Lady Williams: 'I am worried. This government is close to blowing it on the euro'

On the eve of the Lib Dem conference, the party's leader in the Lords hits out over Europe and says UK stance on Iraq is ill-judged

Baroness Williams of Crosby has warned Tony Blair that his policy on the euro has squandered the support of the Liberal Democrats and other pro-Europeans.

Lady Williams, the Liberal Democrat leader in the House of Lords, said the Government's failure to call a referendum on whether to join the euro had "blown away" enthusiasm for a campaign.

In an interview with The Independent before the party's annual conference in Brighton, she said the Prime Minister's decision to delay a referendum could cost him victory.

"[The Government] have come very close to blowing it. Their timing is getting extremely worrying," she said. "I think the enthusiasm behind the move to get into the euro has blown away."

Lady Williams said pro- Europeans who were willing to campaign for the euro felt ignored by the Government. "A lot of people like me who are strongly pro-European feel that our enthusiasm and willingness to work has not been paid the slightest attention to," she said.

Lady Williams said the crisis with Iraq would be the biggest test of Mr Blair's leadership and that he could not afford to rely on Conservative support for a military strike if he did not have the backing of his own party.

"This is going to be the crunch issue of his entire administration and how he handles it," she said. "The question is whether at the crunch time he will be able to influence the United States – for example, to produce a UN resolution which could be accepted."

Lady Williams expressed grave doubts on the legality of "regime change" in Iraq and said getting independent inspectors back into the country must be the aim.

She backed a plan being considered by senior figures in the Bush administration, which suggests UN inspectors should be supported by an international military force that would include some of the Arab states.

She was deeply concerned by Britain's stance on military action and believed the UN had been marginalised when it should have been centre stage. The global implications of a strike – including the effect on the Arab world – had not been properly thought out.

"We would want to hear much more about an exit strategy. What ideas have the UK and the American government got for the repercussions for the region?" she asked.

Lady Williams, who is Emeritus professor of politics at Harvard University's John F Kennedy School of Government, said she believed the Prime Minister's public posturing was helping him to influence White House policy.

But on a recent visit to America, she was told by Democrat politicians they were baffled and disappointed by Mr Blair's "slavish" stance towards President George Bush. "I encountered a lot of Democrats who said ,'What is your Prime Minister doing?'. I think that the answer must be that he believes that the way he influences the United States is by showing publicly that he is absolutely loyal. And I think he has had some influence over the United States."

Her respect for the Prime Minister's tactics was tempered by apprehension. She said the Iraqi crisis would have a key effect on Mr Blair's standing in his own party.

On her own party, Lady Williams expressed fears that the lack of female MPs was damaging the standing of the Liberal Democrats and could cost votes.

"The image of the party as a whole is at stake, not only because it costs votes but just because it is wrong," she said. "For a modern party like ours to be almost entirely male and white at the parliamentary level isn't good enough."

She was embarrassed that the Liberal Democrats had a less enlightened policy than India on promoting women, where at least one third of candidates must be women.

Lady Williams is the most prominent female Liberal Democrat politician in the country – a position that troubles her. Like her mother, the writer and pacifist Vera Brittain, she has gone out of her way to help the next generation of women politicians. "We have some very, very talented people and I try to do my best to encourage them," he said.

Lady Williams, Education Secretary in James Callaghan's 1976-79 Labour government and a co-founder of the Social Democratic Party in 1981, is one of the Liberal Democrats' most valued operators.

But despite her standing, there is a hint of nostalgia and regret in her voice when she refers to her time in Government. "I'm not at centrestage, well not in the sense that I once was," Lady Williams said. "I'm on the edges."