An agreement has been made on the future of EU defence which is "completely consistent with NATO as the cornerstone of our alliance", Prime Minister Tony Blair has said.

Speaking to journalists outside the EU summit in Brussels, the Prime Minister said that the agreement gives Europe the opportunity to keep the transatlantic alliance but will also allow it to operate alone if vital European interests are involved.

However, the Tory Shadow Foreign Secretary Michael Ancram was quick to dismiss the agreement as a "sell out".

“The agreement on an autonomous planning cell for a European military capability is a dangerous step along the road to a single European state," he said.

“The Prime Minister has sold out to those in Europe who wish to undermine Nato and rival the United States. This agreement is yet another reason why this Constitution should be stopped in its tracks or the British people should be allowed to have their say in a Referendum.”

Agreement was also reached on a series of issues including economic growth and economic reform "focusing on job creation rather than regulation", the Prime Minister said.

"But obviously we have still got the very big negotiation to come up," he added.

"The reason why it is important to try to get an agreement, it may well not be possible, but the reason why it is important to try is that Europe is now to expand to 25 countries. It is going to be the biggest economic market in the world."

Any agreement on the new EU Constitution, he said, must make the Union "workable and effective" on areas such as jobs, economic growth and security.

Mr Blair had gone to the summit primed with his 'red line' issue - areas that he would not yield on.

These were: no EU force which threatens Nato; no removal of national veto; taxation to be decided by states alone; individual legal systems to be maintained; votes on social security should be unanimous; and budget changes to be unanimous.

Liberal Democrat Shadow Foreign Secretary, Menzies Campbell, today slammed the "hysteria" surrounding the talks and called on Mr Blair to hold a referendum so that the British public could give their view on the summit's conclusions.

He said: "There is too much hysteria about the convention proposals. The truth is that the Prime Minister’s ‘red lines’ are shared by all the major political parties in the House of Commons and by other governments throughout Europe.

"A constitution which defines the limits of the powers of Brussels is in the interest not only of the EU, but of the people of the UK as well."

"But for the Prime Minister to obtain political consent he should hold a referendum and seek the endorsement of the citizens of the UK."

(gmcg)