Facing the Commons at Prime Minister's Question Time, he told MPs of his view on the row over harmonisation of taxes across Europe: "If necessary we will be alone but I do not think that we will be."

In the face of Tory attacks on the issue, Mr Blair said: "Some people want higher taxes in Europe. Other people believe, as we believe, that the route to jobs and competitiveness is through economic reform, employability, and investment in skills and education.

"We will get engaged in that argument and I believe we will win that argument."

He added: "What we must not do is revert to the diplomacy of the Tory years that saw this country reduced to the margins of Europe without any influence at all.

"We will stay firm and we will stay engaged, and that is the best way to protect this country's interest."

Despite Mr Blair's assurances, the "stand alone" line will dismay Labour's pro-Europeans, who will hear in it the echo of the previous Major and Thatcher Conservative administrations.

'Outbursts of hysteria'

"The most dangerous man in Europe" - according to the Sun, that is

Earlier, however, the prime minister's official spokesman attacked the way the issue of EU taxes has been covered in the press, and insisted the government would not be pushed into adopting an anti-European line.

"I think the rest of Europe will think the British media is going through one of its outbursts of hysteria," he said.

Mr Blair's comments in the Commons on Wednesday were his first intervention in the Euro-row which reached fever pitch this week after German Finance Minister Oskar Lafontaine called for the UK to lose its power to block tax harmonisation.

Mr Lafontaine has been backed by his French counterpart, Dominique Strauss-Kahn.

A number of newspapers with a Euro-sceptical editorial line have been running lurid stories warning of the threat from Brussels of running the economy and setting UK taxes, with Mr Lafontaine a favourite target.

The Sun, which has launched its own "The Pound in Peril" emergency campaign, has already labelled him "the most dangerous man in Europe".

Mr Blair's spokesman stressed that Mr Lafontaine had been expressing a "personal view" on tax harmonisation which he said reflected the situation with the new German government.

UK press 'on another planet'

Jacques Santer: "Amazed" at the British press coverage

Jacques Santer, President of the European Commission, echoed the government's unhappiness at press coverage of the issue when he told a news conference in Brussels: "When I read the British papers I think I'm on another planet."

The Tories, scenting the government's nervousness over the issue of Europe and the single currency, are making the most of a rare opportunity to focus on Labour's Euro-problems as opposed to their own.

Michael Howard, the Shadow Foreign Secretary, accused Mr Blair of "going with the flow" in the march towards a European superstate.

He told BBC Radio 4's Today programme: "What we are now faced with are proposals for one currency, one tax policy, one defence policy, one employment policy, one justice system."