WILL we or won't we? Ask any Labour MP whether there will be a referendum on euro-entry and he will tell you that the chances have receded to much less than even. The Tory leadership has convinced itself that a referendum during this parliament (ie, before 2006) is only slightly more likely than England winning the World Cup. The same scepticism is apparent in the City, not only among those who tap their noses and claim to know the chancellor's mind, but also through the actions of currency dealers who would be marking sterling down if they really thought that euro entry was on the cards.

Last month's budget has hardened this conviction. The government is already being uncharacteristically bold in gambling that large tax-funded increases in spending would deliver a markedly better health service; is it really up for another, even bigger, risk? Economists also pointed out that a government that was really serious about joining the euro and which wanted to go in at a more competitive exchange rate would be preparing the way by tightening fiscal policy to allow the Bank of England to lower interest rates, whereas the opposite is the case.

The prime minister is more determined than ever that next year he will fight and win a euro referendum

Yet for all evidence to the contrary, the prime minister is more determined than ever that next year he will fight and win a euro referendum. His critics say that he sees this as his one chance of doing something historic. Maybe so. But he also believes that, so long as the Treasury's famous five economic tests can be met or fudged, euro entry is profoundly in the national interest. He sees an opportunity for Britain to lead the European Union—an opportunity that is unlikely to be repeated if it fails to join the euro soon.

Several things have made this possible. One is the erosion of the Franco-German axis that has been one of the consequences of Gerhard Schröder's chancellorship. Mr Schröder is not only less willing to defer to France than his predecessors for generational reasons, but also, as a German from the Protestant north, he feels more comfortable with the British than the French. While Tony Blair shed few tears for Lionel Jospin, he would be very sorry to see his friend Gerhard go the same way later this year: hence his appearance on German television this week alongside the chancellor to show solidarity in the struggle to marginalise Europe's far-right.

Secondly, while some European leaders have expressed puzzlement about, bordering on disapproval for, Mr Blair's shoulder-to-shoulder support for President Bush, it hasn't, in the words of one Downing Street insider, stopped them from angling for dinner invitations more assiduously than ever before. They may at times resent Britain's transatlantic exceptionalism and gung-ho militarism, but few would deny that, since September 11th, the prime minister's power and prestige within the European Union has grown.

Finally, Tony Blair and Gordon Brown are quite simply two of the “biggest” politicians in Europe. They are electorally successful on a scale that their counterparts can only dream about; despite the frailties of Britain's public services, they have a strong economy behind them; and they dominate meetings with other European leaders with a formidable combination of charisma, energy (Mr Blair), grip and forcefulness (Mr Brown).

Although all of this has happened without Britain being in the euro, Mr Blair believes it would be wrong to believe that this will continue if there's no euro referendum. Both Number 10 and British diplomats in Brussels argue that we are regarded as being “pre-in”—that is, there is widespread acceptance within the EU that it is Britain's intention to join the euro and that the intention will be acted upon in the course of this parliament.

In March, a leaked memo from the head of Britain's permanent representation in Brussels, Sir Nigel Sheinwald, pointed out that Britain had been excluded from the important meeting that decided to spare Germany and Portugal the indignity of being formally warned about the size of their budget deficits. Sir Nigel suggested that this was a watershed and that important economic decisions would in future increasingly be taken by the 12-nation “eurogroup” rather than by Ecofin, the forum at which all EU finance ministers are present.

For the time being, Sir Nigel's fears have not been realised: Ecofin remains the senior economic decision-making group and, when it meets, Mr Brown is still, according to his officials, very much a first among equals. But the longer a referendum is delayed, it is argued, the weaker the British position becomes.

The same reasoning is deployed when it comes to direct investment from overseas—nothing bad has happened yet because industrialists, such as Nissan's Carlos Ghosn, have been convinced by the prime minister's assurances that Britain will be in the euro before long. If Mr Blair were to say next year that the time was not ripe, the conclusion they would draw is that it probably never will be.

According to people close to Mr Blair, the chances of a referendum next year are considerably higher than 50-50. Of course, they have an interest in conveying a sense of inevitability both to soften up opinion and, with any luck, to massage the pound down. However, the impression they give is that the prime minister will not be easily deflected from the course he favours.

But doesn't Mr Brown have a veto? Of course he does. An opinion poll conducted by Labour's pollster, Philip Gould, that wound up this week in the hands of the fervently anti-euro Daily Telegraph, indicated two things: first, more than 40% are now in favour of the euro; second, two-thirds would think that joining would make economic sense if Mr Brown were to declare that his five tests had been well and truly met. The poll didn't inquire what might be the impact on opinion of Mr Brown going off in a huff. It didn't have to.

Mr Brown is not anti-euro, as is often suggested

Mr Brown is not anti-euro, as is often suggested. Although he thinks his own arrangements for conducting monetary policy take some beating, he is willing to recognise that over the long term euro membership could bring benefits. Nor does personal rivalry with Mr Blair inform his position to anything like the extent that gossip insists.

Mr Brown is genuinely worried about the short-to-medium-term economic risks, and especially about the consequences of Britain joining the currency union with the pound around its current exchange rate with the euro, and the euro subsequently appreciating against the dollar. The economy would adjust, eventually; but adjustment could be prolonged and painful, and the resulting lower-than-expected growth would frustrate the government's plans to improve the NHS and other public services.

It's tempting to talk in terms of one or other's views prevailing: on one side a determined and strong-willed prime minister convinced of where the national interest lies; on the other, a cautious, but unusually powerful chancellor doggedly resistant to jeopardising the economic underpinnings of the government's social programme. That makes better newspaper copy than the reality, which is that at some point this year or early in 2003, Mr Blair and Mr Brown will sit down and reach a decision together. That is how this most duopolistic of governments works.

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