Page last updated at 16:57 GMT, Wednesday, 21 January 2009

Clegg says UK needs euro 'anchor'

Nick Clegg
Nick Clegg says the euro could offer greater stability

The economic downturn could make people think again about their opposition to joining the euro, Lib Dem leader Nick Clegg has told the Financial Times.

Joining the euro would "anchor" the UK economy and protect it from "dangerous" currency flows, he told the newspaper.

The government backs euro entry if five economic tests have been met - but ministers say it is not on the agenda.

A recent BBC poll suggested 71% of Britons would vote against euro entry if there was a referendum.

But Mr Clegg, a former MEP and fervent pro-European, said he believed public opinion could "turn on its head" once the "sheer brutality" of the economic downturn hit home and made people yearn for the "stability" of the eurozone.

"In that context of people just longing for clearer rules, for reliability, for stability, for certainty, you might just find that becoming part of the reserve currency on our doorstep might become part of the recipe... by which we put the British economy back together on a more sustainable footing."

'Strict rules'

Mr Clegg told the Financial Times he was not pushing for immediate entry to the single currency and that the house price bubble would have been worse if Britain had been locked in to eurozone interest rates.

THE FIVE ECONOMIC TESTS
1. Convergence
2. Flexibility
3. Investment
4. Financial services
5. Employment, stability and growth

But he argued that the time was now right to put the euro back on the agenda.

"The strict rules attached to the euro could emerge as one of the best ways to persuade the markets that we will put Humpty Dumpty back together again, put the public finances back in order.

"The euro is no magic wand, the eurozone is not immune, but it is irresponsible not to appreciate the new vulnerabilities to the British economy, which are huge, which are immense."

Mr Clegg's words represent a shift in his position from the Lib Dem conference in September, when he told delegates the euro debate was "off the radar screen".

And it could spark disagreement within his own party over how heavily to push euro entry in June's European elections.

'Prepare and decide'

Lib Dem Treasury spokesman and deputy leader Vince Cable recently said he does not back joining the euro now, but in a couple of years' time it "will come back on the agenda".

Officially, the government remains in favour of joining the euro when the economics are right and is pursuing a "prepare and decide" policy, although it would not go ahead without a referendum.

It last carried out an assessment of the five economic tests, which the then Chancellor Gordon Brown made a condition of entry, in June 2003.

At the time, Mr Brown said Britain's economic stability would be put at risk if it joined the euro.

He said two of his five economic tests had not been met, as the British economy had not converged sufficiently with the eurozone and it did not yet offer enough flexibility.

But the Treasury's assessment showed euro membership would boost investment, create jobs, and have a positive impact on financial markets, promoting greater flexibility and "risk diversification," he added.

House prices

In his 2003 statement, he said: "The discipline of the five tests is to ensure there will be no repeat of the experience of the ERM when Britain joined at the wrong rate and at the wrong time without either convergence or flexibility and the potential benefits could not be realised."

He announced reforms which he claimed would calm house price inflation and increase economic stability, as well as preparing the ground for euro entry.

The government reviews progress towards convergence annually but it has so far ruled out a further full assessment of the five economic tests.

Chancellor Alistair Darling will once again review the case for an assessment of the tests, ahead of his March Budget but there are no signs he will decide to go for it.

European Commission president Jose Manuel Barroso last month said the UK was "closer than ever" to joining the euro and that the "people who matter" in British politics were contemplating giving up the pound.

But Business Secretary Lord Mandelson said that while joining was still the government's long-term policy aim, such a move was "not for now".

Shadow Foreign Secretary William Hague recently said the Conservatives under David Cameron "would never join the euro".

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SEE ALSO
Mandelson rejects euro talk claim
03 Dec 08 |  UK Politics
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05 Dec 08 |  UK Politics

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