JEREMY PAXMAN:
Prime Minister, it's getting on for nine months since September 11th. In your conference speech, you talked about the kaleidoscope having been shaken, the pieces being in flux. Soon they will settle again. Before they do, let us re-order the world around us. What has actually changed since then?

TONY BLAIR:
In Afghanistan a lot has changed. The Taliban have gone, a brutal and repressive regime. They have the chance of a decent and prosperous future. If we look at what's happening with the destruction of the poppy crop, something like a fifth of the crop has been destroyed with a street value of around about three times the amount of the heroin on the British streets. I think the people there, if you were to talk to them, think they have hope for the future again. In Africa, we are trying to put together the big partnership agreement for Africa, more trade, better aid, debt relief, conflict resolution. I think we're on track to achieve that. In the Middle East, I'm afraid, things have gone backwards.

JEREMY PAXMAN:
We can look at some of those areas individually in a moment. Just on Afghanistan, how long will the Marines be staying there?

TONY BLAIR:
I don't know. We will hand over the leadership of the security force in the next few weeks. But then we will stay on in some capacity or other to try to help the Afghans to develop their own army and security force.

JEREMY PAXMAN:
So this is an open-ended commitment, is it?

TONY BLAIR:
Well, it is not an open-ended commitment. And let's not exaggerate the number of people we have in Afghanistan. I think there are around about 1,300 troops now in Kabul. I can't say exactly when we'll get every last one of those out. But I think the work we're doing there is worthwhile. We have to stick with it and the reconstruction of Afghanistan.

JEREMY PAXMAN:
You talked about the campaign remaining in place to make sure all our objectives are secure, including tracking down those responsible for terror. Given that we've failed to find Osama Bin Laden, the campaign has not been a success, has it?

TONY BLAIR:
Again, I would say, yes it has been a success. But it is not complete yet. If you look at the Al-Qaeda terrorist network, I'm not saying that they won't still try to carry out terrorist acts, but they have been wiped out, effectively, in Afghanistan. They're on the run...

JEREMY PAXMAN:
Bin Laden was the top priority wasn't he?

TONY BLAIR:
Yes but I've got no doubt at all that in the end we will secure him. But, if you look at what has happened over the past few months, it would be hard to say that the Al-Qaeda network is not effectively dismantled today.

JEREMY PAXMAN:
Do you have any idea where he is?

TONY BLAIR:
No.

JEREMY PAXMAN:
None at all?

TONY BLAIR:
No. If we knew where he was we would go and get him. We can't be sure. We simply cannot be sure what has happened.

JEREMY PAXMAN:
People talked about post-September 11th of a conflict between good and evil. Do you believe that there is an axis of evil?

TONY BLAIR:
I believe that weapons of mass destruction are a real evil, yes. I certainly do believe that.

JEREMY PAXMAN:
I note that you have never used the phrase "axis of evil" yourself.

TONY BLAIR:
We make our own speeches. I think the President was right to say weapons of mass destruction are a real issue and evil in the world. People sometimes think I've come to this in response to what the US has been saying and doing. Three days after 11th September in my first statement in the House of Commons, I said the next big issue after international terrorism is weapons of mass destruction. I believe that, incidentally. I think that people can be really blind to the dangers of this issue and the capacity of unstable, often dictatorial and repressive states to acquire weapons of mass destruction and ballistic and nuclear missile capability. That is a real threat.

JEREMY PAXMAN:
But the phrase "axis of evil" is a silly phrase. Isn't it?

TONY BLAIR:
No, I don't agree it is a silly phrase.

JEREMY PAXMAN:
You think there is an axis of evil?

TONY BLAIR:
As I said to you, I think weapons of mass destruction...

JEREMY PAXMAN:
That is another issue. Do you believe there is an axis of evil?

TONY BLAIR:
I believe, as I said to you, that weapons of mass destruction are a real evil in the world. Those people who combine together... Look, if you want me to - if what you're trying to do is get me to rewrite my speeches, I'm not.

JEREMY PAXMAN:
Not at all, Prime Minister. I'm merely asking if you think there's an axis of evil.

TONY BLAIR:
What I'm saying to you is that what the President was referring to is the issue of weapons of mass destruction and support for international terrorism.

