Tories and the EU: Clarke issues rallying call to Europhiles: In wake of veto on Dehaene, Germans are accused of illegal retaliation and Chancellor hits back at the right

KENNETH CLARKE, the Chancellor of the Exchequer, will today mount a powerful counter-attack on the Conservative party's neo-Thatcherite right wing by recommitting Britain to being at 'the heart of Europe'.

In stark contrast to the speech on Monday by his own deputy, Michael Portillo, Mr Clarke will go out of his way to reaffirm a 'positive agenda' for Britain in the European Union.

While scrupulously recording official government neutrality on the issue, he will risk hostility from the party's anti-Europeans by restating his own agreement with the long-term goal of monetary union (EMU). And he will point out that Britain - currently committed to put any move to EMU to Parliament - has never rejected EMU.

The significance of Mr Clarke's strongly pro-European speech will be heightened by his making it to an audience of German Christian Democrats in Bonn convened by the Konrad Adenauer Stiftung - the body to which John Major first spoke of Britain's ambition to be at the 'heart of Europe'.

Mr Clarke will argue strongly that Britain wants to see a deregulated Europe committed to free trade and opposed to protectionism. And he will make an unapologetic defence of Mr Major's decision to veto the choice of Jean-Luc Dehaene as President of the European Commission.

But in terms which will refuel the debate on Europe in the Tory party he will unashamedly make it clear that the Government wants a strong Britain in a strong European Union. He will also seek to remove the impression that his party assented only grudgingly to the Maastricht treaty by explicitly delaring himself an enthusiastic supporter of it.

The tone of Mr Clarke's speech differs from that of Mr Portillo's to Barcelona businessmen on Monday, in which he was dismissive about calls for Britain to be 'in the fast lane'. Douglas Hurd, the Foreign Secretary, is also to make an important speech on Friday seeking to restore the party to its traditional pro-Europeanism.

Mr Portillo's speech also suggested that dependency on the welfare state eroded family values and neighbourliness.

Mr Clarke, however, reaffirmed his belief yesterday in a strong welfare state. He acknowledged that 'we all agree' about the undesirability of 'large numbers of able-bodied people' being dependent on benefits. But he also emphasised the importance of the welfare state taking care of the old, the sick and those whose jobs are lost through industrial restructuring.

Meanwhile Sir Edward Heath yesterday warned Mr Major that backbench rebels would keep pressing for more concessions on Europe or threaten to cause trouble.

'They regard this as a great victory. . . They were appeased and the more you try to appease them, the harder they will get.'

Portillo's path, page 6