Portillo whips up nationalist frenzy

Around the world three letters send a chill down the spine of the enemy: SAS. And those letters spell out one clear message: don't mess with Britain

Michael Portillo yesterday reasserted his claim to the future Conservative leadership with a shamelessly theatrical appeal to the nationalist sentiment of the party's right wing and a promise to resist moves towards a European Union defence policy.

Mr Portillo's pledge not to join a "single European army" and declaration that UK servicemen were ready to give their lives for Britain but "not for Brussels" came as the climax of a day that had seen the party at last begin to reunite over Europe in anticipation of the coming general election.

Mr Portillo emerged the undisputed champion of the conference's first day with a speech that was authorised by John Major and which delighted most activists by invoking the spirit of the SAS, seeking to repel Labour's claim to be the patriotic party and witheringly mocking the EU's competence to handle issues of defence.

The Secretary of State for Defence appeared to set fresh limits to tentative British involvement in moves already underway to increase European inter-governmental co-operation on defence by declaring that "it would be absurd, as some of our partners are urging, to try to merge our defence co-operation into the European Community".

The wildly enthusiastic reception for his speech - if not its deliberately populist content - overshadowed Malcolm Rifkind, the Foreign Secretary, who announced in a more measured performance that Britain would now work to overcome protectionist tendencies within the US and EU to establish a new transatlantic free trade accord.

Mr Rifkind promised the UK would continue to work for closer European defence co-operation, but only on terms compatible with the "pre-eminence" of Nato. And he reiterated that Britain would respond to any moves towards further integration "with a cool assessment of where the balance of British interest is to be found".

The Foreign Secretary derided the idea that Britain's insistence on protecting its own interests would mean a loss of influence or a two-speed Europe, adding in an echo of his Chatham House speech last month that "while influence is a crucial objective of foreign policy it is a means to an end, not an end to itself".

He amplified his speech - which also received a standing ovation - by making clear afterwards that Britain would resist any extension of qualified majority voting at next year's inter-governmental conference on the EU's future.

With Lord Tebbit, and even Norman Lamont, the former Chancellor, welcoming the recent shift towards Euro-sceptic rhetoric by Mr Major and Mr Rifkind, it was left to John Redwood, Mr Major's challenger in the July Conservative Party leadership election, to press the Prime Minister from the conference fringe to go further by declaring that "Britain would not join a monetary union".

Tony Blair, the Labour leader, said last night that Mr Portillo's "extreme, juvenile and ill-informed anti-European tirade" showed a "complete ignorance of Britain's defence history and defence needs". He added: "Nobody in Britain is suggesting that we replace the British armed forces."

But in his role as the Cabinet's most charismatic licensed right-winger, Mr Portillo went a long way in his speech yesterday towards recovering his position as the Thatcherites' champion after seriously losing ground as a result of Mr Redwood's boldness in resigning from the Cabinet and challenging Mr Major, and the bungled installation of a Portillo campaign HQ in case the contest went to a second ballot.

Mr Redwood - who opened his fringe speech last night by declaring, in what some delegates took to be an oblique reference to Mr Portillo's Spanish ancestry, "I am glad I was born British" - said "monetary union is now setting country against country and causing untold pain in the economies in Europe".

Meanwhile, in a speech to the Conservative Political Centre last night, Michael Howard, the Home Secretary, said that while the threat to British nationhood from the IRA had abated, that from creeping European federalism and Labour's plans for devolution had not.

Gillian Shephard, the education and employment secretary will today announce a new scheme of specific qualifications for head teachers while Peter Lilley, social security secretary is hoping to finalise pilot schemes for workfare-style job projects to get the long term unemployed back to work in return for benefits. He is also likely to confirm long-trailed plans to cut benefit for asylum seekers, with a view to saving some pounds 200m a year.

t Political jitters took their toll of financial markets, with pounds 13bn wiped off the value of shares at one point yesterday afternoon, writes Tom Stevenson.

The FTSE-100 index closed 50.2 points lower at 3460.1 as the Conservative Party's flagging fortunes compounded a raft of other worries dogging the markets.

The slide in equity markets was the worst fall since June, sparking fears of the stock market crashes that have historically occurred in October.

While the City is coming round to the idea of working under a Labour government, every development that increases its likelihood makes financial markets increasingly nervous.