Blair's cool Britannia is left out in the euro cold

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Tony Blair will lay on a show of the best of British design, culture and food at Canary Wharf in east London for the French President and Prime Minister, who arrive today. But he will also be trying to prevent Britain from becoming politically marginalised in Europe by the creation of a single currency. Anthony Bevins, Katherine Butler and John Lichfield report.

Style wars were declared by the Prime Minister's office last night, as frantic London preparations were under way for the annual summit between Jacques Chirac, the French President, Lionel Jospin, his Prime Minister, Tony Blair and ministerial colleagues.

While the diplomatic agenda ranged over the customary points of mutual European and international interest, including the single currency and Iraq, the lunchtime menu, the furniture, the art to be hung on the walls, even the rugs and flower arrangements, were being given the full promotional spin by the Number 10 spokesman.

With a bird's-eye view of the Millennium Dome development site, an entire floor of the 50-floor Canary Wharf tower has been taken over for the summit, with Terence Conran laying out rooms which will be partitioned with opaque glass walls, complete with cherrywood doors.

Whitehall went to town on the furnishings and the young team of top British designers who are being provided with a world stage for their work - much of it already promoted by the Italians, who have spotted winning designs and provided some of the designers with work. The furniture designers include Jasper Morrison and Matthew Hilton, who have both worked for Italian manufacturers, Fred Scott, Tom Dixon, Terence Woodgate, Oubaholyodhin, Tristram Mylius, Lynne Wilson and Michael Young.

Rugs are to be provided by Christopher Farr, light sculpture by Jeremy Lord, flower arrangements from Paula Pryke - and the food from Anton Escalera, of the Midsummer House Restaurant, Cambridge.

But for all the assertive British cultural diplomacy, there is also a serious topic on the table: the creation of a single currency and the new council which will manage it from 1999. The Government will not participate unless and until it merges the pound into the euro, and hence will be excluded from decision-making on some of the key issues in Europe.

Britain's marginalisation took concrete shape last night as France and Germany unveiled details of their plans for a new "council" to co-ordinate economic policy making. They made public a letter detailing a bilateral agreement on the Euro-council.

The new economic "government" will be known as the "Euro-X", the X representing the number of countries in the euro zone. Finance ministers from the zone will meet before the regular monthly meetings of EU finance ministers to co-ordinate a wide range of areas, from budgetary policies to taxation.

The letter directly challenges Gordon Brown's assertion that Britain will set the agenda in Europe on employment policy, for instance. Among the areas the council will cover are "structural policies ... in particular employment and labour market policies on the adaptability of markets and on tax reform" as well as "evaluation of wage and cost trends". Britain will be excluded from meetings on these subjects.

The Chancellor made it clear yesterday that he is deeply unhappy with any bid to undermine the central role of Ecofin, the official EU council of finance ministers. "Ecofin remains the body that takes formal decisions," he said. Yet, according to French sources, Britain has been desperately jockeying to be granted at least observer status on the new council, a request neither Bonn nor Paris have so far been willing to countenance.

In Brussels for a meeting with fellow finance ministers, the Chancellor told reporters that Britain would not be sidelined. He said the Government's Commons statement committing Britain "in principle" to monetary union represented a "turning point" which would be enough to demonstrate the Government's pro-Emu credentials to its partners.

Mr Jospin and President Chirac will be seeking to defuse British hostility to the planned Euro-Council. France understands that the council is viewed with suspicion in London. But Mr Jospin will argue that the council will be in Britain's interest if sterling is merged into the euro in due course. It would provide a forum for some political and democratic management of the euro zone, balancing the purely technocratic and monetarist deliberations of the independent European Central Bank.

French officials are convinced that the Blair government has a schizophrenic view of the euro council. While Britain remains outside the single currency, it will inevitably be suspicious of anything that resembles the politburo of a hard-core Europe, from which it is excluded.

On the other hand, if Britain joined the single currency early next century, French officials believe the Blair government would incline towards its own view: that the euro council is an essential political counterweight to the purely monetary management of the European central bank.