Robert Peston - inside out

Robert Peston - inside out - Three years ago, I wrote a front-page article for the Financial Times saying that the recently elected Labour government had become more positive about joining the euro and was even contemplating membership within the lifetime

by ROBERT PESTON, editorial director of Quest (www.csquest. com)E-mail: rpeston@collins-stewart.com.
Last Updated: 31 Aug 2010

Three years ago, I wrote a front-page article for the Financial Times saying that the recently elected Labour government had become more positive about joining the euro and was even contemplating membership within the lifetime of the current parliament.

In my naivety, I had thought I was merely doing an impartial reporter's job of describing government thinking, based on conversations with ministers and officials in Downing Street, the Foreign Office and the Treasury.

But this was one of the rare occasions when a news story became a political event in its own right.

Markets went crazy. Share prices went through the roof, enjoying their biggest-ever one-day rise. The reverberations were felt in bond markets and foreign exchanges - and caused the occupants of numbers 10 and 11 Downing Street to lose their bearings.

I had captured the mood of the prime minister's and chancellor's thinking on the euro as they moved from studied agnosticism to cautious enthusiasm.

But even though more than four months had elapsed since their victory, they had not nailed down the precise detail of their monetary union policy, the biggest economic issue of our times.

In the following weeks they concocted a formula on joining the euro, via a Whitehall farce of media briefings that lurched from euro-scepticism to euro-enthusiasm. By late autumn they had come up with their notorious formula of being in favour of joining 'in principle', subject to a supposedly rigorous assessment of whether five economic tests have been met.

And where we were then is where we are now. Nothing has happened to the wording of the policy in the intervening years. And yet there has been a fundamental shift in the reality of the government's approach to the euro, although I suspect the chancellor and prime minister are in denial about this.

Just a few months ago, their 'in principle' support for monetary union meant just that - they were on course for a referendum on membership shortly after the next election, in 2002 or 2003. But even before the Danes voted no, I became convinced that there isn't the remotest chance that the UK will join the euro within the next five to seven years; there will be no plebiscite during the next parliament.

Some will argue that this has been obvious for some time. Public opinion has hardened against euro membership, in the face of propaganda from campaigning eurosceptic newspapers and negligible government response. In their two most important speeches of the year, at the Labour party conference in September, the chancellor included one whole sentence on the euro, insisting their would be 'no change in our policy on Europe', while the prime minister bravely proclaimed he would not become an anti-European.

Meanwhile, the recent fall in the government's popularity rating is another hurdle to membership. There would certainly be no referendum in the absence of a following wind from a Labour victory by a big majority at the next election.

But the determining factor for me has been the evolution of thinking in the Treasury, much of it yet to be aired in public. There is deep concern among officials and ministers about holding a referendum more than a year or so after a general election, based on the logic of the following notional timetable: a plebiscite for entry into the euro is won by a slim majority in 2004; exchange rates are then locked but there is insufficient time for the introduction of notes and coins before another general election; the Tory party campaigns to get the UK out of the euro in the run-up to the 2005 general election; economic mayhem ensues.

So if there is going to be a referendum, it would have to be held in 2002 or possibly 2003. But it does not seem that public hostility to the euro can be alleviated by then. And there is an even slimmer probability that Gordon Brown will be persuaded that the economic conditions are appropriate for membership on that timescale.

He has become obsessed about the impossibility of joining in the absence of fundamental economic reform in Europe, which would involve the abandonment of all efforts to harmonise taxation and regulation. And he regards the absence of transparency and accountability at the European Central Bank as an insuperable bar to membership.

The chancellor would probably try to veto any decision to join while he retains hopes of becoming prime minister. If he feared that in his first few years as premier he would have to pick up the pieces of an ill-timed entry into the eurozone, he would insist that entry took place only over his prone and battered corpse.

And those few of us who still keep the European faith must pray that the small island of the UK economy is not too battered by anchoring itself off the eurozone mainland. The big risk is that the very instant the government feels the eurozone is being managed on sufficiently Anglo-Saxon lines will be when its members decide to blackball our application to join.

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