The legal and political battles over the arrest of General Pinochet are continuing to embarrass both the Labour Government and the Conservatives.

The arrival in London of President Menem of Argentina for a State visit will bring further complications since he has pitched into the row and, despite the "apology" for the Falklands war in The Sun he maintains his country's claims to the islands.

Government losses either way

The British Government is on a loser either way over General Pinochet. The home secretary has the power to release him on compassionate grounds even before receiving an official extradition request from Spain but if he does so will be accused of giving in to pressure from the Right, notably in the form of Lady Thatcher.

This will be especially difficult after the comments from his Cabinet colleague Peter Mandelson about any prospect of the former dictator being granted diplomatic immunity being pretty "gut-wrenching".

There would be an outcry from the Left and from human rights activists.

Harm has clearly been done to relations with Chile and with other South American states and ministers, including the prime minister at the Euro-summit in Austria, are having the greatest difficulty persuading world opinion that it is purely a judicial process which is taking place and not a political one.

Were compassionate grounds now to be invoked nobody would believe that. Clearly the British Government will be praying for a let-out in the shape of the Spanish National Court, which meets on Thursday, choosing to annul the extradition warrant.

The government's only consolation is that the Tory trumpet has been blowing with an equally uncertain note as shadow ministers have sought to exploit the government's difficulties without endorsing Lady Thatcher's call for the release of the General.

Welcome for Argentine leader

It is an awkward contrast for ministers that , having arrested the man who was an ally in the Falklands War effort, they will this week be welcoming to Britain the leader of the country which was responsible for the deaths of many British servicemen in that war.

Despite the article in The Sun, crafted for him with the collusion of Downing Street in the hope of neutralising tabloid excitement over the visit, President Menem has not abandoned his country's claim to the Falklands and that tension will be there.

Mr Blair has emphasised that it would not be fruitful for President Menem to pursue it and he talks of the Falklands War as a blip in the relations between two countries with much more to unite them.

But despite all his talk of the booming trade between Britain and Argentina it will not be a comfortable week, particularly as Mr Menem has criticised the arrest of General Pinochet and sided with the affronted Chilean government.

There are anomalies in the treatment of Argentina which Foreign Secretary Robin Cook has acknowledged. British and Argentine troops now serve together on United Nations operations, as in Cyprus , but a full arms embargo is still applied to the invaders of the Falklands even over fairly harmless pieces of equipment. It is likely that the arms embargo will be ended either during the State visit or soon after in favour of a standard system of export licences.

When I questioned him about in Austria the prime minister certainly did not rule out ending an embargo which President Menem has described as "completely unjust discrimination".

Given the state of relations with Chile now, British arms manufacturers who have benefited from General Pinochet's previous visits to London might be grateful for a new market in South America.

Blair in Europe

Relations between the Labour Government and Europe are entering an intriguing new phase. In Portshach at the weekend Mr Blair, who has been celebrating the fact that after the arrival in power of Gerhard Schroder in Germany and Massimo D'Alema in Italy 11 of the 15 EU governments are now led from the Centre or Centre Left, has had to come to terms with a distinct shift to the Left which may leave him out of the European mainstream.

The common call, concerted by their Austrian hosts, for pressure on the central banks to cut interest rates, was somewhat at odds with his government's continued boasting about having handed the power over interest rates to the Bank of England. (It was also somewhat at odds with the commitment of 11 of them to drive on with the Single European Currency and its attendant institutions, including the European Central Bank).

There was an interventionist tone to the proceedings which dies not sit too comfortably with the New Labour approach. Mr Blair went along with some of the noises about Europe-wide infrastructure investment plans to boost growth and jobs, but was careful to add that he would back plans which increased Europe's competitiveness.

He would clearly not be happy with subsidised make-work projects on the grand scale but feels the need to assert Britain's pro-European credentials , particularly on the economic front, by offering general agreement with his colleagues on making employment a priority.

There is a growing sensitivity in the government to the accusations from others in Europe that if it was serious about the EU it would be taking Britain into the Single Currency at the outset.

It was a determination to be seen living up to its rhetoric on Europe which lay behind Mr Blair's somewhat under-reported conversion to the idea of a European Union defence role, enabling the EU nations to act together in situations where the USA was not minded to become involved.

Whitehall has been split about this and it was clear that the institutional consequences had not been thought through. The plan was launched in advance of the summit because the British spin doctors feared that all attention there would focus on the new boy Gerhard Schroder and it thus received rather less attention on the day.

But it went down well with Mr Blair's counterparts. Particularly noted was his phrase about "Turning Europe's foreign policy into a force to be reckoned with".

Deadline in Northern Ireland

The prime minister will be trying this week to do anything he can to see that the 31 October deadline is met for the formation of the shadow power-sharing executive and the establishment of cross- border ministerial bodies.

The stand-off, with First Minister David Trimble and the Ulster Unionists insisting that there can be no admission of Sinn Fein members to the executive without the IRA beginning to hand over arms and Sinn Fein insisting that the Ulster Unionists are stalling seems likely to continue.

Both Mr Trimble, at his Ulster Unionist conference at the weekend, and Bertie Ahern, the Taoiseach, now seem to be focusing instead on the next deadline of February when the power-sharing executive is due to take up its powers. But in Austria Mr Blair was still talking about sticking to the original deadline and there could yet be a last-ditch effort from Downing Street.

Without some gesture from the IRA it now seems impossible for Mr Trimble to climb down from the position unanimously endorsed by his party conference.

Voting reform proposals

Later in the week the prime minister will be forced to make plain his attitude to Lord Jenkins' proposals on proportional representation, an issue on which he either has to risk a Cabinet split or seriously damage his good working relationship with Paddy Ashdown and the Liberal Democrats.

The report is due on Thursday and Mr Blair will then produce a holding statement. This is being carefully crafted to help sustain Paddy Ashdown's position while not committing the government either to the Jenkins version of PR at this stage or to a definite date for the referendum on his recommendations originally promised.

Cabinet opponents of PR like Leader of the House Margaret Beckett are saying that there is no commitment for this Parliament, but a manifesto pledge is normally assumed to be in the programme for the Parliament to which it applies unless another timescale is indicated.

Supporters of PR like Robin Cook, who agreed the constitutional settlement with the Liberal Democrats that has won their co-operation on the government's constitutional reform programme so far are insistent that there must be a referendum before the next election.

Paddy Ashdown's whole political future could depend on the government's presentation this week. He has been criticised in his party for being too ready to co-operate with the government and has justified it by pointing to the programme of constitutional reform, such as the Scottish Parliament and Welsh assembly , already achieved. But if that does not lead on to the ultimate prize of a PR referendum many of his party will feel that the tactics have failed and his future will be called into question.