Mr Blair should heed the warning and cancel his euro referendum

How did an outfit that prides itself on being the Mercedes of electoral machines get things wrong?
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THE WISER Roman emperors used to employ a slave to ride behind them in the chariot, whispering as they received the cheers and garlands: "Remember that you are mortal." The role has been played for the Government by the European elections. And to the Tories, the slave is murmuring: "See? You are not as hopeless as you thought." The difficulty for both sides lies in interpreting the real significance of the result, rather than what they would prefer it to be.

Conservatives are predisposed to see 10 June 1999 as the day they stopped being a basket case and "normal" politics was resumed. The Government's spin doctors are telling anyone who will listen that the result reflects only a small sector of opinion because of the low turnout, which amounts to saying that only the Euro-nutters really voted in this election and the rest of nice, sane, sensible and contented Britain stayed at home.

Both these conclusions are wrong. Tories who read into this result the implosion of the New Labour Project are deceiving themselves. The Prime Minister remains hugely popular. His miscalculation lay in thinking that this popularity would wash away the legitimate doubts widely held about the euro, and the efficiency and accountability of the EU.

The Prime Minister's concern now is not that he will lose the next election - memories are long and the Tories will not recover public confidence by then. Nor do they yet have a broad enough message or a sufficiently compelling leader to pose a serious threat. But the Prime Minister's fears of losing a referendum in Britain's entry into the single currency early in his second term have deepened. Such a result would dent his authority and burden his second term with a major failure.

However keenly Europhiles in the Labour Party, the new Establishment and the press clamour for him to make a clearer commitment to take Britain into EMU, he will not do so unless he is wholly convinced that he can win the referendum. Their current advice to counter EMU-scepticism by being even more openly pro-EMU must seem eerily familiar to a man who saw the hard left telling the embattled Labour leadership of the Eighties that the real reason people were turning away from the party was that it was not Socialist enough.

How did an outfit that prides itself on being the Mercedes of electoral machines get things so wrong last Thursday? One clue sticks in my mind. On polling day, I talked to a pro-Europe minister and referred to the Government's lackadaisical campaign. "Oh, but we have been campaigning very hard," she said. I ought to add that my interlocutor is not a politician given to unnecessary obfuscation. She seemed genuinely to believe this, while - as the rest of us know - New Labour caused the British electorate the minimal possible disturbance. In the run-up to the poll I can attribute her self-deception only to the kind of pleasant mist that descends on those in government who are so accustomed to winning hearts and minds that they cannot tell when they are no longer even fighting for them. The European elections are thus a timely warning to a party that was in danger of believing the mythology of its invincibility.

Downing Street's first response to a setback has been: "Bring back Peter Mandelson", something the Prime Minister in any case hankered to do sooner rather than later. But in this case Mr Mandelson is like the Russian forces in Kosovo - a big part of the problem, as well as a part of the solution. If he runs the next election campaign, the result will certainly be a tightly focused, professional operation, and to that extent an improvement on the flailing Millbank campaign this time. But Mr Mandelson's support for the single currency remains out of step with public opinion. So while Peter the strategist would be very useful to Mr Blair come the next election, Peter the believer might prove to be rather less of a blessing.

William Hague, meanwhile, has managed to achieve one clear goal he set himself as party leader: namely to preside over a united Shadow Cabinet on Europe. Peter Lilley paid a heavy price yesterday for his disastrously calibrated spring speech, which sought to ditch Thatcherite baggage and instead resulted in his own ditching from the front bench.

Of the bright young things, Andrew Lansley gets to co-ordinate policy with Mr Hague - a recognition that the party needs a more organic approach. Theresa May at education has a real chance to shine in an area where the Government stands exposed after setting high targets for improvement.

The first-rank Opposition team is starting to come together, with Ann Widdecombe, an adept ankle-biting ferret now let loose on Jack Straw, having scored the odd painful nip against Frank Dobson at Health. One under-promoted frontbencher is Iain Duncan Smith, who should have got further than Defence, but was probably deemed to have been insufficiently enthusiastic about Mr Hague's leadership when times were tough.

For the first time since he became leader, his position as Tory leader is secure and he is free to exert his authority, rather than anxiously reiterating that he is in charge. The Tory pudding now has a theme again. But it must beware becoming a single-issue party. Besides opposition to EMU, Mr Hague needs to tell people what Conservatism is all about, and why they should prefer it to the light and digestible Blair diet.

The Government's choice on the matter is stark - it can respond to the vote by offering more EMU to the voters, or less. Attempts are under way to distract it from this choice by trying to persuade Mr Blair that his problem is not taking traditional Labour views seriously enough. I smell a red herring. A political party cannot please all of the people all of the time, and Middle England remains the key to New Labour's electoral stability. New Labour's move into the centre - and to the right on many aspects of social policy, most recently asylum and provision for teenage single mothers - will leave some party activists disaffected. That is the price of success, but not an awfully high one.

There is some room for Mr Blair to make clearer his commitment to redistribution of opportunity and his determination to remove barriers impeding those to whom birth and circumstance deal a lousy hand. He cannot, however, move substantially to the left without allowing the Tories to stake a renewed claim to speak for middle-class interests.

The Prime Minister has reason for concern, but not one for despair. An obvious escape route remains open to him, namely to drop his intention to hold a referendum on EMU early in the next parliament. Instead, he should announce that New Labour will not risk the adventure of the single currency until he has solid proof that it would work in Britain's interest. That would be a prudent and popular stance to adopt. The politician it would most seriously discomfit would be Mr Hague. Prick the balloon, Mr Blair, before it is too late.