We say Third Way, you say die neue mitte

TONY BLAIR is setting up a network of powerful bilateral ministerial groups through the European Union in an ambitious drive to export "Third Way" politics across the continent.

The Prime Minister and Gerhard Schroder, the German chancellor, will shortly publish a joint policy document setting out the centre-left agenda for Europe. This will include common plans to encourage people off welfare and into work, introduce flexible labour markets and boost economies as part of the new social democratic blueprint.

It emphasises the importance of making business more competitive and helping employees to retrain, rather than setting out rigid rules and regulations for companies.

The Blair-Schroder Declaration - a mark of growing closeness between Britain and Germany - will say other centre-left European parties should sign up to the Third Way manifesto. Bilateral ministerial working groups, similar to that involving Peter Mandelson and his German counterpart, Bodo Hombach, which led to the treatise, are planned between Britain and other countries.

A centre-left "policy unit" involving senior advisers from different countries is also being set up in London, with the approval of Downing Street. The New Policy Network, which will publish documents and organise seminars, will be based at the Foreign Policy Centre, set up last year by Robin Cook, the Foreign Secretary.

The Declaration, to be published in the run-up to the 10 June elections to the European Parliament, will be seized on by Eurosceptics as evidence of the Prime Minister's growing enthusiasm for Europe. But the framework aims to establish a centre-left alliance to stop the extension of rules from the centre. It emphasises that inflexible employment legislation can harm business and uses the term "benchmarking" - following best practice from around the Continent - rather than "harmonisation", the word favoured by the former German finance minister, Oskar Lafontaine.

The document is frank about the failings of old-style socialism and says Europe's centre-left Governments should change to reflect the philosophy of the Third Way or, as the Germans put it, "die neue mitte". Rather than advocating state ownership and promoting job protection, the declaration says they should encourage entrepreneurs and allow them to reshape their workforce.

At the same time, employers should be made to invest in retraining programmes and the welfare system used to reward those who work rather than those who do not.

It will be seen as a swipe at the Social Chapter, which includes blanket rules on issues such as working hours, some of which have been resisted by Britain - last week the Government won an exemption allowing junior doctors to work a longer week.

The launch will be another step in the rehabilitation of Mr Mandelson, the former Trade and Industry Secretary who helped write the Declaration. In a recent speech, he called for labour market regulation to be "about decent minimum standards, not constant upward harmonisation", adding: "We should work on the principle that a low-paid job is better than no job."

The themes are familiar in Britain, where the Government has already introduced the Working Families' Tax Credit, which subsidises low-paid workers rather than helping those on the dole.

Downing Street and the Foreign Office have contacted other centre- left governments, including the French, the Italian and the Dutch, about setting up joint ministerial groups.

Italy's coalition government, headed by Massimo d'Alema, has already expressed interest in Third Way ideas, although the French socialists have been more sceptical.

The Blair-Schroder Declaration follows three meetings between Mr Mandelson and Mr Hombach, the German Chancellor's closest ally, before Mr Mandelson's resignation last December.