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.

Who will blink first?

Mosley, who has portrayed the situation as a power battle he intends to win, says Formula One is fighting for survival and costs must be reduced urgently. The FIA has shown no signs of wishing to compromise.

However the FIA did back down on plans to award this year's championship to the winner of most races after the teams flexed their muscles.

FOTA have stressed their unity and common purpose since they became a body last year and that has held so far, despite sporting disagreements.

However there is also a feeling that Ferrari, with an increasing number of stores worldwide selling F1 branded merchandise, needs Formula One as much as the sport needs them and a deal will have to be thrashed out.

Formula One supremo Bernie Ecclestone, who had talks with most teams at the weekend, hinted at one possible solution when he told the Times newspaper on Tuesday that any concerns about policing the cap could be overcome by allowing each company or team's own auditors to check expenditure.

"Ferrari are not stupid, they don't want to leave Formula One and we don't want to lose them, so we'll get to grips with it," Ecclestone added

Will other teams follow?

Red Bull, one of whose teams is powered by Ferrari, and Toyota have already said they will not enter unless the rules are changed.

Williams, Force India and Brawn GP are likely to enter purely because, unlike the manufacturers, they have nothing else to fall back on. F1 is their sole focus.

Would-be new entrants have until May 29 to submit their entries but they are likely to hold fire until they are sure of the rules they will be playing to.

The budget cap is only attractive to new teams if they have a chance of competing on level terms. Most of those who have expressed an interest in entering would struggle to raise even the 40 million and would be at an immediate disadvantage if the cap were raised.

What if ferrari do quit?

The sport would suffer a severe blow with the loss of its most glamorous and successful team and the only one to have competed in every championship since the first in 1950. Italians would be in mourning.

Other manufacturers would doubtless follow and Formula One would become a battle between independent teams.

Talk of a rival series might be revived.

(Reuters via China Daily May 14, 2009)