Ending the subsidies for Europe's farmers will be an expensive battle

The British government talks a good talk on CAP reform. But it has a dark corner, too: Mrs Thatcher's rebate

It's not a bad text for the day. "Let me also add a sober word on the CAP ... European agricultural production must [make] allowances for commercial obligations towards third countries, in particular the developing countries. We cannot afford costly surpluses, the sales of which we have, in addition, to subsidise from public funds. Nor should we hamper free trade because of our Common Agricultural Policy. I hope ... the Commission in Brussels will bring to light the mistakes of the past regarding CAP and help us correct them."

So who said it? Well, it could have been almost any European politician talking this week in advance of the proposals for CAP reform which Franz Fischler, the EU agriculture commissioner, unveiled in Brussels yesterday. Except it wasn't. It was the German Chancellor Helmut Schmidt, speaking as a fraternal delegate to the British Labour Party conference in 1974.

Powerful testament to the extraordinary reluctance of member states to remove easily the most scandalous feature of the European Union, the indefensible taxpayer-funded subsidies on farming which it continues to run at the expense of cheap food and of Third World producers. For most of the problems Mr Fischler sought to grapple with yesterday are the ones Chancellor Schmidt had been describing as monstrous 28 years earlier.

Given that it's taken more than quarter of a century since then to get here, you would be forgiven for assuming that there is now a consensus for a clear programme of reform. You would be wrong. On the one hand, France, with backing from Spain, Portugal and Greece are likely to oppose with varying ferocity the overall – and commendable – switch away from subsidies on production to ones for more environmentally friendly farming and care of the landscape. On the other Britain, of which more in a moment, Germany, the Netherlands and Sweden, while welcoming much in the Fischler package, will argue that the proposals do not go far enough. (And all the big countries are warier than they admit of Mr Fischler's entirely correct plan to switch subsidies from big agribusiness to smaller farmers.)

The Germans and British are particularly worried that there is no overall plan for cutting the total cost of the CAP. This isn't really Mr Fischler's fault; it reflects the deadlock on reform after a long night of wrangling at the Berlin summit in 1999. But since then there has been a fresh complication; understandably the candidate East European countries for EU membership from 2004 saw no reason why they should fall victim to the failure of the 15 to reform the CAP. They demanded a share of the direct payments to farmers which form around half of the market-defying £26bn the CAP already costs the European taxpayer each year. So it was eventually agreed that they should receive 25 per cent at first, with the payments being phased gradually up to 100 per cent in 10 years.

But hang on, said the north Europeans, including the UK. What is that 100 per cent figure going to be in 10 years? Unless we have parallel plans to reduce the costs of CAP post-enlargement, they are going to be out of control. We need, at the very least, a political commitment to work out of ways of reducing them. And we need it this October, well ahead of the completion of final EU enlargement negotiations at the end of the year. Once again, the French president, still addicted to subsidies, is likely to lead the resistance.

Not surprisingly, this worries the east Europeans a good deal. In London last week, Marek Borowski, the Speaker of the Polish Parliament and one of his country's most important politicians, expressed his anxiety to British ministers that the wrangle could delay enlargement. He was right to do so. It's a disgrace that the EU has taken so long to achieve what are actually its two most important goals: CAP reform and enlargement. But it would be a global tragedy if abject failure on the first resulted in the collapse of the second. Could it happen?

Well just possibly. The new right-wing Dutch government is showing ominous signs of disenchantment with enlargement. The Germans, with a Chancellor facing a difficult election in September, are deeply fed up with bankrolling farmers in the rest of Europe, as they see it. On the other hand it is, in the end, inconceivable that Germany or Britain would risk international stigma by allowing enlargement to be delayed. Indeed, Peter Hain, the Europe minister, told Mr Borowski as much last week. Which means that the German and British bargaining hand over a direct payments reduction is rather weaker than they would like. And that means that the issue of an October commitment to reduce direct payments may turn on whether even President Chirac starts to get frightened by the costs to the EU, France included, of doing nothing.

Now in the wrangle over CAP it's common to cast the French as the bad guys, and the British as among the best of the good guys. The first judgement is undoubtedly right. But the second is at least open to question. The British Government talks a good talk on CAP reform. But its policy has a dark corner, too: the supposedly inviolable £1bn to £2bn a year rebate negotiated by Margaret Thatcher in 1984. At Berlin in 1999 Tony Blair theoretically backed Mr Schröder in his desire for sweeping reductions in CAP. But in reality Britain sat on its hands. Mr Blair was unable to take on the French opposition because to do so would have opened up the question of the rebate, with consequent meltdown in the Eurosceptic press.

For logic, if Britain really wants deep cuts in CAP, does not support permanent continuation of the rebate. It was negotiated because Britain as a net contributor did not benefit from the CAP as much as other countries. It therefore follows that if those benefits are dramatically reduced, the basis of much of the rebate goes with them. The rebate remains the monkey on the back of Britain's advocacy of deep cuts in the CAP. And the rest of Europe knows it. Now the rebate is worth a lot of money. It is equivalent to a sizeable chunk of the British aid budget. And that's deeply important to the developing world. But so too – arguably even more so – is real reform of a CAP which condemns their farmers to poverty by excluding them from European markets.

Mr Fischler's mainly very sensible proposals – coupled with serious reductions in direct payments and therefore overall CAP costs – would begin to provide a real measure of such reform. But the harsh reality is that Britain cannot present itself as an unalloyed champion of such reform until it starts to square up to the question of the rebate. That would, of course, trigger a disastrous wave of domestic opposition. Which brings us, inevitably, to the most important issue in British politics between now and the general election. It just isn't politically realistic to believe that the British Government would even think about revisiting the rebate this side of a euro referendum. After a referendum, if it was successful, it should, and just might, do so.

d.macintyre@independent.co.uk