The European Crisis: Major faces backbench challenge on Maastricht

TORY MPs opposed to the Maastricht treaty are planning to challenge the Prime Minister to say whether the 1 per cent cut in interest rates yesterday marks a fundamental shift in the Government's policy on Europe.

John Major will face questions from his own backbenchers when he opens the emergency Commons debate tomorrow, on whether the cut signals the end of the policy of shadowing the German mark.

'There is an irreconcilable choice - either we float the pound freely outside the ERM, or we go back into the ERM. You can't have both. We need to know which it is,' a leader of the Conservatives opposed to the Maastricht treaty said.

Another Tory rebel said: 'He is going to face questions right across the board - what is the Government's policy on Europe? What is the economic strategy? If we could reduce interest rates this week, why could we not do it last week?'

The anti-Maastricht Tory MPs believe the cut in interest rates will intensify the split in the Cabinet between those pressing for a return to the ERM in the short to medium term. They are in the majority in the Cabinet and include Douglas Hurd, the Foreign Secretary, Kenneth Clarke, the Home Secretary, Michael Heseltine, the President of the Board of Trade, and John MacGregor, Secretary of State for Transport.

Those pressing for caution on rejoining the ERM include Michael Howard, Secretary of State for the Environment, Michael Portillo, Chief Secretary to the Treasury, and Peter Lilley, Secretary of State for Social Security.

The pro-Maastricht Tory MPs, whose majority in the Commons is reported to be falling, are growing impatient with the apparent drift of policy.

The Tory backbench critics believe the Government's continued commitment to ratifying the Maastricht treaty is at odds with its apparent policy of allowing the pound to float.

Some of the Tory rebels accused Norman Lamont, the Chancellor, of seeking to 'save his own neck' by cutting interest rates to stimulate the economy and restore himself to favour with the party rank and file.

Michael Spicer, a former minister, and chairman of the group of Tory MPs calling for a 'fresh start' on the Maastricht treaty, questioned the Government's intentions, although he welcomed the cut.

'I hope it shows that we have got a fundamental change in government economic policy and that vacuum and uncertainty has been ended with a new policy and a new strategy. But we don't know yet. There is a tremendous amount of uncertainty about whether we can go back into the ERM.'

Labour should vote against the Maastricht Bill and argue for a wider, not deeper, Europe, John Prescott, the party's transport spokesman, said yesterday, writes Nicholas Timmins. John Smith, the party leader, is today expected to require his shadow Cabinet colleagues to fall into line on Europe.

A policy paper to go before the party's national executive and Shadow Cabinet today will underline Labour's commitment to fixed but flexible exchange rates and the leadership's continued commitment to the Maastricht process.