BBC News Online: Events: The launch of EMU: Euro latest

Pound too strong for euro entry

According to the International Monetary Fund, the Treasury and the Bank of England may need to take 'specific actions' to weaken the pound if Britain wishes to join the European single currency.

The Financial Times quotes an IMF report which warns that current economic policies, while sound in themselves, will not help to bring Britain's economic cycle in line with the eurozone's.

The pound has risen 6% against the euro since the single European currency was launched on 1 Jan.

The IMF study analyses the last 40 years and produces new evidence that Britain's economic cycle has moved more in line with those of the US and Canada than those of Europe.

'Political' euro move

Most economists believe Mr Blair will be guided mainly by political factors on the timetable for entry.

A referendum is predicted to be held soon after the next General Election.

The IMF also says ministers may have to interpret loosely the five economic tests set by the government to decide whether Britain joins the euro, if it does not want a long delay before entry.

In addition to the Maastricht criteria, Gordon Brown has introduced five economic tests "on which any decision about UK membership of EMU should be based". These are:

• Are business cycles and economic structures compatible so that we and others could live comfortably with European interest rates on a permanent basis?
• If problems emerge is there sufficient flexibility to deal with them?
• Would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
• What impact would entry into EMU have on the competitive position of the UK's financial service industry, particularly the City's wholesale markets?
• In summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?

Bank of England governor Eddie George has already warned the pound is 'clearly too strong' to join the euro yet.

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