Peter Mandelson: Let battle commence: we are fighting for the future of New Labour

The case for joining
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The 'ifs' and "buts" of Britain's bumpy path into Europe's single currency appear to be in sight of ending. Yesterday's statement by the Chancellor, Gordon Brown, has changed the mood. The Cabinet's view of entry is clearly "when" not "if".

I believe Mr Brown has done himself (and the country) a big favour by staying his hand and allowing the cabinet to have their say. The Labour Party, both in parliament and in the constituencies, overwhelmingly wants to implement the policy on which it fought and won two general elections. Labour has had a settled pro-European view since the 1980s when this change of heart became an important symbol of the party's desire to re-enter the real world and start winning elections again. In the 1990s, strong commitment to Britain taking its place at Europe's core became a cornerstone of New Labour's appeal.

To go back on this conviction would have been badly received by the party. As the guardian of the economic steps agreed to make entry possible, Mr Brown will win the party's admiration if he ensures these steps are now taken.

But gaining the party's plaudits is not the only, or the main, battle for the Government over the euro.

In the country, opinion is sharply divided between three groups. Those who oppose joining because they do not want Britain to be in the EU at all. This group will throw absolutely everything at this last-ditch stand against Europe. The second group wants to enter the euro because it sees the economic advantages for Britain and also regards joining as the best way for Britain to wield influence over crucial European decisions affecting our national interests.

The third group are those in the middle. On balance, they accept the arguments for joining and believe that Britain is bound to go in eventually. But they want further time to see how the currency performs in the uncertain times facing the international economy. In particular, they wonder how Germany is going to weather its choppy waters and worry that this will have an adverse impact on Britain's economy once we share the same currency.

This is a legitimate concern but we should bear in mind that Germany, for all the huge challenge of unification that it has had to face in the past 10 years, still enjoys a higher standard of living and better public services than Britain. Germany's problems are nothing to do with the euro. Yes, unemployment is too high because there is too little labour market flexibility, but the Schröder government is now pushing through big reforms. The fact is, as most objective economists agree, Britain stands to gain a significant growth dividend once in the euro from the increase in trade among eurozone countries - a boost estimated at as much as £150bn over 25 years. By staying out, we would risk losing substantial sums that could be used to raise standards in public services. Foreign investment could also be lost when firms reject Britain in favour of eurozone countries and the competitive economies in central and eastern Europe.

If the economic case is so strong, then, why is the opposition to joining so trenchant and uncompromising? The reason is political not economic, it has to do with the battle over the soul of the Conservative Party and is a relatively recent phenomenon. In 1975, Margaret Thatcher campaigned for a "yes" vote in the European referendum of that year. But in office she changed her mind and became vitriolically opposed to Europe which, she thought, was sapping Britain's identity and sovereignty. This did not stop her signing up to the most radical integrationist measures ever agreed in the EU. But this self-betrayal has made her supporters even more determined to rectify the mistake and sever Britain's links with the integrationist movement in Europe.

Europe is the political faultline that runs through the Tory Party. It accounts for the bitterness that blights the party and the poison that drips from every Tory columnist's pen when writing on the subject. But the additional reason for the vehemence is that the Right-wing press supporting the Tories knows that if it can defeat the Government over the euro, this will destabilise Tony Blair and, they hope, start to unravel the whole New Labour project. This is why the stakes are so high.

Mistakenly, they think that Gordon Brown has been recruited to their grand plan. But, in my view, they confuse his caution with opposition. They read his words of "not yet" as "never". Only on Saturday, Simon Heffer, one of the most loyal and effective writers of the Tory old school, wrote about the euro: "We won't be joining because Gordon Brown is indispensable to the Government and the last thing a beleaguered Tony Blair wants is to have a third Cabinet resignation in as many months".

Dream on, Simon. There is no more chance of Mr Brown mortgaging his political future to far-Right anti-Europeans than of Saddam Hussein finding asylum in Britain.

So, let battle commence. It will be bloody and beastly. This is the last throw of the dice by the Thatcherite Right. For the Government, the integrity and future of the New Labour project is at stake. For Britain's sake, I hope ministers prove equal to the challenge.

Peter Mandelson is MP for Hartlepool

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