The End of the Party

by Andrew Rawnsley

  It was very different to the days when Clement Attlee could be driven around in a 14 h.p. Humber with his wife, Vi, as the chauffeur. The convoy of vehicles which accompanied Blair on his outings from Number 10 became reminiscent of an American President’s motorcade.

  His fiftieth birthday in early May was marked by admiring media coverage, often illustrated with pictures of Blair in heroic statesman mode, presidentially striding into destiny. Admirers and critics alike were agreed that he dominated the scene like no Prime Minister since Margaret Thatcher at her zenith.

  Yet he did not feel that he was fully commander-in-chief. Gordon Brown was still running a rival government from his mighty powerbase at the Treasury, where he was determined to frustrate one of the Prime Minister’s greatest ambitions. The defining collision between them in 2003 was over Europe. Blair was the most instinctively pro-European Prime Minister since Ted Heath. Unlike Heath or any other Prime Minister since, he could speak good French. He was so fluent he could even get the Assemblée Nationale to laugh when he cracked a joke in French. By contrast, Brown spoke only Scottish and approached Europe with disdain shading into contempt. He became notorious in Brussels for removing his translation headphones while other finance ministers were speaking. He travelled there either to deliver lectures on the superiority of Anglo-Saxon capitalism or to stage rows to court the favour of Paul Dacre, Rupert Murdoch and the Europhobic press. Steve Morris, an official who accompanied the Prime Minister at most European meetings, ‘heard Tony defend Gordon to foreign leaders dozens of times. Cherie would be rolling her eyes in the background and officials would be coughing into their sleeves.’3

  He felt compelled to do this even though Brown used a Eurosceptical posture as one of his dividing lines against Blair. On the eve of the monthly meetings of finance ministers ‘stories appear in the British media of a Eurosceptic kind saying the Chancellor is going off to Brussels to knock together the heads of those ghastly Europeans’, noted Sir Stephen Wall, the senior adviser on the EU at Number 10. ‘Pretty often the story had no basis in fact and very often Gordon didn’t go to Brussels at all.’ What it did do was undermine the Prime Minister’s efforts ‘to build a constructive relationship with our European partners’.4

  With Blair’s approval ratings enjoying a surge in the immediate aftermath of the war, there was a renewed burst of speculation that he would finally make the big push to fulfil his ambition to take Britain into the single currency. That would mean overcoming both the native Euroscepticism of much of the British public and the resistance of his rival across the road. The pro-Europeans among his allies regretted that he had not seized the moment in the first term. ‘He should have had the referendum right at the beginning. He should have, very early on, held a referendum on the principle, not on the timing,’ believes Peter Mandelson. ‘If he had the argument when he was strong enough to do so he would have been much better off. He could and should have done that. It was a mistake not to do so.’5

  Blair salved the disappointment of Mandelson and other pro-European friends by issuing many private assurances and dropping frequent public suggestions that he would make the leap in the second. From the moment of his re-election in 2001, Blair tried to roll out a road to a referendum on euro entry. He told that year’s party conference that ‘we should have the courage of our argument’ about joining.6

  ‘We all thought it was going to be the big battle of the second term,’ says Peter Hyman. ‘Tony thought it would strengthen our hand in Europe and that’s indisputably the case: we would have been a stronger player in Europe if we’d been part of the euro. Politically, it was a big prize.’7 That aide and another, Steve Morris, prepared a detailed battle plan on how media and public opinion might be won round to the idea for Blair to read during his summer holidays in the Lake District and France in 2002. Morris agrees: ‘TB felt this was one of the big things for the second term. There were lots of discussions about how you’d handle the party, the media, how you’d handle Gordon.’8

  Blair saw it as a historic mission to drain Europhobia from the British body politic, telling me that autumn: ‘Our psychology towards Europe has got to change.’9

  Philip Gould and Stan Greenberg, Number 10’s pollsters, were researching strategies to win round Eurosceptical voters. ‘He was determined to have Britain go into the single currency and our constant planning was to be ready for a referendum,’ says Greenberg.10

  Euro notes and coins were now in circulation. There was a vaguely hopeful assumption that Brits would come back from holidays across the Channel more comfortable with the idea of having the euro as their own currency.

