By Stephen Coulter
BBC economics analyst
The Treasury has concluded that the volatile UK housing market is a serious barrier to joining the euro.
Announcing the verdict on his five tests , the Chancellor, Gordon Brown admitted: "Volatility in the housing market is a problem for stability".
Housing has a crucial influence on whether the UK meets the first of the five tests on convergence.
This is because the UK housing market is much more sensitive to changes in interest rates than the eurozone's, because of our preference for short term, variable rate mortgages, over the long term fixed deals favoured on the continent.
This means that changes in interest rates - decided in Frankfurt by the European Central Bank - will have a correspondingly big impact on the UK economy.
The Treasury says that strong fluctuations in the housing market have been a striking feature of British economic life over the past three decades.
In its study on the UK housing market and the euro, the Treasury says: "If household's spending is significantly more sensitive to interest rate changes in the UK than in the euro as a whole, a common monetary policy could induce some relative instability in the UK housing market and household's spending."
TREASURY CASE STUDIES
The Treasury has prepared 18 background studies
The studies run to more than 1,800 pages and weigh about a stone (3kg)
The studies have been written by Treasury officials and several outside experts
The studies examine subjects such as the housing market, trade, the optimal exchange rate for entering the euro, the labour market and business cycles
In other words, euro entry could be very destabilising, given the volatility of the UK's housing market. There is also little evidence of countries in the eurozone seeing rapid convergence in their mortgage markets, so there is no reason to expect the UK market to converge after we joined.
While this may come as a shock to euro-enthusiasts, the verdict will surprise few economists and property analysts.
They have always regarded the effects of the gyrations of the housing market on the wider economy as a key barrier to UK participation in monetary union.
To put it bluntly, as the Treasury has done today, joining the euro would spark a dangerous house price boom.
Given the UK's painful recent experiences of property bubbles, the Treasury's acknowledgment of the danger will provide powerful ammunition to eurosceptics.
This view is backed up by property professionals, with the Royal Institution of Chartered Surveyors (RICS) today releasing its own report into housing and the euro.
The volatility of the UK housing market makes euro entry risky, according to RICS.
The housing market is particularly sensitive to changes in interest rates, "raising the possibility of boom and bust", it warns.
The system of financing mortgages, and the issue of the lack of supply if new housing need to be resolved before the UK can safely join.
Mr Brown is looking into ways of freeing up the planning system to boost housebuilding, as well as encouraging people to make more use of fixed rate mortgages.
But it could be a while before enough progress on this has been made to produce the kind of unambiguous convergence required to produce a "yes" to the first tests.