In a major boost for the pro-euro cause, the Prime Minister will appear at the launch in London next month of the cross-party "business in Europe" campaign being funded by leading British businessmen.
Downing Street confirmed last night that Mr Blair had decided to endorse the campaign after its organisers agreed to focus on strengthening Britain's position at the heart of the European Union rather than pushing for entry to a single currency.
The chances of Mr Blair giving his backing to the campaign appeared to have receded last month following Labour's defeat by the Conservatives in the European elections.
However, Mr Clarke and Mr Heseltine were furious with the Government for failing to give a clearer lead on the issue and vowed to boycott the all-party campaign unless Mr Blair agreed to attend its launch and give his full support. Mr Blair was understood to be deeply irritated by the criticism andDowning Street engaged in a series of intense negotiations with the Britain In Europe organisers to persuade them to change their campaign position to match that of the Government.
A Downing Street spokesman said last night: "He has agreed to attend this event after the organisers agreed to make clear that the campaign on European Monetary Union would be the same as the Government's `prepare and decide' position. This is something he now feels he can do."
Britain in Europe, which is chaired by Lord Marshall, the chairman of British Airways,has until now been seen as alobby group for early entry to the single currency and the shift may disappoint some of Labour's more enthusiastic pro-euro MPs.
However its leaders have decided they cannot campaign to take Britain into the euro until the British people havebeen shown a strong case for the country's future at the heart of the EU. The Government has repeatedly said it supports the single currency in principle, but will only hold a referendum when it is in Britain's economic interests to join. A spokesman for Britain in Europe said last night: "Obviously we are delighted that the Prime Minister has agreed to attend. It will enormously strengthen our cross-party campaign."
Mr Blair's move comes as his former ally Peter Mandelson gives a speech in Brussels today urging British membership of the euro. Mr Mandelson will call for greater EU integration and declare that the UK should join the currency when economic conditions are right.
On Wednesday, Mr Mandelson will address the annual conference of the AEEU engineering union, one of Labour's biggest financial backers. Hewill emphasise that Labour needs the votes of both its traditional blue-collar supporters and of the middle class.