  Blair regularly told his inner circle that he was absolutely dedicated to realising this ambition. Geoff Mulgan, the director of the strategy unit, was in ‘absolutely no doubt that he wanted Britain to join the euro; he saw this as the big test of Britain’s European commitment.’11 Peter Mandelson saw Blair ‘gearing up to do it’.12 The more passionate about Europe was his audience, the more fervent were the Prime Minister’s declarations of intent to join the euro. He indicated he would do it to other EU leaders.13 Even when he was hugely distracted by the war, he had Europe in his sights. During a discussion with aides and ministers shortly before Christmas 2002, he surprised them by saying: ‘You know, this is more important than Iraq.’14

  Joining was central to his vision of a modern, outward-looking Britain. He made a growing number of speeches on Europe and the language in them became increasingly bold in advertising his intentions. To his party conference in 2002, he declared it to be ‘our destiny to lead in Europe’.15 He added to expectations that he was going for it in an impassioned speech two months later in which he contended that Britain should stop being ‘a straggler’ forever ‘hanging back’ from Europe and decide to ‘participate fully’.16 That was a riposte to Gordon Brown. Just the day before, the Chancellor used his Pre-Budget Report to boast about Britain’s superior economic performance compared with France and Germany. Brown did further deliberate damage to the case for the euro by saying that the British economy was currently more aligned with that of America.17

  Though he understood that the economics of the euro mattered, Blair was most animated by it as an issue of power. To Paddy Ashdown, he said: ‘You can’t be inside the wheel-house of Europe if you’re outside it financially. You have to be in there.’18 He feared repeating Britain’s past mistake of always being late to join every big European project and paying a high cost in influence. To me, he described Britain’s history of grudging engagement with its continent as a ‘tragedy’ of missed opportunities.19

  While some thought that the Iraq war made the project impossible, Blair took the opposite view that it was more imperative to use euro entry to rebuild his credibility on the Continent.

  The missing, crucial ingredient was the consent of Gordon Brown. ‘What about Gordon?’ asked Jonathan Powell. How would they succeed with this grand project against powerful opposition from the Chancellor? ‘Leave Gordon to me’ was Blair’s regular refrain. ‘I can square Gordon.’20 Colin Marshall, the Chairman of Britain in Europe, and Simon Buckby, the pro-euro group’s Campaign Director, visited Blair in Number 10 towards the end of 2002. Marshall raised the problem of Brown’s opposition. ‘It’s really political,’ responded Blair. ‘I can fix Gordon.’21

  Such was the mistrust of the Chancellor within Number 10, Blair believed that Brown was only being difficult for the bloody-minded sake of it or because he was using it as a chip on the table in their poker game about the succession. ‘He wants something, he always wants something,’ Blair told his aides and allies in Cabinet.22 There were those in Downing Street who even believed that Brown was only thwarting them on the euro so that he could claim the glory of doing it himself when he became Prime Minister.

  This was a fatal misreading of the Chancellor. ‘They never understood that Gordon was not going to fix it for entry,’ says one of his closest advisers.23 Brown was just about paying lip-service to the offici
al position that the Government had an open mind about euro entry, but he gave every impression that he had absolutely no intention of allowing it. Adamantine opposition was entirely explicable from where he sat. Past enthusiasm for Europe had left him scarred. As Shadow Chancellor, he was a passionate advocate of British membership of the Exchange Rate Mechanism, which made him feel foolish when the pound crashed out of the ERM on Black Wednesday in 1992. That cataclysm ruined the Major Government; it also changed Brown. ‘Never, never forget how badly burned Gordon was by the ERM,’ a confidant once told me.24

  He was proud of the monetary and fiscal framework that he had established since 1997. It was Brown’s repeated boast during this period that Britain, unlike Germany and some other European states, had avoided recession. More fundamentally, Brown believed that the whole concept of trading and currency blocks like the EU was being rendered irrelevant and anachronistic by the globalised economy.25 Most crucially of all, if joining the euro turned out to be the disaster he feared, it would ruin his reputation as Chancellor and wreck the inheritance for his premiership.

