UK Chancellor rules out euro during life of this parliament

The British Chancellor, Mr Gordon Brown, yesterday ruled out British entry into a European single currency during the current parliament.

But, in an eagerly-awaited Commons statement, he held out the prospect of joining at a later date if the economic benefits of doing so could be proved.

The statement was made in an attempt to clarify British government policy on European Monetary Union (EMU) after weeks of confusion, sparked by conflicting press reports, which sent tremors through the financial markets.

It came as MPs reassembled at Westminster after the summer recess and following 11th-hour discussions on the fine detail of the policy between Mr Brown and the Prime Minister.

Mr Tony Blair sat alongside Mr Brown as he set out the tests that would be applied by the government before deciding whether to join and holding a referendum.

Rising to shouts of "resign!" from the Opposition benches, Mr Brown said the potential benefits for Britain of a successful single currency were obvious, in terms of trade and economic stability.

But he insisted there was no proper convergence between the economies of Britain and its European partners at the present time.

Britain will tell its European partners it will not join a single currency on January 1st, 1999.

Barring some fundamental and unforeseen circumstances, making a decision during this Parliament to join was not realistic, he said.

Mr Brown said the country had faced no more contentious a question since the second World War than that regarding its relations with Europe.

He blamed divisions and indecision within governments of both parties for weakening the nation's influence abroad.

To Tory jeers, he declared: "To break with this legacy and to establish clear national purpose... economic leadership is essential and Britain must now make the difficult decisions on Europe, however hard.

"The decision on a single currency is probably the most important this country is likely to face in our generation.

"Yet, until now, there has been no detailed examination by government of the practical economic issues of EMU."

Now was the time to make "hard choices" and set a longterm direction for Britain's economic future in Europe.

He said: "The potential benefits for Britain of a successful single currency are obvious, in terms of trade, transparency of costs and currency stability."

It must be soundly-based and it must succeed. "But if it works, it is, in our view, worth doing.

"So in principle, a successful single currency within a single European market would be of benefit to Europe and to Britain."

Mr Brown admitted EMU represented a "pooling of economic sovereignty". But he said those who ruled it out on this basis were wrong.

"If a single currency would be good for British jobs, business and future prosperity, it is right, in principle, to join."

The government had concluded that, "if, in the end, a single currency is successful and the economic case is clear and unambiguous, then the government believes Britain should be part of it".

Mr Brown repeated the government's pledge to hold a referendum on any proposal to enter EMU.

"So whenever this issue arises, under this government there will be a referendum - government, parliament and the people must all agree."

He set out five Treasury tests for joining, saying the most important was economic convergence.

"Currently Britain's business cycle is out of line with our European partners.

"We will need a period of stability with continuing toughness on inflation and public borrowing.

"The Treasury's assessment is that, at present, the UK's economic cycle is not convergent with our European partners and that this divergence could continue for some time.

"To demonstrate sustainable convergence will take a period of years."

On the other tests of flexibility, investment, financial services and employment, Mr Brown said ministers had concluded that membership of EMU would help create conditions for higher investment in Britain and boost trade.

"The Treasury assessment is that in vital areas the economy is not yet ready for entry and that much remains to be done.

"Our overall assessment is that Britain needs both a period for preparation and a settled period of sustainable convergence. Both require stability."

To further Tory jeers, Mr Brown said that the government had reached clear conclusions.

"British membership of a single currency in 1999 could not meet the tests and therefore is not in the country's economic interests.

"There is no proper convergence between the British and the other European economies now.

"To try to join now would be to accept a monetary policy which would suit other European countries but not our own.

"We will therefore be notifying our European partners, in accordance with the Maastricht Treaty, that we will not seek membership of the single currency on January 1, 1999."

Looking beyond 1999, Mr Brown said that to leave the options open would be politically easy but wrong.

There would be instability and speculation, causing further difficulties in the financial markets.

"There is no need, legally, formally or politically, to renounce our option to join for the period between January 1st, 1999, and the end of the Parliament, nor would it be sensible to do so.

"What we can do and should do is to state a clear view about the practicability of joining monetary union during this period.

"Applying our economic tests, two things are clear. There is no realistic prospect of our having demonstrated, before the end of this parliament, that we have achieved convergence which is sustainable and settled rather than transitory.

"Therefore, barring some fundamental and unforeseen change in economic circumstances, making a decision, during this parliament, to join is not realistic.

"It is also therefore sensible for business and the country to plan on the basis that, in this parliament, we do not propose to enter a single currency."

Mr Brown told the House: "There are those who urge us to seek consent, in principle, in a referendum now or soon, but with a view to entering some time later.

"Any serious gap between the referendum and the actual entry date would undermine the conclusions of the referendum.

"Because the essential decision is economic, it can be taken only at a time when government and then the people can judge that sustainable convergence has been established.

"So in our view the interval between the decision to join and our joining must not be unduly protracted."

If a single currency worked and was successful, Britain should join, said the Chancellor.

"We should therefore begin now to prepare ourselves so that, should we meet the economic tests, we can make a decision to join a successful single currency early in the next parliament."

He added: "At present, with no preparation, it is not a practical option. We must put ourselves in the position for Britain to exercise genuine choice.

"The questions of preparation are immense - practical questions for business, as well as for government.

"Euro notes and coins will, for example, be circulating across Europe from January 1, 2002.

"Some companies, like Marks and Spencer, have already decided to prepare to accept euros in Britain. Others will want advice on what is best for them."