A reckless appointment that reflects an over-confident Prime Minister

A tumultous political year ends with Tony Blair secure in Downing Street. In spite of the controversies over the Hutton and Butler reports, the appalling violence in Iraq and an impatient Chancellor breathing down his neck, Mr Blair heads for his holidays contemplating a third term as Prime Minister. His end of term confidence is illustrated by the nomination of Peter Mandelson to be Britain's next EU commissioner. The nomination is a display of reckless loyalty to his old friend and ally. Mr Mandelson has lost his job twice as a cabinet minister in controversial circumstances. He has a unique capacity to generate negative media coverage and mistrust, a spin-doctor incapable of spinning on his own behalf.

A tumultous political year ends with Tony Blair secure in Downing Street. In spite of the controversies over the Hutton and Butler reports, the appalling violence in Iraq and an impatient Chancellor breathing down his neck, Mr Blair heads for his holidays contemplating a third term as Prime Minister. His end of term confidence is illustrated by the nomination of Peter Mandelson to be Britain's next EU commissioner. The nomination is a display of reckless loyalty to his old friend and ally. Mr Mandelson has lost his job twice as a cabinet minister in controversial circumstances. He has a unique capacity to generate negative media coverage and mistrust, a spin-doctor incapable of spinning on his own behalf.

Over the next few years, Europe will be one of the most explosive and important political issues in British politics. This is not an appropriate moment to send such an unreliable political performer to Brussels. Mr Mandelson will be seen as Britain's representative in Europe and to some extent the personification of the Government's approach to Europe. His presence will make it harder for Mr Blair to win the referendum on the European constitution, let alone a plebiscite on the single currency. Mr Mandelson's nomination demonstrates that sometimes Prime Ministerial confidence can go too far.

The fact that Mr Blair felt able to take the risk is based on his renewed authority in recent weeks and the broader benevolent political climate. Throughout the last turbulent year, the protective shield of a landslide majority in the Commons and a largely loyal cabinet have buttressed the Prime Minister. He rules also in the context of a relatively stable economy. Some of the so-called crises have therefore seemed more dramatic than they really were.

But while Mr Blair's political vulnerability is often exaggerated it would be wrong to assume that he is now free from the problems that have whirled around him in recent times. Inevitably he will continue to be dogged by Iraq. The Butler report confirmed that the intelligence in the run-up to war was patchy. Mr Blair cited the intelligence as proof that Saddam posed an imminent threat. The gap between what Mr Blair knew and what he chose to present will not be forgotten and should not be.

Mr Blair also faces fresh challenges on the domestic front. The five-year plans he has unveiled in recent weeks are a curious mix. The tone is crusading yet the policies are often incremental and confused. It is not at all clear how the reforms in schools and hospitals will work in practise. In political terms, Mr Blair will struggle to convince his party that his proposals are equitable. Those who work in schools and hospitals are already raising questions about the implementation of the policies. Mr Blair will no doubt present these looming confrontations as a crusade between modernisers and conservatives. Quite often it is a more mundane battle with those who fear that the proposals are incoherent and muddled.

Mr Blair's revival is based largely on the failure of the Conservatives to offer a credible response. Michael Howard had an opportunity when he became leader at the end of last year to review his party's policies. He chose not to do so. This has proved to be a fatal political error. Over the past week, there have been familiar signs of panic in the upper echelons of the Conservative Party. On previous occasions, such signs have led to another leap rightwards. William Hague, placed his party firmly on the right, and led it to a colossal defeat in 2001. Iain Duncan Smith was on the same wing of the party. And he, too, made no progress. Mr Howard should avoid a similar move. The Conservatives are struggling because they have been too right-wing, not because they have failed to be right-wing enough. Mr Howard is secure because of the looming general election, but already senior Conservatives are speculating about a contest afterwards.

The Liberal Democrats have been the beneficiaries of disillusionment with the main parties, winning two by-elections, one at the beginning and the other at the end of the political year. In each case they were in third place and leapt over the Conservative challengers to take the seats from Labour. Charles Kennedy has made some good speeches in recent months, not least in the Commons earlier this week on the Butler report. He spoke with the authority of being an opponent of the war while Mr Howard appeared to be a desperate contortionist, a supporter of the war demanding that Mr Blair apologise.

Mr Kennedy now has his sights on the by-election in Hartlepool arising from Mr Mandelson's departure. Even so the Liberal Democrats face a dilemma at the next election. Although they deny it, their policies place them to the left of Labour, yet they need to win votes from disillusioned Conservatives to make significant headway. Mr Kennedy has to be a political contortionist without losing credibility. This will be a difficult, but not impossible, challenge.

Once the summer holiday is over, the most important political debates will continue to take place within the governing party, most specifically over the best ways to improve public services. Labour remains the dominant force in British politics even if it is not always sure how to make use of such a privileged position.