The EU is back on track!

The budget agreed early on the morning of December 17 is a victory for European solidarity - and for European reform.

When the UK's EU Presidency started back in July we inherited a very difficult situation: the EU was divided and confused after first the failure of the French and Dutch referenda on the constitutional treaty, then by the failure to agree the EU's budget for 2007-2013.

To make matters worse, on July 7 London suffered devastating terrorist attacks. Many people tragically lost their lives. The strong support from Malta in those difficult days was much appreciated in Britain.

So we had to get the EU back on track. We had to lead the EU away from failure, back to success. And this is what we have done.

We have delivered a whole new focus on Africa and climate change. We have kept alive the European vision for countries that are not yet members by offering a membership perspective for Turkey and Croatia. The European Council also agreed to offer a membership perspective to Macedonia, another step towards a final settlement of the troubles in that divided part of Europe.

We also have delivered an historic reform of the EU's sugar subsidies regime, the first in decades. A tough negotiation, but the right outcome. And very good for Malta, which has had to give expensive state aid to subsidise the EU sugar price.

So we decided to move boldly to solve the budget problem this year, ahead of the usual schedule, to give the EU's new member states the extra time they had asked for to prepare for this massive influx of new funds.

We realised from the start that the new budget had to deliver a unique combination of "solidarity" plus reform, steering EU funds away from the wealthier member states to new member states that most needed support.

Naturally, some member states stressed the solidarity aspect; others pressed hard for reform. It was the difficult task of the UK as EU Presidency to create a fair, good compromise. Last time the budget was up for a decision there were just 15 member states. The equivalent Council - in December 1998 - dissolved in acrimony. Today there are 25 members.

Our opening proposal could not satisfy anyone, but it had plenty of positive new elements: it shifted resources decisively away from older member states towards the new ones, and it included reforms to make EU funds easier to spend effectively. This creative package formed "a basis for negotiations", as Michael Frendo very aptly put it, and created vital momentum towards the final settlement.

We then listened carefully to all our EU partners, who insisted that the deal had to be improved. But if one partner gained, other countries lost. Solidarity in budget negotiations is a zero sum game. Difficult negotiations followed. Every member state, not least Malta, pressed hard its own interests.

We in the UK had some core requirements. It was essential that any movement by us on the complex question of the UK's so-called "rebate" be accompanied by a robust new examination of overall EU spending priorities - and a clear possibility of changes to the budget in the coming financial period.

Finally the deal was struck, early on a Saturday morning. Everyone had negotiated hard - but everyone knew when it was time to stop!

And a good deal it is.

The deal gives the EU the larger but realistic budget it needs to make enlargement a success. It provides for a searching review of EU budgetary priorities in the coming years. For the first time it makes the UK and France roughly equal net contributors, after many years of the UK paying far more than its fair share into the EU pot. And it gives Malta and the other new member states a huge injection of new resources for investment, in time for them to plan and get their spending decisions right.

In short, the new budget elegantly combines reform and solidarity. No one government achieved a knock-out victory at the expense of the others. That is not how the EU works. But every EU government has returned home pointing to many of its key objectives largely met.

But now comes the even bigger job of spending these massive resources wisely and well across the Union. Commissioner Danuta Hubner has rightly urged the new member states to move fast to improve their absorption capacity for these large new funds. I know from my conversations with Lawrence Gonzi and Dr Frendo that Malta is already on the case.

And we all have to start looking hard at reform of the Common Agricultural Policy. The CAP is the very opposite of solidarity, an old-fashioned form of subsidy which steers far too much public money into far too few private hands, primarily in the old member states themselves - including some to the UK too. Forty per cent of the EU budget spent on five per cent of the workforce producing two per cent of EU GDP. The figures speak for themselves.

The UK will look to Malta for support in the years to come in this key reform area. Because only with much deeper reforms than were possible this time round can the next EU budget deliver the new jobs, new roads, new houses and new opportunities which we all need if the Union is to compete at the global level.

It is essential that the European Parliament supports this excellent budget deal. It would be calamitous for the new member states if the Parliament tried to block this settlement.

Starting all that is next year's task. For now let me compliment Luxembourg Prime Minister Jean-Claude Juncker and Chancellor Angela Merkel, who made an outstanding contribution at her first European Council. And let me warmly thank Prime Minister Gonzi, Foreign Minister Frendo and the rest of the Maltese team. They were determined but constructive. They led Malta well.

We are proud to have Malta as an EU partner. We are delighted that Malta went out of its way to welcome back Her Majesty The Queen and Prince Philip last month. My wife Alice and I saw for ourselves the warmth of Malta's smile in greeting our Sovereign, and were touched. Gozo welcomed The Duke in equal measure! Tony Blair greatly enjoyed his first visit to Malta, to attend the meeting of Commonwealth Heads of Government - a real Maltese success, deftly chaired by Dr Gonzi.

Above all, to round off the year, we are proud that this time round it fell to a British Presidency to lead the EU back from depressing failure to this important success.

My best wishes to all readers of The Times for a happy and most successful New Year.

Mr Straw is Foreign and Commonwealth Secretary of the United Kingdom.