f you believed the press, when Tony Blair announced in
the House of Commons last month that a second-term Labour
government would decide within two years whether it was
to join the euro, he was making a stunning change of policy.
According to the Sun the next day, Blair had "sensationally
vowed to kill the pound and adopt the euro within two years".
The front-page headline in The Times declared: "Blair
sets 2003 euro deadline." The Daily Mail confidently
reported that "the battle for the pound" had been
"thrust dramatically into the heart of the election campaign".
Yet all that Blair had done was to clarify a small point
of detail of Labour's policy as it has stood since 1997, when
chancellor Gordon Brown effectively ruled out euro membership
for the duration of this parliament and announced that "five
economic tests" would have to be passed before the government
decided whether to join the single European currency.
Labour's line since then has been that, early in the next
parliament, a Labour government would make its assessment
of whether its criteria for British membership of the euro
had been met. What Blair said last month was merely that "early
in the next parliament" means "within two years"
- and that is hardly a big deal.
Blair's statement does not mean that the government will
decide that the "five economic tests" have been
passed, let alone that there will be a referendum on joining
the euro during the next parliament. There is still every
chance that the result of the government's assessment will
be an announcement that the criteria have not been met.
This is not because the British economy is in no shape to
join the euro. It meets all the criteria laid down in the
Maastricht treaty for euro membership apart from participation
in the exchange rate mechanism of the European Monetary System.
Although there is some room for argument on the first of Brown's
"five tests" - whether there is a sustainable convergence
between the economies of Britain and the euro-zone - there
is growing evidence that the British and continental economic
cycles are more in step than for many years. (Brown's other
four tests are so vague they could be passed or failed on
the whim of the tester.)
Rather, the reasons that the government might decide the
time is not right to join euro-land are political. Labour
is committed to holding a referendum on joining the euro if
the government decides the time is right - and British public
opinion is hostile to euro membership. Unless this changes
decisively in the next couple of years, it is extremely unlikely
that the government will risk holding the referendum.
This is partly because no government will ever hold a referendum
that it stands a high chance of losing unless it really has
no option. But this particular government is particularly
wary of losing this particular referendum. New Labour is notoriously
unwilling to do anything that goes against the grain of focus
group opinion; and it is hyper-sensitive to criticism from
the Murdoch press - of which there is bound to be a flood
if it decides to ditch the pound. It is also worth remembering
that Brown, who has effectively run Labour's euro policy single-handed
since 1997, cut his teeth in grown-up politics in the failed
"yes" campaign before the 1979 Scottish devolution
If in spring 2003 there is the slightest doubt of victory
in a euro referendum later that year or in 2004, the chances
are that the chancellor will discover that the five economic
tests have been failed.
It is, of course, a moot point how immutable public hostility
to the euro really is, and some in the pro-euro camp say that
a concerted two-year campaign emphasising the benefits of
the single currency could turn public opinion in its favour.
They might be right - but only if such a campaign has serious
backing from the government, and only if it makes the case
for the euro in terms radically different from those in which
the pro-euro camp has so far argued.
Up to now, the best the euro-enthusiasts have come up with
are the arguments that joining the euro would mean greater
exchange-rate stability, cheaper goods as a result of increased
price transparency, and reduced transaction costs for businesses
These are all relevant points. But against the anti-euro
camp's emotionally charged denunciations of surrendering control
of economic policy to faceless foreigners they do not amount
The pro-euro camp desperately needs a simple populist argument
- and the only one that has any resonance is the case for
Britain committing itself to the European social model of
capitalism rather than attempting to emulate the US laissez-faire
version. The key argument for joining the euro is explicitly
social democratic: it locks us into a bloc characterised by
strong state welfare systems, well funded public transport
networks and tough environmental regulations, along with a
social partnership model of industrial relations. In other
words, it offers a degree of protection against the ravages
of capitalism red in tooth and claw.
This, however, is anathema to the leading lights in the government,
who believe that what Europe needs is a large dose of US-style
deregulation and privatisation.
The upshot is that, unless the pro-euro unions and what there
is of a pro-European left in the Labour Party and elsewhere
get their act together (which experience says is unlikely),
the most convincing argument for British participation in
the single currency will remain largely unheard and public
opinion will remain hostile. The smart money is still on Britain
being outside the euro-zone at the end of the next parliament.