Test three: Investment

The World at One examines the chancellor's third economic precondition before the UK can join the euro - investment.

"The third test is investment: whether joining monetary union would create better conditions for businesses to make long-term decisions to invest in Britain" - Gordon Brown.

Gordon Brown's five economic tests

Can there be sustainable convergence between Britain and the Eurozone?

Is there sufficient flexibility to cope with economic change?

What will the effect be on UK investment?

What will be the impact on the City and the financial services sector?

Is it good for employment?

This condition produces perhaps the sharpest divisions of all, particularly over inward investment.

The commitment of foreign firms does not seem to have wavered since we decided not to join the euro: Britain enjoyed £252bn worth of inward investment in the year 2000 - an increase of £100bn over the past five years.

That represents a quarter of all foreign investment in the EU.

David Lascelles, head of a city think tank, says the lesson is clear: entry into the Eurozone is not needed to boost investment.

"All the people we talk to in the financial area, the Japanese and the Americans, all say the economic and political climate in the UK - taxes, regulations, stability and so on - are much more important to them than what's going on on the currency front," he says.

But who's to say whether things might not be even better inside the euro?

'A firm yes'

John Edmonds is quite clear about whether this test can be ticked off the Chancellor's list:

"A firm yes. We are looking at the moment at a very bad set of investment conditions.

John Edmonds: "We are looking at the moment at a very bad set of investment conditions"

"I think every major company in Britain would say that moving into the euro would create better circumstances for investment," he says.

Mr Edmonds and his fellow-believers tend to latch on to any indication that firms are being deterred from further investment by currency uncertainty and the strength of sterling.

And that is born out by the constant complaints from manufacturing industry about the high value of the pound.

The steel group Corus - where 8,000 jobs are at risk - recently told a Commons committee that the volatility of the pound-euro exchange rate could have a serious impact on investment.

Sir Peter Kemp, a long-time senior civil servant at the Treasury agrees that stability is crucial: joining would be one solution, but would ruling out the euro for ever have the same effect?

"We'll determine, once and for all, we will never ever join the euro. People might say, well, there's a certainty of a kind," he says.

"But the only trouble is no one would believe it because not even the Tories have gone that far. So that will continue a sort of unstable affair.

"Almost by default, joining the euro must create more stability than not joining it."