Freed from their silly headgear

The first time I ever visited Britain, a "visit" that was to last several years as it turned out, some relatives I was meeting in their home kindly offered me a glass of beer. I did not particularly want it, but they insisted. "Go on, we got it in especially," they said. "That's what you drink in Australia, isn't it?"

Later a British colleague had an equivalent experience when she visited Australia to write a book about the country. The reaction was suspicious, even hostile: "We don't want any more Poms coming here, telling us what they think."

Both images were classic stereotypes of the way the British and Australians have long viewed each other: the Australian male incapable of appreciating any social beverage other than beer, and the lofty Pom coming out to lord it over the locals. Few countries have had such close links over the past 200 years, yet have simultaneously been driven apart by crudely caricatured images of the other. This year, both countries have jointly embarked on an initiative to start afresh - a campaign called New Images that seeks to modernise the perceptions of Britain in Australia, and vice versa.

The campaign is a tie-in with the 50th anniversary of the opening of the British Council's office in Sydney. Cultural overhaul is its most visible aspect, but it goes far beyond tossing out the tired old cliches of hats with dangling corks and slobbering Sir Les Patterson in Britain, and of lost empire and warm beer in Australia (the latter were among the two most enduring impressions of Britain that emerged in a survey conducted earlier this year by the British High Commission in Canberra).

Britain is pouring about pounds 3m into its New Images campaign with Australia, the most intensive venture of its type with any country. By the end of this year, there will have been 180 projects designed to bring together scientists, students, artists, writers, teachers and actors from both countries.

For example, a party of Welsh teachers has just toured the outback talking to Aborigines about common problems in preserving native languages. Both groups will join an Internet programme that already links about 100 British and Australian schools. A big exhibition of modern British art will open in Sydney next week, coinciding with the publication of a book that looks at the way British and Australian writers have described each other's country over two centuries.

What lies behind all this is a realisation in both London and Canberra that an old relationship long infected by prejudices has been undergoing an interesting metamorphosis. The governments of the two countries have had very little to do with it - they have largely turned their backs on each other in recent decades, as they pursued new regional identities in Europe or Asia. But Britain and Australia can be useful to each other again. The forces driving this idea are a cultural revolution, a new commercial dynamism, the Blair government and Australia's drift towards republicanism.

When the British Council arrived in Sydney in 1947, Australia was white, Anglo-Celtic and stultifyingly conformist. "We are a British community in the South Seas," said John Curtin, Australia's wartime prime minister. "We regard ourselves as the trustees of the British way of life in a part of the world where it is of the utmost significance ..."

Boatloads of Australia's best creative minds heading for Britain passed boatloads of "pounds 10 Pom" immigrants going the other way. Any young film maker who wanted to make a film about his own country had to go to London. The Ealing studios, in particular, made a series of "Australian" films during the Fifties, invariably set in the outback and starring the rugged Chips Rafferty, the Paul Hogan of his day. At their most extreme, British images of Australia tended to reflect those of writers such as Jan Morris, who reminded her readers in 1962 that Australia "was founded by the scum of England, only six generations ago". In the Seventies, the writings of Australian expatriates such as Germaine Greer, Clive James and Barry Humphries, aided and abetted by the British media, helped to reinforce these old stereotypes.

But in the Nineties, the one-way cultural sea lane has been replaced by a superhighway of curious young things travelling in both directions. To the twentysomethings of multicultural Australia, Curtin's words must seem like those from another planet. The cultural cringe - the old notion that nothing Australian was any good until it had succeeded in the northern hemisphere - has been replaced by an almost myopic cultural nationalism.

Films such as Strictly Ballroom and William Shakespeare's Romeo and Juliet, both made by the Australian director Baz Luhrmann, not to mention Grundy Television's Neighbours phenomenon, have helped redefine a modern cultural image of Australia. Though it may not suit an older generation, young people in Britain and Australia see the cultural relationship now as one of equality; so much so that the University of Wales announced last week that it was starting Britain's first degree course in Australian studies. It will focus on Australian culture, history, society and literature - aspects of the country that many British writers refused, until quite recently, to take seriously. Or, as Les Murray, the Australian poet who won the TS Eliot Prize this year, put it in his book, Subhuman Redneck Poems: "A short history gets you imperial scorn/maintained by hacks after the empire is gone."

