The aim is to agree the ground rules for a new round

The aim is to agree the “ground rules” for a new round of negotiations, designed to prevent a repeat of last week’s fiasco.Yesterday Mr Blair backed the hardline stance of the Chancellor, Gordon Brown, by saying that any pay deal on top of the original offer of 4 per cent would have to be financed fully by changes to working practices.He wa supported today by Sir Edward George, Governor of the Bank of England, who said a “double-digit” settlement could drive up inflation, which would risk triggering higher pay demands across the public and private sector.Even a more moderate settlement than the Fire Brigades Union’s 40 per cent demand could lead to “the thing kind of exploding”, he told the Commons Treasury Select Committee. “You get a generalised push on inflation, starting in the public sector but spreading to the private sector too,” he said.Mr Blair yesterrday refused to endorse the more conciliatory approach of the Deputy Prime Minister, John Prescott, who has suggested the Government might help councils to meet the transitional costs of the package to ensure a settlement. Mr Blair said: “If there is anything above 4 per cent it must be paid for by modernisation.”The Prime Minister said the proposals in the report by Sir George Bain would produce an 11.5 per cent rise over two years, but warned that the 16 per cent offer blocked by the Government last week would have had “dire consequences” for the economy.In a blunt warning to the FBU, Mr Blair told a Downing Street press conference: “This is a strike they can’t win. It would not be a defeat for the Government, it would be a defeat for the country.” Asked whether the Government would meet the transitional costs of a settlement, the Prime Minister’s official spokesman said the “right end of the telescope” was not to work out a percentage figure, but the savings that could be achieved by modernisation.Andy Gilchrist, general secretary of the FBU, said in a statement last night that Mr Blair was “making a fool of himself” over claims that accepting the union’s demand would destroy the economy.”Now Blair has made the Government’s position clear, we are all aware that they really don’t know what they are talking about. Tony Blair listed five modernising items he said would save money, but he made embarrassing gaffes on each one.”The union said part-time and full-time firefighters already worked together; employers did not want to change the shift system; introducing overtime would cost the service £18m and there was no money available for joint control rooms. Mr Gilchrist added: “None of these changes would make the savings the Government is talking about.”Despite the hardline rhetoric, senior union sources believe the Prime Minister has left room for manoeuvre.While some firefighters predicted the dispute would go on until Christmas, senior union officials close to ministers confirmed that there could be imminent negotiations.They believe that Mr Blair in effect retracted accusations that Mr Gilchrist was conducting a political strike in the manner of Arthur Scargill, former president of the National Union of Mineworkers.Senior union sources argue that the carefully chosen words used by the Prime Minister did not rule out “transitional funding”. Mr Prescott had intimated that some money could be made available if it meant long-term savings.The sources said: “The Prime Minister needed to show that the Government was in control.

He needed to ‘close down’, as New Labour puts it, the idea that there was a muddle. Following the Prime Minister’s statement, things are more stable. The European Rapid Reaction Force is undermining Nato and threatening the security of Europe, Iain Duncan Smith said yesterday. The 21,000-strong force, which could operate anywhere in the world, is expected to be fully operational by 2006.But Mr Duncan Smith warned that the EU-run reaction force would split Nato and antagonise Britain’s American allies He told MPs: “It was a bad decision. It has undermined Nato, it has confused our allies and it threatens now to undermine European security.”Mr Duncan Smith said the new Nato response force was “vital to enable Nato nations to contribute effectively to the war against terrorism”.He said: “The army finds itself committed, however, to both the Euro army and to Nato. Can he confirm that Nato commitments rather than those of the Euro army will always have priority? The question underlines the failure of the summit to deal with the issue of the relationship between the Euro army and Nato.

The Prime Minister promised that this key issue would be resolved four years ago.”Mr Blair replied: “It is quite correct that we have not been able to reach agreement between the EU and Nato. The reason for that is because there is a disagreement between Turkey and Greece about that.”There are going to be circumstances where Europe is able to act but Nato, for reasons for example to do with American unwillingness, is unwilling to act. In circumstances where Nato as a whole cannot be engaged it makes perfect sense for European defence to take this over.”Mr Blair hailed the expansion of Nato to include Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia, promising that “these invitations will not be the last”.He said he wanted to build on the transformed relations between the alliance and Russia. “My great hope is that we are now beginning to include the new Russia as a real partner in meeting the new threats we face,” the Prime Minister said.. When John Prescott visited his local fire station in Hull nine days ago, his experience as a former trade union leader was clear to see. Taking the unorthodox step of talking to frontline firefighters in person, the Deputy Prime Minister’s plain speaking convinced those present of his willingness to listen to their case. Mr Prescott’s warm words were all very well, but wouldn’t he be overruled by Downing Street?The Deputy Prime Minister’s response was as direct as it was simple: “I have told Tony Blair to keep his nose out of it and let me deal with it.”Yet by yesterday, when Mr Blair finally weighed in behind Gordon Brown’s hardline warnings to the FBU, everybody knew that both Number 10 and Number 11 couldn’t keep their noses out of the dispute.As Mr Prescott’s role and authority in the strike came under the microscope again, some union leaders were even asking: “If Prescott can’t deliver, what is he actually for?”Critics claim that the Deputy Prime Minister’s union background and natural empathy with strikers mean that he has failed to prepare properly for the industrial action.

His alleged belief in the “sanctity of the picket line” has meant he has refused to consider using spare red fire engines until very late in the day, they say.Part of the problem is that ministers have been playing “good cop, bad cop” with the FBU in recent days. Mr Prescott made clear on Friday that he might be flexible over the key question of transitional funding from Whitehall. In an article in the News of the World at the weekend, he said the 16 per cent deal was “still worth talking about”.Mr Prescott and Peter Hain, himself a former union negotiator, have certainly been the most conciliatory, their messages directed mainly at the firefighters. Meanwhile, Mr Blair and Mr Brown have played the bad cops, sending out a message aimed mainly at reassuring Middle England and the City respectively that this was a different kind of Labour government.The Tories and others have seized on the apparently conflicting signals coming out of Government as evidence of a lack of grip on the whole dispute.But allies of Mr Prescott point out that his union experience has been invaluable. “He knows more than any other minister that it will only end through negotiation,” one source said. The varied messages sent out by the Cabinet were “differences of tone and shading, not substance”.Prescott allies point out that the Prime Minister’s most significant reply in his press conference yesterday came when he was asked if he agreed with his deputy’s hint that some funds could be made available to councils as a stop-gap.Mr Blair replied: “I don’t think it is sensible for me to get into the absolute intricacies of the negotiation.” Despite Downing Street’s tough rhetoric, Mr Prescott will be working on exactly those intricacies to allow all sides to save face.. Modernisation is like motherhood and apple pie Everybody agrees with it, but the devil is in the detail

Modernisation is like motherhood and apple pie.