Countdown To The Euro: Blair treads softly on new currency

"WE HAVE to fight back against all this nonsense," Tony Blair told one of his closest advisers as he surveyed another day of damaging headlines about how an EU-wide tax policy was going to be imposed on Britain.

According to aides, the Prime Minister recognised that his twin-track strategy of appeasing Britain's Eurosceptic newspapers while the Government adopted a pro-European policy was no longer tenable.

"He finally realised that we were not going to get anywhere in Europe unless we took on the Europhobe press," said a government source. "For him it was a very serious moment."

A referendum on whether Britain should join the single currency is still some years away, but the starting gun for the campaign will be fired on 1 January when the euro is launched by 11 other European Union countries.

The "yes" and "no" camps already exist in embryonic form and they agree that 1999 could be critical in shaping public opinion ahead of the referendum that Mr Blair is expected to call shortly after the next general election. The pace of the great debate will quicken in January when Gordon Brown, the Chancellor, publishes a national changeover plan setting out what steps Britain needs to take to prepare for euro entry.

Pro-euro businessmen and the Liberal Democrats hope Mr Blair will use the occasion to change the Government's policy to one of "not if, but when" - in effect, a declaration. Yet Mr Blair is unlikely to harden the policy of the Government, which is committed to monetary union in principle but insists the key tests on whether to join will be economic. "There will a more pro-European tone, but the policy won't change," one minister said.

Nevertheless, supporters of a single currency concede the Prime Minister is edging slowly in their direction: they welcomed his fightback against the Eurosceptic press during the recent controversy over a common EU tax policy.

Some businessmen are sceptical about the Prime Minister's keenness to take on such Eurosceptics as Rupert Murdoch, Conrad Black and Lord Rothermere.

Ministers close to Mr Blair believe, however, he has crossed the Rubicon. "The Government's duty is to lead opinion, not follow it," said one.

Mr Blair knows that saying "yes" to the euro now would provoke divisions in the Cabinet and the Labour Party. He is attracted by a "slowly, slowly" strategy in which public hostility to the euro dissipates after a successful launch. Keeping his options open will allow Mr Blair to argue that opponents of the euro could safely vote Labour at the next general election, knowing they could then vote "no" in a referendum.

Another factor the Prime Minister would be considering is the elections to the European Parliament in June - a big test of public opinion. The Tories will fight strongly on European issues. William Hague needs to make big gains to bolster his position as Tory leader, and his allies believe he can unite his party around his policy of ruling out single currency membership during this Parliament and the next. The Tories should do well; the introduction of proportional representation will help them. But the key question will be whether the pro-European heavyweights, like Kenneth Clarke and Michael Heseltine, keep their heads down.

Labour will develop a "pro-Europe, but pro-reform in Europe" strategy, in the hope of preventing the Tories from painting it as a federalist party which swallows all the medicine prescribed by Brussels.

The lesson of the 1975 referendum, when the British people voted by a margin of 2-1 to stay in the then Common Market, bodes well for the "yes" campaign. The "no" camp will try to prevent the debate being turned into one about Britain's engagement in Europe.

Although the "no" campaign will probably have more money at its disposal, it may suffer from internal differences. There are more than 30 organisations in the Eurosceptic camp. A more formal structure may be set up later this year, but one participant admitted: "It will be very difficult to get everyone to work together."

In contrast, the putative "yes" campaign is applying the "command and control" strategy which served Labour so well at the last general election.

What the public makes of the great euro debate is another matter. At present, they are "switched off". But they will certainly notice the frantic activity of the next six months.

The Pros

Leaders: The all-party European Movement (Giles Radice, Labour MP); Lord Hollick, newspaper proprietor (left); Kenneth Clarke, former Tory chancellor; Peter Mandelson, former cabinet minister; Paddy Ashdown

Position: Want early declaration by the Government that it intends joining single currency

Strengths: Strong all-party base; business back-up

Weaknesses: Tony Blair reluctant to come off fence

Prospects: Will run disciplined campaign; successful euro launch would strengthen position

The Antis

Leaders: Baroness Thatcher; William Hague; European Foundation (Bill Cash, Tory MP); European Research Group (Sir Michael Spicer, Tory MP); Democracy Movement (Paul Sykes, businessman, left); Austin Mitchell (Labour MP); Business for Sterling (Lord Stirling)

Position: Divided between "never" and "not for two Parliaments" (Hague)

Strengths: Will play on people's EU doubts; backers' money

Weaknesses: Thirty-plus groups

Prospects: May be battling against tide of history

The `Not Yets'

Leaders: Lord Owen (left, former Labour foreign secretary and SDP leader); Lord Prior (former Tory cabinet "wet"); Martin Taylor (former chief executive, Barclays Bank)

Position: Britain should not join euro now, but still play a positive role in the EU

Strengths: Cannot be tarnished as anti-European; respected group of elder statesmen

Weaknesses: Difficult message to project; must avoid looking like band of yesterday's men

Prospects: May be outflanked by "yes" and "no" campaigns

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