JEREMY PAXMAN:
He was referring to specific countries, Prime Minister.

TONY BLAIR:
Exactly. There are real issues in respect of all those countries.

JEREMY PAXMAN:
Do you think Iran is part of an axis of evil as he appears to think?

TONY BLAIR:
I think Iran in certain of the actions that it takes, has the capacity to threaten the outside world. I favour a process of engagement with Iran but engagement on terms that makes it very clear that they cannot carry on supporting terrorist groups or dealing in and acquiring WMD capability.

JEREMY PAXMAN:
As you say, we have relations with Iran. Do you believe they're part of this axis of evil?

JEREMY PAXMAN:
As I've just said to you, I think certain things they're doing re wrong and need to be counted.

JEREMY PAXMAN:
Do you believe that George Bush is right when he describes Ariel Sharon as a man of peace?

TONY BLAIR:
Again, what I believe is that PM Sharon does want to see a long-term solution in the Middle East. I believe he does want to see that. But I don't think we'll get such a solution unless there is very, very concerted international intervention.

JEREMY PAXMAN:
Do you think Ariel Sharon is a man of peace?

TONY BLAIR:
Again, I don't intend to use phrases other people use, but, do I believe that he wants to see peace in the Middle East, yes, I do. But I also believe that if we're going to get that peace in the Middle East, we're going to have to take an entirely fresh attitude.

JEREMY PAXMAN:
Do you believe that, as George Bush claims, Yasser Arafat has betrayed his people? His phrase.

TONY BLAIR:
Well, I do believe that he's let down the Palestinian people. Yes, I do believe that. I think there was a deal on offer from Prime Minister Barak some time ago that should have been accepted and I don't think the Palestinians have done all they could to bear down on a scourge of terrorism.

JEREMY PAXMAN:
Do you think he's betrayed his people, though?

TONY BLAIR:
Well, "betrayed his people" is one way of putting it. I would say to you that if he is to deliver for his people, he has got to enter into a proper negotiated process, and they have to, once we help them with the capability of addressing these security issues, he has to address them. So you can sit here and put to me phrases that President Bush and other leaders have used all day. I choose my own phrases. I choose my own way. But I believe that the American policy of engagement in the Middle East is the right policy.

JEREMY PAXMAN:
But you choose your own phrases because, actually, there are significant differences between the way this country views the world and the way that George Bush's administration views the world.

TONY BLAIR:
I don't believe there are really significant differences, no.

JEREMY PAXMAN:
Do you agree with him on Iraq, that there has to be a toppling of Saddam Hussein?

TONY BLAIR:
I certainly believe that getting rid of Saddam would be highly desirable. It's always been the American policy to get rid of Saddam Hussein. That isn't to say they're about to launch military action.

JEREMY PAXMAN:
We endorse the policy, do we?

TONY BLAIR:
I certainly endorse the policy of doing everything we can to get rid of Saddam Hussein if at all possible.

JEREMY PAXMAN:
Everything we can, including military means?

TONY BLAIR:
That depends, as I've said, many times.

JEREMY PAXMAN:
If the inspectors are allowed back in by Saddam, would you still favour toppling him?

TONY BLAIR:
If he lets the weapons inspectors back in unconditionally, anywhere, any time, any place, then of course that makes a difference. But there's absolutely no sign that he's prepared to do so.

JEREMY PAXMAN:
But if he were to do so...

TONY BLAIR:
Let us wait and see if that eventuality happens.

JEREMY PAXMAN:
But that's what you want him to do. We're saying we want the weapons inspectors back in?

TONY BLAIR:
And that's exactly what President Bush has said too.

JEREMY PAXMAN:
If he does, we will then cease to think he should be toppled.

TONY BLAIR:
No. If he does do that, then the weapons inspectors have got to go back in and be allowed to do their job. But don't lets be under any illusions about this. For ten years, he has been in breach of UN security resolutions. For ten years, the weapons inspectors should gave been in there, done their work, the weapons should have been destroyed.

JEREMY PAXMAN:
But this is key to how he might be persuaded - if persuasion is possible. If he lets the weapons inspectors back in, does he still get toppled?

