By nailing his colours firmly to the Europhile mast, Mr Blair also launched a fightback aimed at winning over readers of Britain's Eurosceptic newspapers to what he sees as the benefits of closer EU integration. The Prime Minister told the Commons that Britain would get a better deal by being "positive and constructive" in the EU. But William Hague warned that Mr Blair's decision to "go with the flow" would suck Britain into an "United States of Europe."
The hardening of the Government's pro-EU stance came as an opinion poll suggested that slightly more people in the UK approve of the single currency than disapprove.
A pan-European survey, conducted for the French news agency, Agence France- Presse, which questioned just under 1,000 people in Briton, found that 48 per cent of them had a positive view of the euro and 43 per cent a negative one.
The finding will encourage Mr Blair, who has concluded that repeated threats to veto EU proposals weaken Britain's influence - even if they play well to the domestic audience.
He thinks Gordon Brown, the Chancellor, should have shown more restraint recently when other EU countries called for a common tax policy. "The veto should be a weapon of last resort, not first resort," one minister said last night.
Mr Blair decided to appeal over the heads of sceptical newspapers to their readers, after private Labour polls suggested people thought much of the recent coverage of tax harmonisation was based on "dogma" rather than facts.
His decision to counter attack from a pro-EU platform widens the gap between Labour and the Tories and means that Europe is certain to be a key battleground at the next General Election.
"We are very happy to have lots of clear blue water between us and the Tories on this issue," said one Downing Street source yesterday.
Mr Blair and Mr Hague clashed angrily in the Commons when the Prime Minister reported back on last weekend's summit of EU leaders in Austria. "The Government will not be swayed from its positive and constructive European policy," Mr Blair said. "I have no doubt that it is the right course for Britain's future."
Saying the Opposition's policy was driven by "headbangers in the Shadow Cabinet", he told Mr Hague: "Under your leadership the lunatics have taken over the asylum."
The Tory leader accused Mr Blair of saying one thing to the British people and another to the country's EU partners. He said the Prime Minister was more concerned with attacking the British media than preventing the development of a European superstate, which was now "in prospect".
Mr Blair claimed that Britain had helped to shape the debate at the Vienna summit on economic, employment and other issues in a way which was fully consistent with national interests. The Tories warned that the meeting had moved towards a common tax policy by approving a study of company taxation and said Mr Blair had performed a U-turn by agreeing to job creation targets.
Mr Blair told MPs the pounds 2bn-a-year rebate on Britain's EU contributions was "fully justified and will remain".
However, Joschka Fischer, Germany's Foreign Minister, increased the pressure on Britain to surrender part of its refund, by warning that the plan to allow Eastern European countries to join the EU could be "stopped in its tracks" if member states failed to reach an agreement on EU funding by next March.
In a tough message outlining Germany's priorities for its spell in the EU's rotating presidency, which starts next month, Mr Fischer also called for closer economic and financial coordination.
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