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UK rules out euro for now
LONDON, England (CNN) -- Chancellor of the Exchequer Gordon Brown on Monday ruled out Britain's entry into Europe's single currency for now, but he left open the door to reviewing the decision in a year. In his widely expected announcement in the House of Commons, the UK finance minister set out "major reforms" designed to bring the country into the 12-nation eurozone at some point. Brown pledged to look again at the case for euro entry in 2004 and said the government would hold a public referendum if the case was made. A draft referendum bill will be published in the autumn, he said. Calling it "one of the most momentous economic decisions our country has to take," Brown said only one of five economic tests on euro membership had been met. But he sounded largely upbeat on the prospects for joining the single currency, saying: "If the economics are right for Britain, we should join." Brown and Prime Minister Tony Blair were to give a joint news conference Tuesday to reiterate that message and dampen speculation of differences between them. The New Labour government has long said it is committed to taking Britain into the euro, and that it would call a referendum when the five tests were met. But many commentators and UK lawmakers say they believe the crucial test is one of political will. (Analysis) Brown's five economic tests cover the degree of convergence of the UK and eurozone economies, the flexibility to cope with shocks, the effect on UK growth and jobs of euro entry, the effect on financial services and the effect on inward investment. (Full story) Brown said only the financial services test had been met, and that the convergence, flexibility, investment and jobs tests could be met under his proposed reforms. In a 35-minute statement, Brown spelled out what he called "the policy changes our country must now make" to be ready to join the single currency. Brown said that while Britain's economy was starting to converge with that of the eurozone, it had not converged enough to allow for euro membership. He said the UK economy was not yet flexible enough to cope with potential economic shocks, and that dangers still existed -- particularly to the housing market and inflation. The "volatility of the housing market" and its potential to cause inflation was one of the key reasons why Britain could not yet join, he said. "Further housing reform will be put in place in the coming year ... reforms that will ensure that a reduced propensity to house price inflation, stability will be further entrenched," Brown added. He also said he would be informing the Bank of England that the current inflation target of 2.5 percent would be changed, and that he would now be using a new Europe-wide measure of inflation rather than the old retail price index. The chancellor also called for the European Union to reduce tariffs and regulatory and competition barriers to members as well as the United States, to encourage a "fully effective, trans-Atlantic partnership." Government studies released Monday indicated the pound was too strong against the euro, and that Britain's economic cycle is more closely aligned with the United States than with Europe. The chancellor said joining the euro would mean the benefits of lower interest rates for businesses and home owners. Trade between Britain and the eurozone could increase by up to 50 percent over 30 years if the single currency was adopted, he said. Also, Britain's membership of the euro would lead to lower transaction costs for business, lower exchange rate volatility and greater cross-border trade. But he warned: "If we enter (the euro) with the tests not met, with the wrong exchange rate, then just as with the European Exchange Rate Mechanism, we could see unemployment rise, public service investment fall, and growth stall. "The discipline of the five tests is to ensure there will be no repeat of the experience when Britain joined at the wrong rate, at the wrong time." In his long-awaited verdict, Brown said every economic assessment made since the government came to power in 1997 "has been designed ... to put stability first." He went on: "I have no doubt that an enlarged Europe pursuing, like Britain, economic reform, will be conducive to British stability." If it had said "yes" to the euro, the government would have faced an uphill struggle to persuade the British public to give up the pound. Opinion polls consistently show strong opposition to the euro, and the government also would have faced stiff resistance from several national newspapers and the opposition Conservatives. Conservative shadow chancellor Michael Howard said the Treasury studies indicated that joining the euro "would be a huge gamble with people's jobs and mortgages, putting the whole economy at risk."
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