This cultural sea change has been matched in trade and investment. British investment in Australia trebled in the decade to 1995. Britain is the second biggest investor in Australia after the United States, and the biggest investor in Australian manufacturing. Few people realise that, concomitantly, Australia is the fifth biggest investor in Britain, just after France and Germany and well ahead of Japan and South Korea. By 1994, 33 British firms had set up regional bases in Australia for trade into Asia and the Pacific. In the last three years this figure has exploded to 130 British companies.

Even before he became prime minister, Tony Blair took an interest in this British-Australian economic and cultural renaissance. His election means that both countries are likely to pursue their revived relationship more vigorously.

Mr Blair is the sort of British political leader Australians can understand. He is young, forward-looking and committed to constitutional change. He bears none of the aloof stereotypes of many former British leaders. Over the past two years there has been an unprecedented exchange of policy ideas between the British Labour and the Australian Labor parties.

When Mr Blair met Paul Keating, his former Australian counterpart, as a guest of Rupert Murdoch on an island off the Queensland coast two years ago, he took back to Britain a blueprint of how Australian Labor had transformed itself into a modern political force that won four elections in a row. Now that Labor is back in opposition down under, Kim Beazley, its new leader and a contemporary of Mr Blair's at Oxford, is performing a similar exercise. Mr Blair and Mr Beazley recently had four hours of talks: Mr Beazley was keen to hear how New Labour went much further than its Australian counterpart ever dared to in distancing itself from unions, particularly by privatising its funding arrangements.

Australia's moves towards becoming a republic can only enhance this new relationship. The British monarch as Australia's head of state is the last and greatest symbol of the colonial era in the country's constitutional arrangements. As long as this increasingly bizarre arrangement remains, it will be a source of prickliness among Australians and diffidence among Britons in their official dealings with each other. Mr Blair would welcome Australia becoming a republic because it would put both countries on a truly equal footing constitutionally, as they have become in all other respects.

Oddly enough, all this momentum towards modern image-building is taking off at a time when Australia is led by a prime minister, John Howard, who is firmly wedded to old images. Mr Howard, leader of the conservative Liberal Party, is a Fifties man, a monarchist and an admirer of the old British Australia, when the relationship was more lopsided than it has become. He is uncomfortable with Australia's new Asian identity, and with what he sees as a politically correct revisionist view of Australian history that highlights former racist immigration policies and injustices to Aborigines from the era of Anglo-Celtic ascendancy.

To Mr Howard, this is an uncalled-for "black armband" view of history or - as he put it recently - "a belief that most Australian history since 1788 has been little more than a disgraceful story of imperialism, exploitation, racism, sexism and other forms of discrimination". Notwithstanding opinion polls that show that more than half of all Australians want to be done with the monarchy, Mr Howard has done his best to shut down the republican debate.

So old images may prove harder to shake off, however much the modern reality may have changed. Others have simply been transformed out of sight. The prosperous, upbeat mood of Mr Blair's Britain means you don't hear much about the "whingeing Pom" these days. The species, some would argue, has transmogrified into the "whingeing Australian". Political debate in Mr Howard's Australia has become a carping affair. Despite low inflation, low interest rates, economic growth, sunshine, space, excellent food and high quality wine, most Australians feel they have never had it so bad, according to a market research poll published the other day.

Even film star Mel Gibson's father got in on the act. Speaking from his multimillionaire son's farm in southern New South Wales, 79-year-old Hutton Gibson said Australia was a "paradise" when he moved his family there from America in 1968. "Now it's gone to economic rack and ruin." That sounds more like a sound-bite from Britain 20 years ago.