What's it to be Gordon, the NHS or the euro?

ON Budget Day, Chancellor Gordon Brown declared himself the saviour of the National Health Service. Barely a month later, his next-door neighbour Tony Blair declared himself proud to be the would-be assassin of sterling.

But if Brown is to have his way, Blair cannot have his.

Despite ingenious attempts in both 10 and 11 Downing Street to 're-interpret' the rules governing euro membership, one fact is unavoidable. Britain can have either Brown's world-class NHS or it can have Blair's euro enthusiasm.

But it cannot have both. No amount of wriggling can rewrite European treaty rules just to suit the latest twists in the Brown-Blair relationship. And those rules prohibit the 20-year NHS blueprint unveiled last month by Brown.

He promised: 'This is a Budget to make our NHS the best insurance policy in the world. A British ideal - free at the point of need, for everyone.' The cost? An extra £35.9bn between 2003 and 2007-2008, to be raised partly through higher taxation and - crucially - partly through borrowing.

That debt element in Brown's multibillion-pound NHS boost will take net borrowing to £18bn by 2008.

Nothing wrong with that, says the Treasury. This is long-term investment, and will still leave the national debt at about 31% of gross domestic product. That is entirely consistent with Brown's 'golden rule' - no borrowing except for investment, and the national debt to stay below 40% of GDP.

Quite true. And the capital markets love the golden rule, hence their enthusiasm for British Government securities, or gilts. But once inside the euro, Brown will no longer be able to write his own rules but will be subject to a solemn treaty commitment called the Stability and Growth Pact (SGP).

Originally crafted by cautious Germany to ensure that the more feckless members of Economic and Monetary Union did not capsize the single currency with huge debts, the pact is much, much tougher than the golden rule. It obliges eurozone countries to set their budget 'close to balance or in surplus'. Brown agrees - as far as current spending is concerned.

But the pact applies to all spending, including Brown's cherished long-term investment. The only exception is for 'counter-cyclical' spending during an economic slowdown - essentially spending on unemployment benefit and other measures to stabilise demand. Even then, deficits are allowed to reach only 3% of gross domestic product (GDP) and are expected to be corrected - quickly.

In extreme cases, Brussels can fine offending nations up to 0.5% of GDP for every year they breach the pact. Brown's forecast deficit will hit 1.5% of GDP, with no recession in sight.

Would the European Commission really dare tell a British Chancellor to cut spending on the NHS - and education, transport, the police and other priority areas? It has done so already. On 30 January, the Commission effectively said Britain should slash spending by £10bn to balance the Budget. Brown refused, as he is entitled to do, for as long as the UK stays outside the eurozone. Since then, his Budget has added £5bn to the expected borrowing figure for 2007-2008, taking it to £18bn.

Unsurprisingly, the row erupted again earlier this month. An attempt to smooth over the differences between Brown and the Commission last week backfired. The Commission said UK deficits could be ' tolerated for one or two years', to which the Treasury replied that the golden rule was a permanent feature of British public finance, not a temporary aberration.

Brown's position is that he 'supports a prudent interpretation' of the SGP - that is, one that bears no relation to the pact's actual wording and reads instead like his own golden rule.

Inside Government, the hope seems to be that the pact can be rewritten to accommodate Britain's colossal investment in public services. But given that the pact forms part of the Amsterdam Treaty, which in 1997 updated the original treaty on European union, the City is sceptical.

The pact would allow the NHS spending boost to go ahead only if all the money comes from taxes and none from borrowing. That £18bn would need the equivalent of 7p on the basic rate of income tax, raising it from 22p to 29p in the pound. It would land someone earning £22,700 a year with an extra annual tax bill of £1,184 - more than 5% of their gross pay. Even that would not really plug the gap because it would crash the economy into a depression and destroy large parts of the tax base.

Brown's NHS Budget was cheered to the echo on 17 April. But a month, it seems, is a very short time in the politics of the euro.