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Last Updated: Wednesday, 7 May, 2003, 15:15 GMT 16:15 UK
The great euro debate

Deciding whether to join the European single currency is one of the most momentous facing Tony Blair's government.

The debate goes way beyond party lines, splitting political parties and raising passions in a way few others do.

The same goes for business. Many business leaders are opposed to UK membership of the euro.

But those in favour of the currency could point you to others who back the euro.

So what are the main political and economic arguments for and against the euro? And how would joining the currency affect the UK's sovereignty?


THE ECONOMY

The economy, and how it could be affected by joining the euro, is central to the debate.

In November 1997 Gordon Brown set out five economic tests along which the country's readiness can be measured.

Each test assesses whether the British economy will benefit or suffer from the move.

Supporters of the euro believe that a shared cash currency would allow Britain to compare its own prices and wages more easily with those of its European counterparts. This, in turn, would lead to greater convergence.

Joining the euro would almost certainly mean better conditions for businesses considering long-term investment in Britain.

Some large multi-nationals have warned that they only chose to invest in Britain on the assumption that it would eventually join the euro.

With a shared currency, though, comes a pan-European interest rate and limits on the government's ability to borrow money.

Interest rates are set for the eurozone by the European Central Bank (ECB) in Frankfurt. The Bank of England will be left with just one vote, like all the other central banks in the eurozone.

Shocks to the economy, such as the terrorist attacks of 11 September, make it harder for the ECB to find the right rate.

Whether Britain should lose its own economic identity is hotly debated.

Britain emerged from 11 September stronger than its European counterparts: does Britain want its economy linked so closely with others if this means it could be affected by such economic slowdowns?

A final consideration is that some features peculiar to the British economy could be affected by the move to the euro.

Many people in Britain, for example, have mortgages with variable interest rates, as opposed to Europe's more common fixed interest rates. Britain also has the most flexible labour markets, with low interest rates meaning more jobs.


POLITICS

As on most issues, British politicians are hugely divided over the question of the euro.

But those divisions also cross party lines. Labour has internal groups campaigning on either side of the debate.

The cabinet includes some sceptics and other signed-up members of the pro-euro camp.

Some have said that ultimately the decision on the euro is a political one and that the economic advantages of joining the euro can never be guaranteed.

Ultimately, Britain must decide whether to let decisions over its economic life be made outside the country.

Labour was elected with a policy of holding a referendum if the five economic tests were met.

And some warn that Britain could be left out in the cold if it doesn't join the euro, unable to include key decisions in the European Union, particularly once the EU expands to 25 members.

But there are many who say it is possible to be pro-Europe, but against membership of the euro.

The No Campaign says "the euro is forever - if it's a disaster, we can't leave."


SOVEREIGNTY

Britain's sovereignty is its right to control its own affairs - in other words, its complete independence and self-government.

Some argue that joining the euro would lead to greater stability and shared growth in the EU.

But others say committing to Europe further by joining the euro will involve handing over too much control.

Indeed, there are those who argue that Britain has already relinquished its sovereignty to an extent.

Concerns of dilution of power over our own affairs are countered by claims that joining the euro would give Britain more scope to influence European policy.

They say the EU needs economic reform - and that the UK must be a euro member in order to influence that reform so that it best suits British interests.




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