As London prepares to take over the presidency of the EU, Prime Minister Tony Blair's finance minister and likely successor Gordon Brown said Europe had to respond to the rejection of the EU constitution in France and the Netherlands.

Centralising power in Brussels would not do, Brown said on Wednesday, urging EU leaders to learn the lesson of the continent's flagging economic growth and voter attachment to national identity.

"If the old assumptions about federalism do not match the realities of our time, now more than ever we need a pro-European realism that starts from the founding case for the European Union," he told London's top financial businessmen at the annual Mansion House dinner.

Many EU leaders blame Britain for torpedoing a budget deal after it refused to give up any of Britain's annual rebate from the European Union's coffers without a guarantee of reform of farm subsidies that largely benefit France.

Relic of the past

But as the recriminations continued, Brown said agricultural subsidies were a relic of the past and symptomatic of the malaise affecting the European economy as countries like China and India raced ahead.

The bulk of the EU's farm
subsidies benefit France

"With 40% of the European Union budget spent on agriculture - only 2% of Europe's economy - the budget issue itself is a symptom of an even greater issue about the future of the European economy," he said.

With tensions running high within the EU, Blair will deliver a similar message to the European parliament in Brussels on Thursday, calling on the EU to implement budget reforms.

It is part of a concerted campaign being mounted by Britain for the implementation of key economic reforms agreed at a Lisbon summit in 2000, a foretaste of which was given by Foreign Secretary Jack Straw in Brussels earlier on Wednesday.

"With some singular exceptions, of which the United Kingdom is one, that is not being achieved," he said.

"The prime minister will set out the problem, setting out the need for the European Union not just in its rhetoric but also in the practical decisions that it takes ... to have a forward-looking agenda," Straw added.

Brown said policies that promoted economic growth and jobs had to become a priority for Europe.

Greater flexibility

The starting point must be a European-wide commitment to long-term structural reform founded on greater flexibility, and starting with a political commitment to completing the single market," he said.

"To those who say there should be no change without security, we have to reply, there
can be no security without change"

Gordon Brown,
UK finance minister

"So we should set and hold to timetables for the opening up of sectors from energy to utilities and we should be insistent about moving forward quickly in ... the opening up of the European financial services market."

Brown also renewed his call for a more independent competition policy where independent authorities and not politicians make the decisions.

Responding to cries, especially from France and Germany, that the British model ignores the social dimension, Brown said a competitive economy could go hand in hand with the goal of full employment.

"To those who say there should be no change without security, we have to reply, there can be no security without change," he said.