Europe: Blair and Schroder keen to start on a united front

THE THIRD WAY and its close German relative, the Neue Mitte, joined forces yesterday as Tony Blair and Chancellor Gerhard Schroder vowed to turn their shared centrist philosophies into "policies" combining social justice with competitive market economics.

At their first summit since Mr Schroder's Red-Green coalition government was sworn in last week, the two leaders launched what they intend to be a close relationship between London and Bonn, in a Europe which has decisively tilted leftward with the defeat of Helmut Kohl after 16 years in power. Each used the traditional press conference to pour praise upon the other.

The most tangible, if largely symbolic, result of their "excellent discussions" was the creation of a joint working group, to be chaired by Peter Mandelson, the Secretary of State for Trade and Industry, and his German opposite number, to give substance to the thus far nebulous Third Way.

Mr Schroder hailed what he termed Britain's "strong determination" to work constructively in Europe and - without actually saying so - conveyed his confidence that Mr Blair would take the country into the single currency. Indeed, he even praised the current "wait-and-see" policy as "extraordinarily clever".

Although the Mandelson initiative is designed to strengthen a British- German bond within the EU, both were quick to deny any attempt to interfere with Germany's close relationship with France, the traditional bedrock of European co-operation.

And despite the pledge at last month's informal EU summit in Austria to shift the emphasis of policy from fighting inflation to promoting growth, both denied they were attacking the independence of their central banks by pressuring them to cut interest rates.

Such a debate was perfectly natural, said the German Chancellor, whose Finance Minister, Oskar Lafontaine, publicly urged the Bundesbank to use monetary policy to stimulate growth and help create jobs.

"No-one in my government intends to question the independence of the Bundesbank," Mr Schroder said. "And that goes for the independence of the European Central Bank too. The decision on interest rates lies with the Bundesbank."