The trade unions are doing all Mr Blair's dirty work

`One way of squaring the circle might be an early election which could be more neutrally fought'
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The Independent Culture
JOHN MONKS has suddenly become a centrally important figure in British politics. His speech in favour of the euro in Brighton yesterday, and even more markedly the vote with which it was rewarded, now makes him the most credible member of the Labour family to take a somewhat more forceful line in favour of British entry to the single currency than the Government itself. This was not only a function of a quietly eloquent performance in which Mr Monks reminded his audience of how Britain had repeatedly missed opportunities to shape the European institutions which it had inevitably joined, or that working conditions in euroland were frequently rather better than in the UK. It was also that, by using his negotiating skills in advance of the debate, he modified a bullishly pro- euro motion which would have split the congress much more deeply and infuriated, rather than simply caused a frisson, in government circles. As a result Mr Monks is all the more convincing as an outrider in the Government's faltering advance towards the single currency.

Trade unions with members in the manufacturing industry, not to mention some of the industrialists who employ them, are anxious about what they see as a level of interest rates kept high to curb inflation caused by property prices in the South-east. Any mechanism which helps to bring them down is therefore bound to have some populist appeal. But there is also a more subtle dynamic at work. Some senior union leaders are convinced that the GMB colluded with Robin Cook in promoting a strongly pro-euro motion for yesterday's session in Brighton. And it has not been lost on TUC officials that Bill Morris of the TGWU, which led opposition to yesterday's motion, is one of the union leaders closest to the Chancellor.

Gordon Brown communicated his irritation with this to the TUC last week. Understandably, he does not like the idea of compromising British economic policy to pursue euro entry - possibly at the expense of the imperative of stamping out inflation, however historically low it may be at the moment. There is not much point, he is entitled to argue, in making the Bank of England independent if you are then going to second-guess its deliberations by managing the money markets by other means. There is also the danger to which the Chancellor will be especially sensitive, that if interest rates cannot be used to keep inflation at bay, tax increases might have to be.

A paradox in yesterday's decision is that while a defeat for the pro- euro motion would have been widely - and correctly - seen as a reverse for a pro-European Labour Government, it was the defeated minority rather than the triumphant majority who more faithfully rejected government policy. Mr Morris used rhetoric about the euro's perceived threat to jobs which the Chancellor would never have done. But it was still his union which was defending the Treasury's formal "wait and see if the economic conditions are right" strategy.

There are nevertheless reasons why Mr Blair will not be, and Mr Brown should not be, too worried by the outcome of yesterday's debate. The first is the strong possibility that the gap between British and European interest rates will narrow even without the intervention hinted at yesterday by the TUC. When British rates rose to a high of 7.5 per cent in the period after the general election, the difference with German interest rates then was a full 4.5 per cent. By 2001 there is every possibility that the levels will be much closer.

The view of the Bank of England "hawks" at present is that increases now will pre-empt the need for bigger ones later . Equally, European interest rates, if the evidence of recovery, at least in France and Spain, is borne out, could rise to at least 4.5 per cent - an awkward gap perhaps, but nothing like as awkward as some pro-European Union leaders appeared to fear yesterday. Moreover the European Central Bank is now said to accept that the British inflation target of 2.5 per cent is already equivalent to its two per cent target because of differences in the method of calculating the indices. In other words, economic conditions could yet become benign for entry - of their own accord - shortly after the election.

None of this, of course, may come to pass. But if it does, the question then becomes essentially political rather than economic. Can hostile public opinion be turned round in time to win a referendum in the short period during which such benign conditions may prevail?

It is this, I suspect, which is especially worrying Mr Monks. The $64,000 question remains, as it has been for some time, whether a government in principle in favour joining the euro can go through the general election without making a clearer commitment to joining early in the parliament than it has so far made. There is no evidence that Mr Cook has changed his earlier view that it will not be credible to do so. Equally, the view of Mr Brown, who will set out the elements of Britain's economic success in a justly bullish speech about future growth in New York today, has so far appeared to be that the least said about the euro the better. Partly, perhaps this has to do with the threat of market instability during a euro-dominated election. And partly too it is no doubt about the electoral risks of handing William Hague the one issue which he believes could galvanise Tory support in the next election.

For his part, Mr Blair is more enigmatic, though he will certainly not dismiss the Treasury arguments without considering them very sympathetically. Equally, however, I'm told, he left union leaders in little doubt when he met them privately in Brighton, after promising a "sensible but positive" attitude to the euro, that while there might be a short term economic case for staying out, both the political and the long term economic arguments pointed firmly in the opposite direction. One way of squaring the circle might be an early election - which could be more neutrally fought and would allow time to prepare public opinion for those potentially benign circumstances.

Mr Blair's electoralist and unashamedly direct appeal to his own party on Tuesday to remember that the alternative to him is the Tories, has struck some in Brighton with the thought that just such a strategy might already be under consideration. But the implication of Mr Monks' line yesterday remains that even if that were the case, the battle for British hearts and minds has to start before then.

The TUC's decision amounted to a reasonably gentle - but still unmistakable - call on ministers to start doing just that but it also had a performative effect; the TUC, not without influence on its own seven million members, has now started the process itself. Given that Mr Blair's long-expressed wish that industry should bear some of the brunt of shaping public opinion he can hardly complain about that. And he won't.