European budget debacle shows up Blair's poor negotiating skills - again

London Briefing: Tony Blair's European budget capitulation has, predictably, gone down very badly at home. Most of the media is uniformly critical, pointing out that Blair has, once again, proven to be a hopeless negotiator.

Having previously stated that there would be no surrendering of any part of the UK's rebate without reform of the Common Agricultural Policy (CAP), the prime minister proceeded to give back some of the rebate in exchange for a big smile from the French president, Chirac.

If possible, British attitudes toward the CAP have hardened further. Across the political spectrum we see it described as a mechanism that rips off consumers, benefits rich farmers and kills poor people in the Third World. If this mindset persists - and there is no reason why it should not, given that it is as accurate as it is hard-hitting - then either the CAP or Britain's membership of the EU cannot logically persist beyond 2013.

But it is not just the sight of Blair displaying pathetic negotiating skills that has turned a lot of people off. It is the vista, yet again, of Europe's leaders expending so much political energy and capital on a subject that has nothing to do with the challenges actually facing Europe.

The economic threats posed by the rise of countries like Brazil, Russia, China and India should be at the heart of any European summit. The European budget should be an exercise in promoting the economic reforms necessary to meet these threats. At the very least, European leaders should now and again talk about how to reduce unemployment and raise economic growth.

Instead, they continue to extend and adapt the post-war settlement. That's the war that ended in 1945, by the way.

Having decided, more than half a century ago, to extract lots of money from the losing taxpayer, the French have no greater vision than to persist with maximising war reparations from the Germans.

That's the other way in which the British now see the EU: a mechanism whereby the French extract as much as they can from as many suckers as possible.

We have moved a long way from the ideals of Europe's founding fathers. All of which is, of course, extremely unhealthy. But perhaps that's the best way to describe the current state of the EU.

Blair comes out of all of this looking extremely damaged. Which, paradoxically, poses a bit of a problem for David Cameron, the new leader of the opposition. For the first time in ages, the Tories have actually found a policy platform that has rattled the government. Cameron is simply presenting himself as a clone of Blair.

For about five minutes this looked as if it might be quite clever, particularly as the Labour Party is turning on its leader. Cameron's genius has been to spot that Blair is, in fact, a closet Tory and it should, therefore, be relatively simple to divide Labour via the simple tactic of supporting everything Blair wants to do.

All this looks eminently sensible in a world where the electorate is also broadly supportive of the prime minister. But if Blair has been badly wounded by the budget debacle, it may not be quite so appealing to the voters. How much damage has been done to Blair remains to be seen.

The Tories' new strategy is to present Gordon Brown as an old-fashioned tax-and-spend chancellor, cast in the mould of old Labour. Their aim is to blame him for all the failures to reform the public sector.

They would love to drive Labour backbenchers into open revolt by supporting Blair at every turn. They have made a start by backing Blair's proposed education reforms. Even the deputy prime minister, John Prescott, has come out and opposed Blair's ideas. Education is one of those weird British things: if you had a bad education you want everyone else to experience exactly the same as you did.

But the Tories will not, of course, support Blair's budget deal. They will soon recognise that the European debate has now moved on. For the British it used to be about the single currency. That debate is now settled. Expect the new question to be whether British membership of the EU is compatible with the long-term survival of the CAP.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.