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Pyrrhic Victory In London? (Int'l Edition)

International -- Intl' Business: BRITAIN


John Major has shown that he has guts. He forced warring factions in Britain's Conservative Party to "put up or shut up" in a July 4 vote on party leadership--and won. The bold move achieved the Prime Minister's short-term goal: stabilizing his control over the party.

But Major's win may prove the worst possible outcome for the Tories over the long term. The contest further exposed the Conservatives' deep splits over Europe instead of healing them, as Major and his backers had hoped. "The election merely put a Band-Aid over the rift with the Euroskeptics," says Robert M. Worcester, chairman of Market & Opinion Research International. "It won't help the Tories beat back Labor Party leader Tony Blair."

Indeed, challenger John Redwood's slogan, "No change, no chance," could haunt the Conservative Party. By sticking with the same leader and policies, the Conservatives have lost their only chance to make a fresh start to fight Labor before mid-1997, when the next general election must be called. Under party rules, Major's leadership can't be challenged again. Says Lord Tebbit, a former Cabinet Minister who openly supported Redwood: "It really couldn't be worse. The Prime Minister is seriously wounded, but he's still in office."

With one-third of Tory MPs voting against him or abstaining, Major could hardly declare a resounding victory. Still, calling his 66% majority a "clear-cut decision," he immediately reshuffled the Cabinet to reward loyalists and throw a bone to the right wing.

STILL SNIPING. In the shakeup, former Trade & Industry Secretary Michael Heseltine, the biggest threat to Major if the ballot had gone to a second round, was made Deputy Prime Minister. Moderate Malcolm Rifkind, formerly Defense Minister, became Foreign Secretary. That disappointed Euroskeptics who had hoped that Employment Secretary Michael D. Portillo would get the job. Rightist Portillo nonetheless got bumped up to Defense Minister.

All that is unlikely to create a sense of party unity for long, however. While leading detractors such as Redwood and former Chancellor of the Exchequer Norman Lamont have promised to support Major now, others continue to snipe. "Major has said that he was opposed by a small minority," says Nicholas Budgen, a Conservative MP and Redwood backer. "Now he'll have to concede that we're not a small minority."

Despite the ruckus at No.10 Downing St., Major has resisted changes in his Europe policy. And though he hinted about future tax cuts at home, following Redwood's promise to lop $8 billion off public spending, the Prime Minister hedged on the timing. The market has already figured he would slash $3 billion in taxes before the election. The cost of upping the "feel-good" factor: rising inflation and higher interest rates.

So the Conservative Party's prospects look grim. With the party still lagging badly behind Labor in the polls, there's a chance Major's "sack me or back me" gambit has misfired. No wonder Tony Blair is beaming. In the end, he may prove the biggest winner, after all.By Julia Flynn and Heidi Dawley in London

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