Blair shifts to the left on Europe

TONY BLAIR fell into line with Europe's decisive shift to the left yesterday. As EU leaders at an informal summit in Austria sought to bring down interest rates and boost growth with big spending projects, he supported multi-billion-pound infrastructure plans designed to counter the effects of the global economic crisis.

When Lionel Jospin, the French Prime Minister, put forward these ideas earlier this month, Britain said they were unnecessary.

But after the British U-turn Mr Blair said he would only agree to the proposed growth plan if it increased EU competitiveness and did not risk a return to high inflation.

Britain's scepticism was swept aside as Germany, France, Italy, Sweden and Portugal threw their weight behind moves to breathe new life into Europe's economy. Calls for co-ordinated cuts in interest rates and for a new flexibility within the rules for the euro to stimulate growth underlined the change of mood in Europe's capitals, 11 of which are now in the hands of left or centre-left governments. Goran Persson, the Swedish Prime Minister, said: "Europe has moved to the left."

He said it was up to the EU and US to maintain economic growth to help prevent recession. "They are the two forces in the world which can actually resist recession. If you listen to countries hit hard by the financial crisis, they have a clear message: `Maintain growth, maintain expansion'."

In a sign that Mr Blair does not want to find himself isolated, his aides sought to present his policies as part of the new mainstream. His spokesman said Britain's public spending will exceed France's next year, and that the windfall tax on privatised utilities was a "tax on business" designed to create jobs. Mr Blair told a post-summit press conference that new moves to promote investment, possibly through the issue of European loans, should be examined. "If they are good, sensible, infrastructure projects which will enhance European competitiveness, fine. The focus on growth and jobs is surely right. It obviously has to be done in a sensible way."

Europe's finance ministers will now discuss the proposals, which have been pushed by Mr Jospin, after discussions with the former Italian prime minister, Romano Prodi. The plans, similar to those by Jacques Delors in 1993, would create billions of pounds of investment which could be channelled into infrastructure projects or research and development. Already the EU is backing the construction of big new transport networks.

The idea that billions more could be raised through loans issued by the European Investment Bank (EIB) or the European Commission had been greeted with scepticism by London. Britain had taken the view that the EIB has sufficient funds already.

Another proposal, that the reserves of the European Central Bank should be used to boost demand, were also regarded with suspicion, partly because this would exclude the UK (which is not taking part in the single currency), partly because Whitehall thinks the reserves would best be repatriated to European central banks.

In his debut on the European stage Gerhard Schroder, Germany's incoming Chancellor, threw his weight behind moves to boost growth, striking a contrast with the economic orthodoxy of his predecessor, Helmut Kohl. He said Germany's Social Democratic and Green coalition partners "have made the fight against unemployment the central point of our European policy. Priority must go to Europe-wide co-ordination of economic, financial and social policies."

Although some leaders were at pains not to compromise the independence of Europe's central bankers, others, including the Portuguese and Italian prime ministers, urged a cut in interest rates. Rudolf Scharping, who is taking over as German Defence Minister, said EU governments should enter into "a dialogue" with central-bank governors to convince them to decrease rates. Central banks in the EU's core economies have resisted that so far, claiming they are already among the world's lowest.