Britain must shun euro, says Portillo

MICHAEL PORTILLO fuelled the Tory civil war over Europe today by declaring that Britain would enjoy more influence in the EU by remaining outside the euro.

His first detailed statement on Europe since he returned to the Commons last month comes after Shaun Woodward cited the Tories' hardline policy on Europe as one reason for his defection to Labour.

Writing in the journal of the Institute for Economic Affairs, Mr Portillo comes close to saying that Britain should never join the single currency.This is widely thought to be his private view, although in public he has backed William Hague's policy of ruling out membership in this Parliament and the next.

Mr Portillo sought to demolish the arguments of pro-Europeans that Britain would eventually lose out if it shunned the euro. "We can have influence in Europe if we demonstrate to the rest of Europe that there is an alternative model - that instead of increasing public spending, having inflexible labour markets, having higher taxation, if our economy bears a closer resemblance to the United States, we can produce higher employment and faster growth," he said.

"If Britain were to remain outside the single currency, then we would be an example to Europe of how a country can adapt flexibly and quickly to changing global circumstances by being able to control its own currency and its own interest rates ... If we are absorbed into the euro, that is an influence we will lose."

The newly elected MP for Kensington and Chelsea argued that the "one- size fits all" policy of a common interest rate means the policy will be "wrong for most places most of the time". He wrote of his "shame" at being a Treasury minister while Britain was a member of the European exchange rate mechanism (ERM), which meant an inappropriate level of interest rates had to be fixed to maintain parity of the pound with the Deutschmark. Whether the euro is a strong or weak currency, it will not be a stable one, he predicted.

Mr Portillo insisted there was "no link" between currency and trade, and that there was no connection between the City of London remaining competitive and Britain's decision on whether to join the euro.

"We are taking risks in Europe," he warned. "We are in danger of creating new sources of tension by centralising decision- making and causing unemployment ... The EU seems set on pursuing a narrow political project whatever its economic and political consequences."