France, Italy and Spain would co-fund EU rebates

France, Italy and Spain would pay most for European Union budget rebates to Britain, Germany, the Netherlands and Sweden under proposals to be adopted by the European Commission tomorrow.

According to a document obtained by Reuters, the French would make the biggest contribution of more than one billion euros a year to a partial refund for all the biggest net payers that would replace Britain's exclusive EU budget rebate after 2007.

London insists its annual 4.6 billion euro cheque from Brussels, won by Prime Minister Margaret Thatcher in 1984, remains justified even though it is now the second richest EU country per capita.

Although the enlarged 25-nation bloc's spending priorities are shifting from farm subsidies to aid for poorer east European regions, agriculture still swallows more than 40 per cent.

The figures to be put forward by EU Budget Commissioner Michaele Schreyer will launch a year-long battle over money that is likely to pit Britain against its partners, especially France.

Member states have the last word with each having a national veto over the resources to fund the EU budget.

"There are about 20 delegations hostile to this mechanism," a French diplomat said. "The only solution is to scrap the British cheque and control spending."

Britain argues its refund is still legitimate because the budget remains distorted by massive agricultural spending, of which France is the main beneficiary, and by regional aid of which it receives little.

British diplomats acknowledge privately that a general rebate system for all big net contributors, of the kind that Mr Schreyer is proposing, could be hard to resist.

Politically, the battle could hardly come at a worse time for British Prime Minister Tony Blair as he prepares for a likely general election next May or June, and a referendum on the EU constitution probably in 2006.

But EU diplomats say Mr Blair won no friends by blocking the Franco-German choice of Belgian Prime Minister Guy Verhofstadt for European Commission president last month and those countries are waiting to take their revenge over the rebate.

Under the latest version of her plan, Britain would still receive the largest rebate with 2.123 billion euros a year. Germany would get 1.137 billion, the Netherlands 352 million and Sweden 78 million.

France would pay an extra 1.072 billion euros to finance rebates, Italy 888 million, Spain 530 million, Belgium 184 million and even relatively poor Poland would pay 141 million.

Britain and the other net payers agree Brussels should be looking to curb spending instead of proposing a 40 per cent increase to one trillion euros in the next seven-year budget - chiefly to fund the cost of this year's eastward expansion.

Six major net contributors called last year for a cap on EU spending at 1.0 per cent of gross domestic income instead of the 1.24 per cent proposed by the Commission for 2007-2013.

But Mr Schreyer hopes a generalised rebate system may overcome resistance to a higher overall budget ceiling.

Without change, she calculates, the British rebate would rise to €7.1 billion a year by 2013. Instead, she proposes that any country with a net contribution to EU coffers of more than 0.35 per cent of gross national income should get up to two-thirds of the excess back.

The calculation is more complex because all member states, including those entitled to the new rebate, would co-fund the reimbursement, unlike the British rebate to which London does not contribute.