CITY AND BUSINESS: Wake from your American dream, Gordon

Not long after I moved from New York to London in 1983, Mrs Thatcher called a general election. The next Saturday morning I was shopping on my north London high street and heard a fuzzy PA system blaring Labour slogans. Down the street came a battered van plastered with party stickers. The van slowed to a halt and the panel door slid open. Out jumped half a dozen Labour campaigners clutching pamphlets and collection buckets.

Instead of spreading out and approaching shoppers, they went into a huddle in front of Godfrey's Butchers. As I made my way in to buy my chops, I eavesdropped on their conversation. It was about the pros and cons of unilateral disarmament. Emerging 15 minutes later, the same conversation continued, more intensely. One passerby had joined in. As I turned the corner for home, I looked back and saw the campaigners get back in their van and drive off.

This is how Labour conceived the Third Way - painfully, through a 15- year internal conversation that drew in a widening circle of passers-by. Gordon Brown's Budget speech on Tuesday stands as the apotheosis of this process. Having reached this apotheosis, however, Brown and Tony Blair know they have to move on. I fear they are going to move on in the wrong direction.

Here's how: Blair and Brown appear to have made a victory in the will- we-won't-we euro referendum their next goal. Their softly, softly drive toward this received a nice fillip last week with the swift (if probably temporary) withdrawal of the German Finance Minister Oskar Lafontaine from euroland's political stage. The problem with making entry into the European Monetary Union the next focus of economic policy dialogue is it's going to grind on for two years.

This may suit Brown and Blair. The euro debate promises in pace and ultimate victory to be a re-run of their long march to win over voters on their tax and spending policies. The Third Way is all about adjusting the boundary lines of public and private sectors. The euro is about adjusting the boundary lines of European monetary policy.

As the Government wages its two- or even three-year campaign to take the nation into the single currency, the world of business and finance is going to change around us. Indeed, we may all have instantaneous access to breaking news now. But no matter how speedy news delivery systems become, the pace of business news itself seems to outstrip them.

The Chancellor's Budget speech, for example, focused on the need to make the UK more entrepreneurial. The British start-up and small business sector had to become more like Silicon Valley, the Chancellor suggested. Virtually as he was speaking, however, Silicon Valley and the global surge in tech stocks was being knocked out of the news by something new - the arrival of hostile takeovers in Europe with Olivetti's bid for Telecom Italia and with BNP's two-fisted bid for Paribas and SocGen.

While the Chancellor was facing West, in other words, the news was coming from the East. The old rulers of continental Europe's top 300 companies - the politically connected bankers and industrialists with family links to the aristocratic past - were taking a beating. The victors are the faceless managers of continental European insurance giants such as Axa and Allianz which are using their long-sleeping stakes in European companies to flex their anti-establishment instincts. Along side them are the City's faceless fund managers and the even more anonymous fund managers in America.

Here's the bottom line: if you are bored by the euro debate already, you are going to get mega-bored in the months to come. If, at the same time, you stay abreast of what's going on in the private sector globally and regionally, you are going to be mega-frustrated.

The Government is now set to make the euro the centrepiece of its re- election campaign. But the Government's popularity as the next election approaches is likely to depend on economic developments unrelated to the single currency. Consider these:

n The restructuring of European big business. In his speech on Tuesday, the Chancellor spoke of modernising the British economy by making it more computer literate. He also, to be fair, discussed a streamlining of government oversight of mergers and acquisitions.

But the avalanche of M&A about to descend on Europe will dwarf what happened in the Alps this winter. The euro is not really the facilitator, more an excuse. Anti-establish- ment capitalists on the Continent have been champing at the bit for years to crunch the number of banks and pharmaceutical companies, car and chemical plants, not to mention agricultural producers. Now it's going to happen. "You won't recognise European banking by the end of the year," is a common City refrain.

The question is: "Will UK plc be a winner or loser, not in the game of setting up a Euro-Silicon Valley but in the complex chess game of which European multinationals take over which other European multinationals?"

n The Chancellor pleased the oldies among us on Tuesday. He offered re- training schemes for the over-50s who have been knocked unwillingly and prematurely out of the labour force. He gave pensioners money to buy winter fuel. But he said nothing about the creeping impoverishment of the state pension system. To the extent that the Government has confronted this issue, we have heard little but feeble, contradictory, and inconclusive voices.

n The City. This is most important of all - the great, insufficiently acknowledged underbelly of New Labour's Third Way. Financial services now account for a fifth of the nation's economy. The lore is that these services are funnelled out to the world from the City's 500-something foreign banks. A more sardonic take is that the City is increasingly Wall Street East. As Wall Street goes, so goes the City. As the City goes, so goes the Third Way.

The Chancellor's Budget silenced all those who still doubted New Labour's competence in economics. It made Hague, The Daily Telegraph, and the Daily Mail sound like quibblers, if not hysterics. But, still, the rhetoric seriously outstripped the reality. The reality is the Government is brilliantly updating Britain's classic geopolitical game for the era in which markets rule.

The Government is trying to build American-style economic dynamism on top of a foundation of European stability. The problem is that, in a continuing convulsion of wilful innocence, it misunderstands the nature of America's dynamism. Yes, it comes from technology. Yes, it comes from a culture of risk-taking, where failure doesn't equal humiliation. But it also comes from the US's mammoth internal market, its steady stream of legal and illegal immigrants, and its bully-boy tactics in dictating the terms of world trade and financial flows.

UK plc under New Labour is an impressive economic machine, too. But Blair and Brown lack all of these advantages. Many analysts said last week that the country's future looks brighter and more solid than it has for years. But time is likely to show that they were steamrollered by the New Labour bandwagon.