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In a written statement on Friday said senior figures had told him that they were willing to consider changes to one of the key principles of membership of the single market, reports the BBC.
Blair said, "The French and Germans share some of the British worries, notably around immigration, and would compromise on freedom of movement."
He said leaving the single market was a "damaging position" shared by Labour and he urged the party's leadership to champion a "radically distinct" position on Europe.
"Rational consideration of the options would sensibly include the option of negotiating for Britain to stay within a Europe itself prepared to reform and meet us half way".
Reform is now on Europe's agenda. The European leaders, certainly from my discussions, are willing to consider changes to accommodate Britain, including around freedom of movement. Yet this option is excluded," the former prime minister added.
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