Gunther Verheugen: The conditions for a successful euro have still to be guaranteed

The UK opposition Conservative Party reacted furiously to Gunther Verheugen's comments, saying they confirmed their worst fears about Europe and proved that Britain was right to stay out of the first wave of countries joining the single currency.

On Friday Germany took over the six-month rolling presidency of the EU.

Mr Verheugen told Radio 4's Today programme: "Normally, a single currency is the final step in a process of political integration.

John Redwood: Right for Britain to stay out of euro

"This time the single currency isn't the final step but the beginning."

He suggested the Channel Islands' status as a tax haven could end, and he emphasised Germany's wish for Britain's annual rebate from the EU to be put up for discussion, if Common Agriculture Policy reform was achieved. The UK Prime Minister Tony Blair has insisted the rebate is not up for negotiation.

Mr Verheugen said: "The political conditions for a successful and stable euro have still to be guaranteed.

"Therefore we have to try to co-ordinate financial policy, market policy and, to a certain degree, tax policy in Europe."

But UK Shadow Trade Secretary John Redwood said the German minister's comments about political integration confirmed "one of our fears".

John Redwood: Single currency has a high price attached

Mr Redwood said Mr Verheugen had confirmed that this was "the beginning of the process towards a single government and taxation, towards one economic policy and common taxation.

"That is not right for Britain," he told the Today programme.

The Shadow Trade Secretary said Britain was right to stay out of the European single currency. Its economy was not in line with Germany's, and if the UK entered, it would make things harder for the other Euroland nations, he said.

But while Mr Redwood said the euro would face problems he admitted he would not be happy if it collapsed because it would affect Britain's trade with the continent.

He added: "I hope the British government will be strong-minded enough to resist closure of the Channel Islands [as a tax haven].