Cabinet split reopens over political case for the euro

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Politics as much as economics will determine whether the Government recommends British membership of the euro, senior ministers finally admitted yesterday.

Robin Cook, the Leader of the House of Commons, warned that Britain would have more trouble maintaining a leading role in Europe the longer it stayed outside the single currency. However, in a clear indication of the cabinet split over the issue, the Treasury insisted an assessment of Britain's economic interests would dominate any decision.

Mr Cook, Peter Hain, the Europe minister, and Charles Clarke, the chairman of the Labour Party, all insisted that any decision would not be based on economics alone.

Since the Chancellor announced his five economic tests for euro membership in October 1997, both Tony Blair and Gordon Brown have singled out economics as the key aspect behind any move to a referendum. But the Government's policy was seriously undermined last week when Gus O'Donnell, the Treasury civil servant in charge of the tests, conceded that it was impossible to make a "clear and unambiguous" verdict on them.

Although embarrassing to Downing Street, his comments delighted pro-Europeans in the Cabinet, who have long wanted to make the political case for the euro and remove the Chancellor's iron grip on the issue.

With opinion polls giving conflicting messages on the issue yesterday, Mr Cook, Mr Hain and Mr Clarke made plain that the political judgement on the euro was just as important as the economic one.

"It is both political and economic and both those considerations have to be right. On the political side it is clear that we are gaining a lot from the leading role we have in Europe," Mr Cook told BBC1's Breakfast with Frost programme.

Mr Cook was at pains to stress that the Government's policy had not changed, but backed Mr Hain's remarks last week that the presence of a "parallel" currency in the 12 eurozone nations would cause difficulties for Britain. "The longer the parallel currency continues, obviously, the more the problems will be," he said. Mr Hain told GMTV's Sunday Programme: "We are politicians, we are an elected government, the Government will form a view on the basis of the economic assessment, so if you like it's a political judgement on the basis of an economic assessment."

Mr Clarke, who said 2002 would be a "decisive year" for the Government's policy on the euro and that there was "a political imperative" to join, also stressed that economics was "not an exact science".

But Andrew Smith, the Chief Secretary to the Treasury, said "a political dimension" would only arise in a referendum. "The key thing is that the recommendation is made on a hard-headed and economic assessment of the five tests," he told BBC Radio 4's The World This Weekend.

Focus group research by Philip Gould, Mr Blair's private pollster, is said to have found that more of the public could be won round to the euro if issues such as jobs and economic stability were emphasised by ministers.

Other opinion polls presented a mixed picture, with three showing opposition to the euro remained strong, while one produced a narrow majority in favour of joining.

* Mr Blair expects to remain as leader of the Labour Party until 2007 and maybe even 2012, according to Mr Clarke, scotching rumours of an early departure by the Prime Minister.