The attack by ex-Welsh Secretary Ron Davies on the Labour leadership's handling of European funding has returned the issue to the top of the Welsh political agenda.

In a letter leaked to a newspaper, Mr Davies described the Assembly cabinet's policy on Objective One aid as "inept".

He claimed the Labour leadership's approach had led to a "political problem" and accepted that some of the criticisms made by Plaid Cymru were accurate.

The move will anger senior Labour figures and is bound to embarrass the First Secretary, Alun Michael.

Lucrative windfall

It was announced at the end of the Berlin Summit last March that the Valleys and western parts of Wales were eligible for aid worth 1.85 billion euros over six years.

Due to exchange-rate fluctuations, the grants are currently worth around �1.15bn.

Objective One funding is the highest level of European regional aid and only the poorest regions are able to claim it.

Most of the money will be spent on business development, skills training, tourism and improving the existing infrastructure.

Funds must be 'matched'

Securing Objective One status for Wales was seen as a huge political coup. However, instead of being able to reap the political benefits of a giant public spending handout, Labour's Welsh leadership has hit a series of damaging problems, particularly over the issue of match funding.

For the money to be released from Europe, 'matched' funding has to be secured from other sources, including the UK Government and local authorities.

For months, opposition parties have criticised the Treasury for failing to provide Wales with the necessary money to match the Objective One aid.

Prime Minister Tony Blair promised last Autumn that he would not let Wales down.

The Assembly's Economic Development Secretary, Rhodri Morgan, also claimed in October that an extra �35m had been pledged by the Treasury for matched funding.

However, the opposition parties said it was not new money and threatened a no-confidence motion in the First Secretary if more was not made available.

The threat of a vote against Alun Michael in the Assembly is continuing.

Mr Michael survived a Conservative inspired no-confidence vote in November over the beef issue.

With a Labour minority in the National Assembly, the threat of a new motion against the First Secretary cannot be discounted.



By-election issue

The Objective One funding issue will also play a key role in the Ceredigion by-election, following the decision by the sitting MP, Plaid Cymru's Cynog Dafis, to stand down from Westminster to concentrate on his role in the National Assembly.

Plaid leaders told a news conference at the start of their campaign that it would be known as the "Objective One election".

Voters will go to the polls in the rural west Wales constituency on 3 February. It is one of the areas which could benefit from Objective One funding.

Leading Labour figures have been quick to distance themselves from the comments made by Ron Davies on the Objective One issue.

But the debate is set to be at the heart of Welsh politics in the coming months.