So does Sly regret sacking Piers from the 'Daily Mirror'?

She's lost 200,000 copies in 12 months. Pictures of British troops abusing Iraqis dominate the headlines...

On the afternoon of Friday 14 May 2004 the logic that led to the sacking of flamboyant Daily Mirror editor Piers Morgan appeared inexorable. A fortnight earlier he had published pictures allegedly showing soldiers of the Queen's Lancashire Regiment abusing Iraqi prisoners.

On the afternoon of Friday 14 May 2004 the logic that led to the sacking of flamboyant Daily Mirror editor Piers Morgan appeared inexorable. A fortnight earlier he had published pictures allegedly showing soldiers of the Queen's Lancashire Regiment abusing Iraqi prisoners.

Amid a furious debate about authenticity, the armed forces minister Adam Ingram told the House of Commons that the images were "categorically" not taken in Iraq. Colonel David Black of the QLR said: "It is time the ego of one editor was measured against the life of a soldier." Trinity Mirror's chief executive Sly Bailey, already disturbed by public hostility to Morgan's stance, reached her conclusion. The Mirror had been duped. The man who became its youngest editor when he was appointed aged 30 in 1995 was dismissed.

Mirror circulation was already in trouble. In March 2003 sales had fallen below two million for the first time in 70 years. Sly Bailey was recruited to stem the decline. Her record as chief executive of IPC magazines suggested she was ideal, but sceptics disputed it. They accused her of obsessing about the bottom line to the exclusion of editorial content. To Morgan's admirers, her response to the fake photos proved she was not a proper newspaper person. A dynamic editor, regarded as a hero by his team, was sacrificed for taking a bold anti-war stance that chimed perfectly with the Mirror's campaigning, left-of-centre tradition. Even when it was plain that the pictures were fakes, Morgan's senior team remained loyal. Several had to be persuaded not to resign when he was sacked. They believed the pictures pointed towards a deeper truth about the war.

This month, with Daily Mirror circulation at a new low after shedding 200,000 sales in 12 months and alleged abuse by British soldiers in Iraq dominating headlines, has Morgan been vindicated? One senior Mirror insider says: "What Piers did exposed a can of worms. He was always convinced that there was more to come. Sly hoofed him out just as public opinion about the war was beginning to change. Look at the paper now. The editor is scared that he will be sacked for taking any sort of risk. Newspapers must take moral stands if they are going to succeed but Sly backed down and sacked Piers as soon as the Government and the military put her under pressure."

One of Morgan's senior former colleagues says: "Piers had the passion and energy to set a news agenda. He made the staff feel they were all in it together. The Mirror just isn't like that anymore." Others say that newsroom morale has collapsed since Morgan's departure and that his replacement editor, Richard Wallace, is hamstrung by interference from above. Sources say that Ellis Watson, recruited by Bailey to be general manager at the Mirror group, uses market research to determine which stories should run. There is talk of the paper being edited by committee and crippled by cost-cutting. Journalists say budgets have been frozen since Morgan left. The Mirror has lost specialist reporters, closed its colour magazines and dropped high-profile columnists such as Jonathan Freedland and Christopher Hitchens.

Professor Justin Lewis of Cardiff School of Journalism says: "There is a real problem with any national newspaper when readers don't know what to expect. Under Morgan the Mirror developed a clear purpose. Readers knew what sort of paper it had become. Now it is not clear what it is trying to be. You can't achieve that clarity by short-term attention to the share price. You have to be in it for the long haul."

Insiders fear Sly Bailey is not. Many Mirror journalists believe reports that Trinity Mirror plans to sell its national titles, the Daily and Sunday Mirror and the People, to concentrate on its more profitable regional stable. Cash-rich private equity investors who considered The Daily Telegraph have run slide rules over Trinity Mirror. The consensus among junior editorial staff is that cost-cutting and anodyne content is designed to avoid frightening potential purchasers. A Trinity Mirror spokesman is forthright: "We have absolutely no plans to sell the nationals. It would make no business sense. There is constant speculation from outside the building but our strategy is integration."

The group takes a similarly dismissive view of suggestions that Piers Morgan has been vindicated. A spokesman says: "We stand by the decision we took at the time. We never said the accusations of abuse were false. We said the pictures were fakes. They cost the newspaper three per cent of its circulation." Since then circulation decline has slowed. For six months the Mirror's share of the newspaper market has been constant at about 19.5 per cent.

Morgan's successor, Richard Wallace, might take some comfort from this. But it cannot disguise the truth that the Daily Mirror lost twice as many sales in the past 12 months as its main competitor The Sun (200,000 against 100,000), or that with its December 2004 ABC down to 1,700,902 the title is perilously close to falling below 1.7 million.

Some City analysts believe that time is running out for Sly Bailey. Others point out that the national titles continue to make healthy profits for TM and that recent circulation decline has coincided with slightly increased profitability.

The bottom line is not yet in crisis, but the identity and mood of a once-great campaigning newspaper is. The argument about the fate of the Daily Mirror is the debate about the future of newspapers in microcosm. Are they sponsors of debate, essential to the democratic health of the nation? Or just businesses like any other? The Mirror may be proving that they must be both and that the business side can only thrive when editorial tradition is protected against commercial vacillation. Or, as one former editor puts it, "Piers Morgan was utterly wrong to use those pictures but right about what the Mirror is for. Sly may come to regret not understanding that sooner."

40 YEARS ON THE SLIDE

1965: THE GLORY YEARS

Founded in 1903, 'Mirror' tops 5m sales. Hits all-time high of 5.2m in 1967 under editor Hugh Cudlipp

1969: PROOPS'S PARTY IS POOPED

Marjorie Proops reigns supreme as agony aunt. But Rupert Murdoch's 'Sun' signals start of 'Mirror' decline

1984: PROPRIETOR FROM HELL

Though a bully, Robert Maxwell temporarily lifts the paper. His tenure ends in 1991 with his death, and a financial scandal is exposed

1992: MONTY'S SHADOW

David Montgomery arrives as chief executive of Mirror Group. Presides over era of cost-cutting - and gets through four editors in seven years

1995: PIERS IN HIS PRIME

Piers Morgan is made editor at 30. Restores paper's campaigning edge, introduces the 3am Girls, opposes war in Iraq, but sales still slide

2004: FRONT-PAGE INFAMY

Photographs of British soldiers' abuse of Iraqis are fakes, and Morgan has to go. Seven months later circulation is down to 1.7m