Germany's new Chancellor Angela Merkel visits Tony Blair

Germany's new Chancellor Angela Merkel visits Prime Minister Tony Blair on Thursday for a meeting that could set a new tone ahead of talks on some of the most pressing budget and economic issues facing Europe.In keeping with Germany's close ties to France, Merkel's first visit as chancellor was to French President Jacques Chirac but she has given clear signals in the past that her instincts are closer to the market-friendly ideas of Blair.

Merkel has been at pains to stress continuity in foreign policy and no-one is expecting any radical change of stance ahead of next month's European Union summit at which the British presidency is desperately seeking a deal over the EU budget.

But after his sometimes difficult relations with Merkel's predecessor Gerhard Schroeder, Blair will be hoping for a more conciliatory approach from the new chancellor.

"In concrete policy terms, there's not likely to be much change -- that's partly due to the nature of the EU itself," said Canan Atilgan, a specialist in European issues at the Konrad Adenauer Foundation, a think tank linked to Merkel's Christian Democratic Union (CDU). "But in her way of going about things, in communication and negotiations, there may be quite a noticeable change."

Merkel and Blair are due to meet only briefly on Thursday evening but officials say the two have substantial issues to discuss ranging from the EU budget to plans to open up service industries and reform in the sugar and chemicals sectors.

On the budget issue -- where agreement over EU finances for 2007-13 has been held up by disputes over a rebate enjoyed by Britain and agriculture subsidies that benefit France -- Merkel appears to be sticking with Schroeder's support for France.

But British officials will be watching carefully for any change in tone after what London felt was an excessively confrontational position by Schroeder, who roundly condemned the rebate claimed by Blair.

While Britain's rebate has been condemned as unfair, London has argued EU farm spending, which largely benefits France, is wasteful and outdated and prevents more profitable investment in research and economic reform, themes dear to Merkel.

Speaking after talks in Paris and Brussels on Wednesday, Merkel refused to be drawn on whether she expected to play a mediating role between Chirac and Blair.But she avoided painting Blair into a corner on the British rebate, saying it was only one of several elements at issue.

"On the financial perspective, we have to look at all the issues, those of the net contributors as well as beneficiaries and we can't reduce it to one point," she said in Brussels after a meeting with EU Commission President Jose Manuel Barroso.

With the EU still reeling from the rejection of a planned constitution by French and Dutch voters earlier this year, any advance would be welcome to Blair, whose presidency risks ending in failure in December if no budget deal is reached.

Schroeder's close relationship with Chirac, forged during their opposition to the U.S.-led invasion of Iraq, set Germany clearly at odds with Britain, Washington's main ally in the war.ut the two leaders were also both sceptical about the "Anglo-Saxon" reform agenda associated with Blair, which they saw as a threat to Europe's traditionally strong welfare state, reports Reuters. I.L.