Politics - John Kampfner wonders if we will ever join the euro

Who would have believed that, after seven years of Labour, we would be no nearer to joining the euro

Cast your mind back to the mid-1990s. With John Major's government in disarray, the centre left was learning to embrace Europe, to put the national case for closer integration. The oddball rebels on the right, with their stripy blazers and their prophecies of doom, were insisting that Britain would not ditch the pound for at least the length of a parliament. How shockingly Little England they sounded.

Now look where we are. Not even the most fervent sceptics would have imagined that come 2004, after nearly seven years of a Labour administration, the UK would be no closer to joining the euro. They would not have believed that the government would still be holding out for "red lines" or that talk of a "two-speed Europe" would be revived.

The fragile alliance between British and Continental social democracy was shattered in 2003. Those still arguing the case for "early" membership of the eurozone, from inside and outside the government, are not quite the mirror images of the sceptical misfits of the Major years, but they have been cast adrift by the political mainstream. The paving bill for a euro referendum, to be debated in the Commons over the next few months, is scant compensation for broken dreams.

Great prime ministers change the political weather. Tony Blair, for all the talk of being at the "heart of Europe", missed his chance in 1997. As that moment passed, he lost the courage to challenge public opinion and the press barons that mould it. Now, as the polls suggest and ministers acknowledge, a referendum on the euro - or on just about any other Euro-venture - is unwinnable. Advisers tell Blair that he would have to go the "Irish route" - to lose a first vote, as happened in Ireland over the Nice Treaty in 2001, in order to put down a marker and increase his chances of victory second time around. He is in no position politically to do that.

The past year set back not just British confidence in the European project but Europe's confidence in itself. On just about every count the picture is grim. Iraq destroyed notions of a common security and defence policy. The euro performed strongly on the markets but the French and the Germans made a mockery of the growth and stability pact that was supposed to uphold monetary rectitude. The Convention, under that patrician of patricians Valery Giscard d'Estaing, produced a draft constitution whose flaws might have been overlooked if goodwill had been more in supply.

Tongue firmly in cheek, Blair told MPs just before the Christmas recess that the Italian presidency had been a success. The guffaws that greeted those remarks, on Labour as well as the Conservative benches, and the cheers that met the failure of the Brussels summit, testified to the ascendancy of Europe-phobia.

The constitution may be revived by the Irish in the first half of 2004, or by the Dutch in the following six months. The Poles and the Spaniards, under pressure from forthcoming elections, will continue to hold out for their national interests. Progress will be slow. Blair has won more time to fend off calls for a referendum on the constitution. The resurgent Tories will have to find another Euro-issue with which to entangle him. They will not have to look far.

The coming year should have been a momentous one for the constructors of Europe, with the accession in May of ten countries, eight of them from the former communist eastern bloc. The British right has long seen enlargement as a means of diluting the Franco-German axis. Now Blair, post Iraq, has adopted the same approach. The "new" Europe, he hopes, will be more Atlanticist and more free-market. It will not bow to the will of Paris and Berlin. Events on the eve of the Iraq war, when several eastern European countries backed Washington, suggest that he may - in the short term at least - be right.

Then what? The French are warning darkly of the need for the original, "pioneer" members to push ahead with integration. This Chiraquian version of the "coalition of the willing" is unlikely to get far. The Germans are reluctant; the Dutch are very reluctant; the Italians will have nothing of it. The fractiousness will be reinforced by the start of discussions on the EU budget, always the most acrimonious and unsightly part of the Euro-cycle.

The budget negotiations will reach a climax in the spring of 2005, just as a general election looms in the UK. The French and the Germans will demand an end to the rebate secured by Margaret Thatcher, as they always do at these times. Blair will say "no, no, no". He will defend more "red lines". He may even ask Peter Mandelson to bring out of retirement that symbol of nationhood used by Labour in 1997 - the bulldog. Yes, it may have been a bit cheap, the strategists conceded then. But they had to win. They had to get over the tabloid hurdle. Just this once, they said.

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