The Week in Politics: Now the war is over, Blair must focus on his battle over the euro with the Chancellor

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The Prime Minister is experiencing déjà vu. In the months after winning power in 1997, he was involved in tense negotiations with Gordon Brown over the Government's strategy on the single currency.</p>Now the war in Iraq is over, the most pressing item in Tony Blair's in-tray is a new euro policy statement. As in 1997, the tension between the Blair and Brown camps is palpable; no decision has been made, but both sides are negotiating in public through the newspapers.</p>In the next few weeks, Mr Brown will deliver a "not yet" verdict on Treasury's five economic tests. But the big euro question is what he will say in his Commons statement about the Government's intentions. The Chancellor wants to rule out a euro referendum before the next general election; Mr Blair wants the option open.</p>The echoes of 1997 are striking. Then, as now, the papers were full of stories about splits between New Labour's two main architects. At the time, Mr Brown was keener to push for euro entry than Mr Blair, who did not want his first term overshadowed by Europe, the issue which divided and destroyed the previous Tory Government.</p>Although they agreed the time was not right to call a referendum, the Prime Minister wanted to send a positive signal of his pro-European credentials. So the deal was that Mr Brown would couple his "not now" decision with a statement that the Government supported entry in principle and did not close the door entirely on a referendum before the next election. The strategy was blown off course because Mr Brown went further when he leaked his announcement to The Times</i>. Mr Blair was horrified when the paper's front-page headline was read to him: "Brown rules out single currency for lifetime of this Parliament." There was confusion before the Chancellor made his Commons announcement nine days later.</p>That period of turbulence was in Mr Blair's mind this week, when he felt he was reliving the 1997 saga. The Prime Minister is determined that the "not yet" result on the five tests will not be over-spun by Mr Brown this time. But he fears the Brown camp its repeating its 1997 tactics.</p>Newspapers suggested that they had struck an agreement that a referendum could be held before the next election only if there was a dramatic change of circumstances. Mr Brown was also said to have beaten off pressure to shift to a "when, not if" position on the euro. In the Blair camp, such statements were viewed as too negative. Mr Blair is worried that if the Government sends a message that it is not serious about joining the euro, foreign investors will shun Britain.</p>In the Blairites' eyes, the Government's policy is already "when, not if" because Labour supports entry in principle. They want a firmer commitment to look again at the issue, possibly next year. To them, talking of a "dramatic change of circumstances" would in effect close the door on a referendum this Parliament, just as Mr Brown intends.</p>The Chancellor says a commitment to review the tests again would be a recipe for uncertainty, speculation and instability. Mr Blair believes a window of opportunity exists for a referendum in this Parliament. His problem is how to persuade Mr Brown.</p>Mr Blair has not entirely given up studying the opinion polls and focus groups. Labour's private polling shows the Chancellor's conversion to a pro-euro stance would persuade many doubters to vote Yes, and could easily tip the balance in a referendum. His present caution is Mr Blair's most powerful weapon.</p>The Chancellor sees no reason to take risks with the economy by rushing into the euro when many European Union economies are weak. Mr Blair believes the economics are almost right, and will be in a couple of years. Although the Government has always insisted the tests would ensure the euro decision was taken on economic grounds, they were designed to provide maximum flexibility for what is inevitably a political decision.</p>Mr Blair also worries that Britain's influence in the EU will wane if the forthcoming statement is seen as too negative. The Iraq war has already thrown the EU jigsaw into the air and the pieces have not landed yet.</p>After the EU summit in Athens, Mr Blair senses a "new realism" in Europe and found little appetite for anti-Americanism. Downing Street believes that Jacques Chirac overplayed his hand on Iraq and Gerhard Schröder used his opposition to war as cover for sweeping economic reforms ⓠNew Labour ones, of course.</p>The admission to the EU of 10 new members next year will also strengthen Mr Blair's hand. Although the EU map will shift east, the pro-American stance of the eastern European entrants will tip the balance of the new Europe in Britain's favour, weakening the Franco-German axis.</p>But euro supporters doubt Britain can play a pivotal role in Europe outside the single currency. So there will be some hard bargaining when the Prime Minister and the Chancellor return from their Easter breaks.</p>Aides say Mr Blair feels liberated after Iraq and determined to show the same decisiveness on other issues. But Mr Brown has a veto in his pocket; it is hard to see a referendum being won without his 100 per cent support. I would love to be a fly on the wall at their meeting.</p>What will happen? There is scope for a compromise which stops short of ruling out a referendum in this Parliament. So we might take another run round the euro course again in a year or two. That really would be déjà vu all over again.</p><a href="mailto:a.grice@independent.co.uk">a.grice@independent.co.uk</a></i> </p>

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