Tony Blair last night rebuffed criticism that he was too close to rightwing European leaders such as Silvio Berlusconi, as the Barcelona summit grappled with disagreements over the liberalisation which is at the heart of the EU's ambitious economic reform agenda.  As the prime minister went into talks about opening markets, he rejected an accusation by John Monks, the TUC general secretary, that the government was hostile to workers.  He was reportedly furious after Mr Monks accused him of being "bloody stupid" in sharing the Italian prime minister's opposition to employee protection laws - part of the so-called "social dimension" of making the EU more competitive.  But Mr Blair - echoed by the chancellor, Gordon Brown - robustly defended the government's record in helping business while investing in education and skills. This had made Britain the fourth largest economy in the world, with the lowest unemployment of any major economy. "That is the modern way to build a more prosperous country," he said. "We have got to work with the modern world as it actually is. That does mean that we have to have flexible labour markets."  Downing Street added that Mr Blair had not made alliances only with Jose Maria Aznar, the centre-right Spanish prime minister and summit host, and Mr Berlusconi.  Across Europe the three have become known as "the BAB axis", committed to deregulation in contrast with the more cautious approach of France and Germany.  But Mr Blair insisted: "I work with leaders from all around the world, whatever their political party." Another alliance was made between the German chancellor, Gerhard Schroder, and the Swedish and Dutch prime ministers, Goran Persson and Wim Kok, all three from the centre-left.  The prime minister's public spat with Mr Monks came as the summit delegates sought to prove that they were making progress towards their goal of giving the EU the most competitive economy in the world by 2010.  Last night they were struggling against France's opposition to fully opening its domestic energy sector, with doubts emerging even about a minimalist deal on the liberalisation of Electricite de France, the state-owned monopoly.  Its EU partners complain that while they have no access to the French energy sector, EDF has embarked on a buying spree across the union.  Britain has been openly critical of France, but recognises that a shift on this issue - as on the continued French ban on British beef imports - will be impossible at least until after the presidential election, which begins on April 21.  Although Mr Blair has called the two-day summit a "make or break" moment for the EU, expectations were being lowered by all sides last night.  Apart from increased labour market flexibilityand energy liberalisation, Barcelona's priorities are the linking up of European transport networks, integration of financial markets, and improvements to education systems.  Progress is expected on financial services, but negotiations on common patents and takeover rules are stuck.  Mr Schroder, who also faces an election battle later this year, insisted that he would not expose domestic companies to foreign predators. "Germany has by far the largest and strongest and most interesting economy for foreign investors, and is more viable for takeovers than smaller economies," he said.  The Blair-Monks row - and protests by unions and anti-globalisation groups - served as a reminder that the erosion of employment rights or welfare spending in the name of flexibility would anger electorates who are less concerned than their governments by the yawning gap between the European and US economies.  Mr Monks added: "They will find it very difficult to sell the euro to British workers if there is no social dimension in parallel.  "After all, there will be a big restructuring in the economy if there is a single currency."  EU productivity has fallen in the past two years from 74% to 72% of US levels, while per-capita wealth in America remains more than 40% higher than in the EU.  Edward Bannerman, of the Centre for European Reform, said: "Many Europeans like to think of their continent as a global economic superpower, but compared to the US over the last decade or so, Europe looks like a laggard."  Ian Black's summit audio report: guardian.co.uk/audio Classification Language: ENGLISH Subject: PRIME MINISTERS (90%); EUROPEAN UNION (90%); HEADS OF STATE & GOVERNMENT (90%); ECONOMIC NEWS (90%); ENERGY & UTILITY DEREGULATION (89%); BRITISH PRIME MINISTERS (79%); GERMAN CHANCELLORS (78%); DEREGULATION (77%); POLITICAL PARTIES (76%); LABOR UNIONS (76%); CAMPAIGNS & ELECTIONS (73%); ELECTIONS (72%); HEADS OF GOVERNMENT ELECTIONS (72%); UNEMPLOYMENT RATES (72%); AGRICULTURAL EXPORT & IMPORT CONTROLS (70%); IMPORT CONTROLS (70%); MEAT EXPORTS & IMPORTS (50%) Company: ELECTRICITE DE FRANCE SA (EDF) (64%); ELECTRICITE DE FRANCE SA (EDF) (64%) Ticker: EDF (PAR) (64%); EDF (PAR) (64%) Industry: ENERGY & UTILITY REGULATION & POLICY (89%); ENERGY & UTILITY DEREGULATION (89%); ELECTRIC POWER PLANTS (86%); BEEF (72%); AGRICULTURAL EXPORT & IMPORT CONTROLS (70%); MEAT EXPORTS & IMPORTS (50%) Person: TONY BLAIR (79%); SILVIO BERLUSCONI (58%); GORDON BROWN (58%); GERHARD SCHRODER (53%) Geographic: FRANCE (94%); EUROPEAN UNION MEMBER STATES (94%); GERMANY (92%); EUROPE (92%); SPAIN (79%); ITALY (79%); NETHERLANDS (79%); UNITED KINGDOM (79%)