When the time is right - to delay

THERE'S a good reason many in the Government don't want a referendum on the euro - they think they would lose it. Given the ferocity of the reaction to the proposed new constitution for the soon-to-be enlarged European Union, many ministers and their Parliamentary aides blanche at the prospect of facing voters over the single currency.

To say the Government has done a U-turn on the euro is stretching it, but there has definitely been a cooling towards the single currency from when the New Labour project was being devised.

Back then, joining the euro was seen as a symbol, in part, of Labour's modernity and its ambitions for an outward looking Britain, at ease with continental Europe, rather than being tortured by it, as the then Conservative administration was.

Tony Blair and Gordon Brown could watch with glee as the Tory psychosis was laid bare before the nation and the party tore itself to pieces over anything to do with Europe.

Joining the euro would, Labour's modernisers thought, be a sign Britain was a serious player in Europe, able to shape its decisions and that our island had learned from the mistakes of the past, when being outside the EEC had so damaged our economy.

Getting elected, however, was also an ambition that had to be fulfilled, and the party had long and painful memories over the mauling it took in the right-wing tabloid press. It would not jeopardise its courtship by plunging headlong into the single-currency if it assessed the nation's mood was wrong or the economic conditions likely to cost jobs.

So the Famous Five Tests were devised as a means of putting off the decision until the Government felt it could call a referendum and win it. What then are these tests that have entered the the New Labour lexicon?

The Government's policy on membership of the European single currency - in favour in principle, provided the economic conditions are right - was set out by Chancellor Gordon Brown in October 1997 and restated by Prime Minister Tony Blair in February 1999.

The Government set the five tests to decide whether there was a ''clear and unambiguous case'' in economic terms for joining the euro.

They are:

* That there is sustainable convergence between Britain and the economies of a single currency;

* Whether there is sufficient flexibility to cope with economic change;

* What the effect on investment will be;*l What would be the impact on the UK's financial services industry, and

* Whether it is good for employment.

If there is one thing euro enthusiasts and their sceptic foes agree on, it is that the tests are a fig leaf to disguise the Government's political indecision. Both want a referendum, albeit to come up with a different result.

The more the Government and Mr Brown repeat the five test mantra the less people appear to believe him. But both political and economic considerations are at play and are crucially linked.

Nowhere is this demonstrated more clearly than over interest rates. Britain is a nation of home owners and has a much more vibrant housing market than in Europe, making us much more sensitive to interest rates.

With so many Britons on variable rate mortgages, changes will have a profound impact on the amount of money in our pockets. Remember when Britain crashed out of the Exchange Rate Mechanism on Black Wednesday and interest rates went up to 15 per cent and millions slumped into negative equity?

Unemployment soared and John Major's administration never recovered from being branded economically incompetent

Well, the Government never wastes an opportunity to remind us it was the Conservatives when in Government that allowed the 1992 debacle to take place, though but for the grace of God went Labour, who also backed ERM entry.

Yet the problem could be overcome and the Chancellor has commissioned a study looking at the possibility of Britain becoming a fixed interest rate housing economy. Mr Brown knows the political price that will be paid if a similar economic situation occurs after joining the euro.

So the housing market remains a stumbling block, but what of the other tests? Mr Brown said that only the test that the euro would be good for Britain's financial services had been met.

THE tests on the convergence of Britain's economy with those of the euro-zone, and on whether the system had enough flexibility to cope with economic shocks had not been met. On meeting those two tests depended the result of the two others: whether the euro would be good for investment and employment.

Given the tortuous way EU decisions are made, getting them to agree to more flexible labour markets to our satisfaction could take years.

The fact is the British economy is performing better than the euro-zone and the Chancellor has embarked on a round of public spending, particularly in the health service.

He has already gambled on UK growth growing much more than most informed opinion believes it will. Entry into the euro could jeopardise this and mean Mr Brown having to resort to more tax hikes to pay for the NHS cash injection.

The Chancellor and his boss are often seen as being at odds with each other, most notably by Peter Mandelson, who recently claimed the Prime Minister had been outmanoeuvred by Mr Brown.

BUT surely they both must be aware of the pitfalls of joining the euro as Britain struggles to match its recent growth. Both are as at one in believing it could be in our long term interest to join. By leaving the door open, they can portray themselves as the pragmatic guardians of our national well being, in contrast to the dogmatic Conservatives, unwilling to take part out of mistrust of the Continentals.

Why not wait until the time is right to put it to the nation? With victory in Iraq becoming tarnished with a bitter aftertaste of dodgy dossiers, Mr Blair could not rely on a Baghdad bounce to secure a yes vote.

Interestingly, there is a school of thought that says the Prime Minister would not mind a defeat as he could then put the issue to bed for the foreseeable future while fulfilling the demands of the pro-euro members of his party for a referendum.

Joining the euro is going to be the biggest economic decision this nation will take, so it is hardly surprising Gordon Brown and Tony Blair are dithering and doubts are beginning to creep in. Mr Blair might have once wanted to have his place in history as the man who took us in, but taking a peek over the cliff he appears to have gulped and gone wobbly at the knees.

The positive noises from Mr Brown are providing covering fire for a tactical withdrawal from facing a euro vote. His indecision remains final.