Blair's money problem: the euro felled the Tories. Is Labour next?

• Author: Nichols, Hans S.

For both its critics and supporters, the euro's smooth transition and early economic success have been a shock. While the euro may be economically viable in the short-run, it's the sort of political dirty bomb that has politicians across Europe looking to the door and over their shoulder. Its shrapnel already has splintered one party and it threatens another. And that's just in Britain.

It's no secret that the Tory fratricide on European integration has led to disasters at the polls. While the majority of Britons remain skeptical about the abolition of the venerable pound, forces within the Tory Party are sharply divided on the issue, miring the party in political muck. The last two general elections have delivered huge margins to the Labour Party in Parliament. Indeed, towards the end of last fall's contentious Tory leadership race, the eventual winner, Iain Duncan Smith, said of his own party's division, "We need this like we need a hole in our head."

But amid the sound and fury of the Tories' infighting on the euro, Labour's own divisions regarding the currency have gone largely unnoticed. Like the conservatives' cleft, Labour's split is more about politics than economics. Unlike the conservatives' euro woes, Labour's are just beginning.

Since its victory in 1997, Labour's official line on the euro has been that the government would never force the European common currency on its citizenry; it would let the voters decide via a national referendum, to be announced at a later date. Despite Labour's protestations of neutrality, no one doubted that Blair and, to a lesser extent, his Chancellor of the Exchequer Gordon Brown, were in favor of adopting the euro. Sure, the trade unions (Labour's old base) are mostly skeptical, but the mercantile class (Labour's new base) is aggressively in favor. Thus far, the biggest debate within the Labour party has been not a question of if, but when.

At the beginning of his tenure, Blair happily fobbed the timing of the referendum to Brown. Brown, it was decided, would be the keeper of the mythical "five economics tests" on whether Britain should adopt the single currency used by 12 European countries. As the chancellor later spelled out, integration must be "good for jobs, for foreign investment, for the City," and based on "whether the UK economy was marching in step with other European countries, and whether it had enough flexibility to adjust if it wasn't." Once the tests were met, the matter would be...