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The price we pay for staying out

By Mark Leonard. Source: Observer, 3 November 2002

Time is running out for a decision on euro entry, says the director of a leading Blairite thinktank

We now know the real price that we will pay for not being in the euro: the 49 billion euros a year that the European Union will continue to pour into a failed Common Agricultural Policy until 2006.

Tony Blair may be angry with Jacques Chirac and Gerhard Schroeder for their short-sighted attempt to pre-empt the Brussels summit but the Prime Minister's real problem is that time is running out for his project of putting Britain at the heart of Europe. Last week's final moves in the Prime Minister's reshuffle - with the promotion of the ardently pro-euro Denis MacShane as Europe Minister - were intended as a soothing signal to pro-europeans. But the window in which Blair can make holding moves and keep all sides happy is almost over. If euro membership is not to fall victim to an Iraq conflict and the vagaries of the political and economic cycles, decision day is upon the Prime Minister. If he cannot make space for a euro referendum by the early summer, the defining political issue of the Blair era is likely to be lost by default.

The euro debate is usually about economics. The government has largely wanted it that way. And the campaigners from Britain In Europe have done a good job at putting across the economic arguments: 3 million jobs depend on the single market, the fact that the French do not come over in their millions on booze cruises to Dover, the millions of pounds that British Home-owners squander on higher mortgages.

But there are also vital political reasons why Blair would like to join the euro. That is why his government is committed in principle to membership if those famous five tests are met. The problem is that the political arguments for joining the Euro have seemed abstract and difficult to grasp - and they have been largely obscured by ministers keen to say that they are making a hard-headed economic assessment. We need some hard-headed political analysis too. The truth is that Blair could have stopped dead the tawdry Franco-German deal if Britain had been in the Euro.

Advisers in Downing Street glow with pride as they tell you that Blair has a closer relationship with all the key players in Europe than any other leader: who else can claim to be best friends with Aznar, Ahern, Schroeder, and even the Poles. Moreover Blair's towering stature amongst the ranks of political time-servers from Jacques Chirac to Bertie Ahern should give him influence unknown since the days when Kohl and Mitterand plotted over beer and sausages.

But the fact that Britain is not in the euro means that Prime Minister cannot cash in his chips for leadership. This has been apparent in the proceedings of the Convention on the future of Europe. Peter Hain has played a constructive role and won many of the arguments on the detail - but the mood music coming out of Brussels still sounds like the old elitist tunes. As European foreign ministers scrabble over Iraq, Giscard decided to launch an argument over whether to call the EU a United States of Europe or United Europe. This is in danger of being seen as the old Europe from above - paying lip-service to democracy and legitimacy but focusing more on bureaucratic games and paper solutions while fudging the real challenges of reforming the common agricultural policy or making the institutions serve people more effectively.

All this could be reversed if Blair lives up to what he has often called his "historic mission" of ending British ambivalence to Europe. Time on this is running out. The list of hurdles is well known and long. The official barriers include the Maastricht criteria - which we meet apart from membership of the ERM. There is the question of the stability pact that will have to be renegotiated to accommodate Gordon Brown's schools and hospitals bonanza. The exchange rate has to fall to avoid crippling British exports, and the Government's five economic tests have to be credibly met. The sixth unmentionable test - public opinion - will mean a sharp intake of breath for a leader temperamentally averse to taking risks with the electorate. And the conditions aren't likely to get better for pro-Europeans. They have to take advantage of Iain Duncan Smith's weakness and settle the issue in a short, sharp, focused campaign.

But this means that they need to move fast. The Government have pledged to make an assessment of the tests by June next year, which has led most pundits to predict an autumn referendum, when the public return bronzed from their holidays in euro land. But they cannot afford to wait that long. Having finally gathered political momentum and nailed their colours to the mast, the last thing they need is a lengthy summer break where the campaign loses steam and people lose interest.

This means that the announcement will need to be made in the spring with a referendum in early summer before people go away. There will also be the difficulty of passing paving legislation. In 1975 this was announced on 1 January and it took a mere five weeks. Getting it through the commons this time will be a breeze - but the assembled ranks of hard-core sceptics in the House of Lords will be sure to give it a bumpy ride.

There are many imponderables. I have written before in this slot about the impact a campaign in Iraq could have for the the prospects for a referendum. This still could make a referendum impossible - particularly if the Government ends up intervening unilaterally with the Americans. Nobody knows whether a war will happen or not. But it is probably more likely that any conflict would have UN backing and, of course, Blair himself would argue that decisive action in the Gulf would show that there is no contradiction between being pro-European and pro-American. Certainly his role since 9/11 has made it difficult for opponents on the right to claim that he is either weak or unpatriotic.

The problem for pro-Europeans is that the calculus of political risk looks skewed against joining. That may be one of reasons why Blair's party conference speech laid down a gauntlet to himself and his party to be bold.

And the challenge for those of us who want Britain to join must now be to show convincingly how staying out of the euro is not cost-free. Not just in Brussels where the chance of leading Europe in more than rhetorical terms is now real. There is a political price at home as well. For Blair, the sense of betrayal by the liberal elite who write the history books will be palpable and difficult to dispel. A fudge on this most neuralgic issue will tarnish his reputation and make him look too weak to take on his chancellor. But there are also political risks for Gordon Brown in being the spoiler. Older pro-European such Giles Radice will be able to warn him of the consequences of euro-ambivalence for able politicians such as Crosland and Healey. Radice's recent book, Friends and Rivals, shows how Denis Healey never became leader because he wasn't seen as pro-European enough by Jenkinsites who should have been his natural allies on the right. In a close contest for the succession, there might be a few new-Labour Pro-Europeans who are equally unforgiving.