Snub for Britain as euro wrangles overshadow York meeting

EUROPEAN finance ministers meeting in York at the weekend secured broad agreement about the need to reinforce Europe's single market, but this was overshadowed by sharp disagreement and jockeying for position over the start of the single currency.

In what looks like an embarrassing snub to Britain, it has been decided that the first meeting of the new Euro-X inner council of finance ministers from EMU member countries will take place before the end of Britain's presidency of the EU.

The meeting, which has been scheduled for mid-May under the chairmanship of Austria, is bound to heighten fears that non-EMU members will be excluded from key economic decisions. The Euro-X meeting is to discuss the operation of the stability pact, the arrangements for keeping government deficits on course under EMU.

Reports due on Wednesday from the European Commission and European Monetary Institute on which countries have met the criteria for membership of EMU could bring other problems for the UK.

There was sharp disagreement over the weekend on whether member countries need to spend a qualifying period in the exchange rate mechanism. There was also no sign of a break in the deadlock between France and Germany over who should head the European Central Bank.

Britain on Saturday firmly rejected calls to put the pound back into Europe's exchange rate mechanism ahead of any entry into a future single currency.

Gordon Brown, the Chancellor, said such a step was not needed. "Our position is clear. We have no intention of rejoining the ERM." he said.

Britain has opted out of joining the single currency at its launch in January 1999, but wants to join in the future if it is in the best interests of the economy. The Maastricht Treaty, which sets out the convergence criteria for membership of the single currency, states that countries must have respected the ERM fluctuation bands for two years before qualifying.

Britain has argued that since the bands were widened dramatically in 1993, this condition is meaningless. It has said that instead, two years of currency stability should be enough.

Finance ministers from the rest of the European Union, with the exception of Sweden, reiterated that membership of the ERM is a non-negotiable obligation.

The issue over Britain's refusal to rejoin the ERM seems set to grow next week when the European Commission, the EU's executive arm, publishes a report on which countries meet the criteria for monetary union.

The report is likely to exclude Sweden from joining the single currency on the basis that it has not been a member of the ERM for two years.

Greece, which wants to join EMU as soon as possible, long held a similar view on the exchange rate grid as Britain and Sweden, but last week changed tack and joined the ERM in order to qualify for EMU by 2001.

On Saturday, the French central bank governor Jean-Claude Trichet said he believed two years in the ERM was clearly spelled out in the Maastricht Treaty.

France, increasingly isolated in a row over the future head of the European Central Bank, vowed to stand firmly behind its candidate, Mr Trichet.

"France intends to defend the candidate it has proposed." Finance Minister Dominique Strauss-Kahn said.

Asked about France's isolation, Mr Strauss-Kahn quoted Winston Churchill. "When nine say no and one says yes, it is those who say yes who count."

Mr Strauss-Kahn said EU governments would try to reach a deal between now and a summit of EU leaders in May.

But if they failed, it would be up to the EU leaders to come up with a solution at their 1-3 May summit, when they will name the countries which qualify to join European monetary union at its launch in 1999.

The German Finance Minister, Theo Waigel said he believed an agreement had to be reached before the May summit. Failure to agree before that could force EU leaders into an unseemly scrap over the job just when they want to guarantee a smooth launch of the euro. Even worse, the row could just drag on to the end of June, when the ECB starts work.

Against the background of a small but noisy demonstration by anti-euro campaigners, involving light aeroplanes flying over York Minster and a chorus of Land of Hope and Glory outside the ministers' lunch on Saturday, the preoccupation with EMU distracted attention from the formal agenda.

To the obvious delight of British officials, the European ministers agreed wholeheartedly with Treasury proposals for moving closer to a genuine single market in goods and capital. The meeting put a particular emphasis on financial services.

Mr Brown said: "The challenge in the next few years is to make ourselves more competitive and raise the sustainable level of growth".

He said the single currency could not be a success without a genuine single market, and held out the hope of big gains for European consumers.

A background paper from the Treasury highlighted big differences in costs and prices between the US and EU countries, with mobile phone calls, for example, between two-and-a-half and four times dearer in Europe. The UK has the most expensive mobile phone tariffs in Europe.