Brown is on the ball yet again

Gordon Brown's continuing success as Chancellor is a journalistic frustration. His economic forecasts prove more accurate than those of his self-righteous and near permanently wrong critics. It is boring that brick by tedious brick he is laying the foundations of an economy and society that copies Scandinavia's successes as much as those of the US. And it is infuriating that the predictions that his sums will end in a terrifying black hole never come true.

It is steady, undramatic and makes terrible copy. Brown is a kind of political Dreadnought; he cannot be sunk, he returns more fire than he receives and he carries on full steam ahead. He is the political master of a Treasury that remains economically dry but for progressive ends, the heart of last week's pre-budget report. It was a Brown classic. Economists and the opposition fulminated as always that he would be certain to miss his 'golden rule' on public borrowing and balanced budgets (he probably won't), while the political class informed us solemnly it was all very political (what's new?).

Meanwhile, a series of more apparently dull and scarcely observed new components were added to the increasingly distinctive economic and social model that Brown and New Labour is building. Definitely European, but with a very British slant.

The aim is to lift productivity, employment, opportunity and fairness simultaneously in an economy that is environmentally sustainable; the unremarked wonder is that he is beginning to succeed. Mainland Europe's policy-making community is keenly aware that the liveliest laboratory for innovative policy that works is Britain; it is increasingly ready to follow suit. Brown's lecturing may not be liked, but he is respected.

At the November European summit, Tony Blair recommitted Britain to the so-called Lisbon strategy to make Europe 'the most dynamic, competitive, knowledge-based economy in the world by 2010'. He joined with other European leaders in endorsing the independent Kok report (the Chancellor's pre-budget report repeats the endorsement) which, to remedy the chronic lack of progress in EU economic reform, calls for every member state to submit an action plan by spring 2006 setting out how they intend to meet 14 key targets that will deliver economic, social and environmental progress, Britain included. (I was the Kok group's rapporteur.)

The Lisbon strategy, Kok and refashioning Europe's economic and social model are regarded as so dull that the government's commitment is virtually unknown beyond a few officials and economic cabinet ministers.

But Brown and the government's willingness to back the Lisbon strategy, bringing forward a national plan as part of a co-ordinated European effort which Britain will lead during its presidency of the EU next year, is intriguing both economically and politically. Instead of a rarefied debate about whether the pound has met the tests to join the euro, this will be a debate about lifting R&D, science spending and business investment, raising employment, reducing regional inequality, lowering poverty, improving skill levels and curbing environmental damage around the key indicators set by the Kok report.

Here, Britain has either already achieved the targets like those on employment or, as a result of the pre-budget report, is set to be second only to the Danes, Swedes and Finns in such areas as R&D, childcare, science and lifelong learning.

It is one of those sweet moments in politics when you get a bonus from doing what you wanted to do anyway - collecting £200 as you pass go on the political Monopoly board. Eurosceptics get challenged over why they would not want to hit these targets and why it is wrong for Britain to lead a European effort to achieve them, obviously to the benefit of both Britain and Europe.

Meanwhile, having the argument dramatises British success around what Brown wants to depict as British values (hence his speech last week calling for an institute of British studies at the Political Studies Association). Better still, as the EU follows suit, it stops being the threatening, alien other and, instead, becomes a variant of Greater Britain.

The French have always regarded Europe as Greater France; Brown wants the British to see Europe as Greater Britain. Only thus, he thinks, can the European argument be won. Anybody with a better idea, please step forward.

However, it is not all one-way traffic. The pre-budget report borrows massively from the Scandinavian (and even the French and German) example. The commitment to offer the chance for all low-skilled workers to upgrade their skills is what every Scandinavian country, along with Germany, offers. Brown's selection of Newcastle, York and Manchester as science cities is copying what Finland and France do, while the national childcare system is a straight lift from Denmark. The recent Scandinavian record on employment and productivity speaks for itself.

The media focus on fiscal black holes and all the rest is, in truth, a diversion to the main plot. In any case, Brown's trackrecord is better than that of his critics and his forecasts look achievable. There are, however, two caveats. In my view, the Treasury is too confident that house prices won't fall next year with the resulting downward pressure on consumer spending and growth. Even more worrying is what is happening in the currency markets and the implications for the world trade and financial system.

It is not just that the dollar is sliding; it's that the Bush administration is completely indifferent, still committed to further tax cuts despite the darkening situation. The US has some $3 trillion of international debts and a colossal, rising current-account deficit. Because Bush promises tax cuts, the deficit will rise, so the only way out is for the dollar to fall and by a long way.

The currency that is the linchpin of the world trading and financial system is thus guaranteed to lose value. In effect, the US has declared financial war on the rest of the world, insisting we can pay the price for whatever the US decides to do.

The pound is almost certain to break through the $2 rate, while the euro is heading for dizzying highs. It only needs the Asians to insist on being paid in euros for their exports rather than in valueless dollars and the dollar could go into a tailspin.

In the consequent maelstrom of rising interest rates and potential solidification of the world into rival trading blocs, the Treasury's prediction of booming British exports would become incredible.

But everybody would be hit as hard or worse and no government can make its central forecast an international crisis. All you can do is hope that the system remains robust and that Bush backs off. None the less, the risk of a calamity is considerable, in which case Europe and Britain would find their interests becoming even more closely aligned. One way or another, matters European are going to insert themselves into the British debate with a new urgency. It's a pity there has been so little advance warning.