Blair: Backing EU reform

European leaders have clashed over plans to liberalise the continent's service sector.

Controversial plans to allow further cross-border competition in a range of services have provoked controversy around the EU.

Critics fear the plans, which would allow companies based in one EU country to compete in another without registering there, could lower standards.

They are, however, seen as a key plank of the Lisbon agenda designed to improve the continent's economic competitiveness.

Over dinner on Tuesday night Jacques Chirac, who is facing a difficult referendum vote on the EU constitution, was said to have attacked the plans.

The French president was quoted as saying that "ultra-liberalism is the communism of our current days".

However, the 25 EU leaders agreed to press ahead with the services directive but with changes to the wording that could help the French leader.

Social model

Jean-Claude Juncker, Luxembourg prime minister and host of the EU Council meeting, said there will be no efforts to "find a common agreement on the appropriate method to apply to the directive on the opening of the services market".

"We agreed that the internal market for services must become fully operational in order to promote growth and employment, and strengthen European competitiveness," he said.

"However, the services market we wish to introduce must preserve the European social model."

The British government said it was pleased that the liberalisation plans would proceed.

"We are perfectly relaxed about how things have gone," said Tony Blair's spokesman.

"The important thing on the services directive is that the legislation continues, and we will, the Commission will, look at people's concerns quite rightly within that legislative process.

"There was widespread support for the Commission around the table. What the changes in wording reflect is that there are concerns and those should be debated as part of the normal review mechanism."

The spokesman added that the British prime minister and President Chirac "took a different view" on the services directive.

John Cridland, CBI deputy director general, said the Commission was right to resist pressure from France and Germany to withdraw the directive.

"The Commission's own figures suggest the directive could add 600,000 jobs across the EU," he said.

"With 8.8 per cent of the workforce currently unemployed, the figures speak for themselves.

"Some fine-tuning may still be needed but it is imperative that the spirit of the directive is not changed."

Rebate row

Britain and France also had their traditional clash over the UK's budget rebate.

Number Ten said the subject had not been raised at the meeting.

But speaking later at a press conference, President Chirac said: "One can only have a reasonable budgetary balance if we put back on the table the British cheque.

"It can no longer be justified. It was from the past."

However, foreign secretary Jack Straw warned that the UK could veto any changes to the £3 billion a year rebate.

"We have an absolute veto. The justice of the rebate is still there," he told the BBC.

"We have one of the lowest net receipts of any EU country because of the relatively small size of our agriculture sector and its efficiency. That continues to be the case."