Britain fears chaos and a divided Europe

SARAH HELM and

DONALD MACINTYRE

Madrid

As the prospect of the single currency moved closer yesterday, with the naming of the new Euro, John Major made an increasingly urgent drive to raise the fears that monetary union could divide Europe and destroy the single market.

Mr Major denied that his warnings were an attempt to delay the launch of the single currency in the states which want to go ahead. But his analysis of the dangers - and particularly of a split between a minority inside and a majority outside, the so-called "ins and outs" - was more concrete than ever.

"It is the biggest decision the European Union has ever had to take, and if we get it wrong it will cause chaos across the community," he told the council. "I want a Europe that works, and not a divided Europe." Mr Major's comments, however, did little to halt the new wave of determination, expressed yesterday by other member states, to proceed towards the single currency launch in January 1999.

While some of the poorer countries, who have only a slim chance of qualifying for EMU membership in 1999, echoed some of Mr Major's concerns, both the Germans and French gave little credence to Britain's complaints. "If Britain is worried about ins and outs it should be in," said Michel Barnier, the French minister for Europe.

Paradoxically, Mr Major'swarnings only served to draw attention to Britain's growing acceptance that the single currency may indeed come about, as planned, in 1999. Six months ago Mr Major spoke as if monetary union were a project for the distant future. Yesterday, in dramatically different language, he said Britain was now working on the "hypothesis" that some member states would go ahead in 1999.

Six months ago, Kenneth Clarke, the Chancellor, said that single currency notes and coins would not be introduced for many years, "if ever". Yesterday Mr Clarke said there was now a "60-40" chance that some members of the EU would enter a single currency in 1999. Introduction of notes and coins was finalised yesterday for July 2002. Britain was even in the embarrassing position of agreeing to a name for the single currency.

The wording of today's final communique will show how far Mr Major has persuaded his counterparts to let finance ministers widen their current study of the exchange rate implications of a single currency to cover the much larger issues he raised yesterday. British officials said Felipe Gonzalez, President of the Council, had been explicit in his summing-up that it would now be for the Italian presidency in the first half of next year to proceed with a wider study. But Mr Major will still have a fight on his hands when it comes to negotiating the final text.

The Prime Minister started out in yesterday's morning session by declaring that "single currency" was itself a "misnomer". With only a small number of countries willing or able to participate by 1999, the Euro would be only one of 10 currencies, covering less than half the EU's population.

The EU might find its budget being drained, both to help outsiders as they struggled to qualify for EMU membership, and to cushion countries inside from the destabilising effect this has. This, said Mr Major, would be "real Alice in Wonderland" - at a time when we are "insisting on national budget stringency to make EMU work".

Envisaging a serious conflict within the EU between the ins and outs, he raised worries about whether the single- currency countries would vote as a block on a wide range of issues, and asked his partners how to ensure the single currency does not "build up barriers" for the existing 15 member states.

Mr Major then suggested that EMU might hold up the process of enlargement, one of the EU's prime objectives. Unless the problems thrown up by the single currency could be resolved, it could become "impossible" for new members ever to participate fully in EMU.

The timetable

JANUARY 1998: European Council decides which member states will join a single currency; European Central Bank is established.

JANUARY 1999: Exchange rates among participating currencies are locked; ECB goes into operation, carrying out monetary policy; any transaction can take place in the single currency, but national paper currency and coins continue to be only ones in circulation.

JANUARY 2002: New paper currency and coins put in circulation; national money ceases to be legal tender after six months.