'Britain is losing jobs by staying out of eurozone'

Internal links

UK shops and firms should accept euros, says minister

Britain is already losing job-creating investment projects in manufacturing industry to the Continent because it has not joined the single currency, Peter Hain, the minister for Europe believes.

In an interview with The Independent, he expressed concern that the latest figures showed that France had dislodged Britain from the top of the league by winning a greater share of the overseas investment in manufacturing.

"I think it is very significant that France has now overtaken Britain in terms of inward investment in manufacturing," he said. "We are still in the lead on overall inward investment because service industries put us ahead. But we have traditionally got more in manufacturing than anywhere else in Europe."

Mr Hain said he believed the reason for the change was that France had joined the euro. "France has higher social costs, less employment flexibility and less favourable financial services. Yet it is attracting more manufacturing," he said.

Asked if the euro was responsible, he said: "That is what the decision-makers and investors are telling us."

So would Britain lose out by remaining outside the euro for a long period? "Of course," he replied.

Mr Hain's warning will not please the Treasury, which has objected in the past when ministers at the Foreign Office and Department of Trade and Industry highlighted the dangers of not joining the new currency, which is introduced in 12 EU countries on 1 January.

Unlike Mr Hain, the Treasury is reluctant to discuss whether British shops and businesses should accept euro notes and coins, even though it (rather than the Foreign Office) is responsible for the currency. Gordon Brown's mantra is that all that matters is his much-repeated five economic tests.

Mr Hain also stressed the tests repeatedly but, unlike many of his fellow ministers, was not afraid to discuss the wider issues arising from the arrival of the euro. He said the launch of the notes and coins was one of a sequence of events that will lead to a decision on a referendum in Britain, but urged the media to halt its "guessing game" about the possible date.

There has been speculation that Tony Blair plans a referendum in the spring of 2003, but Mr Hain hinted that it might be later. The only date people should think about, he said, is 6 June 2003, by which time Mr Brown will have completed his assessment of the five tests.

"Then they should think about a referendum Bill," he said. "We have to get a Bill through Parliament. That is not something you can do overnight. It could take as long as six months. That takes people way beyond what they are thinking."

If there were a referendum, Mr Hain said he believed Mr Blair and Mr Brown would be the trump cards in the "yes' campaign as they were "probably the two most authoritative figures in their jobs in recent political memory".

Also in the pro-euro camp would be the whole Government, and influential Tories such as Kenneth Clarke, Lord Heseltine and Lord Hurd of Westwell. Pitted against them, Mr Hain said, would be what he called "the nutters" and "the rabble" led by Iain Duncan Smith, the Tory leader.

He said he was convinced the respective line-ups would draw people into the "yes" camp. "I am not saying all Eurosceptics are nutters. There are serious arguments which I respect, but there are a lot of green-ink people behind Iain Duncan Smith."

Mr Hain thinks Labour voters will prove decisive in a referendum. He believes there is a hard core of "no" and "yes" voters, but that about half the population would be persuadable if the Government recommended entry.

He is sure that a referendum is "eminently winnable" – but only in the right circumstances. The tests must be passed, and people must be sure the move is right for Britain, he said.

Mr Hain, who voted against the Maastricht Treaty, which brought in the single currency, has rebranded himself a "practical European" and now sounds more positive than negative about the whole project.

"If you bring our membership of Europe down to practical benefits – our security, jobs, the environment, the euro – then practical Europeans do win the argument over the zealots," he said. "But the fanatical Europeans don't. The Eurozealots are not trusted by people who think it is a big plot or a dogmatic issue. It is a practical issue that must be the test."

He insisted that Mr Brown was "an influential figure" among EU finance ministers, even though he was excluded from the eurogroup of 12 countries in the new currency. He denied that Britain's EU partners were becoming impatient with the Government.

"We are right there in the middle [of the EU]. We are not in the euro, but people know that we want to be there," Mr Hain said. "If they thought that we didn't, the political and economic cost would be enormous. If they thought we were not pro-euro, they would just shut us out tomorrow."

The Europe minister denied that Mr Blair had already decided to call a referendum. "We are not playing a game. It is not a window-dressing operation. It is about getting the decision right," he said.

As the EU begins yet another review of the way it works, Mr Hain is confident Britain can win the crucial arguments. He admitted that some federalist ideas were on the agenda agreed at this month's summit of EU leaders in Laeken, Belgium, such as the public electing the European Commission president. "It is a barmy idea," he said.

During the review, Britain will call for a strengthening of the role of the Council of Ministers, putting national governments firmly in the EU's driving seat. "I think the integrationist agenda will be put back in its box," said Mr Hain. "The idea of a federal superstate has now run into the sand."