Government denies euro rift

Rumours of a rift between Blair and Mandelson are being denied

Downing Street has denied a cabinet rift on the euro following a speech by Northern Ireland Secretary Peter Mandelson.

Speaking at a trade union conference in Belfast on Tuesday, Mr Mandelson underlined the protection the UK economy would receive from fluctuating currency rates were it to join.

His remarks came as the Prime Minister Tony Blair delivered a speech to the Confederation of British Industry where he insisted the government would not react to devalue pound.

We remain in favour of joining in principle; in practice the economic conditions must be met

Tony Blair

But speaking to the pro-euro GMB union, Mr Mandelson said he realised the problems faced by manufacturing industry due to the high level of the pound.

"The fact is that, as long as we are outside the euro, there is little we can do to protect industry against destabilising swings in the value of sterling as they affect Europe - the largest market where we have to earn our living," he said.

His remarks are one of the strongest recent endorsements from a cabinet member for entry into the single currency.

Policy remains unchanged

Government policy is to join the euro if entry is supported by both the Cabinet and a referendum, once the chancellor's five key economic targets for membership have been met.

A Downing Street spokeswoman insisted policy had not changed following Mr Mandelson's speech.

"It is a statement of fact that if you are not in the euro zone you will have limited influence on the value of the currency," she said.

"It should not be seen as a divergence of opinion on the government's policy towards the single currency which remains the same.

"Talk of a Cabinet rift is completely false," she stressed.

Labour's 'secret agenda'

Conservative leader William Hague has jumped on Mr Mandelson's remarks claiming it showed the prime minister had a "secret agenda" to join the single currency as soon as possible.

While shadow chancellor Michael Portillo said the Tories would be fighting hard to keep the pound at the next general election, warning that political union with Europe would be the inevitable consequence of joining the single currency.

He told the BBC: "Here is Mr Mandelson pretending somehow that it would protect stability.

"Can he not see that the euro has been sinking against the dollar and the yen? Can he not see that if we joined the euro, we wouldn't have stability at all?"