LONDON, June 9 - The British government is expected to announce on Monday it will not yet join the euro, laying bare once again the country's historic ambivalence towards committing itself to Europe. Chancellor of the Exchequer Gordon Brown's verdict could mean that the pound sterling, which has survived since Anglo-Saxon times, could live on for several years yet.
The finance minister will tell parliament Britain would not benefit from joining the euro, saying that some of the five tests he set in 1997 have not been met. Studies released by the Treasury early on Monday highlighted key obstacles to Britain joining the euro now. Running to over 1,700 pages, they said Britain's housing market made it more sensitive to interest rate changes than most of the 12 countries in the euro zone and that progress on labour market flexibility in the European Union lagged the UK and had been slow to pick up.
They also said Britain's economy remained more in tune with that of the United States than the EU. But on the positive side, the studies said there were clear potential benefits in terms of greater trade with the EU, should Britain swap currencies. After delivering the government's decision to legislators at 1430 GMT, Brown and Prime Minister Tony Blair will launch a pro-euro campaign at a joint press conference on Tuesday.
"In principle, I want to join the single currency. In practical terms we have got to be sure that all the conditions are in the right place," Brown told BBC television on Sunday. British wariness about tying ever closer into the European Union has a long history. The UK joined the project many years after the bloc's founding members and is one of only three euro outsiders in the 15-member bloc, having opted out of the single currency 10 years ago. Now Blair faces an uphill fight to persuade the public that plans for a European constitution to be finalised next year do not amount to an EU federal superstate, while a rift with France and Germany over war in Iraq has raised serious questions about any pretence of European unity.
Government sources say Blair has wrung a concession from his powerful finance minister -- that he will not rule out a referendum on euro entry before the next election, due by 2006. But with Blair in particular having enthused about the single currency for years, EU leaders and financial markets will want to see actions not words to be convinced that Britain may drop the pound any time soon. Aides say Blair fears loss of influence in the European Union if Britain stays outside the euro zone for much longer. The more cautious Brown does not want to jeopardise his domestic economic record. The British economy is expected to grow twice as fast as the euro zone this year. But the real test is whether Blair could win the referendum he has promised the British public if he decides to press for a currency change. Polls show most Britons want to keep the pound.
The key to Brown's statement will be what measures to prepare Britain for euro entry he spells out. If the government continues to wait passively for the British economy to converge with the euro zone, Blair will be perceived to have been defeated by his finance minister. But if Brown lays out key steps, such as reform of the UK home loan market, a referendum before the next election would still be possible.//