TONY BLAIR:
If he lets them back in of course that makes a difference to the situation. But let us see whether he does that and, what is more, let us see if the weapons inspectors are able to get back in and do their job, but there's no sign at the moment that he's allowed to let them back in unconditionally to do the work that they should have been doing over the last few years but have been prevented from doing.

JEREMY PAXMAN:
But that is not the American position. The American position is George Bush, "I've made up my mind that Saddam needs to go."

TONY BLAIR:
That has been the American position for years, under President Clinton too.

JEREMY PAXMAN:
It is not your position though, is it?

TONY BLAIR:
My position is that it would be highly desirable if Saddam Hussein was got rid of. I certainly agree with that.

JEREMY PAXMAN:
But you haven't made up your mind that Saddam needs to go.

TONY BLAIR:
I have certainly made up my mind, as indeed any sensible person would that the region in the world, most of all the people of Iraq, would be in a far better position without Saddam Hussein. If you then make the leap, does that mean that military action is imminent or about to happen? No, we've never said that. We have said here is an issue, it has to be dealt with, we will deal with it but how we'll deal with it is an open question.

JEREMY PAXMAN:
But you're not then acting in good faith, are you, when you say he has to let back in the weapons inspectors?

TONY BLAIR:
No, we are. I've just said to you, that is the very demand we make on him. Of course, it would make a difference to the situation. But they have to be able to go back in there and do the work they were able... they were supposed to do last time but were unable to do.

JEREMY PAXMAN:
Would military operations against Iraq have to, in your judgement, be endorsed by the United Nations?

TONY BLAIR:
They have to be compliant with UN law, as we did the last time. Whether that needs another specific UN resolution is not an issue yet because we simply do not know what military action we might or might not take.

JEREMY PAXMAN:
When are you going to publish the dossier of evidence you have?

TONY BLAIR:
When we consider it right to do so.

JEREMY PAXMAN:
But it currently exists?

TONY BLAIR:
Oh, there's masses of evidence about what Saddam's up to. I don't think anyone is any dispute about that.

JEREMY PAXMAN:
You said you were going to publish it.

TONY BLAIR:
We didn't give a specific time. We will publish it. But if I was to start publishing it now you would probably think we're about to take action next week. We're not.

JEREMY PAXMAN:
So when you publish it, we're about to take action?

TONY BLAIR:
No, I didn't say that either. I merely said that we do not intend to publish it now but we will publish it at the appropriate time. However, if anyone wants to see what Saddam Hussein has been doing over the past decade, and indeed before then, you need only read the weapons inspectors reports already in the public domain and published. This is a person who, after all, has killed tens of thousands of his own people, including by chemical weapons. He started the war against Iran, which 1 million people lost their lives. He invaded Kuwait. He is even now in the situation of developing weapons of mass destruction in breach of every Security Council resolution there is. This is a thoroughly bad person. If you are talking about evil, I think it probably is personified in Saddam Hussein and the regime he runs. Does that mean we're about to take military action? No. It means weapons of mass destruction are an issue. Saddam Hussein is an issue. It will be far better if he was not leading Iraq, the whole of the world would be safer if that were the case. But we are taking no decisions on whatever action they follow as a result of those principles.

JEREMY PAXMAN:
The reason people worry about your relationship with George Bush is that it seems when push comes to shove that the United States will just please itself. When you look at matters which directly concern the wellbeing of this country, for example, the Kyoto climate change agreement, or steel exports, the United States will just drive a coach and horses through any kind of international agreement it finds convenient.

TONY BLAIR:
I really don't agree with you. What is true to say is that the US will look after its own national interests as other countries do.

JEREMY PAXMAN:
But we don't break agreements like that.

TONY BLAIR:
Hang on. Let's take it step by step. In respect of trade, yes, there is a big battle between the EU and America at the moment over steel. However, there have been many such battles in the past, some of which Europe frankly has been on the wrong side of. That is simply international life. On Kyoto, there is a difference of opinion. We have made that clear. But if you look at the big issues... For example, let me take three issues. How we dealt with Afghanistan, done by an international coalition. George Bush acted in a measured sensible way throughout with international support. Russia, the new relationship with Russia and NATO that we here and others have pioneered and is now coming to fruition. Massive change and step forward. The relationship with Africa, for example, where the Americans are now part of this G8 process to form a new partnership with Africa. I think those things are very, very, very important indeed. Does that mean that we will always agree on absolutely everything? No, of course not. It never happens. I want to say this to you because I believe it passionately. People who try to pull apart Britain and America or Europe and America are doing a disservice to all of us. I mean, I passionately believe that.

