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The BBC's Rebecca Pike
"Britain is years away from meeting the 5 economic tests"
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Monday, 29 May, 2000, 02:05 GMT 03:05 UK
UK 'years' from joining euro
The Euro
UK has to meet economic tests before it can join euro
It will be many years before the UK meets the criteria laid down by Chancellor Gordon Brown for signing up to the European single currency, business leaders have said.

The Institute of Directors has issued the warning to a treasury inquiry into European economic and monetary union.

The IoD agrees with the government that Britain would benefit from joining the euro, provided the economic conditions were right.

While these differences persist it would be economic folly to replace the pound with the euro

Ruth Lea

But it disagrees about the likelihood of it happening in the near future.

Ruth Lea, head of the IoD's policy unit, said: "There are no signs that the UK economy is converging with those of core euroland.

"Our business cycle remains obstinately out of synch and our measures of capacity utilisation (whether unemployment or output gaps) remain adrift.

"Moreover, Britain's trade patterns and, in particular, structure of outstanding debt are significantly different from core euroland's.

"While these differences persist it would be economic folly to replace the pound with the euro."

The IoD's conclusion will come as a big blow to euro-enthusiasts.

'Economic folly'

The government declared in 1997 that there were no constitutional barriers to joining the single currency, only economic issues to consider.

At the time Mr Brown set out his five economic tests to the House of Commons.

They state that Britain should only join the single currency if the economy shows signs of converging with those in the single currency.

Joining should also promote growth and investment and have no adverse effect on the City of London.

Gordon Brown
Gordon Brown: Economic conditions must be right to join euro

The IoD has told the inquiry that there are no indications the UK's business cycle is moving into line with core euroland's.

Joining before this economic convergence would result in "boom and bust".

It also says there is no sign that the City is suffering from being outside euroland.

The government has said that it would assess early in the next Parliament whether the conditions had been met.

If the government subsequently decided to recommend replacing the pound with the euro, the proposed move would require Parliamentary approval, and the backing of the electorate in a referendum.

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