Blair wants cabinet euro debate to force Brown's hand

Gordon Brown is facing a rebellion by cabinet ministers who do not want him to rule out a referendum on the single currency before the next general election.

Colleagues led by John Prescott, the Deputy Prime Minister, are pressing for a full cabinet discussion on the euro before the Chancellor delivers a Commons statement setting out the Government's policy in the next few weeks.

Tony Blair is encouraging his ministers to demand a cabinet debate, which did not happen before Mr Brown's statement on the euro in 1997. The Prime Minister wants to keep open the option of a euro referendum in this parliament. But Mr Brown, who is expected to announce a "not yet" verdict on the Treasury's five economic tests for joining, wants to delay a referendum until after the next election.

In a cabinet debate, the Chancellor could face an "ambush" by pro-euro ministers including Charles Clarke, the Secretary of State for Education; Patricia Hewitt, the Secretary of State for Trade and Industry; Alan Milburn, the Secretary of State for Health; Geoff Hoon, the Secretary of State for Defence; and Peter Hain, the Secretary of State for Wales.

Peter Mandelson, twice a cabinet minister and still a close Blair ally, joined the calls for a cabinet debate in an interview with The Independent. "I hope the whole Cabinet will be discussing it before closing the door again to British entry. We should be more confident of ourselves," he said. "Just because there is a disagreement does not mean we have to fall out over matters of such importance to the future of our country."

The former trade and industry secretary and Northern Ireland secretary sought to demolish the arguments against early euro entry being advanced by Mr Brown and his allies. "I feel absolutely sure that staying out of the euro will lead to progressive economic isolation for Britain, a progressive loss of foreign investment, trade and employment."

The Treasury's assessment should weigh the costs of staying outside the euro as well as the potential risks of joining. "The Treasury has been institutionally against European integration at every stage."

Mr Brown used this month's Budget to trumpet the higher growth in Britain than in the eurozone. But Mr Mandelson said: "To characterise continental economies as 'basket cases' is misleading. In most cases, such as Germany and France, they have significantly higher levels of productivity than Britain.

"Against all expectations, the single currency has worked. Those countries have received significant economic benefits from being in the eurozone. The economic problems they are experiencing – such as high unemployment in Germany – are due to structural problems and rigidities and past imprudent borrowing, which are quite separate issues from the single currency."

Mr Mandelson also rejected the Brown camp's assertion that Britain should improve its public services before joining the euro. "If we are going to raise the standard of our public services to those on the Continent, we are going to have to pay for that investment," he said. "We can't afford to throw away the growth dividend in future years that would come from being inside the eurozone. That's why those who say we should concentrate on public services and not think about entering the single currency are misleading themselves."

He added: "What is politically convenient for the Government in one phase of its life is not necessarily in the longer term interests of the UK economy."

Monday Interview, page 13; Leading article, page 14