Comment: Why Labour's attitude to the euro matters

So at last the truth is out - the Conservatives are against British participation in monetary union (all except the one living at Number 11 Downing Street, anyway) and the Labour Party is broadly in favour of it. Yawn, say the markets. Everyone knew that already, even if these positions were stated with greater clarity by Messrs Rifkind and Brown yesterday than we've ever had before or are ever likely to get just ahead of an election.

But hold on a moment. That's not quite right, is it? The present assumption in markets is that Britain will not join the euro, not for a very long time in any case. That's a view which accurately reflects the likely Conservative position on this; it is impossible to imagine a Tory government ever taking us into the euro, even in the unlikely event of Kenneth Clarke becoming prime minister.

But it doesn't seem to reflect the likely position under a Labour government. In that sense Mr Brown's comments are much more significant than Mr Rifkind's. Labour's increasingly public position seems to be that it will eventually take us into the euro. If that's the case there are some important implications for markets.

It seems unlikely that sterling would be unduly affected one way or the other by such a commitment. But bond prices most certainly would. Gilts have largely missed out on the "convergence" in European bond prices caused by the approach of monetary union. The result is that the British Government is now paying more for its borrowings even than the one-time pariah economies of Italy and Spain. Lower government borrowing costs, then, would be one immediate effect of commitment to monetary union. According to one estimate, the savings might be equivalent to 2p off the basic rate of income tax.

So the markets are wrong to think there's nothing new in what was said. If Labour wins the election and there's real commitment to the euro, then gilt yields are going to start tumbling fast.