll to find most Europeans agree that “political objectives do not justify an increase in the EU’s budget”.

Yes, the expansion of the EU does indeed stand to vastly increase the value of the UK rebate. But rather than be embarrassed about it, Blair should realise this will give him an even stronger hand when arguing for reform of scandalous CAP.

Instead, farm subsidies are protected by Chirac’s intransigence – and Blair seems to settle for a smaller goal, becoming once again mesmerisied by the allure of striking a consensus in Europe.

It took Thatcher four years to negotiate the deal agreed at Fontainbleau. The angrier Europe gets about it, the greater its leverage. History will not judge Blair kindly if he plays Britain’s strongest card when the stakes are so low.

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