European nations prepare to press ahead without UK

Britain's EU partners reacted with disappointment but little surprise to the euro announcement, as they prepared to forge closer economic co- ordination without the UK.

In a statement the European Commission declined to comment on the analysis of the five economic tests, but added: "We shall continue to follow the debate in the UK with interest while continuing to pursue further integration within the euro-area." The German finance ministry said it could "fully understand the British decision not to call for a referendum now", hoping that the "economic tests for a euro entry are positive next year".

Olle Schmidt, a Swedish Liberal Democrat and member of the European Parliament's economic and monetary affairs committee, said: "It was disappointing but I am not surprised. We did not think that Gordon Brown and Tony Blair would suggest that the tests had been fulfilled." Mr Schmidt is campaigning for a "yes" vote in Sweden's referendum on joining the euro.

There was no comment from the European Central Bank, but its president, Wim Duisenberg, has said British entry would be "advantageous".

Most national capitals have abandoned any hope of the UK joining the euro in the near future. The decision will confirm doubts in some quarters about Mr Blair's commitment to Europe that were raised by the Iraq conflict.

The 12 countries inside the eurozone are forging ahead with proposals that will restrict countries outside the single currency to an outer tier of economic decision makers. When the eurogroup was set up to allow finance ministers from single currency countries to meet, the Chancellor, Mr Brown, fought to be admitted. He lost, but in 1997 a deal was struck under which all economic decisions would be taken in the formal meetings of EU finance ministers, Ecofin.

A draft EU constitution now proposes that only countries inside the eurozone should have a vote on decisions that affect only the single currency.

The Treasury acknowledges that there is little realistic alternative. At present there are 12 EU nations inside the euro and only three outside, making it easy to accommodate the "outs". But next year 10 new nations will join the EU. British diplomats accept that this influx of new countries changes the balance fundamentally.

The worry from London's point of view is that it is excluded from the process of reforming the euro's rulebook, but that it will have to accept these changes if and when sterling finally joins the single currency.