Mr Blair and his ministers can enjoy their holidays - but storm clouds are gathering

This curious calm cannot last. There are two issues looming in the autumn and winter that will change everything

The political season ends with the Government more dominant and confident than it has ever been. Tony Blair performs before journalists at Downing Street press conferences, or in front of a select committee of MPs, with good-humoured authority. The Conservatives are in disarray, falling out over who is up or down in the court of their inexperienced leader. The Liberal Democrats are nowhere to be seen, making headlines only when their leader is asked on TV about his drinking habits. Not for a decade have a Prime Minister and his senior ministers seemed so at ease with power.

Even a year ago, after Labour's second landslide, the Government still seemed uncertain and insecure. Tony Blair gave the impression that he did not know what to do with his victory, as if winning for a second time was an end in itself. In perverse contrast, the Conservatives were animated, almost as if they had won the election. For a few weeks they seemed to matter hugely as they went about electing a new leader. Now they are almost irrelevant again, getting into a state only over weighty matters such as whether the former party chairman could be contacted at his holiday home in Florida.

While they fall out aimlessly, some ministers have learnt the art of governing. They are no longer dependent on the different art of appearing to govern. In this second term Mr Blair came to life after 11 September, but from a domestic perspective the more significant events have been the Budget and the Comprehensive Spending Review. They gave the Government a sense of direction and purpose it had previously lacked. Almost imperceptibly, this has brought about a significant change. Ministers no longer behave like insecure impostors, awaiting a return to the natural order of things in which the Conservatives rule and Labour loses elections.

The build-up to Gordon Brown's Comprehensive Spending Review was an example of the new maturity. There were no headline-grabbing gimmicks, no leaks in advance that failed to materialise on the day. There was no need. The genuinely weighty statement was enough in itself.

So Mr Blair and his colleagues head off for their holidays this weekend in a stronger position, and feeling, with good cause, more self-confident than ever. And yet this curious calm cannot last. There is no question about this. There are two issues looming in the autumn and winter that will change everything, however the Government decides to deal with them.

The first is the possibility of military action against Iraq, the subject of many portentous questions at yesterday's Downing Street press conference. Mr Blair faces a dilemma over Iraq that is without an obvious solution. At its most basic, he does not have the support for military action among Labour MPs, at least at the moment. The former Cabinet minister, Chris Smith, is an interesting barometer. Normally ultra-loyal, Mr Smith has spoken out firmly against a military attack. Recently I asked him whether his public concern symbolised a wider discontent over the direction of government policy. He was quite emphatic. It was just Iraq that was alarming normally supportive MPs. At cabinet level, Clare Short has made her doubts known several times in public. It is possible she would resign if there was an attack. Those who know her well say that she is almost visibly preparing herself for such a traumatic moment. Here is minister committed to most aspects of government policy and benefiting from a substantial increase in her aid budget. Iraq could place her on the backbenches, a powerful rebel rather than a minister crusading against global poverty.

Yet Mr Blair would be severely weakened if he decided against military action. He has been gripped by the importance of his relationship with Mr Bush since the presidential election last year. At the time, he told aides, ministers, and anyone who cared to listen, that he was determined to have as close a relationship with the Republican President as he managed with Bill Clinton. To the bewilderment of some, he placed the creation of a "special relationship" with President Bush at the top of his second-term objectives, along with public services and Europe. He would be letting down his US allies and his own instincts if he did not co-operate with a military strike against Saddam.

A minister who has been involved in internal discussions about Iraq tells me of a way around this conundrum. He claims that the threat of military action could be enough in itself to contain Saddam. He even dares to suggest that it is already starting to work. Perhaps that is what Mr Blair meant when he told yesterday's Downing Street press conference that "You are getting ahead of yourselves on Iraq." That was his only substantial comment, implying that a decision was some way off and that military action is not the only option. It is unlikely, but not impossible, that the US could decide against military action on the basis that the threat alone is doing the trick.

For Mr Blair, there is no similar way out on the euro. The issue has been with us for so long we almost take it for granted: "Here it is again, the good old euro. In or out? Shake it all about." But we should never underestimate Europe or the euro's capacity to reshape British politics entirely. It has done so before and it will do so again. In the early winter, Mr Blair and Mr Brown will decide whether or not the economic tests have been met. That decision changes everything. Mr Blair will be unavoidably weakened if they decide that the tests (including the pivotal unofficial "sixth test" over whether a referendum is winnable) have not been met. He has staked much on "ending Britain's ambiguous relationship with Europe".

A negative verdict would reinforce the ambiguity and allow Mr Duncan Smith to claim a victory. A positive verdict would be even more dramatic. The subsequent referendum (a date has been earmarked in Downing Street for October next year) would be decisive either way. I cannot see how Mr Blair – and possibly Mr Brown – could survive a "no" vote in a referendum. A "yes" vote would have the paradoxical impact of being both an historic triumph for Mr Blair and the start of the Conservatives' recovery, finally purging the party of its obsessive Euroscepticism.

At the beginning of the column I wrote that there had not been such a mid-year calm for a decade. That takes us back to the summer of 1992. On this very date 10 years ago, John Major held a drinks party for lobby journalists in the garden of 10 Downing Street. The sun shone, Mr Major looked more relaxed and in control than ever before, having won an election a few months earlier. A demoralised Labour party was in disarray. Within months, Britain was out of the ERM, a distraught Mr Major was battling to make the Maastricht Treaty become law, and the political map was redrawn.

The current Government is not necessarily facing anything as cataclysmic as that. But volcanic events are looming. Mr Blair should enjoy the calm while it lasts.

s.richards@independent.co.uk