Tony Blair makes a quiet sidle into euro-land

The single currency has become too important to fail, as our Prime Minister knows full well
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The Independent Culture
FOR THE soothsayers and entrail-readers of European diplomacy, yesterday's Downing Street meeting between Tony Blair and Gerhard Schroder was one to savour. Would the princes of the Third Way and its German cousin the Neue Mitte, or "New Centre" form a new axis that might challenge - who knows, even supplant - the traditional Franco-German partnership at Europe's heart? Or was the Chancellor's visit merely a consolation prize for the Prime Minister (subtext: Yes, you may not have signed up to the euro, but we have not forgotten you)? Or is a duumvirate about to be replaced by a triumvirate, which henceforth includes Britain ?

The answer, I suspect, is a little bit of all three. But that is by the by. Irrespective of this country's place in the diplomatic constellation of the hour, events are propelling Britain into closer integration with Europe and membership, sooner rather than later, of the single currency. What Mr Blair was above all anxious to find out from the man who has so often been compared to him was: what sort of Europe, and what sort of single currency?

This is a pivotal moment in the development of the European Union. With left-centre governments in office in London, Paris and Bonn, a rare political symmetry now exists in the three most important EU countries. An American president who even in a normal electoral cycle would be entering lame duck land, wonders whether he will be impeached. Russia is in ruins, and though Asia's economies totter, who even knows the name of the Japanese Prime Minister? By contrast, the European economy fares comparatively well, and the single currency, the most ambitious economic co-operation project in history between sovereign and independent states, is just 58 days from launch. If ever there were a time for Europe to start punching its weight in world affairs, this surely is it.

A week ago, in Portschach, the new edition of the EU got off to a decent start. True, the lakeside summit was informal, and airy generalities are a lot easier than choosing the first president of the European Central Bank. But the atmosphere was genuinely warm. Mr Blair neatly launched his gambit of greater European defence co-operation, which both plays to a British strength and sends a clear pro-European signal from the most Atlanticist and pro-Nato of the major EU powers. In this fashion, our Prime Minister prays, it will be possible to claim "leadership" in Europe even though we are shunning Europe's most important venture.

Far more important for the rest of the planet, the 15 leaders agreed to shift the emphasis of economic policy from fighting inflation to promoting employment and growth. As an overdue public recognition that Europe cannot prosper as a fortress protected by its central bank, or escape its wider responsibilities to a world economy threatened by recession, and conceivably by outright depression, the statement was more than welcome. But it also raises awkward questions to whose answer Mr Schroder's Red-Green government holds the key. But which way will Gerhard jump ?

The signals, to put it mildly, have been confusing. The Neue Mitte was always as woolly as the Third Way: "the construction of a modern economy without sacrificing social justice" was how the Chancellor defined it yesterday. But before he took power the new Chancellor - it was assumed - was a moderniser like Mr Blair, who would try to push through the structural reforms his predecessor Helmut Kohl had failed to do. But now, who knows?

Yesterday Mr Schroder was sounding like Bill Clinton with his "tough love" talk of welfare protection that should be less a safety net than a trampoline catapulting the unemployed back to work. In fact, though, the dominant personality in his government's early days has been his old rival Oskar Lafontaine, the SPD chairman, who favours enhanced state intervention, and higher government spending and borrowing - in other words very much Old Labour.

Mr Lafontaine promises to be the most powerful German finance minister in decades. Already he has laid into the Bundesbank with gusto, and is poised to forge a close relationship with his French counterpart, Dominique Strauss-Kahn. Thus, for New Labour, there's the threat of a common Paris- Bonn agenda consisting of such nostrums as the shorter working week, increased welfare benefits, and perhaps numerical employment targets: just the sort of "old thinking" Mr Blair believed he had conclusively set behind him. The Government may pooh-pooh the risk. But the extent to which it fought (unsuccessfully) to have a seat on Euro 11 last summer shows just how seriously it takes it. In short, worrying stuff for the hardheaded men of New Labour.

The alternative however is at least as bad. Mr Blair knows full well that, outside the euro, Britain cannot pretend to real leadership, or hope to prise open the Franco-German axis. Yesterday, of course, Mr Schroder was too polite to say so bluntly. Indeed, he was almost cloying in his praise of Britain's "extraordinarily clever" approach to the problem, and its "strong determination to take a constructive position". And clever indeed Mr Blair will seem, if the euro goes wrong, and transforms his temporising into wise and farsighted statesmanship.

But the single currency has simply become too important to fail, and that, too, our Prime Minister knows full well. Thus Britain's quiet sidle into euro-land, even as a majority of the public continues to oppose it. The policy of "prepare and decide" remains, Gordon Brown assured the CBI yesterday, even as he announced a speed-up of preparations for future membership of the single currency, complete with an "Outline National Changeover Plan".

Outwardly, everything remains the same; but in truth the option of staying out is narrowing by the week. Even friend Gerhard said so: "Britain is part of Europe. Britain must join the single currency." If we do not, then all yesterday's cooing about the Third Way, far from being a beacon for the future, will be an empty consolation prize in a race we never really entered.