Referendum dismissed as 'wishful thinking'

Downing Street has dismissed speculation that Tony Blair is considering a U-turn and calling a referendum on the proposed EU constitution.

Aides of the Prime Minister said he would block a treaty that was unacceptable to the Government rather than call a referendum on it. They described reports of a referendum as "wishful thinking".

At the same time, Buckingham Palace and Downing Street said they "did not recognise" a report in The Daily Telegraph that the Queen was concerned that the EU constitution could undermine her role as sovereign. The draft treaty would give the EU "primacy" over the law of member states; but British ministers say that already applies in areas where EU countries have agreed to pool sovereignty.

Denis MacShane, the minister for Europe, dismissed any threat to the monarch's role as "laughable"and "nonsense". Mr MacShane also denied that the Government was preparing to bow to the growing all-party clamour for a referendum on the treaty. "Nothing has changed," he said.

Mr Blair has said the Government's "red lines" mean it will not concede sovereignty over tax, defence, foreign policy and social security matters. Yesterday his official spokes-man said it was a "reasonable representation" of the Government's view to suggest that, if the "red lines" were crossed, a referendum might be an option. But he later added that nobody expected them to be crossed.

As Mr Blair discussed the economy at the Brussels summit yesterday, the Chancellor, Gordon Brown, warned that Europe must abandon hopes of integrating its tax and fiscal policies and focus on competing globally.

Writing in the Wall Street Journal, Mr Brown criticised "out of date" and "counterproductive" policies that had led to stagnation or recession in half of Europe's economies. He said the EU should drop its trade-bloc mentality, become more outward-looking and forge "a strong transatlantic economic partnership" with the US. The Chancellor's remarks, timed to coincide with the Brussels summit, will be contrasted with Mr Blair's positive approach to the new treaty.