Thatcherite fires warning shot over currency plans: Tory right-wingers prepare for battle over ERM replacement. Colin Brown reports

A WARNING shot against plans for a Mark 2 European exchange rate system was fired last night by John Redwood, a leading Thatcherite in the Cabinet, in a looming battle over government policy on Europe after 'Black Wednesday'.

The Secretary of State for Wales reinforced the warning to Britain's European partners last week by John Major and on Wednesday by Michael Portillo, already being promoted as the Thatcherites' main leadership challenger, that the collapse of the exchange rate mechanism had killed the prospect of a single European currency.

'Is the Maastricht plan for a single currency dead? It appears to be so, on the basis of the timetable set out in the treaty,' Mr Redwood told a Thames Valley Businessmen's dinner. 'I hope our partners do now believe that the events of recent months, far from being a green light for easier, faster monetary union, are an amber light for the whole process.'

His warning was directed at European heads of government preparing for a special summit at the end of October in Brussels where further steps towards union after ratification of the Maastricht treaty will be on the agenda.

But he also registered the growing concern on the right of the Conservative Party about plans for creating a replacement system for the ERM, which Mr Major intends to raise at the summit.

Sir Norman Fowler, the Conservative Party chairman, yesterday told the Cabinet he planned to use the annual party conference in Blackpool next week to stage a comeback for the Government.

The conference slogan will be 'building on the recovery'. 'By no means are we pretending that everything in the garden is rosy, but we are saying it is moving in the right direction.'

The leadership is clearly planning to answer the criticism of some right-wingers that the cutting edge of the Tories has been blunted under Mr Major.

The conference programme has been changed, following the decision on the grounds of ill-health, by the President of the Board of Trade not to make a keynote speech. The home affairs debate has been moved from Thursday to Wednesday, giving Michael Howard, the Home Secretary, a better platform to launch the Government's fight-back on law and order.

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