JEREMY PAXMAN:
You know what the accusation is, they say you're a poodle.

TONY BLAIR:
Yeah, of course. That's what people do. What they want to do is to pull us apart, to say to people you have to choose between somehow your relationship with Europe, your relationship with America. I totally, fundamentally, dispute that. We are stronger if we're a partner of America in Europe, and we are stronger, with Europe, if we are a partner of America.

JEREMY PAXMAN:
You talk about standing shoulder-to-shoulder in the old cliché way with the United States. Other people see them walking all over you whenever they wish.

TONY BLAIR:
In respect of what, exactly?

JEREMY PAXMAN:
Well, take steel for example. We stand shoulder-to-shoulder. They...

TONY BLAIR:
We have a dispute over steel. There have been trade disputes before that have gone both ways.

JEREMY PAXMAN:
Are you disappointed in American behaviour in instances like this?

TONY BLAIR:
I disagree with what they're doing on steel, as I've said before. But the idea that that means the whole of the British-American relationship should be set at nought is absurd. What unites us is infinitely more important than what divides us. In this war against international terrorism, in the engagement with the world, it is of fundamental importance that Britain works with America. In issues like the Middle East, it is of fundamental importance that we work together.

JEREMY PAXMAN:
But steel is British jobs.

TONY BLAIR:
Of course. It is American jobs too, so you have a trade dispute. You had a trade dispute the other way between Europe and America a short time ago. There are trade disputes that go on the whole time. The point that I'm making to you is that there are people, often Euro-sceptics, here who would like to say, "You should be with America, not with Europe." There are also people who want to say, "You should be with Europe and not America." I tell you, and I believed this before I became Prime Minister, I believe with all the passion of five years' experience now in the job, that is a fundamentally mistaken position. Britain should be a big player, strong player in Europe and we should be fulsome partners of the United States of America.

JEREMY PAXMAN:
So there is a distinctive British foreign policy. Does it have an ethical dimension still?

TONY BLAIR:
Of course it does, yeah.

JEREMY PAXMAN:
How then can you publicly endorse a country which bans political parties, bans trade unions and uses institutional torture?

TONY BLAIR:
The country being?

JEREMY PAXMAN:
Saudi Arabia? You called it a friend of the civilised world.

TONY BLAIR:
Yes, but it is also important to realise that if we want a secure progress in the Middle East, we should work with Saudi Arabia. I don't decide... Ethical foreign policy doesn't mean that you try to decide the government of every country of the world. You can't do that.

JEREMY PAXMAN:
You called it a friend of the civilised world.

TONY BLAIR:
It is. In my view, what it is doing in respect of the Middle East now...

JEREMY PAXMAN:
It chops people's arms off. It tortures people.

TONY BLAIR:
They have their culture, their way of life.

JEREMY PAXMAN:
We have to respect that?

TONY BLAIR:
I'm not saying that we agree with these things. Of course we don't agree with them. What I'm saying is that if you look at the context of what's happening in the Middle East at the moment, it is important that we are partners with Saudi Arabia. I would say to you that an extremist political regime would be a lot worse for Saudi Arabia and for the world.

JEREMY PAXMAN:
Why do you describe General Musharraf, who overthrew the government of Pakistan, also as a friend?

TONY BLAIR:
Because he is committed to returning the country to democracy, and that is important. Until he does so, Pakistan will remain not in the councils of the Commonwealth, as you know. But what he's done post-September 11th has been very important. It's important now. If India and Pakistan were to go to war with each other, think of the consequences of that.

JEREMY PAXMAN:
Do you really believe that he is a man of courage and leadership?

TONY BLAIR:
I do actually think he was very courageous. I said those words after September 11th when, in the face of what could have been an enormously difficult situation in his own country, he decided to back the coalition against terrorism, rather than the Taliban. That was an act of courage. I can tell you, because I went there shortly afterwards, it took a lot of courage on his part.

