Euro time bomb ticks under Blair

Date: 27/01/2000

Less than one month into the new year, UK Premier Tony Blair has acquired the dubious status of being the only European leader still sitting on the euro fence as Greece, Sweden and Denmark move towards membership. But can he afford to stick to his 'wait and see' policy? Tim Jones reports

THE British cold war over euro-zone membership is about to turn red-hot.

Prime Minister Tony Blair will soon learn what all aspiring control freaks discover at some stage: that anger, fear and rivalry suppressed for too long will eventually come out and, when they do, the effects are devastating.

Everyone knows that the EU's fourth-largest economy - at h1.14 trillion, it is worth 20% of euro-area output - boasts a large and vocal anti-euro lobby. It has its own political voice in the UK Independence Party, it has come to dominate the leadership of the opposition Conservative Party, and it even claims a large number of top executives in the Business for Sterling club among its ranks.

Less well-known is the large and mostly silent group lobbying for the UK to sign up to the single currency as soon as possible. It is these highly-influential people who are starting to get very worried indeed.

During the first year of the new currency, they could console themselves with the idea that they were not alone. Twenty-five million Danes, Swedes and Greeks were also gazing through the window at the euro party.

But in the three weeks since the fireworks popped and crackled over London's River Thames to herald the new century, all that has changed.

The EU has nodded through a revaluation of the Greek drachma in readiness for entry into the euro club; Sweden's long-sceptical ruling party has made an unequivocal commitment to eventual membership; and opinion polls in Denmark show a 19-percentage-point lead for pro-euro forces, prompting Prime Minister Poul Nyrup Rasmussen to declare that a date will be set for a referendum on the issue after his Social Democratic party's annual congress in September.

While the fall in the single currency's value over the past year has done much to boost the anti-euro cause in the UK, it has had little impact on public opinion in Denmark.

The Danes began turning pro-euro within days of the currency's launch as many realised that they were putting up with all the demands of membership - ferocious anti-inflationary pressure, year-after-year budget surpluses and a monetary policy pegged to the krona exchange rate - without any say at the European Central Bank.

The Swedes were, until recently, much more bothered about the single currency's perceived weakness than their Danish neighbours, with Swedish Prime Minister Göran Persson arguing that the drop in its value against the dollar had made it impossible for him to 'sell' the euro to an already sceptical public. But the country's political and industrial elite are now convinced, in Persson's words, that it is "impossible to say no" and that eventual membership is inevitable, and their warnings have been heeded by the SDP leadership.

Back in the UK, however, Blair and his Finance Minister Gordon Brown are still refusing to commit themselves to anything beyond the formula they set out in autumn 1997: namely, that the issue of membership will be put to a referendum sometime after the next election when the euro has passed "five economic tests". These include the flexibility of euro-area markets, investment and employment levels, and whether entry would harm or benefit London's financial markets.

The trouble is that nature abhors a vacuum. The anti-euro camp, buoyed up by the French government's refusal to obey EU law and allow British beef into its markets, is filling the gap vacated by Blair and his lieutenants.

Opposition Conservative leader William Hague - still 17 points behind Blair in the opinion polls - has found a subject to unite his party and appeal to "the deepest instincts of British people". Using unashamedly Churchillian rhetoric, he describes his campaign against the euro as "the battle for the pound; the Battle for Britain".

The result: an opinion poll published last week showed a record 63% of Britons are now opposed to joining the euro area, with only 25% in favour. While Conservative voters are the most hostile at 84%-to-12% against membership, a majority of Labour supporters (56% to 33%) and ultra-pro-euro Liberal Democrats (57% to 34%) also said they would vote 'no' in a referendum.

The pro-single currency lobby has not been helped by a spate of unpopular decisions from Europe which have fuelled anti-EU sentiment already inflamed by France's defiance over British beef. On one memorable day in December, the British government was hit by a triple whammy in the form of a decision by the European Court of Human Rights that two ten-year-old boys should not have been tried in open court for the murder of a toddler; a European Court of Justice ruling that special welfare payments to pensioners for winter fuel-burning should be extended to 60-65-year-old men; and a European Commission decision to probe a €210-million subsidy for BMW to protect jobs at its Rover plant in Birmingham.

All three, which could have been portrayed as a defence of human rights, justice for the elderly poor and the protection of taxpayers' money against greedy BMW shareholders, were instead widely seen as unwarranted interference in the British way of life.

The most pro-euro members of Blair's government - Northern Ireland Minister Peter Mandelson and above all Foreign Minister Robin Cook - are losing patience. "Cook is starting to bubble over," says a senior government adviser on the pro-euro wing. "He is absolutely convinced that by doing nothing, we are leaving the battlefield to the europhobes. It is not just an absence of leadership, it is also tactical nonsense."

Cook, supported by the recently formed pro-euro umbrella group Britain in Europe, points to the growing number of manufacturing investors including Toyota and Komatsu which are threatening to look outside the UK unless a decision is taken soon.

He also fears that the current 'wait and decide' holding policy will unravel in an election campaign, which is expected to be waged in spring 2001. His supporters wince when they remember former Labour leader and now Commission Vice-President Neil Kinnock refusing to tell a television audience in the heat of the 1992 campaign whether he supported reforming the voting system.

Cook is said to favour a quick-fire referendum soon after Labour wins a second term. This would follow the pattern set in 1997 when, within four months of winning a landslide general election victory, Blair pushed through votes on Scottish and Welsh regional government.

But Blair and Brown are against this - although, typically, nobody is sure where the latter really stands, even after talking to him or his aides. Positions are outlined through hints, press leaks and briefings against other ministers.

It does, however, seem clear that Brown favours holding back from committing a second Labour government to an early referendum soon after the next election, for fear that this would provide the Tories with their only real ammunition in the run-up to the poll.

Blair is also reluctant to alienate euro-sceptical media magnate Rupert Murdoch, who is able to sway millions of voters through ownership of newspapers The Sun and The Times as well as the Sky News network.

Instead, Blair and Brown want to tackle general anti-European sentiment in the country to prepare the ground for a referendum. Britain in Europe, which was originally set up to "campaign in favour of UK membership of the single currency", has been transformed by Blair into a "patriotic" front to make the case for UK membership of the EU.

The latest opinion polls suggest that this is failing miserably. The Britain in Europe campaign itself has been riven by disagreements over tactics and the closeness of some of its staff to the Blair wing of the Labour Party. "It is only going to take another couple of opinion polls and a few more Japanese industrialists to say they are thinking about moving out and this whole pressure-cooker is going to blow," predicts one pro-euro campaigner close to the government.

Blair was convinced that the war in Kosovo had been sent to test his mettle. But the man now going through his toughest time since he entered Downing Street, as multi-billion-euro bills come in for the health and education services, is about to find out that the single currency issue cannot be sat on for much longer. Like Rasmussen and Persson, Blair will have to get off the fence.

Major feature. Less than one month into the new year, UK Premier Tony Blair has acquired the dubious status of being the only European leader still sitting on the euro fence as Greece, Sweden and Denmark move towards membership. But can he afford to stick to his 'wait and see' policy?