A bit wobbly on the euro

Published 18 June 2001

As the EU enlarges and its central bank rules, John Lloyd finds scepticism even among Europhiles

In the next four or five years, in the "historic second term", we should, indeed, learn something historic. We should - we must - learn whether or not we are to be at the heart of Europe, or remain as a less essential organ. The decision is in part the government's; but it does not depend on that alone. Europe itself must make a decision over what it wishes to be: if it does not or cannot, the Eurosceptics will win, everywhere, because they will be largely right.

It is now clear that the exchange of Robin Cook for Jack Straw as Foreign Secretary carried no particular message for Europe. Cook had expected to carry on - he had asked for a meeting to be convened with backbenchers on 12 June to talk about Europe - but his demotion was because of his excessive Europhilia. Gordon Brown and he had clashed too often on the issue, and Brown never loses - except to Blair. Straw, closer to Blair than Cook, wanted the job - and Blair had not the political strength to resist.

Straw has an anti-EU past - but which senior minister does not? All had parroted the "capitalist club" line of the early 1980s, which went with opposition to the British nuclear deterrent and support for nationalisation. Thus any attempt to peer into the past to determine the positions of the present or future is doomed to failure. New Labour is an acid bath for past beliefs: socialism has been stripped away and replaced with a conservative (neoliberal) economic stance, a liberal social and cultural policy and a social-democratic approach to basic service provision. Around this flexible triad, the thinking takes place - constrained, above all, by the primacy in policy-making of the hectic, emotionally fraught, supremely creative, brawling and indispensable relationship that is Blair/Brown. There is no current evidence that Straw thinks fundamentally differently about Europe from Cook.

Since one-third of the Home Office brief is now coordinated with Europe, Straw is neither a stranger, nor demonstrably hostile, to its workings. On the contrary: he has taken a close and supportive interest in most efforts to coordinate and strengthen Europe-wide controls on immigration and crime, grasping more fully than any of his predecessors that the major criminals are now organised into powerful transnational networks. In his Foreign Office team - notably in Baroness (Liz) Symons, the trade minister, Peter Hain, the minister for Europe, and Denis MacShane, one of the junior ministers - he has a trio of convinced or recently converted Europhiles.

In the Guardian, on 12 June, the former aide to Robin Cook, David Clark, took an Occam's razor to the issue and reduced it to the need for Blair to assert himself against Brown. But his is a very partial version of events. The euro, and "the heart of Europe", involve calculations that range from the most delicately technical to the most fundamentally constitutional.

The technical issue is, in part, the "five economic tests" that must be applied to the euro, and which will determine the time for entry. It is a matter of endless dispute among economists as to whether these have been met, are being met, will be met or will never be met. The most recent reports stress that the UK's pattern of trade remains largely different from the European norm, and that the housing market depends as much as ever on flexible rather than fixed interest rates. Furthermore, the exchange rate - the "sixth" economic test - remains far too high for entry, and its talking down has not yet even begun.

The other part is the behaviour of the euro itself. Chronically weak, managed by the European Central Bank, which has yet to prove its efficiency to international bankers, it is blamed (sotto voce) by many EU member states for keeping interest rates too high, at a time when the growth of 2000 is replaced by the slowdown of 2001. Relatively strong growth has buoyed Labour through its first term - allowing it to cut debt, loosen spending curbs and cut unemployment back to 20-year lows. It has been Labour's pride and joy. It is a lot to give up to a bank whose rates must reflect a European mean.

The largest issue after the euro is enlargement to the east: it forms the bulk of the official programme at the EU Gothenburg summit on 15-17 June. It will be expensive for the existing states: the levels at which they qualify for assistance have been altered to cope with the relative poverty of the proposed new entrants. This means losing out, one of the main reasons why the Irish voted against the Nice treaty on 7 June; the reason why Spain almost provoked a rift with other members last month; why Italy is lukewarm on the whole issue. The terms offered to the new entrants are bound to toughen up so that the present members can be persuaded - the east Europeans could then baulk at entry. This is the EU's most idealistic project: it has existed euphorically at the level of declaratory speeches for years. But now comes the hard part.

The Gothenburg summit is being addressed by George W Bush - and has been preceded by assurances from Bush and his advisers that the Europeans have got him wrong. He regards the relationship as important. "Europe and the US are partners today," wrote Condoleezza Rice, Bush's national security adviser, in Le Monde on 10 June. "They will continue to be so tomorrow, and the day after tomorrow - united partners. Not by duty, but by choice."

But Europeans listen to other voices - such as that of Richard Perle, a former official in the Reagan administration and freelance hawk of this Bush presidency: "We no longer need [the Europeans] in the way we once did," said Perle earlier this month. "They are no longer vital to the defence of our interests in the world."

Any British prime minister wants to bridge the Atlantic. Blair did so, plausibly, with Bill Clinton - who thought he needed the Europeans. But it is a harder act with Bush: the US president doesn't seem to want it. The structure of the transatlantic relationship is beginning to produce a zero-sum game for Britain: the deeper into Europe, the less clout with the US - and vice versa. That choice looms.

The Irish referendum result was a great shock to the euro camp. Indeed, the week before, the Economist had likened the probability of a "no" vote as similar to that of pigs flying. It was a very low turnout; the antis had a good slogan, appealing to patriotism and the pocket; and the pro-European establishment were probably less active than they should have been. However it is explained away, it is another sign that the gap between the arcana of Brussels, Strasbourg and the incomprehensible treaties and debates at the summits, on the one hand, and the European "citizenry", on the other, is very great - even in a state that has had huge dollops of gravy from the EU jug.

Which Cabinet minister, new or old, could have failed to make the parallel between a referendum-to-come in Britain and the referendum-just-past in Ireland? Who wants to hand an early present to the future leader of the Tory party?

Yet, if all of this is taken on board, and faced, then history will be made. To head towards the euro and the heart of Europe is to take on a thousand years of history - and receive an enormous moral and political authority. It also poses a sharper question to the rest of Europe than the rest of Europe is used to confronting. That is - will those countries that are professedly at the heart of Europe now take responsibility for the construction of a state genuinely and actively acceptable to its people? Will they prove able to develop institutions which can speak with credibility, and frame mechanisms that are comprehensible?

The old way of running Europe is ending. Germany is groping after a different relationship with France, with Europe and the world; France is obscure, and will remain so until after next year's presidential race. A Berlusconi-led Italy may cease to be so accommodating; Spain has already turned awkward. All states are making more demands; all deals are harder to reach. Europe can only function transparently, and thus slowly. It may have too little popular support to press ahead with "ever closer union".

Europe can only "work" if its politics becomes transnational, and retains or develops popular support. That would be a Europe worth being at the heart of. But can they - and we - make the leap?

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