John Rentoul: How to ditch the euro but not Europe?

Labour's sceptics were right about the single currency, but we still need a solution to the problems they foresaw

When Tony Blair was newly elected to the House of Commons in 1983, one of his first decisions was how to cast his vote in the election to replace Michael Foot as Labour leader. Bryan Gould, a rising star, was working for the doomed campaign of Peter Shore, and was thrilled to see a bright new MP at his candidate's sparsely attended hustings. Gould was disappointed to discover that Blair, with the enthusiasm of a fresher, was going to see all four candidates speak. The others were Neil Kinnock, Roy Hattersley and Eric Heffer. Shore came fourth with 3 per cent of the vote.

The reason that Gould was working on Shore's campaign was that they were both Eurosceptics, a strand of Labour thinking that was just at that time going suddenly out of fashion. The reason for dredging up this ancient history is to recall my attitude to them. I knew them both well: Gould was a great hope of the Labour modernisers before Blair, and Shore was my MP. But in both cases I found it increasingly awkward to talk to them as they became – in my naive view – obsessed by anti-Europeanism.

Gould resigned suddenly from the shadow cabinet, handing his letter to reception at the Imperial Hotel, Blackpool, during the 1992 Labour Party conference, when John Smith responded to Britain's ejection from the exchange rate mechanism by issuing a statement saying that it strengthened the case for European Monetary Union. I remember talking to Gould after that in his Bermondsey flat, with his very white terrier biting my ankles, and before he gave up British politics to return to New Zealand in 1994. By then he had become, it seemed, embarrassingly single-minded about the foolishness of the single currency. The plan for the currency, which did not yet have a name, had been agreed – although John Major secured Britain's right to opt out – in the Maastricht Treaty the year before.

Every time I saw Shore, until he died in 2001, he would grasp me by the arm and lecture me on the evils of a single currency. So I said, "Yes, Peter," just as I had said, "Yes, Bryan." By then the liberal consensus had moved on and the Labour Government and its supporters agreed, in general terms, that European integration was a Good Thing. We knew that there were good reasons for keeping floating currencies so that European economies could adjust to shocks without, er, everything that has just happened, and is happening, to Greece, Ireland, Portugal, Spain and Italy since 2008. But we thought (a) that bringing in the euro would itself force the pace of integration and (b) that the Germans would make it work.

How wrong both those assumptions turned out to be. But you do not get much by way of apology and recantation in politics and, anyway, it does not matter now. The Conservative Party is, with the exception of a handful from Kenneth Clarke in the Cabinet to Jane Ellison, MP for Battersea, in the 2010 intake, in the hands of those who have said "Never" to Britain's adopting the euro. The opposition's economic policy is in the hands of Ed Balls, who wrote a Fabian pamphlet in 1992 called Euro-Monetarism: how Britain was ensnared and how it should escape. It is the Liberal Democrats who really have some explaining to do, but David Cameron has to be nice to Nick Clegg at the moment because, having been wrong about the euro and speaking lots of languages, they like him in Brussels, and the British government needs someone they like.

Yet we should surely learn from the failure of the euro. The paradox of the Tory Eurosceptics is that, now they are in government, they find themselves propping up the very burning building that they have always argued was bound to fall down because its design was flawed. In the short term, they may be right. A sudden, forced break-up of the euro would, everyone seems to agree, plunge the core of Britain's biggest trading market into darkness and confusion. But it is when "everyone seems to agree" that we should wonder, based on recent experience, whether it is right. If the euro cannot work, perhaps we should not try to make it. Surely it is worth asking how quickly the euro could be dismantled in an orderly way.

The trouble with the Eurosceptics, from Shore and Gould to the Tory "swivel-eyed ideologues" who gave John Major's whips' office such a miserable time during the ratification of Maastricht, is that "Told you so" is not a policy. They were right to say that the euro wouldn't work, but they, and their successors who voted for a referendum against the Government last month, never said what to do once the mistake had been made.

But it seems likely now that the economies of Europe would recover faster if they were allowed to adjust their exchange rates. It is possible, if difficult, to split a currency without disarray, as when Czechoslovakia divided in 1993.

Since Mark Hoban, the Tory Treasury minister, said in the Commons 10 days ago that the euro was "breaking up", it has emerged that officials are working on what to do if precisely that happens. Which is better than nothing, but still feels as if we British are powerless spectators of a test of political will in Germany and France that will decide our economic fate.

It may be that there is nothing that Cameron can do: his Euroscepticism makes him all the more unpopular on the Continent for being right, and sending Clegg over to speak Dutch to them is not going to make it better.

So, yes, the pro-Europeans ought to offer belated apologies to Peter Shore, Bryan Gould and the rebel Tory MPs who were deprived of the whip during Major's travails. But Major did secure Britain's opt-out and Blair never came remotely close to fulfilling his ill-thought-out ambition to hold, let alone win a referendum on the euro. And the case for not adopting the euro is no use to us now. Surely someone, somewhere, ought to be working out how to take the euro apart again without plunging the whole of Europe into Depression?

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