Why Labour changed its mind on a referendum

There are two Gordon Browns - the pro-Europe Shadow Chancellor, and the political strategist

The real mystery about Labour's pledge to hold a referendum if it decides to enter EMU is not that it happened, but that it didn't happen earlier.

Since March it has been clear that in the coming election campaign John Major would have been been able to say, day after day, that he had promised not to enter a single currency without a referendum - and Labour hadn't.

Tony Blair has long believed that it would be impossible to join EMU at the outset without a referendum. Robin Cook, his powerful Shadow Foreign Secretary, certainly wanted one - though he might ideally have preferred a pledge to rule EMU entry out in the first wave. Indeed there was a strong case for trumping Major by jumping in early with a referendum pledge - causing mayhem among the Tories and making the Prime Minister look weak when he inevitably followed suit.

To understand why this didn't happen earlier - and why the decision, when it came, wasn't preceded by a stand-up row in the shadow Cabinet - you need to understand that there are two Gordon Browns. Not two personalities, but two jobs: the determinedly pro-Europe Shadow Chancellor, and the political strategist. It's no secret that Brown, like Kenneth Clarke, disliked the idea of a referendum on what he regarded essentially as economic policy. The Chancellor in Brown was determined to keep alive as long as possible the option that Labour would make its manifesto more pro-EMU and so avoid the need for a referendum. He wanted to avoid the kind of pledge which made it look like a concession that EMU was a matter of constitutional principle. And he was anxious not to close off any of his options after the election. But by September, the electoral strategist in Brown had bowed to logic as well as his leader. With the public mood increasingly anti-EMU, any alternative to a referendum pledge was a non-runner.

The details are instructive. The final decis-ion was arrived at with such secrecy that Tony Blair didn't do more than hint at it obliquely when he met President Chirac in Paris on Friday. Brown's trusted adviser Ed Balls was dispatched on 4 November for a final round of talks in Brussels with Giovanni Ravasio, head of the DG2 economic secretariat, other top Eurocrats and some seriously high-ranking British officials, to test to destruction the reports and rumours already surfacing about difficulties over the EMU timetable. Balls established that the Franco-German argument over disciplining countries, which fell below the exacting Maastricht criteria after joining, was indeed deadlocked and would not be solved at the Dublin summit next month. He also found that even the most ardent optimists about EMU were now admitting that there was at least a 25 per cent chance that the monetary union timetable would slip.

This gave Brown a convincing explanation for announcing the policy now. With no certainty about EMU timing, it was now at once more difficult to argue for a clear election pledge in favour of a single currency, and easier to explain why the party would instead opt firmly for a referendum. In convincing himself Brown found it easier to convince others. And he was determined to make the announcement himself; first because EMU was his responsibility, secondly because if he didn't it might appear that he was sulking in his tent, and thirdly because he was determined to accompany it with a clear pro-European message that first-wave EMU was not dead. In the 48 hours after Balls returned from Brussels on 5 November, Brown and Blair agreed to go ahead, and Blair then let Robin Cook and John Prescott in on the secret. The original plan for Brown to go public at the CBI conference was abandoned because of the impending headlines about the European decision on working time. Instead they opted for an Independent on Sunday interview a week later, which would give Brown unlimited access to TV over the weekend.

However, this didn't dispel the notion that EMU had become less likely as a result of the announcement. This is hardly surprising, given that at least one prospect it holds out goes like this: some time in 1998 a Labour government, already deeply unpopular for delivering a deflationary budget to force Britain's deficit down to Maastricht levels, struggles to win a referendum against an unremittingly hostile press And, for good measure, against a uniformly anti-EMU Shadow Cabinet, led by a vibrant young leader such as Michael Portillo. Naturally a Labour Cabinet would not be demented enough to immolate itself like this; therefore, argue the most disappointed pro-Europeans, the chances of it even thinking of British EMU entry in the first wave have been reduced to near zero.

So why isn't Brown more downcast? First, this daunting scenario ignores one or two key variables. One is the economy itself, and just how austere a couple of budgets Brown will have to introduce if the economy is growing and the revenues are flowing. If the signs are good, the government may not need to get so unpopular so quickly. Another is the internal dynamic of a Cabinet decision on EMU that is necessarily followed by a referendum. For, in some circumstances, a referendum pledge actually helps the pro- EMU case - and not just because it helps to still the criticism that EMU entry is a constitutional outrage. It's much riskier to stage a damaging resignation from the Cabinet in protest at a decision to join EMU if you fear that a "yes" vote in a referendum will all but finish you in politics.

And the third, and perhaps most important, is the vexed question of how the business world jumps. Blair and Brown both believe that much of the business community are currently muted on the issue of the single currency because they do not want to get drawn into the electoral argument about EMU, either between Labour and the Tories, or the much fiercer one within the Tory party itself.

Correspondingly, and once the election is over, those industrialists in favour of EMU, so this argument goes, will become much more vociferous, whoever wins. And in driving the argument they may in turn start to dispel some of the fears about the economic disadvantages of monetary union. And the now firmly pro-EMU TUC will be standing by to rebut any charges on the left that monetary union is merely a rich man's conspiracy. Brown's hopes of entering in the first wave are anything but dead. And it is a sign of the strange times that British capitalism is now more likely to determine Labour's stance on monetary union than that of the Conservatives.