Euro referendum or bust

To rebuild relations with Europe Blair needs to confront Brown on the euro argues Paul Anderson.

f there is one thing that is clear about Britain’s Europe policy today, it is that it is in a right mess. Most spectacularly, the Blair government’s policy on Iraq – first loudly backing the Bush administration as it prepared for a military strike, then attempting and failing to secure United Nations backing for an ultimatum to Saddam Hussein, then playing a major supporting role in the US-led invasion that toppled Saddam – did serious damage to Britain’s relationship with the two most important countries of the European Union, France and Germany, both of which opposed the war.

How lasting that damage will be is another matter, however. The French and German governments were opposed to military action against Iraq for different reasons – the French out of Gaullist hostility to American unilateralism, the Germans out of social democratic respect for international law and a tendency towards pacifism – and neither has any long-term interest in stoking up antipathy to Britain.

Unless George Bush decides to extend the treatment given to Iraq to, say, Syria or North Korea, and unless Tony Blair backs him again, Britain’s relationship with the big hitters in the EU will return to normal. Already, it’s back to business as usual in the Convention on the Future of Europe, where Britain and France are pushing hard (and together) for an intergovernmentalist settlement, against the federalism of Germany and the smaller EU countries.

The unlesses of the UK-US relationship are important, but at present the signs are that the US military will be tied up in Iraq for some time to come (as Martin Woollacott argued in an excellent piece in the Guardian) and that the British government is not keen on more military adventures for a while.

Jack Straw’s denials that any other invasions are planned are of course worth taking with a pinch of salt. But the recent revelations that he and Blair would have resigned if the backbench Labour revolt on Iraq in the Commons in March had been only a little bigger suggests that they might have learned a little in the past few weeks about the extent of opposition to their uncritically pro-American policy. I have a sneaking suspicion that their doubts about joining a madcap neo-conservative crusade will from now on prove decisive.

But we shall see. The end of the war in Iraq – which was a remarkable military success, whatever its political ramifications – turns the spotlight on other aspects of Britain’s European policy, in particular the euro.

And here the picture is anything but optimistic. Disagreements at the highest level on the euro, most notably between Tony Blair and Gordon Brown, appear to have come close to paralysing the government – and as yet there is little sign of any resolution.

In early April, nearly all the broadsheet newspapers carried reports, inspired by briefings from sources close to Brown, that the chancellor would soon declare that his famous five tests for British entry into the single European currency had not been met, thereby effectively (though not explicitly) ruling out a referendum on the euro for the rest of this parliament.

At the end of April, however, a seemingly authoritative piece by Will Hutton in the Observer claimed that Blair had decided to shift Brown from the Treasury to the Foreign Office in order to clear the way for a euro referendum next year.

That would be a massive gamble for Blair. Brown is a big figure in the government, the architect of its overall strategy and for many years the favourite to succeed Blair as Labour leader (and prime minister) if Blair decided to go. It is not implausible to suggest that Brown could send the government into terminal crisis if he decided to resist Blair over-ruling or moving him.

Then again, it is difficult to see how Blair can regain credibility in Europe unless he overcomes Brown’s opposition to joining the euro – and, given the apparent strength of Brown’s opposition, it is hard to see how Brown could remain as chancellor after being forced to eat humble pie.

So Hutton’s interpretation has a certain credibility to it. Nevertheless, there is a simple way out for Brown that has been given scant consideration by the commentators – which is that some time in the next month or so he announces that the five tests have been passed.

Such a scenario is also just about feasible. Although Brown has been quite happy for his political allies to tell journalists that his line on the euro is "not yet", he has not committed himself publicly to this position.

He still has the option of endorsing British membership now. The anti-euro lobby would feel horribly let down – but the political impact would be extraordinary.

Once again, we shall see. But if there is a euro referendum soon, under any circumstances, it will be a tough battle for the government to win.

The pro-euro camp has spent the past few years waiting for the go-ahead from Blair, and is not in good shape: if the referendum isn’t announced soon, Britain in Europe, the umbrella group that will be the basis of any "yes" campaign, will collapse.

To make matters worse, there has been a serious decline in support for the euro among trade unions, which will be one of the crucial elements in any "yes" campaign.

Anti-European leftists have won key positions in several major unions in the past couple of years, and John Monks, the most articulate of the pro-euro trade union leaders, is leaving the TUC. Labour movement support for Britain joining the single currency will be in rather shorter supply than five years ago.

Yet joining the euro remains the best bet for a social democratic future for Britain. It is true, as Gordon Brown argues, that the EU’s system of economic management needs to be reformed, particularly when it comes down to the idiotic growth and stability pact, which effectively rules out counter-cyclical state spending. But here we are pushing at an open door: the rest of Europe, social democratic, Christian democratic and neo-liberal alike, realises that the regime of enforced austerity imposed by the Bundesbank and subsequently endorsed by the governments of Europe as the price of monetary union was a big mistake. Faced with low growth and rising unemployment, the governments of Europe recognise that John Maynard Keynes had some bright ideas after all.

If Blair does not go for a euro referendum this parliament, he will have missed the best opportunity any British government has ever had to define Britain’s place as a European social capitalist country. The next few weeks will be absolutely critical.