Mr Bush, on the eve of the G8 summit in Gleneagles, said that Europe paid “tremendous” agricultural subsidies, and that the US was ready to drop its own payouts to American farmers if Europe had the courage to do the same.

Mr Bush’s challenge — in an interview with Sir Trevor McDonald to be screened by ITV tonight — is likely to be rejected not only by France and Germany, but by many in his own country. But it appeared to be a bold rhetorical step by his Administration to get the world’s richest nations away from talk of aid and toward free-market solutions in the quest to alleviate poverty in Africa.

Asked directly if America would drop its subsidy system if the EU abandoned the Common Agricultural Policy (CAP), Mr Bush said: “Absolutely. And I think we have an obligation to work together to do that.

“Because if we do achieve this business of free trade, and if markets in the West are opened up to countries in Africa, they could be so successful, they could eliminate the need for aid. The benefits that have come from opening up markets — our markets to them and their markets to us — far outweigh the benefits of aid.”

Mr Bush’s call to scrap agricultural subsidies in the developed world follows that of Tony Blair, who recently said the system of over-generous subsidies was “hypocrisy” that could no longer be ignored.

Farmers in developed countries receive more than £150 billion in subsidies, which Mr Blair said gives them an unfair advantage which holds back Africa’s poorest nations. He has also suggested that the CAP, which is fiercely defended by President Chirac of France, should be abandoned as part of a complete overhaul of the EU’s finances.

Mr Bush added: “Let’s join hands as wealthy industrialised nations and say to the world, we are going to get rid of all our agricultural subsidies together. And so the position of the US Government is, we are willing to do so, and we will do so with our fine friends in the European Union.”

A senior source close to the British G8 negotiating team last night welcomed Mr Bush’s comments, saying he had delivered a “major challenge to the European Union”. He added: “Mr Bush has just upped the pressure. The seeds are there of a potential breakthrough.” The British, he said, were last night in talks aimed at persuading the G8 to wipe out all export subsidies in the next five years.

Peter Mandelson, the European Trade Commissioner, said: “Don’t underestimate the vested interests. But we have seen reform take place before. The Common Agricultural Policy in Europe has seen considerable reform over the past decade and it can go on.”

Gordon Brown said that, in the longer term, reform of global trading rules, with the removal of distorting tariffs and subsidies, would allow African countries to grow their economies. However, he was criticised for saying that some of the fundamental pillars of a new deal for Africa — 100 per cent debt relief for the poorest countries and a doubling in aid — were now already in place.

Oxfam and ActionAid said that the deals fell short of what was required and urged the G8 leaders to take a further step. “Given the events of this weekend, there are millions of people expecting G8 to come up with something extraordinary, and this isn’t it,” an Oxfam spokesman said.

A spokeswoman for ActionAid, one of the members of the Make Poverty History campaign, welcomed Mr Bush’s comments. “The subsidies have been extremely damaging and if the G8 leaders can agree to end that system it will be an important move towards making poverty history and something the billions of people who watched Live 8 are demanding.”

Both Mr Blair and Gordon Brown have been pushing to emerge from Gleneagles with an agreement for Africa to trade its way out of poverty. They want a formal agreement ratified at the World Trade Organisation talks in Hong Kong in December.

Mr Brown is also due to announce the launch of a fund to pay for life-saving vaccines for children in Africa. He hopes to announce that five million lives will be saved in Africa by vaccinating against measles, TB and polio. The Chancellor has secured funding from Bill Gates, the Microsoft founder, as well as Scandinavia and Italy.

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