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15 October 2008

Brown’s euro ambition

Did Gordon Brown delay obstruct UK euro-entry so he could one day lead Britain into the single curre

By James Macintyre

Tony Blair is known to tell friends that, for him, the greatest regret of his premiership was abandoning what his one-time mentor Roy Jenkins called the “breaking the mould” options open to him in the wake of new Labour’s landslide victory in 1997.

These included a coalition with the Liberal Democrats, the introduction of proportional representation for the Commons, a fully elected second chamber and, above all, committed pro-Europeanism of which entry into the single currency was, at that time, a totemic measure.

Some ardent pro-Europeans blame Gordon Brown for the failure of the last measure. Blair was always constrained by the famous “five tests” imposed from the Treasury in 1997, demanding as they did “clear and unambiguous” evidence that the economic conditions were right for British entry. In 2001, Brown delivered a speech at the Mansion House in which he effectively ended all speculation on the issue. “Our approach is, and will continue to be, a considered and cautious one of pro-euro realism,” he said. “Pro-euro because … we believe that in principle membership of the Euro brings benefits to Britain. Realist because to short-cut or fudge the assessment, and to join in the wrong way or on the wrong basis without rigorously ensuring the tests are met, would not be in the national economic interest.”

Inspite of this, Blair continued to be desirous of British entry into the Euro. At the Trade Union Congress on September 11 2001, he was set to deliver his clearest statement yet on why he believed the Euro would be a success and why Britain should join. The speech was never delivered, because of the attacks on New York and Washington, after which there was an immediate shift in foreign policy as Blair forged a “shoulder to shoulder” alliance with George W. Bush. This, in time, led to the invasion of Iraq invasion of 2003 and to a political fracture with the Continent, especially with France and Germany.

Looking back, some Blairites believe that Brown set out to “kill” entry into the Euro as an option for Blair because it had the potential to help secure an historic prime ministerial legacy. This is cynical in the extreme. But whether or not Brown was delaying entry so he himself could one day lead Britain into the single currency, the fact remains that, even at his most obstructive, he never closed the option off altogether. When Labour were in opposition, Brown was if anything more pro-European than Blair who has, since leaving office, written privately to at least one former adviser expressing sadness that he was not bolder on Europe.

It was only in the late 1990s that Brown became more eurosceptic: he was always one of the most committed Atlantacists in the Labour party. Now, however, the wheel is turning, and the Prime Minister is, according to Whitehall sources, rethinking his approach to the European Union. He has has been quick to realise that, at a time of inescapable economic interdependence, Britain cannot act alone and must strengthen alliances with member states.

What accounts for this new pragmatism? First, and most obviously, the geo-political climate has changed. Brown has not only claimed that the origins of the current international economic crisis came from America, he has, according to economic experts including Nobel Laureates Joseph Stiglitz and Paul Krugman, trumped the US with a bank bail-out plan more coherent and better thought through than its American equivalent.

In turn, Europe has followed Brown’s lead, with the French cabinet moving to rush through imitation measures aimed at re-capitalising banks, and with Germany drafting emergency legislation to boost the markets as part of a common European rule-book based on the British model. “The British Prime Minister’s … combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own,” said Professor Krugman.

Second, it has been only through working tirelessly, and by spending hours on the telephone in conversation with at least 25 different European leaders in recent days, that the Prime Minister has been able forcefully to persuade other European countries to fall in line to ensure the success of the British bail-out. Roger Liddle, Blair’s former Europe adviser, says that Brown has this week “played a blinder”.

The contrast is striking between the chancellor who would turn up to a European summit, make a single, gruff intervention, switch off his translation to avoid listening to others, and then leave before lunch, with the smiling prime minister who this week sold his economic model to Brussels.

Elections for the European Parliament are in June next year. Brown privately believes that the Conservatives remain vulnerable on the issue of Europe. David Cameron presides over the most anti-European parliamentary party in Conservative history; he has an unprecedented number of post-Thatcher MPs who support full withdrawal from the EU. Moreover this week his former boss, Tory ex-chancellor Norman Lamont who presided over the 1992 ERM debacle, said while he couldn’t pin Cameron down as being on the left of the right of the party the Tory leader was always a eurosceptic.

Domestically, this week marks the beginning of a new strategy for Labour as the party attempts to open up a flank on the Tories by creating on the issue of Europe a fresh dividing line for the next election. Labour, according to one strategist, wants to portray Cameron’s Conservatives as “isolationist, protectionist, beggar-thy-neighbour nationalists at a time when the world and public wants coordinated cooperation to get through this crisis.”

