By Giles Radice. Source: The Financial Times
The author of the Foreign Policy Centre publication "How to Join the Euro" again warns that leaving the decision over whether to join the single currency to the Chancellor risks fudging the most important political and economic decision of our time.
Six years after becoming prime minister, Tony Blair still faces the most difficult and important decision of his career: whether and when Britain should join the euro. This is more significant even than the war in Iraq, involving not only vital economic issues but also the UK's political future in Europe.
Mr Blair has often acknowledged the economic benefits of the single currency in terms of ease of transaction, of price transparency across Europe, of the promotion and expansion of trade and, perhaps most important of all, of economic and monetary stability. He is also worried about the economic costs of staying out, especially the impact on trade and inward investment. Already UK trade with the European Union, by far our biggest market, has fallen relative to gross domestic product while Britain's share of inward investment into Europe has dropped.
The prime minister is well aware, too, of the political costs of staying out. He has always stressed the need for Britain to play a leading role in Europe - all the more important after strains imposed by the Iraq war and when the direction and nature of the EU is under such intense debate. In the medium term, it is difficult to see how the UK's position can be sustained if this country stays outside the euro. As José Manuel Durão Barroso, Portuguese prime minister, warned the UK last December: "You cannot be in the centre if in the most important enterprise - the euro - you are not there."
However, Mr Blair's euro ambitions are in grave danger of being undermined by the existence of Gordon Brown's five tests and by the latitude in their interpretation that the prime minister has given his chancellor of the exchequer. When Labour came to power in 1997, neither it nor the country was ready to join the euro in the first wave. The five tests provided a convenient way of putting off the decision. Now, it seems as if the tests are being deliberately used by the Treasury as a smokescreen for keeping Britain out indefinitely. There is substantial convergence between the UK economy and the eurozone (noted in this week's report from the House of Commons Treasury select committee). And yet media stories based on leaks suggest that Mr Brown has decided that Britain has "failed" four of the five tests and that he wants to rule out entry at least for this parliament, as he did in the last parliament.
The Eurosceptic press would no doubt represent this as a great victory for the chancellor. Yet delivering such a negative assessment would be unlikely to enhance his reputation, any more than Mr Blair's.
So far, Mr Brown has been able to hide his views about the euro behind the ambiguity of the five tests. He has sought to appear both as a convinced European and yet cautious about entry. But after such a pointed thumbs-down, one would be justified in concluding that he is, in reality, against the UK joining the euro in the foreseeable future. The emergence of the real Mr Brown could lead to a massive loss of confidence in the British economy by foreign investors who believe that the UK's economic future lies with the euro. It could also seriously damage the UK's political position in Europe. It would represent a great blow to the national interest.
The conclusion is clear. If Mr Blair is to retain his credibility as a pro- European prime minister, he cannot allow British interests in Europe to be scuppered by his chancellor. It would be a travesty of political leadership if Mr Blair agreed to a referendum on the euro being ruled out for this parliament. At the very least, he will have to keep open a realistic option of joining the euro before the next election. To secure such an option will require much more than warm words about the euro, tagged on to the end of a negative Treasury assessment of the five tests. It will need nothing less than the overdue creation of a genuine strategy for joining.
I have already argued that the prime minister should take the exclusive direction of euro policy away from the dead hand of the Treasury and set up a cabinet euro strategy group of senior ministers, which he should chair. A negative assessment makes the creation of such a group all the more necessary. For the first time, the government would be able to focus on how to join the euro rather than how to keep out. It would determine not only the terms of membership - such as a sustainable exchange rate, compliance with the Maastricht convergence criteria and reform of the European Central Bank - but also the mechanics of entry. If Mr Blair is serious about joining the euro, as he claims, he should start getting serious about providing the means to bring it about.
Lord Radice is chairman of the House of Lords sub-committee on economic and financial affairs