Straw rejects Hain's claim that Britain will join euro

Government policy on the euro became mired in confusion last night after Jack Straw, the Foreign Secretary, flatly rejected his deputy's suggestion that British membership was inevitable.

Mr Straw's cautious remarks came less than 24 hours after Peter Hain, the Europe minister, hinted that sterling and the single currency could not coexist in the long term.

In a clear reference to his fellow minister's remarks on the launch of the euro on Tuesday, the Foreign Secretary said he wanted "people to calm down" over the issue.

Mr Straw also stressed that the UK's economy would have to show convergence with the rest of Europe before a referendum on the single currency could be considered.

Last night, the Tories and the Liberal Democrats claimed Mr Straw had "disowned" Mr Hain and called on Downing Street to sort out the mess by issuing a clear statement on a referendum.

The conflict came as the European Commission heralded the smooth introduction of the single currency notes and coins, with fears of a chaotic start proving unfounded.

The euro strengthening to 62.8p yesterday, its first full day of trading. The 2.6 per cent rise was its biggest against the pound since it was launched as a currency three years ago.

Mr Hain, who has been asked by Tony Blair to talk up the benefits of a successful euro, declared earlier this week that British membership was almost inevitable. "I doubt in the end that it is possible to run a sort of parallel currency economy," he said.

But in an interview with The World at One on BBC Radio 4, Mr Straw said the Government's position had not changed since it was spelt out by Gordon Brown, the Chancellor, in October 1997.

The Foreign Secretary denied there was a split between himself and Mr Hain, but insisted that the policy of waiting until Gordon Brown's five economic tests had been passed before calling a referendum was "sensible".

"I just ask people to calm down. As members of the Government, on the one hand we are always accused of operating from a single script," he said. "But if we use different syntax, different grammar, to explain a particular point of view, the next thing is there are headlines about government splits. Of course there aren't splits. Each of us expresses the position in different ways. Has the policy of the United Kingdom Government changed? No, it has emphatically not."

Last night, the Government's critics said the controversy proved Downing Street had made a mistake when it allowed Mr Hain to launch a pro-euro campaign to "soften up" public opinion while simultaneously sticking to the non-committal policy of 1997.

Michael Howard, the shadow Chancellor, said Mr Straw's instant rebuttal of his own Europe minister showed Labour was fundamentally confused.

"The Government is at sixes and sevens over the euro," he said. "If it thinks we should go in, it should say so and hold a referendum. If it does not, it should stop talking about it and concentrate on dealing with the crisis in public services which gets worse by the day."

Pedro Solbes, the European monetary affairs commissioner, said the introduction of the euro notes and coins was going successfully and had confounded its critics.

There had been no serious "logistical incidents", he said, despite long queues at some banks in Germany and occasional glitches with cash machines.

"I am extremely satisfied with the course of the events. The results of the first day and in particular the reaction of citizens should be considered as very positive," Mr Solbes said.

The sharp fall in the value of sterling against the euro raised hopes that British membership of the single currency was more likely. Most economists say, however, that the euro needs to rise significantly, to about 68p, to make entry possible ­ even if the five economic tests are met.

The euro also strengthened against the dollar and the yen, breaking through the 90 cents barrier ­ an important gain ­ and registering its biggest one-day rise against the Japanese currency in 27 months.

Meanwhile, the oil giant Shell became the first British company to say it would consider paying its 5,000 UK staff in euros.