The countdown has started - but will Blair or Brown emerge victorious?

Decisions taken on the EU and the euro will have a much greater influence on the future of the UK than the war in Iraq
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The Independent Online

Not all that long before the invasion of Iraq, Tony Blair reportedly rejected suggestions that he should end a ministerial meeting in Downing Street on Europe to turn his attention back to the more pressing issues in the Gulf, saying that "this is more important than Iraq". By this he meant something precise – and, arguably, fairly obvious: namely that decisions taken on the EU and the euro would have much greater influence on the long-term future of the UK than the outcome of war in Iraq.

Not to mention his own premiership. Yesterday's decision to involve the Cabinet in the 9 June announcement on euro entry marks a period that really does have a claim to be – however overused the phrase may have been in the past – the defining moment in his term of office as Prime Minister. For what happens between now and 9 June will determine whether he gets a real chance of what he wants – and what he has insisted in recent weeks to at least one EU head of government and at least one prominent British businessman he still expects: namely a referendum in this parliament on British entry to the single currency; or whether his Chancellor will remove virtually any prospect of such a referendum – either explicitly or implicitly – when the outcome of his famous economic tests are laid out to Parliament.

If that power struggle is depicted as a game of bridge, Gordon Brown took the first trick when the two men met at Chequers 10 days ago and agreed that the referendum would not at any rate take place this year. Mr Brown's success lies less in the actual outcome of that meeting than in what it says about the two men's negotiating stances. There are good reasons, political as well as economic, for thinking that 2004 would be a more plausible year to hold a referendum than 2003. But Mr Blair might arguably have held out until he had secured from Mr Brown a firm promise that the issue would be revisited next year or, at a pinch, in 2005 – pursuing the conventional negotiating strategy that nothing is agreed until everything is agreed – particularly since he is said to have regarded the actual Treasury papers on the subject as rather more even-handed than the verbal interpretation of their implications given by the Chancellor.

And since Mr Blair is said to believe that that the convergences between the UK and the eurozone, on interest rates, on inflation and, after the pound's fall in recent weeks, on the exchange rate, are close enough to justify a referendum this year. Not to mention that inward investment figures appear to be pointing to an already adverse impact caused by the UK's absence from the eurozone. Instead, the one undisputed fact is that there won't be a referendum this year. And when that is reported, as it was yesterday by the BBC, as the main story of the day, "not yet" begins to morph rather quickly in the public mind into "not for a long time".

The big question to be determined in the next few weeks, therefore, is whether that inference is correct; and whether the Chancellor's 9 June statement will leave open a real – rather than an illusory – prospect of revisiting the issue before the next election, when he says, as he surely will, that the tests have not yet been met.

For what is clear is that some version of the formula for which Mr Blair and his lieutenants fought before the Chancellor's last equally momentous statement on the subject, in October 1997, simply won't do. Then a huge effort was mounted to persuade pro-European businessmen and European heads of government that Britain was still on course for entry because the statement allowed for the possibility that in "unforeseen circumstances" the issue might be revisited within that parliament. Nothing like this will do now if the Prime Minister is to be seen genuinely to have kept the issue open. It simply won't be believed a second time.

At present the word filtering out of the Treasury is that a pre-election return to the tests will be neither ruled out or in. But even that covers a wide spectrum of possibilities. Unless there is a presumption that the Government has an intention to enter the euro in this parliament, subject to achievable improvements in public policy to make up the deficiencies in the test results, then no self-respecting advocate of British euro entry is going to believe the Prime Minister on the subject any more. Especially when fashionable opinion increasingly sees the idea of entry in this parliament as counter-intuitive.

Let's leave for another day the pros and cons of the argument itself. Of course, as the Chancellor will powerfully argue, this is more than a matter of cyclical convergence. And, yes, the structural question of the potential adverse impact on the housing market of interest rate adjustments to accommodate euro-entry has risen to the surface. Even if it is a bit of mystery why – if that is such an issue – the Chancellor did not take the advise of his good friend Gavyn Davies, who suggested in a New Statesman article in May 1997 that tax relief be used to encourage long-term fixed mortgages, which dominate the housing finance market in Europe, at the expense of variable-rate mortgages.

There is also a secondary issue of a Prime Minister avoiding defeat at the hands of his Chancellor by getting what he wants. There has always been an asymmetry about this. The Chancellor will not be damaged if there is a referendum – or, if there isn't – but the Prime Minister will be damaged if there isn't one. It may well be wrong to mistake the Chancellor's caution for personal ambition. Indeed, there is some evidence that Mr Brown was offered a deal last year in which the PM would stand down after a decent interval after a referendum, and that he turned it down. But that doesn't alter the fact that, if he is not to be badly weakened, the Prime Minister needs that 9 June statement to show how entry can be achieved with a fair wind before the next election.

There are many reasons for this. The political capital he has expended in Europe by his consistent and uncritical support for the US over Iraq make his declared policy of being a bridge between Europe and the Americans unrealisable if he is not at the political heart of the EU – as he probably realises. He will have seen the European dimension of his project fail, just as the other – the abandoned fusion of the Liberal and Labour traditions to remake British politics – did. His own belief that the national interest is best served by the political centrality in Europe that only eurozone membership can confer will have been disappointed. And his famous big tent will be flapping, half empty, in the wind.

Yesterday's decision now gives him the mechanism to mobilise the pro-euro majority in the Cabinet. It won't, of course, be easy. He must regret replacing a Foreign Secretary who agrees with him about the euro with one who, whatever his merits, doesn't. To bring his Chancellor round – or to face him down, if necessary – he will have to show an iron will. The next three weeks will determine whether he has it.

d.macintyre@independent.co.uk

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