A member in all but name

BRITAIN may be standing aloof from the launch of the euro on 1 January next year. But it will not escape the consequences of potentially the most far-reaching step towards European unity since the Rome treaty setting up the original European Economic Community in 1957.

Though the Government says sterling will not be joining the single currency until the next Parliament - at the earliest not until 2002, and perhaps not before 2004 if the logic of this week's Treasury Select Committee is borne out - it will long since have become a fait accompli for business and finance, and perhaps for the ordinary consumer in the United Kingdom as well.

Behind the scenes, no one has worked harder than the Bank of England to help the City adapt to the new reality of a currency representing 11 countries that add up to what will be, barring the United States, the largest economy in the world. The consequences for the London foreign exchange market, the biggest in world, will be profound.

Leading British companies meanwhile are starting to convert their accounts to the euro. Sainsbury, the supermarket chain, plans to accept euro coins and banknotes when they begin to circulate in 2002. By the backdoor, whatever decision the Government takes, the euro will gradually enter British lives.

Given the weight of public opinion against UK membership of the single currency -steady at some 60 per cent of the electorate despite the more pro-European rhetoric of the Government - Mr Blair had little choice but to adopt a wait-and-see policy. But this may make the task of economic management even harder.

In policy terms, Britain is excluded from membership of Euro-X, the single currency club to be set up this month or next, which will meet informally on the margins of Ecofin, the regular sessions of EU finance ministers. In theory, Euro-X will confine itself to matters pertaining to the currency union. But its real influence will only emerge over time. Britain's fear is that in practice it could become the EU's main economic policymaking body, in which Britain's voice will be unheard. If so, then Mr Blair's promise to put Britain "at the heart of Europe" would have an even hollower ring.

Similarly, while it remains outside the single currency, Britain will have no board seat on the European Central Bank, guardian of the euro and bound to become the single most powerful organisation in the EU.

Most crucial of all will be the performance of the single currency. The Chancellor, the Bank of England and British industry will pray for a "hard" euro in which the markets have confidence and whose exchange rate would not further erode the competitiveness of sterling.

A weak euro could produce a flight of capital into the dollar, the Swiss franc and the pound. This would only make life more uncomfortable for British exporters.