The Monday Interview: Jose Manuel Barroso, European Commission President - 'Britain Brings a Lot to the European Union but It Should Also Accept That It Gains a Lot'

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Even friends sometimes haggle over money, and the President of the European Commission, Jose Manuel Barroso, and Tony Blair used to be the best of buddies.

An ally over the war in Iraq and a fellow free-marketeer, Mr Barroso got the top job in Brussels last year with the help of Mr Blair. But when the British presidency of the EU proposed cutting a seven-year EU spending plan put forward in June by EUR24bn (pounds 16bn), Mr Barroso likened Mr Blair to the Sheriff of Nottingham (in this case stealing subsidies from poor East European nations to fund the rich UK's budget rebate).

Days before Thursday's make-or-break summit, the Commission president has emerged from talks in Downing Street. Mr Barroso, a former Portuguese prime minister, is proud of his good relations with the British premier but 'certainly made my points clear' at No 10. 'Everybody has to move,' he says, adding that the British, holding the rotating EU presidency, have a 'special responsibility'.

Mr Barroso is in the London offices of the Commission. Mr Blair is about to give a press conference but Mr Barroso has heard it from the horse's mouth. He thinks a deal is possible this week especially since the UK accepts the need to revise its proposal before the summit, but it will be difficult.

In June Mr Blair blocked an EU budget because it demanded cuts in the UK budget rebate but left farm subsidies untouched. He has scaled down ambitions for reform of the Common Agricultural Policy but wants lower overall spending. Not only does the UK propose deep cuts in subsidies to the EU's ex-communist members, but it took a big chunk out of Commission spending in programmes from research and development to consumer protection.

So did Mr Barroso feel betrayed when he saw what Mr Blair was planning? 'No. I don't think in personal terms. It is not a question of emotion. I understand very well we are in a negotiation.'

But his warning is stark. Another row and political crisis could block future EU expansion, marginalise Britain, deprive it of its natural allies in Eastern Europe and sabotage prospects of a deal on freeing global trade. Overall, this is a test of Mr Blair's credibility in the EU and a defining moment for Britain's place in Europe. All this from a man who, as Portugual's Prime Minister, stood with Mr Blair at the Azores summit over the US-led invasion of Iraq.

Though he prefers speaking French Mr Barroso is fluent in English and is aware of linguistic nuances. At one point he uses the word 'compromise', then checks himself. 'You don't like that word. I'm told by my British advisers compromise has negative connotations.'

He understands British politics too. Though he acknowledges there is a public opinion problem, he urges Mr Blair to be bolder in explaining the cash will be spent on things the UK likes. 'There is a great contradiction stating a great ambition for Europe in terms of a larger Europe, a reform- minded Europe, an open Europe in terms of trade and to forget about that ambition when it comes to the budget, and to have a mini-Europe approach. I hope our British friends have the courage to explain this. Going on with further enlargement without being able to set this financial perspective for this EU of today of 25 raising to 27 " let's be frank we are not credible.'

Mr Barroso says some nations claim the planned accession of Bulgaria and Romania in 2007 is impossible under the Blair plan and that they are right. 'With that level of budget we cannot accommodate those two. You have to understand this.' Enlargement is 'a project with a historic dimension with a strategic dimension for the future of the world' he says, yet EU leaders are 'discussing zero zero point of the budget forgetting about the big picture'.

Once a Maoist student activist, Mr Barroso is now firmly on the centre right, working with Mr Blair on economic reform. …