Never mind the beef, it will be a new game in Lisbon

WHEN TODAY'S meeting of the Cabinet hears the reports of last weekend's Helsinki summit, they will be all too conscious of the almost irresistible temptation to see it as a turning point in the Blair administration's relationship with the EU.

The sight of a British prime minister who is pledged to constructive engagement with the EU at once isolated on the issue of the withholding tax and rebuffed by the French on beef could not be more congenial to the Eurosceptic press. Gradually, the siren voices murmur, Tony Blair is going the way of John Major, who also once wanted to be at the heart of Europe but also came up against the shocking facts of EU integration. And, they will warn, the prospect for euro entry in the next parliament is rapidly receding.

It is not wrong to see the summit as important. Indeed it is only now that the excitement is over that it is possible to see just how important it was - partly for reasons that the British Eurosceptics gloss over and their press scarcely bothers to cover. The enlargement decisions, including an invitation to Turkey for which Britain had actively lobbied, were historic. Those on defence - the outcome of a wholly British initiative, accelerated by the deficiencies in European defence capability exposed by Kosovo - may in decades to come be considered as momentous as the decision to embark on monetary union in the late 1980s. It was achieved, moreover, in a way that appeared largely to calm the anxieties of Washington with a clear acknowledgement of the primacy of Nato.

That is not, of course, what the Eurosceptics, gratified only by the prospect of rows, mean when they say Helsinki was important. What excites them is the new fluidity in the Blair Government's attitude to Europe, which they assume stems from the summit. And about that, they are not wholly wrong. For what Helsinki did demonstrate is that the unresolved questions on how the Government handles Europe between now and the election go wider than the question of whether it starts to prepare public opinion for a referendum on the euro. The tone and substance of Labour's attitude to the EU itself is now a radioactive issue in a way that it was not before.

The row over the withholding tax is a small case in point. The UK is wholly within its rights to protect a national interest, as it is over the tiny but highly contentious current issue of a levy on the art market. There was, nevertheless, an alternative response to proposals for a European Commission compromise - that if, and only if, it protected the London euro bond market, it might just be acceptable. But much more time was needed for examination. Instead it was rejected more or less out of hand by Gordon Brown.

That is not an illegitimate strategy. For all the doubts that Mr Brown is as interested in joining the single currency as he once was, you could even argue that it prepares British public opinion better for the integrationist impact of euro entry to accrue in advance a track record demonstrating that Britain is highly robust in defence of its national interests.

But it does not wholly solve the problems ahead, made all the more delicate if you assume, as the wise money still does, that Blair ideally wants to enter the single currency in the next parliament as much as anything for the political reason of maximising British influence in a union that affects every aspect of British economic and political life. The danger is now that, if necessary robustness is not matched by a willingness to make the case for the economic benefits of EU membership, the subtle but inexorable clamour for disengagement will gain ground.

Of these issues one is negative for Britain. The pressure for indirect tax harmonisation, unhelpfully fuelled by Romano Prodi this week, is less real than it seems, since several other countries, such as Spain, are dead against it and ready to use their vetos. But if, as on balance, France and Germany come down in favour, it will be a big bad story for many months, fuelling the British Eurosceptic cause at least as seriously, as - for all the wrong reasons - the beef row has. Even if some aspects of tax harmonisation - such as that of energy taxes - would actually help Britain, the idea of a common VAT base is a non-starter in British politics.

The other issue is potentially so positive that it offers Blair a real chance of demonstrating that, even from the outside, Britain is capable of offering a crucially important lead, and at the same time it helps to warm public opinion towards the EU. British officials are now focusing intently on the Lisbon summit scheduled for March, at which the EU will be invited to approve a new package of social and economic reform. Partly it is a matter of pooling wastefully duplicated resources on research and on venture capital funds while removing barriers to entrepreneurship in the emerging so-called knowledge economy.

Partly it is a matter of social reform, designed to introduce a welfare- to-work model in which benefits spending is transferred from the unemployed to those who opt for sometimes low-paid jobs. And both, it is assumed, will improve employment rates in Europe.

At first sight this looks like a typical Anglo-Saxon ramp that will simply alienate Britain's partners. But there are three reasons for thinking otherwise. The first is that in several important respects Britain is pursuing policies in which it recognises that it is not at all in the lead. Venture capital for new industries such as bio-technology is more available round Munich than it is in Silicon Glen or Cambridge. Britain lags behind much of continental Europe not only in productivity but in training in the new skills. Its advocacy of such a programme is - partly - an admission of its weaknesses.

The second is that the welfare and labour policies that British ministers and officials are working on - in a significant shift of emphasis - amount to a new social dimension of the sort British governments have traditionally eschewed. Not only welfare to work, but European-wide anti-discrimination policies and a child poverty target figure in British thinking, something likely to be much more congenial to the European left. The third is that Mr Prodi largely backs the more economically liberal elements of the package.

The political importance of such a programme in Britain is that it would show that the EU is capable of reforming in a way that Eurosceptics assume it cannot be. And it could be a precondition of a rise in employment that makes closer British entanglement with the European economies more attractive than it is at present. As the beef row continues to inflame British public opinion, Mr Blair's European mission looks more desperate than at any time since the election. It would be unwise, given the problems ahead, to assume that a result in Lisbon will transform the British electoral landscape. And it will mean that tact and skill will be as necessary as the vigorous defence of British interests in the quarrels to come. But it could be that Lisbon March 2000 could be as much of a turning point as Helsinki December 1999.