John Rentoul: What kind of prime minister will the new Tory leader face in his deep-end baptism?

Betrayal, surrender and desperation. The only thing missing from the reporting of Tony Blair's proposal for the European Union budget was the long retreat across the snowy Russian steppe. Of course, the Daily Mail and The Daily Telegraph want Europe, and Blair, to fail. But even the pro-European Guardian and Financial Times carried headlines on the Prime Minister's "climbdown", while The Independent said he had "caved in". Meanwhile, Newsnight, on the impartial BBC funded by the licence-fee payer, asserted as fact that Blair was "desperate".

Seasoned readers might guess that this column is not the place to come for a detailed explanation of why these headlines are a full and accurate reflection of reality. But wait! It is safe to read on. You are spared another point-by-point explanation of why the Prime Minister is right and his critics wrong. But only because he hasn't got any. What is so extraordinary about last week's headlines is that no one believes them. Not the journalists who wrote or said them; not the opposition politicians summoned to go through the motions (that means you, Graham Brady, Conservative spokesman on Europe); and not even the vast majority of the audience for this media pantomime.

Who thinks it is a bad idea to exchange some of the future growth of Britain's rebate for a fairer deal for the 10 countries that joined the EU last year? Who even thinks it surprising that Blair has proposed it? It was only six months ago, after all, that Peter Mandelson, European commissioner and friend of the Prime Minister, said: "It is surely wrong to ask the poorer new accession states to pay for any part of the [British] rebate." Who thinks it is poor statesmanship, let alone desperation, to use a small part of the rebate to cement alliances with 70 million new consumers in Central Europe and to embarrass the French over their defence of indefensible farm subsidies?

The way the rebate is reported is politics by numbers. Binary numbers. If it is not 1 it must be 0. Either we have the rebate or we don't. To be sure, a reasonable person might have been confused by the Prime Minister saying of the rebate, as he did in June, "We will not negotiate it away. Period." But as Blair had also said that he would get rid of the rebate if the French got rid of the subsidies that made it necessary, such a person would realise that, for purposes of Punch-and-Judy politics in the Commons, the Prime Minister was speaking in binary. Perhaps Blair (and Gordon Brown) laid themselves open to cheap point-scoring by describing the rebate as non-negotiable - as a way of explaining that the formula for the rebate cannot be changed if Britain does not want to change it. But is it really up to the BBC to score cheap political points?

The most interesting thing that the Prime Minister said last week, therefore, was this: "If you govern according to the headlines that you get, then, as I've learnt over time, you don't govern either very consistently or very well." It was a remarkable self-criticism. In binary, it could be reported as: "Blair admits he governed inconsistently and badly." But in a world capable of finer distinctions, it should be possible to realise that there is a deeper issue here. Since the transition from the 1,400rpm regime of Alastair Campbell to the gentle-spin programme run by his successor, David Hill, has the quality of the interaction between the Government and the media improved? Hardly. Politicians are in a no-win situation. Once Blair was castigated as a control freak media manipulator who believed in nothing. Now he is criticised as a lame duck who believes in too many impossible things and is trying too hard.

This narrative is persistent. He is fighting these losing battles only because he is worried about his legacy. He lost the vote on the Terrorism Bill, now he faces the real possibility of failure at the European summit next week and the almost certain failure of the world trade negotiations in Hong Kong.

An alternative reading is just as plausible. He is no longer so afraid of adverse headlines, or so inclined to trim policy to anticipate them. Not least because he does not have to face the electorate again. Surprisingly, given the media bias, he has public opinion behind him, not only on the Terrorism Bill but on the need to reform the Common Agricultural Policy and global trade rules to promote fair trade for the world's poor. Nor does the lame duck thesis make any sense. Would Brown be any more likely than Blair to secure a deal on the EU budget? Or David Cameron?

Cameron faces a baptism in the deep end on Wednesday, when he faces Blair for his first Prime Minister's Questions (assuming he is elected Tory leader on Tuesday). Will he, on the European issue, be governed by the headlines or by the national interest? The water is made deeper by the fact that last week's headlines coincide with his own prejudices.

On the rare occasions when Cameron hits policy specifics, it comes as quite a shock to find out how anti-European he really is. The easy temptation for him will be to try to score cheap Punch-and-Judy points at Blair's expense: betrayal, surrender, desperation. But that would be fundamentally trivial, and not the new start he has promised. It would not begin to answer the question of what deal he could reach if he were in Blair's place at next week's summit.

Cameron's dilemma on Wednesday reflects a more serious problem. How will he cope with the binary media culture? This week he will be 1. Later, probably quite a lot later, he will be 0. Brown faces the same difficulty. His supporters are anxious. Not because he, too, will be making an important appearance in the House of Commons, presenting the Pre-Budget Report tomorrow. The voters are familiar enough with the Chancellor's off-putting style, all paragraphs beginning with "And because" and "Let me tell you", and they do not seem to be too put off. But because the more Blair focuses on the long-term policy challenges - pensions, nuclear power, nuclear weapons, incapacity benefit - the more Brown starts to take the slings and arrows that Blair used to attract to himself.

Blair is above all that now. He has reached a state of Zen calm and resilience. It is up to Brown and Cameron now to renegotiate the terms of trade with the media. How each of them does so is one of the keys to understanding the shape of the contest to come.