JEREMY PAXMAN:
People find it rather odd that you can endorse Saudi Arabia and its regime or General Musharraf, whose taking of power we deplored, as being consistent with a foreign policy which has an ethical dimension.

TONY BLAIR:
But I didn't say to you that I endorse... I mean, for example, in respect of President Musharraf, we've made it clear we expect Pakistan to return to democracy.

JEREMY PAXMAN:
Would you expect Saudi Arabia to become a democracy?

TONY BLAIR:
No, but as I said a moment or two ago, I do believe that the peace initiative they put forward in the Middle East recently has been extremely important. I welcome that. Look, when people talk about foreign policy that is based on certain values, I certainly hope that it is. Does that mean that in every single situation, you can have perfection? No. But what it does mean... I will give you two examples of what I would call a foreign policy based on values. Sierra Leone, where this country didn't need to but intervened and helped a country that would be taken over by a gang of gangsters and returned it to democracy. Kosovo, in the face of a lot of people telling us we were naive and foolish, we made sure the refugees could return to their country. In the end, we got rid of Milosevic and Serbia and now the whole of the Balkans is moving towards Europe and away from conflict. Does it mean that in every single situation I agree with all the policies of every Government that I deal with? Of course not, that would be absurd.

JEREMY PAXMAN:
Let's turn to the euro. You have said that the tests will be applied probably after a couple of years of this Government. That takes us to next summer. Could they be applied sooner than that?

TONY BLAIR:
We simply have made no decision on when they should be applied. But they have to be decided by June 2003.

JEREMY PAXMAN:
How soon after that could a referendum happen?

TONY BLAIR:
Again, that is an open question. But our commitment is, if the economic tests are passed, then we will put it to the people in a referendum. I can't start specifying to you the weeks or months in which that will happen. Obviously once the tests have been passed it is a live and active issue.

JEREMY PAXMAN:
It is getting close.

TONY BLAIR:
Yes, it is, yeah.

JEREMY PAXMAN:
Do you have any idea of what public opinion feels about the euro?

TONY BLAIR:
I think there are obviously divisions in public opinion, aren't there? You can see that as well as me. On the other hand, I think that people do believe that if the economics are right for the country, if it is right for jobs and industry and investment, then they are prepared to listen to the argument for joining. I believe... I've said to you before that I'm a huge supporter of our relationship with America, but I think Britain's destiny is as a leading player in Europe. I've no doubt about that at all.

JEREMY PAXMAN:
Leading player in Europe doesn't necessarily mean being part of the euro.

TONY BLAIR:
It doesn't necessarily, no. If the economics were wrong and you stayed out, people would understand that. But if you stayed out for political reasons I think people wouldn't understand that. In my view, if the economics are in the right place, if the tests are met, then it is overwhelmingly in this country's interests to join.

JEREMY PAXMAN:
How is Gordon Brown's review of the test going? Has he updated you?

TONY BLAIR:
We discuss it the whole time.

JEREMY PAXMAN:
When you're at a...

TONY BLAIR:
Forgive me, we don't... We discuss it with each other but not necessarily with you.

JEREMY PAXMAN:
Why not?

TONY BLAIR:
Well, at some point we will, but... I didn't mean that personally, incidentally.

JEREMY PAXMAN:
Not at all. I'm not bothered. But I'm curious as to why it's so secret.

TONY BLAIR:
Well, it's not secret. What I've learned with this issue is that speculation runs wild whatever you say about it.

JEREMY PAXMAN:
We're looking at something that is going to happen next summer - 12, 13 months away. The fact that you won't talk about it...

TONY BLAIR:
I'm prepared to talk about it. I was simply saying I'm not prepared to disclose whatever discussions we're having on the tests and how they're progressing. You just set a whole lot of unhelpful speculation away.

JEREMY PAXMAN:
When you're at a meeting of European leaders and they say, "Well, Tony, are you going to come into the euro?" What do you say, "Can I phone a friend?"

TONY BLAIR:
No, I say what I've just said to you - that if the economic tests are passed we'll put it to the people in a referendum. They accept that. They think it is an entirely sensible position.

JEREMY PAXMAN:
But you must have a timetable?

TONY BLAIR:
Well, we do. I just said to you, June 2003. The tests have to be assessed before then. That is why we said before the election we will do it early in the next parliament.

