Don't be fooled; the euro is off Mr Blair's agenda

Why can't we all be honest about it? There is no way that Britain is going to hold a referendum on joining the euro this side of the next election, let alone actually join. Some of us would dearly like us to be already in. Most would still dearly wish it as soon as possible. But for the moment it is simply not going to happen, and it would be better to own up to the fact.

That, of course, is not quite the message that Tony Blair has been giving out in Blackpool. Just the opposite. He has spent most of the week turning up the heat of his "passionate commitment" to Europe and his eagerness to join the single currency. Perhaps he genuinely believes it. More likely he is up to that old Blair tactic of having it both ways. You don't actually make the leap, but you seek the benefit of sounding as if you really want to make it. And added to that, you have the advantage of keeping the Tories on the back foot.

But the simple economic reality is that we can't and won't join the euro at this time. We can't, not when recession is taking hold of the Continent. All the calculations of a positive decision on the five economic tests were based on the hope of a quick rebound from the US economic downturn and a decisive pull from Germany and France.

Neither has happened. Nor, on even the most optimistic projections, is either likely to happen until well into next year, if then. In the meantime, the harsh reality is that America and Britain are facing the worst stock-market falls in a generation. German and French growth is faltering. The British economy is being held up by higher and ultimately unsustainable consumer borrowing. Investment has collapsed in all the main industrial economies. If anything, most of the prospects now are on the gloomy side. You would have to be mad to consider joining a monetary system in these conditions. And Gordon Brown is not that.

Nor do the politics favour it. The belief that the opinion polls would change from solid majorities against joining to marginal votes in favour was always based on a tenuous assumption: that the British public would somehow see their way to the sunspots of the Mediterranean and return enthused by the ease and transparency of the new currency.

But most holidaymakers go to one country not several, so the facility of a single currency hardly affects them. Nor, in my view, is the opposition to the euro based on a dislike or disbelief in the currency itself. It is based on a reluctance to tie a British economy that seems to be toddling along quite nicely to Continental economies that are not. That feeling will only get worse over the coming months. Which politician with any nous would wish to risk his reputation and his majority on a gamble against the odds? Not a British Prime Minister with a Chancellor longing for him to make a mortal mistake.

Why I think it would be better to accept this now and act accordingly is not for any reason of disillusionment with the euro as such, but because the present pretence that it may still happen is only serving to confuse the issue. That issue is the downturn and what we can do about it. Europe is stalling, not just economically but politically, as enlargement threatens to swamp a region turned inwards by high rates of unemployment.

Tony Blair was quite right that if we want to contribute to this debate, we have to be at the centre of Europe. Unfortunately he's too late to make his enthusiasm for the euro tomorrow work for him. The most immediate measures should be the easing of interest rates and relaxation of terms of the Growth and Stability Pact. But to effect these you have to be a full member of the Economic and Monetary Union, which we are not.

Nor are we in a very good position to take the political leadership in Europe, as Mr Blair so urgently desires. To an extent that neither he nor the Foreign Office seems yet to have grasped, the Prime Minister's support of American policy on Iraq has put him outside European thinking. More importantly, it has divorced him from the European public, which once held him in some admiration. Germany led the way in opposition to the war, now it is France and President Chirac that is leading Europe as it seeks a return to internationalism.

Nor can Britain any longer claim much direct influence within Europe. Number 10's line about Schröder's victory putting Tony Blair back as Germany's main ally is – like the story that it was Britain's influence that got President Bush to return to the United Nations – so much hogwash. Schröder was elected on an anti-war platform. His primary task is to reduce unemployment, not increase it in the short-term by following Blair's Thatcherite free-market economics.

The trouble with so much of Blair's rhetoric is that when he is talking about being at "heart of Europe", he really means being at the head of it. Times are too uncertain, and too worrying, for that. What we need is hard-headed co-operation to try to restore growth and – just as important – the consumer's belief in it. And that applies just as much in Britain as on the Continent.

And yet what was the one factor that was never mentioned by Blair, his Chancellor or any other minister this week? The fall in the markets and the gathering fears of deflation and recession.

a.hamilton@independent.co.uk