Ferrari threat sets F1 battle lines

By Alan Baldwin - Analysis

LONDON (Reuters) - Ferrari's threat to pull out of Formula One at the end of the year unless the governing body backs down on a planned budget cap sets the stage for what will be heated talks at the top of the sport over the coming weeks.

While the step appears dramatic, it is part of a war of wills between International Automobile Federation (FIA) president Max Mosley and the Formula One Teams Association (FOTA) led by Ferrari president Luca di Montezemolo.

Tuesday's development sets out the battle lines before a likely meeting between the two men ahead of next week's Monaco Grand Prix.

WHAT IS THE PROBLEM?

The FIA have proposed an optional 40 million pound budget cap for 2010 to encourage new teams to enter and safeguard the sport against the risk of more manufacturers pulling out after Honda's departure in December.

Those teams accepting the cost cap will get greater technical freedom than those remaining with unlimited budgets, potentially creating a two-tier series.

Driver salaries, engines and marketing costs will be exempt from any cap, effectively making the overall budget closer to 60 million pounds for a small team like Force India -- not very different to what they have now.

Montezemolo, whose team are estimated to have an annual budget in excess of $250 million (164 million pounds) and receive a greater share of the sport's revenues than others in recognition of their special status, says the two-tier system could be fundamentally unfair and even biased.