Tony Blair told MPs on Monday that the Barcelona summit made modest progress on Britain's economic reform agenda.

Admitting that progress on reform had "stalled" at last year's summit in Stockholm, the prime minister said that "we are indeed moving again" but conceded there "is still much ground to be made up" if the EU is to become the worlds most competitive economy by 2010.

He told the Commons there had been a "breakthrough" in liberalising Europe's energy market, with over 60 per cent of the total market being opened up to competition.

And he pointed to other achievements in extending broadband internet across the EU by 2005, boosting research and development levels and reducing regulations on business.

Addressing international issues, Blair pointed to a promises to raise levels of international development aid by an extra $7 billion a year, and the call for both sides in the Middle East to halt the bloodshed.

Number 10 later found itself embroiled in a row over the PM's verdict on Stockholm which was at odds with the statement he gave to the Commons after the summit.

The official spokesman said the initial assessment had given way to a "genuine sense of disappointment" as the pledges had no timescales where as there were now "real practical advances to point to".

On Zimbabwe, there was backing for Britain's position that the elections were unfair, and also a welcome for the agreement between Serbia and Montenegro on redefining their relationship.

Alliances defended

The prime minister mounted a strong defence of his controversial policy of forming alliances with other European leaders, including with Italian business tycoon and prime minister, Silvio Berlusconi, on labour market reform.

The British approach to economic reform was "increasingly a European one", with minimum standards and policies aimed at getting people off benefit and into work, said Blair.

"Progress at Barcelona came about in large part through Britain acting in alliance with others," he added.

The prime minister told MPs that agreement had been reached made with seven other countries in the run up to the summit, a development "unthinkable" under the last Conservative government.

"From the economy to defence to institutional reform, Britain is in there shaping reform," he said.

"Britain's proper role is as a leader and partner in Europe...under this government the days of weakness and isolation will not return."

Liberal Democrat leader Charles Kennedy warned that the alliance with Berlusconi was "not helping" to build a pro-euro coalition when it had the effect of alienating trade unionists.

But Blair told Kennedy: "I will continue, without any apology or hesitation, to work with all governments inside the European Union."

Summit failures

Conservative leader Iain Duncan Smith said there had been "some good points to come out of Barcelona" such as the increase in development aid but listed a series of areas where the conclusions had been "euro-waffle".

The position on pensions was one of "muddle and contradiction", he said, while there had been no action on lifting the illegal French ban on British beef or on halting illegal asylum seekers.

He said there had been a "risky" political gesture in Macedonia and the offer of "thirty million pieces of silver to bribe the people of Gibraltar to get them off our hands".

The "wrong message" had been sent to Mugabe while there was no agreement on reforming Europe's common agricultural policy, said the Tory leader.

"The truth is that Barcelona was once again all about fine words from the prime minister and no action," he said.

"After for five years claiming to be at the centre of Europe, is it not an indictment of him that the summit can have achieved so little and at such great cost?"

Thatcher returns

Responding to the Conservative attacks on the summit's achievements, Blair condemned the "negative" attitude of the party.

And he raised the subject of comments from former premier Lady Thatcher which suggested that Britain should begin the process of withdrawal from Europe.

"The preliminary step, I believe, should be for an incoming Conservative government to declare publicly that it seeks fundamental renegotiation of Britain's terms of EU membership," she says in a new book, "Statecraft", currently serialised in the Times.

Blair accused Duncan Smith of failing to disown the comments. "For the Conservative Party it is necessarily to be always totally negative about Europe...there was one little thing he didn't get round to talking about and that was the position of Margaret Thatcher on Europe," he said.

There had been "not a single word of disassociation from the remarks", revealing an increasingly hostile attitude to Europe.

"They have to be negative about everything to do with Europe," he said.