After the Labour government came to power in May '97, some expected the UK to try to join the European single currency as early as January 1999. However, this hope (or fear) did not materialise.

Instead, in October 1997 the Chancellor of the Exchequer, Gordon Brown, ruled out membership during the lifetime of this parliament.

He said if Emu "works economically, it is, in our view, worth doing" and outlined five economic tests that would need to be passed if the Labour government were to take the UK into the European single currency:

• Emu will have to create better conditions for companies to invest in the UK.
• The effect of Emu on the UK financial services industry will have to be assessed specifically, given its prominence within the UK economy.
• "Business cycles and economic structures" must be compatible between the UK and mainland Europe.
• Emu must be able to cope with economic shocks. The consequence is that labour markets in mainland Europe, in particular, need to be more flexible.
• Emu must help promote higher growth and more jobs.

This delay in joining Emu has delighted British eurosceptics, who fear that the single currency will erode the country's sovereignty and will usher in the United States of Europe through the back door.

But staying out of Emu potentially has both benefits and costs:

The potential costs

• British companies will not benefit to the same extent as their European competitors from reduced transaction costs or a lowering of exchange rate risk across the euro-zone.
• If sterling is seen as a safe haven from an unsuccessful single currency, at least in the early stages, the problems for exporters of a strong pound are likely to continue.
• If the single currency is successful, corporate financial business may drift towards Frankfurt.
• If the Euro is a success, interest rates may stay high or rise.
• Many of the EU's important economic and monetary decision will be taken by the Euro members, without the UK being able to influence the outcome.
• The UK may become more marginalised in the increasingly important political arena of Europe.

The potential benefits

• If the single currency is a disaster, and the UK is still not in, business in the city could soar.
• The Bank of England will retain its power to set interest rates and can adjust the level of interest rates to the specific needs of the British economy.

Dangers of joining later

• British businesses, particularly smaller ones, could incur costs and may suffer competitive disadvantages as they begin to trade in a euro zone already exploited by their rivals for around four years by then.
• An exchange rate to fix the pound against the euro will have to be agreed, a difficult and dangerous task.