Cash quarrel splits EC's rich and poor: Tussle over fund for Community's four least wealthy countries - Major given chilly welcome in Spain on the rocky road to Edinburgh

WHEN MONEY flies out of the window, love is said to walk out of the door. With the EC in recession, the discussions on the Community's financing arrangements has led to a distinct chilling of previously friendly relations.

Spain, along with Portugal, Greece and Ireland, stands to gain much because the new budget plan for 1992-1995 includes, for the first time, a special credit line known as the cohesion fund to enable these four countries to bring their transport and communications systems up to the standards of their richer counterparts and to institute environmental protection schemes.

The grant is not an altruistic gesture. The concept of regional solidarity has underpinned the EC ever since financial instruments to level out economic imbalances were introduced in the mid-1970s. Parts of Britain benefit from EC money designed to help poor rural areas or declining industrial regions.

But moves towards the single market and the monetary union that is supposed to ensure the market functions properly have had a profound effect on the EC's poorest members. Although the net benefits of EC membership are acknowledged to be huge, the Iberian penisula, for example, has provided France with a vast new export market. At the same time, the poorer countries have had to tighten their belts too as a condition of monetary union.

The budgetary proposals first forwarded by Jacques Delors, the president of the European Commission, were stridently opposed by those states that pay the greatest proportion of the bill - France, Germany and Britain. They provided for a one-third increase in EC spending over five years, boosted the regional funds element and created a cohesion fund amounting to pounds 7bn over the same period.

This was regarded as too generous by most of the 'non-cohesion' countries. Mr Delors then suggested that his budget proposals be extended over seven years. This eased the financial burden by spreading it over a longer period and implied an increase in the cohesion fund to pounds 10.5bn. But the increase in regional spending, on which the four also depend heavily, was only very slight.

This plan, too, was rejected and on Friday the British devised a compromise. Supported by Germany and the Netherlands, the British suggested a smaller overall increase in EC spending, spread over seven years, that trimmed the larger cohesion fund to pounds 8.75m and hacked back regional spending. The proposed budget line for the so-called structural funds in 1999 is, under the British plan, 26.3bn ecus ( pounds 21.3bn) - 800m ecus less than the amount envisaged in 1997 under Mr Delors' original proposal.

The 'cohesion four' complained that it was a betrayal of early commitments and made clear that they could certainly not be expected to pay their part of the British budget rebate, to which all 12 member states contribute. There is much sympathy outside Britain for their stance, which could imply a reduction in the real value of the rebate, unless other EC members states are willing to increase their contributions, which does not look likely.

Spain derives less than 1 per cent of its total wealth from the EC, but in Ireland and Greece this figure is nearer 6 per cent; in Portugal, around 4 per cent. 'We are not waging this war purely out of self-interest but for the principle of the thing,' said an EC source yesterday.

It is this principle that Felipe Gonzalez, Spain's Prime Minister, spent yesterday drumming home to Mr Major. The Edinburgh summit will reveal whether his message hit home.