High-Level Dispute Over Europe Divides British Tories

`ON Europe, there are now two British governments.'' The comment came not from a member of the opposition Labour Party, but from a senior member of Parliament (MP) of the ruling Conservative Party.

An hour earlier, he had heard Prime Minister Margaret Thatcher tell the House of Commons that she would never accept the need for full political and economic integration in Europe. She was followed by John Major, the chancellor of the Exchequer, who delivered a speech that seemed to leave open the door to a European federation, complete with monetary union.

The gap between Mrs. Thatcher's adamant ``never'' and Mr. Major's carefully phrased ``maybe'' (a stance shared by other leading ministers, including Foreign Secretary Douglas Hurd) is causing deepening concern in the government's ranks.

The party that has governed Britain for 11 years is battling to restore its political credibility amid rising inflation, economic downturn, and mounting evidence that the prime minister is no longer the dominant politician she used to be. Polls published in British newspapers last weekend showed Thatcher's Conservative Party trailing Labour by 10 to 16 points.

The signs of high-level disagreement on the key issue of Britain's future in Europe were exposed in the run-up to a series of summit meetings and intergovernmental conferences to chart the course to a fully united European Community.

The opposition last week demanded a debate on the prime minister's decision, after long delays, to make Britain part of the Exchange Rate Mechanism (ERM) of the European Monetary System - a move branded by her foes as political opportunism and a sign of panic.

Instead of leading off the debate herself, as many Conservatives had expected, Thatcher designated Major to speak. But before he had a chance to do so, Thatcher, taunted by the Labour leader, Neil Kinnock, during a twice-weekly session of questions to the prime minister, stood up and declared flatly that Britain under her leadership could never contemplate a federal Europe, or the single European currency being urged on the EC by its executive president, Jacques Delors.

Major's message, already prepared, was significantly different in tone and content. He urged the Commons to consider the merits of his plan for a ``hard Ecu'' - a common Euro-currency that could run parallel with existing national currencies. This, he said, was a possible long-term route to the single European currency his leader had just shunned. More signs of Conservative disunity on the European issue were to follow.

Nigel Lawson, who last year resigned in anger as chancellor of the Exchequer, and is now a senior backbench MP, accused Thatcher of failing to accept the merits of membership of the ERM five years earlier when he had pressed for it.

It was a ``real tragedy'' Britain had not entered then, he said. The result, he added, had been a slide into economic difficulty which could have been averted.

Mr. Lawson then turned his guns on Major. By accompanying entry into the ERM with a cut in interest rates, his successor had caused ``a degree of cynicism in financial markets'' and reduced the likelihood of further interest cuts later on.

MPs could not remember an occasion when a former chancellor of the same party had attacked the policies of his successor.

The spectacle of Conservative Party disarray on Europe was completed at the end of the debate when a group of 11 MPs who normally support the government broke ranks and voted against it.

They cited their dismay with the decision to join the ERM and their opposition to any further attempts to lace Britain more firmly into Europe.

Thatcher thus finds herself at the center of a tug-of-war between senior ministers like Major, Mr. Hurd, and the deputy prime minister, Sir Geoffrey Howe, who want her to stay flexible on Europe, and hard-line opponents who are even more adamant than the prime minister that integration has gone too far already.

The group of MPs who voted against the government was small, but their leader John Biffen, a former senior minister under Thatcher, claims that they represent a large swath of public opinion.