THE GREAT EMU DEBATE Waiting on the Chancellor

Tonight Kenneth Clarke spells out the Government's criteria for a singl e European currency

There is an irony in the host of Kenneth Clarke's important speech on the single currency tonight. He will be speaking at what promises to be an exceptionally well attended dinner of the European Movement, a passionately Europhile organisation. B ut the medium will not quite fit the message. For what John Major is clearly hoping his Chancellor will do tonight is to put the flesh on the bones of yet another initiative by the Prime Minister designed to appeal to the Eurosceptics in his party.

It is now clear that Mr Major's highlighting of new conditions last Friday in a speech to a Thatcherite audience had a clear political purpose: to reassure his party of his own lively sense of the obstacles there are to British membership of EMU, withoutruling it out for ever and a day.

And this is of a piece with the rapid pace of developments since Christmas: first, Mr Major gives a BBC interview to Sir David Frost in which for the first time he rules out, to a warm welcome from the Cabinet opponents of a single currency, a governmentrecommendation to join EMU in 1996-7.

Then the conventional wisdom that while the parliamentary party has a Eurosceptic majority, the Cabinet is strongly pro-European, is undermined when Malcolm Rifkind, a pro-European, joined the ranks of the opponents of a single currency.

Then last Tuesday the Prime Minister makes an important point which goes virtually unnoticed in the heat of his Commons brawling with Tony Blair. Mr Major remarks that the new criteria will have to be taken into account before "we ... consider whether itwould be appropriate economically or constitutionally to proceed". Just for good measure he even repeats the point, referring to the EMU judgement as "crucial to the constitutional and economic future of this country".

This is also a message in a bottle to the Eurosceptics, made all the more important by the fact the Chancellor is fairly widely known to take the private view that a decision to enter EMU does not have overriding constitutional implications. Yes, Mr Major was saying in code to the Eurosceptics, there is more to all this than mere economics. Given that not even Michael Portillo expects him to rule out a single currency for all time, Mr Major has come a long way since Christmas.

Which doesn't mean the rules of the game have yet been decided in either of the the two main parties. Take Labour first: how far does the commitment "in principle" really differ from the government's official agnosticism? There are, after all, several problems for a Labour government committed to a single currency. A rigorous and deflationary economic policy imposed by the constraints of EMU just might awaken a dangerous and dissident alliance of backbench Eurosceptics and neo-Keynsians once Labour is in power. Then there is the problem of squaring backing for EMU with Labour's long held opposition to a politically independent central bank.

As it happens, Tony Blair has spoken with cautious approval about Mr Clarke's decision to increase the autonomy of the Bank of England by publishing the minutes of his monetary meeting with the Governor. Could he go a huge step further by pledging Labour, as the pro-single currency Liberal Democrats have pledged themselves, to an independent central bank? It would cause goodness knows what dangerous strains within the party. But it would not only pave the way for a full embrace of EMU but also give Labour the one critical electoral advantage it has lacked since the war: the most credible anti-inflation policy on offer.

And despite the shifts in Mr Major's public position since Christmas, the die has not yet been cast in the Tory party either. Nothing could show this more graphically than Michael Heseltine's warm words about a single currency in a radio interview on Sunday. The big beasts, including Heseltine, Clarke and Hurd are determined to keep the issue open. In appealing for a pragmatic economic debate on the pros and cons they are partly hoping to mobilise the big business constituency in the argument over a single currency. The choice of words the Chancellor adopts to reconcile his own views with the task set for him by Mr Major is partly what will make his speech such an interesting one tonight.

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