  Blair thought he could square Brown; Brown had already encircled Blair. The Chancellor seized control of the decision in their first term by subjecting entry to five economic ‘tests’ over which he set himself up as judge and jury.26 He torpedoed every attempt by Number 10 to build a more positive public attitude by brutally squelching pro-European ministers whenever they tried to make the case. ‘There were endless attempts to get a campaign going,’ recalls Steve Morris.27 ‘Every time they tried to do so, they got clobbered by Gordon Brown for stepping out of line,’ says Stephen Wall. ‘Gordon argued on economic grounds that we weren’t ready for the debate. But I always felt that he’d actually made up his mind that it wasn’t going to happen.’28

  The Prime Minister only belatedly grasped what a strategic mistake he committed when he allowed his ambition to be put in a box to which the Chancellor held the only key. Blair tried to regain some initiative by preemptively declaring, much to the anger of Brown, that they would make a decision by the summer of 2003.

  Legend had it that Ed Balls, the Chancellor’s ‘second brain’, composed the ‘five tests’ on a scrap of paper while riding in the back of a New York taxi. Even if it was a myth, the story illustrated a fundamental truth. The tests were sufficiently elastic that pro-Europeans could argue that they were close to being met and Eurosceptics could interpret them to argue the opposite.

  Brown made an elaborate show of making his assessment look scientific. He assigned no fewer than twenty-five Treasury officials to work full-time on the project with additional input from selected outside experts. The result was eighteen separate technical studies. The cost of this exercise approached £5 million.29

  The thousands of figures being crunched at the Treasury were designed to add up to just two letters: No. To ensure that it had credibility, Brown was careful to officially vest ownership of the process in the Treasury officials led by the Permanent Secretary, Gus O’Donnell. The Chancellor wanted the assessment to be so apparently disinterested, supposedly authoritative and emphatically negative that no-one, especially not the Prime Minister, could argue with the conclusion. There was an echo here of the tactics employed by Blair over the Iraq dossier.

  Brown did not really need to lean on his officials because he could be confident they would come to the conclusion that he wanted. The Treasury was institutionally Eurosceptic. O’Donnell, who was John Major’s Press Secretary on Black Wednesday, was just as sceptical as his political master.30 More hostile still was Ed Balls who was giving political supervision to the assessment.

  Blair repeatedly tried to find out what was being cooked up in Brown’s secret laboratory. The Cabinet Secretary was amused: ‘It was like a child in the back of the car: are we nearly there yet?’31 The Prime Minister was stonewalled at every turn by Brown, who would reply that they hadn’t yet finished ‘the technical work’. Whenever the Prime Minister tried to have a conversation about it, the Chancellor simply refused.

  They had often had noisy rows. There was now ‘a frozen, angry silence’, which was more ominous.32 Blair kept ‘psyching himself up’ to have it out with Brown, but the other man would not engage.33 Weeks would now pass when the two men barely spoke. ‘It is like a marriage that has gone very badly wrong,’34 I was told during this period by someone who had known both men intimately since the 1980s. The Cabinet, marginalised yet again, not once debated what was supposed to be this great issue of Britain’s destiny. According to one minister speaking at the time: ‘It is like an awful family secret that no-one dares talk about.’35

  Blair asked Jeremy Heywood, his Principal Private Secretary and the Number 10 official with the best connections at the Treasury, to shape the timing and the verdict of the assessment. Heywood met Balls and O’Donnell to try to persuade them that a bald negative would make things extremely difficult for the Prime Minister. At the very least, Number 10 needed a ‘not yet’ to leave open the possibility of returning to the issue later in the parliament. Heywood met a wall of resistance.36 Even once the assessment was complete, which was by Christmas 2002, the Treasury remained highly secretive.

