The latest wrangle over state aid to business represents further evidence of a sharp change in the European Commission's attitude to the Republic, observers said last night. It follows high-level rows over regionalisation and the Republic's low level of corporation tax, and occurs against a background of demands by Germany and other countries for tax harmony across the European Union.

In recent weeks commission sources have warned of an open intolerance in the corridors of the European Commission buildings of Irish arguments for extra resources. Several commissioners are thought to regard the Republic's 10 per cent corporation tax - capped at only 12 1/2 per cent for at least two future decades - as an unfair subsidy to industry. Others appear to regard the Government's plan to divide the State into separate regions as an unseemly grab for Objective One resources.

Germany, which took over the presidency of the EU at the start of January, plans to push proposals for tax harmonisation in the months ahead. The country's finance minister, Mr Oskar Lafontaine, issued a thinly-veiled threat in a recent newspaper article, suggesting that the EU might lose Bonn's financial support.

Last night the Labour Party leader, Mr Quinn, who served as Minister for Finance during some of the period in which the grants are in dispute, said the nature of the Republic's relationship with the EU had changed fundamentally.

"I think the Government needs to develop a new strategy for dealing with Brussels, and it cannot be based on the beal bocht," he said.

"It's a bit like if there were five or six children in a family and five of them were working and the sixth was still at college studying, and the five were sort of carrying the can in relation to the rest of the operation. Then the young fellow graduates and gets himself a great job, but refuses to pay any contribution towards the operation of the house and expects to get the same level of subsidy as before," he added.