Election '97: Major attacks EU plan to replace G7

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John Major last night attacked as "absurd and arrogant" a suggestion by a European commissioner that Britain could be marginalised if it did not join a single European currency.

The Prime Minister changed his speech at a rally in London after Yves- Thibault de Silguy, the commissioner responsible for monetary union, said that the G7 group of industrial nations, which includes Britain, could be replaced by a "G3" of the United States, Japan and the European Union after monetary union.

Incensed by the commissioner's remarks in a speech to the Institute of International Finance in Washington, Mr Major said: "London is one of the financial centres of the world and will stay that way."

Tory strategists believe it hands them a weapon for the final hours of the election campaign. Mr Major said: "It was just the kind of danger I have been warning about. I would never accept that. But Labour's surrender would lead us to a federal Europe".

However, Tony Blair was also quick to criticise Mr de Silguy's warning. The Labour leader added on Channel 4 News that "as far as I am concerned it is not going to happen".

Mr de Silguy argued that the euro would become one of the three dominant world currencies, along with the dollar and the yen, and that it would make sense for the euro-zone to speak with one voice. The "G3" would replace the present G7 system where global financial issues are discussed by the world's top industrial nations - currently Britain, Germany, France, Italy, Japan, America and Canada.

The Chancellor of the Exchequer and Governor of the Bank of England would no longer meet their counterparts regularly to discuss exchange rates, trade issues and global problems like money laundering and the economic plight of Russia and Eastern Europe. If Britain failed to join the single currency it would not only lose its seat at the top table, but would also see the interests of the pound marginalised in global talks.

Mr de Silguy said economic and monetary union was now "irreversible" and the future system of co-ordinating international monetary policy had to be finalised before the launch of the single currency on 1 January 1999. "What will be the framework for this co-ordination? Should the G7 finance format be modified? Should a G3 be created?" he asked

"It will be essential for the euro area to be able to speak with one voice. This will be the case for monetary policy since it will be represented by the President of the European Central Bank. But the arrangements for its political representation - that is at ministerial level - have still to be defined."

He said the United States and Japan along with other countries would justifiably expect to deal with a single spokesman for the economic policy conducted by the euro area. "These questions will require detailed discussion, both within the Community and with its partners."

Mr de Silguy's spokesman said he was putting the question on the agenda rather than making a proposal, and the issue was likely to be debated by European finance ministers. He said Mr de Silguy had no preconceived ideas about who might be the EU's political representativealongside the president of the new European Central Bank.