  A very large hint about their intentions was dropped by Balls that December. He delivered a lecture, and ensured that it got press attention, in which he pointedly rehearsed examples in British history of governments making economically disastrous decisions to satisfy political ambitions.37

  The Chancellor and his lieutenant Balls would scoff about what they saw as Blair’s ‘misty waffle’ about Britain’s destiny, a quest they regarded as vaingloriously dangerous.38 ‘Gordon regarded that with contempt,’ noted the Cabinet Secretary.39 Ed Balls would be openly contemptuous to the Prime Minister’s face about Blair’s ‘ethereal’ longings to join the euro. The Chancellor had often got his own way by exploiting the Prime Minister’s hazy grasp of economics. Brown and Balls believed they could educate Blair out of his enthusiasm – or, at any rate, baffle him with the data. A series of six seminars, beginning in January 2003, was arranged at Number 10. Blair agreed to attend them only reluctantly and was visibly irritable about what he increasingly regarded as a charade. He wearily sighed about having to listen to ‘the man in the white coat’ – the nickname he gave to David Ramsden, the Treasury official who led the presentations.40

  Blair hated these seminars because they were full of highly technical detail that he found irksome. He was also angered ‘that all the arguments were couched in a way that put the worst possible light on entry’.41 Jonathan Powell could now ‘see where this story was going to end. They outmanoeuvred us during these presentations.’42 Blair complained that the seminars entirely missed the big picture: Britain’s long-term relationship with the rest of its continent. ‘This is a very half-empty assessment,’ he complained.43

  The scene was set for an extraordinary confrontation between Prime Minister and Chancellor, the most dangerous yet of their turbulent partnership. On the suggestive date of April Fool’s Day, the Treasury team went to present its final verdict at Number 10. Waiting there were Blair, Heywood, Powell and Wall. The Treasury side consisted of Brown, Balls, O’Donnell, Jon Cunliffe, the head of international finance, and Ramsden. ‘The man in the white coat’ made a final presentation. Blair sat rolling his eyes as the Treasury boffin treated them to a fifty-page slide show of more graphs and data. Then came the punchline that ‘a decision to join now would not be in the national economic interest’ because a ‘clear and unambiguous’ case for entry could not be made.

  At this point, Blair erupted. He had already realised that it was unlikely that he would be politically strong enough to risk a referendum on the euro in the near future, especially when he lacked the support of his Chancellor. He was forewarned that the Treasury was going to be negative. But he was stunned that the Treasury’s rejection of euro membership was so emphatic. To him, this felt like a typical Brown ambush, made no more acceptable because it had been dressed up as a technical exer
cise.

  ‘Fine,’ snapped Blair. ‘But I don’t accept it. I don’t agree.’ Brown growled back: ‘You’ll have to accept it.’ Blair argued: ‘It’s not just about the economics. It is political. We have to look at the big picture politically.’ Brown riposted: ‘That’s precisely what we shouldn’t do.’44

  The meeting broke up rancorously. Brown and Balls crossed the road back to the Treasury, where they decided on a highly inflammatory act. They told Gus O’Donnell, the Permanent Secretary, to formally submit the assessment regardless of the Prime Minister’s wishes. A messenger walked over two copies, one for Number 10 and one for the Cabinet Secretary, with a note: ‘The Chancellor hereby formally submits the assessment.’45

  A further meeting, this time at Number 11, was held that afternoon. It was nasty, brutish and short. Blair said he would not accept that he had received the final assessment. Brown was at his most steamrollering. ‘This is the Treasury assessment,’ he barked, presenting it as a fait accompli. Balls contemptuously insisted that the only thing left for debate was when it was presented. Blair could like it or lump it.

  The two men confronted each other again the next day. The Chancellor remained implacable that this was the last word. He was not going to change a single sentence. Again, the Prime Minister argued that the hardness of the conclusion was not supported by the other evidence and the language had to be softened to allow for the possibility of euro entry later in the parliament. Brown was not budging. Not only was his decision final, he was going to announce his verdict in the Budget next week.