Blair paid tribute to what the EU has achieved over the past 50 years. Most of that time, the EU was driven by what is commonly described as the "Franco-German engine," with Britain on the sidelines.
Blair said it is now time for the EU to change.
"Now, almost 50 years on, we have to renew. There is no shame in that. All institutions must do it. And we can, but only if we remarry the European ideals we believe in with the modern world we live in," Blair said.
Blair called on EU leaders to put their differences behind them in the wake of last week's failed summit. France and Germany accuse Blair of wrecking a deal over the 2007-2013 budget by not giving up the British rebate.
Blair, in turn, has insisted he will only do so in exchange for cuts in EU farm spending, which accounts for more than 40 percent of the EU's annual budget. At the same time, he wants increased funding for research, science, and education.
France is the biggest beneficiary of the EU's farm budget. Germany is its main contributor.
The prime minister of Luxembourg, Jean-Claude Juncker, whose country holds the outgoing EU presidency, has said Blair is trying to turn the EU into a solely economic project, a free-trade zone. This, Juncker says, comes at the expense of political cooperation and the central value of "solidarity," which is at the heart of the massive budget transfers to EU farmers and poorer regions.
Blair today rejected the charge, saying he is a passionate pro-European.
"I believe in Europe as a political project. I believe in Europe with a strong and caring social dimension. I would never accept a Europe that was simply an economic market," Blair said.
Nonetheless, Blair went on to attack the records of countries such as France and Germany, which have set the EU agenda and its priorities over the past decades.
"What type of social model is it that has 20 million unemployed across Europe; that has productivity rates falling behind those of the United States; that is allowing more science graduates to be produced by India than by Europe; and that, on any relative index of a modern economy -- skills, research, and development, patents, information technology, is going down and not up?" Blair asked.
Blair has repeatedly labeled as "absurd" the projected EU budget for 2007-2013 -- worth some 870 billion euros. That budget proposes spending 10 times more on agriculture than on research and development. Blair has pointed out that the farm sector accounts for only 2 percent of EU jobs.
Blair said the EU needs to modernize its spending or risk being overtaken by countries such as China and India. Both, he said, have increased their science budgets many times over in recent years. The EU, meanwhile, stagnates. Blair noted that only two of the top 20 universities in the world are in Europe.
Blair warned that the EU's position in the global economy is under severe threat.
"China and India in a few decades will be the world's largest economies, each of them with populations three times that of the whole of the European Union. The idea of Europe, united and working together, is essential today for our nations to be strong enough to keep our place in this world," Blair said.
Modernization, Blair said, must also involve a continued commitment to enlargement. The demise of the EU constitution in referendums in France and the Netherlands has been linked to popular discontent with enlargement.
As a consequence, an increasing number of EU governments, led by France, have expressed reservations over the admission of Turkey. Croatia and other Western Balkan countries could see membership delayed indefinitely. Even Bulgaria and Romania -- which have both signed their accession treaties -- could see setbacks.
Blair said putting off enlargement will not help anyone, and could instead harm Europe.
"If we stop enlargement or shut out its natural consequences, it wouldn't in the end save one job, keep one firm in business, prevent one delocalization. For a time it might, but not for long. And in the meantime, Europe would become more narrow, more introspective, and those who garner support will be those not in the traditions of European idealism but in the traditions of outdated nationalism and xenophobia," Blair said.
However, Blair said, the constitutional debate has indicated the depth of discontent among the EU public. This crisis, he said, must be resolved by means of better political leadership.