Outlook: Euro membership

PERHAPS IT was the Tuscan wine, but the Government has come back from the summer hols newly enamoured of the euro, to judge from the prominence its spin-meisters gave Robin Cook's speech yesterday.

Several things have changed to help the Government blow warmer over the summer, quite apart from the PM's holiday in Euroland. The painful memory of the European elections has receded a little. The new currency itself has improved its performance on the foreign exchanges. The key economies, Germany, France and Italy, are more clearly picking up, and the latter two at any rate have quietly moved further along the path of structural economic reform.

Just as important is the extent to which the UK is now out on a limb in Europe. Public sentiment has shifted in favour of membership in the other once strongly eurosceptic country, Denmark. Greece will join as soon as ever it is allowed. The UK has the hurdle of the Chancellor's five economic tests to overcome before the Government can recommend joining the euro. However, few people recognise the extent to which these tests are a matter of judgement rather than fact. Will membership be good for British jobs? Or investment? We cannot know unless we go ahead, but the Government could judge in favour at almost any stage.

The other hurdle is how to get the pound down to a more comfortable level for entry. The present sterling-euro exchange rate is too uncompetitive to lock in permanently. On the other hand, although announcing the UK's intention to join might well send the pound lower, setting a firm exchange rate target would be unrealistic. The markets could ignore it, and our European partners would anyway insist on a mutually acceptable level. Either way, the Government seems to have recovered its nerve a little on the single currency, which if nothing else, ought to make for a more entertaining general election a couple of years hence than seemed likely a few months back.