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Monday, 5 November, 2001, 15:04 GMT
What Brown really thinks about the euro
Chancellor Gordon Brown
Dharshini David

Is the Chancellor Gordon Brown becoming more reticent on euro entry? Dharshini David has been listening to his speech at the CBI's annual conference.

You may have thought that financing a war and averting the impact of a global economic slowdown would have been enough to keep the Chancellor busy.

But it was clear in his speech to the leaders of British business on Monday that the issue of Euro entry has not escaped his mind.

In fact, it occupied about half of his speech at the start of their annual conference.


Mr Brown reminded his audience of the five economic tests the government has set for euro entry.

They concern the convergence of the UK and European economies, the flexibility of the economy and the impact of the single currency on jobs and investment.

But this time, the Chancellor went further than just name-checking his tests.

He revealed that preliminary analysis which would allow full assessment is underway.

In other words, some of the groundwork has already been completed. The government is committed to producing a full assessment within two years.


In the meantime, what clues was he giving away?

Like many other clues the Chancellor has given in the last couple of years, it was a speech with something for those on both side of the euro debate.

He re-stated the standard government line that euro membership in principle could bring benefits to Britain.

He stressed the importance of trade and business links with the rest of the EU for the UK economy - and how that significance had grown since the UK first joined Europe almost 30 years ago.

It was a nod to those businesses people who fear that by staying out of the single currency, we risk being "shut out" of Europe, which accounts for over a half of UK trade.

Realism or caution?

But the phrase Mr Brown used was "pro-Euro realism" - and at the CBI, that realism seemed to translate as "caution".

He warned against rushing into entry, and that it would be dangerous to go in without rigorous and comprehensive assessment.

And hinting that the time for entry may not be right just as yet, he said "we still have a long way to go to secure for British business and British consumers the full benefits in commercial opportunities and consumer prices".

He suggested that the single market may have failed to deliver so far in providing the benefits to growth and jobs many had hoped to see.

Mr Brown specifically pointed to a study known as the Cecchni Report, published in 1988, which had suggested that output would rise by 4.5%.

Less than half of that amount has been achieved.


The Chancellor also hinted that European economies had to do more to reform their economies, to improve flexibility.

So while the policy remains the same, the attitude of the Chancellor to euro entry appeared to be a touch reticent.

That mood is likely to have been encouraged by the relative stability of the UK economy at the moment.

As government ministers are keen to point out, at a time of global slowdown, the UK could escape relatively unscathed, and with the best performance of any of the G7 economies.

By contrast, many European economies - especially Germany - appear to be in much worse shape.

Central bank performance

That difference has in part, experts say, been down to the relative performances of the Bank of England and European Central Bank in setting interest rates.

The former has been seen as far more proactive, and having its finger firmly on the pulse of the economy.

The latter by contrast has been criticised for not cutting rates fast enough - possibly a consequence of having to fit one policy to many economies.

To entrust the setting of rates in the UK to the ECB against such a background may not be easy for the Chancellor.

Difficult period

When the government said it would provide an assessment of the economic tests within the next two years, it would have had no idea of what an interesting and difficult two-year period it had chosen.

Economic slowdown and the impact of terrorist attacks will make the assessment of how the economies have converged - and can deal with shocks - an interesting one.

But whatever the final outcome of the five economic tests, there is one other more important thing to consider.

That is what some are calling the "sixth test" - public opinion. Shifting that on to the side of euro entry could be the hardest task of all.

CBI Director Digby Jones
"It's going to be a difficult winter but it's not actually complete meltdown"
UK Chancellor Gordon Brown
"It is important to get this decision right for Britain"
Sir Alan Budd, former chief economic advisor
"The final answer to this is political and not economic"
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