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Panorama
What do the tests mean?
The euro

Many in the eurozone probably can't understand what the fuss is about. For them, the euro has been a part of everyday life for over a year.

They tried to iron out any wrinkles caused by joining after the event. But in the UK, the decision has been far more protracted - and if you believe the government - a largely economic one.

So what are these tests?

Back in 1997, the Chancellor set out his now infamous 5 tests:

  • Are the UK and European economies converging - are they synchronised, will one interest rate suit all?
  • Are the economies flexible enough to cope if things go wrong?
  • Will joining the euro encourage companies to invest in the UK?
  • Will joining be good for financial services?
  • Will joining be good for jobs?

Convergence

There may be just five tests but there could be closer to 50 interpretations

Dharshini David

But what do they mean? Take the convergence test. There's a number of issues to be considered.

For example, there's cyclical convergence - are the economies moving up and down at the same pace. And if so, will this continue?

Then there's structural convergence - relating to how the economies are made up - for example, do the economies share a similar degree of home ownership.

There may be just five tests but there could be closer to 50 interpretations.

And then how do you go about assessing the tests? Mr Brown says the tests will have to be met in a "clear and unambiguous" way. But the evidence he has to examine is anything but.

Impossible

Houses for sale
Could the euro benefit homeowners?
Back to the convergence test. The pro-euro camp point out that UK and European interest rates have moved closer together - and that by staying out, claim the UK consumers is missing out on the spoils of Europe.

In addition, because interest rates tend to be lower in the euro zone, homeowners could face smaller mortgage bills.

Not true say their opponents - growth in the UK and the euro zone is diverging. Germany is virtually in recession while the UK is prospering. And eurozone-style interest rates would be too low for the UK - spelling a return to boom and bust, and misery for all.

Neither the pro- nor anti- camps are short of evidence to support their case on any of the tests. It makes an objective decision at best tricky, at worst, close to impossible.

Prosperity

But why these five tests? What about other things that could be considered?

Dharshini David

Its not surprising then, that the Treasury's assessment ran to some 2,500 pages - but even that may not have been enough to persuade the government ministers who had to plough through them that the case has been made convincingly.

But does it matter if the five tests are met?

It makes sense to ask if joining means prosperity for the UK. Changing to the euro means a lot more than getting used to a new set of coins, or even waving goodbye to the Queen's head on bank notes.

What about incomes, pensions, mortgages and the profits of businesses for example?

But why these five tests? What about other things that could be considered? For example, what exchange rate should the UK enter at. If it's too high, UK exporters could find it hard to compete. Mr Brown's choice of tests is far from "clear and unambiguous".

Plunge

Some economists say that the economic decision really boils down to two crucial issues: will the UK suffer under interest rates set to suit the whole of Europe, and how much of a boost would UK get from being a fully integrated part of a single market.

Again though, it raises the question: how would you assess the case objectively? Surely it isn't really about economics?

Mr Brown's likely to say that not all the tests have been met yet. But it's widely thought that that the economy isn't the sticking point.

This is where we come to the so-called sixth test - the political one.

When will the government be ready to take the plunge? Many believe that when this one's passed, the economic tests will mysteriously yet neatly fall into line.

Panorama: euro visions

Key stories

Background

The debate

Feedback

Reviews
See also:

15 May 03 | Politics
Timetable to euro decision
Links to more Panorama stories are at the foot of the page.


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