Key Blair ally says UK euro referendum still in play

As decision day looms, British Prime Minister Tony Blair still wants to hold a referendum on joining Europe's single currency before the next election, his close ally and confidant Peter Mandelson said yesterday.

But Mandelson signalled a vote was more likely next year than this.

Chancellor of the Exchequer Gordon Brown has pledged to deliver his assessment of the economic case for euro entry by the first week of June.

The UK economy is set to grow twice as fast as that of the eurozone this year, and economists say this will make it difficult to report the clear convergence that Brown has always said is necessary for the government to recommend switching currencies.

But Mandelson, a pro-euro ex-minister who is still close to PM Blair, told BBC Radio the premier sees both economic and political costs to remaining outside the eurozone.

"I believe he considers Britain... will miss out economically, primarily, but also politically if we remain outside the euro indefinitely," he told BBC Radio. "I think his instinct will be to go for a referendum in this parliament."

PM Blair has pledged to offer a sceptical British public a vote on euro entry if he decides entry is a good idea. Analysts had assumed if one was not held this year it would be shelved until after the next election, which must take place by 2006.

But government sources say Brown may deliver a "not yet" verdict, probably next month, retaining his economic credibility but leaving room to revisit the issue next year.

The Sunday Telegraph said yesterday Brown's assessment would be negative. It quoted a "senior minister" as saying there were too many economic risks to join now but that PM Blair wanted to keep the option of joining before the next election.

Mandelson pointed at a possible 2004 referendum, saying many economic experts believed Britain would be in the right shape to ditch the pound in about two years, if a referendum was held "some time round about the next 12 months".

A Treasury spokesman would not comment beyond repeating Brown's pledge to go public with his assessment by early June. Officials say it will be made to parliament, meaning it cannot come before MPs return from their Easter break on April 28.

PM Blair, who risked all over an unpopular war in Iraq only to see public opinion switch dramatically as the campaign quickly went the way of Britain and the United States, may be emboldened to tackle British hostility to the euro too.

He has a mountain to climb. A poll by ICM for the anti-euro "No" campaign showed yesterday that of more than 1,000 Britons asked how they would vote today, 68 per cent would opt to keep the pound and only 23 per cent would favour the euro.

Mandelson said PM Blair, who he called a "great persuader", would not give up power without having joined the euro.

Relations with France and Germany have soured over Iraq but aides say that has made PM Blair even more convinced Britain should adopt the euro to become an equal partner with Paris and Berlin.

"He will judge the time to go not by how long he has been there but by how much he has achieved," Mandelson said. "He has more to do to make Britain genuinely one of the leading players in Europe."

That could be read as a message to Brown who privately makes no secret of his desire one day to succeed his boss.

It is part of Labour Party folklore that Brown agreed to stand aside to give PM Blair a free run at its leadership in 1994, on the understanding that the prime minister would one day stand down for him. If a euro referendum is not held before 2006, Brown could have a long wait for the top job.