THE PRIME MINISTER has lost his grip on world events. The most disturbing aspect of the international crisis is that the global initiative has largely passed to the terrorists. There are now four wars in the Middle East. In Iraq, the Sunni insurgents and militant Shia frustrated the reconstruction of the country. In Afghanistan, the Taleban can choose when and where to attack British forces. Our forces are brave and professional, but overstretched and under-resourced.

In Palestine, Hamas, a terrorist party committed to the destruction of Israel, won the elections; terrorists connected to Hamas began the latest fighting in Gaza by kidnapping an Israeli soldier. In Lebanon, another terrorist organisation, Hezbollah, reignited another war front by kidnapping two Israeli soldiers and by a series of rocket attacks on Israel. Israel has attacked Lebanon savagely in reply.

In St Petersburg, at the meeting of the G8 governments, the United States and Russia have disagreed on the best way to restore peace in the Middle East. This leaves more room for the terrorists to manoeuvre. As happened over the Iraq invasion, public opinion in most of the European Union has supported the Russian rather than the American point of view. Most of Europe is pro-Arab, anti-Israeli and anti-American.

The terrorists threaten world peace and the global economy, which is fuelled by Middle Eastern oil. The best indicator of the global level of fear is the price of a barrel of oil. In the past week, it has risen close to $80; any major disruption could push it still higher, to panic levels. That would threaten global inflation, higher interest rates and a probable recession. The last decade of rising oil prices, the 1970s, was the worst decade for the world economy since the Second World War.

It is the scale of the crisis that needs to be understood. Apart from the lives of our soldiers, which are important enough, or the civilian deaths that are taking place in all these countries, there is no aspect of British foreign or economic policy that is not involved. This is one of the highest tests of government since the Second World War; it calls for wisdom, courage and authority.

Three times in the past 100 years, a British government has lost its authority in the middle of a world crisis. The first occasion was in 1916, the year of the Somme. The public felt that the Asquith Government, by then already a coalition, did not have the energy and determination to win the war. The Prime Minister, Herbert Asquith, was criticised particularly; he had lost his brilliant son, Raymond, on the Somme and the heart had gone out of him. The result was the resignation of the Prime Minister, the succession of David Lloyd George and the reconstruction of the coalition. That Government won the war.

In 1931 the Labour Government under Ramsay MacDonald could not agree to the cuts of expenditure recommended by the May Committee. The Government broke up; Ramsay MacDonald formed a coalition government with the Conservatives and some Liberals. He remained Prime Minister but most of his colleagues went out of office. The new government took Britain off the gold standard.

In 1940 the defeat in the Norway campaign was blamed on the Prime Minister, Neville Chamberlain. He resigned and was succeeded by Winston Churchill, who formed a new coalition with Labour and the Liberals. That Government won the war.

Nobody now thinks there ought to be a coalition government. The Labour Party has a sufficient majority to survive comfortably enough, though it does not have a large enough majority to carry any reforms that are not acceptable to the Labour Left. Yet there is a widespread feeling, both in the Labour Party and the country that there needs to be a change of prime minister, both for the party’s sake and in the national interest. This is not merely the yapping of the dogs of the media.

My impression is that the majority of the Cabinet accept privately that there will be no recovery under Mr Blair. Some regret it, but most of them probably accept it as a fact. The backdrop is the crisis of the Middle East war, but the front of the stage is crowded with characters, such as John Prescott, the two retired Home Secretaries, David Blunkett and Charles Clarke, Lord Levy and others. There is a justified sense of world crisis and an equally justified anxiety that the Government is falling apart.

The cash-for-peerages scandal is more dangerous because it could affect the Prime Minister himself. Selling peerages is illegal under the 1925 Act. The police have arrested Lord Levy. They would presumably scarcely have done that unless they and substantial reason to suspect a possible breach of the Act. Yet no one gets a peerage without being nominated by the prime minister of the day. If there is a loop, he has to be in it. He has already said that he will not contest the next general election; if he is subject to police questioning, he will not only be a lame duck but a bird that cannot fly.

The Labour Party has two vital advantages. It still has a majority in the House of Commons; it also has a leader in waiting, indeed, a leader who has been in waiting for the past 12 years. Gordon Brown is not going to be overtaken by any of his potential challengers, most of whom have no comparable public recognition. He is by far the most authoritative figure in the Labour Party, even including Tony Blair.

One comes back to the crisis and the issue of authority. Gordon Brown is a man who takes decisions; some of them, like giving independence to the Bank of England or refusing to join the euro, have been big decisions, justified by the outcome. Of course he has made mistakes, but he is free of the taint of sleaze that has done so much damage to Labour. If he becomes leader, Labour will have a chance. There is no prospect of recovery under Tony Blair.

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