JEREMY PAXMAN:
You have a timetable for the tests. You must then have some sort of timetable for a referendum.

TONY BLAIR:
Well, I mean, I - we're not in the position of taking a decision as to precisely when you would hold a referendum after that. But let me truncate the discussion for you. If the tests are passed, then of course you will be putting the thing to the people in a referendum. You're not going to...

JEREMY PAXMAN:
How quickly?

TONY BLAIR:
Well, as I say, it has not been decided precisely how you would do that. But I don't think there's an issue about a gap then. Once the tests are passed, then it is in the interests of your economy so we believe you go in.

JEREMY PAXMAN:
It could be a matter of days or weeks.

TONY BLAIR:
I don't know exactly when you would hold a referendum. There has to be legislation...

JEREMY PAXMAN:
Months?

TONY BLAIR:
Well, there's got to be legislation through Parliament. I'm not going to speculate on the precise timetable.

JEREMY PAXMAN:
What is the longest amount of time it could safely be left?

TONY BLAIR:
There is really no point in speculating on it. There is not an issue there. The key date is not actually how long administratively it takes to get the referendum bill and so on. The key decision is if the economic tests are passed, are we going to then recommend it to people in a referendum. The answer to that is yes. The most important thing is to explain why. The reason for that is if it is right for British jobs and investment, British industry, it is the right thing for us to do as a country.

JEREMY PAXMAN:
But once you have made that decision, you want to act upon it fast, don't you?

TONY BLAIR:
You would certainly want to act upon it, yes. What you're asking me to do, and I simply don't want... For reasons... There is no mystery in it, I simply don't want to pin myself down on a particular period of weeks or months. As for the date of the referendum, as I say, you have legislation, you have various discussions that you would have to have.

JEREMY PAXMAN:
But we could expect a referendum perhaps next year?

TONY BLAIR:
I'm not going to speculate. I'm really not. I'm sorry.

JEREMY PAXMAN:
Looking at where you stand in the great sweep of British Prime Ministers, why do you want to go down in history possibly as the man who surrendered the pound?

TONY BLAIR:
I don't want to go down in history as that person. But I certainly believe passionately that this country and its destiny lies in Europe. I believe that for 50 years we had a foreign policy in this country where we would say "It won't happen, this European co-operation." Then we don't like it when it is happening, then, a little bit later, "Oh, OK, we'll join in." That has been the pattern of British involvement in Europe for 50 years. That is not a British attitude to me. Britain is a strong country, takes positions. Britain is a country that says, "We can lead in certain situations." For us to be in the situation where Europe really, until we came to office, was totally isolated within the European community. I remember the first inter-governmental meeting I attended in Amsterdam in 1997. I mean, we were completely isolated, without a proper voice, without any strength in the European Union. Now we're leading debates on economic reform, on defence, playing an active part in the future of Europe, in the debate about the institutions of Europe, and on economic policy we have a totally changed set of relationships with the rest of Europe. Now, that's good for Britain. When you say, "Is it about surrendering the pound?" it is about he British national interest. I believe the British national interest is to be a strong part of Europe.

JEREMY PAXMAN:
You would have no problem with history recording you as the man who killed the pound?

TONY BLAIR:
I would have no problem with history recording me as the person who said to the British people, "It is in our interests for us to be a key and major player in Europe and here is something that is in a single currency, is in our economic interests to do so." People here expect me to stick up for British jobs, British investment and British industry. The basic... What's fascinating to me too is that, if you look round the world today, the whole of the rest of the world is moving closer together. Look at what is happening in America, north and south, where they're thinking of creating a huge free trade area. If you look out in Asia, where they're talking now about possibilities of single currencies and so on, if you look at the ten countries queuing up to get inside the European Union, the whole world is moving closer together. What should we do, as Britain, with all the strengths of our history? Should we stand apart from the alliance right on our doorstep as a country? It would be crazy to do that. So, whether we join the euro or not depends on the economics. You have to have that in the right place. It is an economic union. We shouldn't, for political reasons, stand aside. I don't believe that would be a fulfillment of our national interest. I believe it would be a betrayal of our national interest.

JEREMY PAXMAN:
Prime Minister, thank you.

TONY BLAIR:
Thank you.

This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.