Brown cools euro speculation

Brown: 'The five economic tests will be rigorous'

Chancellor Gordon Brown has dampened speculation about early British entry into the single European currency.

In his keynote Mansion House address, Mr Brown underlined that the British Government's policy towards the euro remains "considered and cautious".

We will not take risks with Britain's hard-won stability

Gordon Brown

Speaking to an audience of bankers and merchants in the City of London on Wednesday evening, Mr Brown summed up the government's attitude as one of "pro-euro realism".

And he once again emphasised that the Treasury's assessment of the government's five economic tests for joining the euro will be "comprehensive and rigorous".

"To join in the wrong way or on the wrong basis without rigorously ensuring the tests are met, would not be in the national economic interest.

"Because the government is determined that we will make the right long-term decisions for Britain, we will not take risks with Britain's hard-won stability," Mr Brown said.

'Confused messages'

Mr Brown is aware that the pound has been volatile in the past two weeks as financial markets sensed that a big election victory for Prime Minister Tony Blair's government on 7 June made an early dash for euro entry more likely.

There is not going to be any sudden dash for Europe

Peter Jay, BBC economics editor

His speech is being seen as a move to cool that speculation and effectively rule out an early referendum on euro entry.

Liberal Democrat Treasury spokesman Matthew Taylor said Mr Brown was "sending out confused messages" about the euro.

He said: "He doesn't seem to be able to make up his mind whether he is in favour or not.

"If Labour are serious about joining the euro, they need to make clear their exchange rate target and the benefits they believe the euro will bring."

He doesn't seem to be able to make up his mind whether he is in favour or not

Lib Dem Treasury spokesman Matthew Taylor

The BBC's economics editor Peter Jay said it was an "open secret" that Mr Brown thought the British system of setting interest rates through the Bank of England monetary policy committee - set up by Labour in 1997 - was more open and accountable than the European method.

He said that Mr Brown's speech showed that "There is not going to be any sudden dash for Europe."

'EU reform'

In his speech, Mr Brown emphasised that technical work would have to be completed before the Treasury's euro assessment could begin.

But he repeated the government's promise that it would be completed within two years from now.

Mr Brown with Bank of England governor Sir Edward George

He said the government and business "must join together in putting the case unequivocally for Britain being in Europe - a stronger Britain on the basis of a strong and secure relationship with Europe".

He also urged the EU to complete its economic reforms, to move quickly towards a single market in utilities, energy, telecoms and financial and professional services.

"The more Europe embraces economic reform and institutional reform, the better it is for Britain and Europe," Mr Brown said.

Liberalisation of markets

Mr Brown also called for liberalisation of the telecoms market by 2001 and liberalisation of financial services by 2004.

He also called for liberalisation of air transport and greater freedom in the capital markets, with more choice in pensions, insurance, savings and mortgages "for people across Europe, a development from which Britain - because of our vibrant and successful financial services sector - stands well-placed to benefit."

The more Europe embraces economic reform and institutional reform, the better it is for Britain and Europe

Gordon Brown

Britain has opposed state subsidises and discriminatory tax practices, Mr Brown said, to create a level playing field for British companies.

Mr Brown also spoke out in favour of EU enlargement and said Britain should not have to choose between Europe and America, but could play a pivotal role as the "link" between the two.

'Serious obstacle'

Bank of England governor Eddie George, who also spoke at the Mansion House dinner, said the current weakness of the euro is "a potentially serious obstacle" to the UK's early entry to the single currency.

He said he therefore welcomes "the considered and cautious approach" to assessing the viability of euro entry that Mr Brown has outlined.

Sir Edward said most people agree that sterling's exchange rate, on entry to the euro, "would need to be substantially lower than our present rate, which few would regard as sustainable in the medium and longer term".