At the same time, the centre of gravity in the Cabinet is more favourable to greater integration than in recent months. In Business Secretary Peter Mandelson the Prime Minister has an ardent pro-European Cabinet ally. The former European Trade Commissioner, whom Brown is now consulting for hours at a time each day, offers the added advantage of having recent form at street-fighting against rigidly ideological Americans in the battle for the Doha round of trade talks. And the newly promoted Climate Change and Energy Secretary Ed Miliband, Foreign Secretary David Miliband, Transport Secretary Geoff Hoon and Defence Secretary John Hutton are all pro-Europeans, leaving only the increasingly isolated Schools Secretary Ed Balls, and Justice Secretary Jack Straw, to form a relatively sceptical faction on the sidelines.

That is not to say, however, that the battle within government is won. Ardent pro-Europeans remain concerned that Brown’s government has yet to “come out” as properly pro-European. As Denis Macshane wrote this week in a memo for a private strategy meeting with the deputy leader Harriet Harman: “Europe is not a sellers’ market right now. The Lisbon Treaty is stalled. The constant anti-EU grind from the tabloids and Tories and the absence of any strong, consistent pro-EU politics has put us on the defensive. Rather than seek to persuade voters to love the EU by saying it is good for us (true but like cod-liver oil not all that convincing) we should just demolish the myths about Europe – for example, that it costs too much, or it makes 80 per cent of our laws.”

Whatever is going on inside the Cabinet, the smart money is on a return to some of the “unfinished business” left over from the early years of new Labour. Brown could yet bring a senior Lib Dem, like Vince Cable, into the Cabinet. It has been suggested that he might even approach Kenneth Clarke to join the economic “war cabinet”: a hand-out which, if accepted, which would be a disaster for the Conservatives who would effectively lose their most popular MP.

And what of British membership of the Euro? Some say the idea of a rethink on this divisive issue is absurd, especially while the cautious Brown is being globally acclaimed. Advocates of British membership of the Euro say its major benefit, at this point, would be that the volatility in the stock markets, combined with the huge fiscal cost of the bank bail-outs, greatly increase the risks to the pound, independent of the Euro zone. The relative exchange rate stability enjoyed since the Euro was launched can no longer be guaranteed.

Entry is probably only realistic in the next parliament, executed if Brown is able to defy expectations and win the next general election. But as pro-Europeans have pointed out in recent days, the once-derided currency has emerged as one of the few winners from this crisis; without it there would have been speculative runs on the Lira, the Drachma and the Peseta. There is even speculation about a run on the pound.

“One of Gordon Brown’s great achievements was to save Britain from the Euro”, says Irwin Stelzer, the economist and confidant of Rupert Murdoch.

Despite this, some of the more radical voices in government say that Brown is emboldened by having done something important that Blair never did, in seeing off, in part at least, the Murdoch press who, led by the Sun, pressured him to hold a referendum on the Lisbon Treaty. And although I spotted Stelzer raising his eyebrows at the Sun editor Rebekah Wade during one of the more statist passages of Brown’s successful conference speech last month, those in Murdoch’s empire know that above all else their intimidating boss is a businessman who waits to see who is likely to win the election, and – contrary to conventional wisdom – the next election is far from decided.

It was Stelzer who, according to sources, strode into Number Ten during Blair’s premiership and threatened to withdraw the support of the Sun and the Times for new Labour unless Blair abandoned his determination to introduce the then European “constitution” without a plebiscite. “So he would be mad to surrender that achievement no matter how much he and [Nicholas] Sarkozy [of France] are seen smiling at each other.”

Asked about the lead taken by Brown in Europe this week, Stelzer adds: “Yes, you could work with European countries, which he does, but that doesn’t mean you fall in love with them. He is a free trader; they are not. He is not for all of the workplace restrictions that makes their Labour markets so rigid. Gordon believes in what he believes in – he should not be seduced by cooperation. Gordon has not had some huge epiphany – he believes more in the theory of moral sentiments than the wealth of nations.”

Nonetheless, times have indeed changed. The irony is not lost on Brown that one of his old doubts about the Euro – that it would result in lower interest rates and the inflation of house prices – might have led to exactly the kind of bank regulation and credit curbing that would have done something to control the present crisis.

Increasingly this prime minister is thinking the unthinkable (“We will do whatever it takes,” he said) as the return of Mandelson demonstrated. So rule nothing out: not even, in time, British entry into the European single currency.

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