The Cabinet decided to stick to its existing policy on the single currency at a meeting chair-ed by John Major to review the Tories' strategy for the election, now expected to be on 20 March or 10 April.
The decision means it is highly unlikely that any change in the policy will be made before the election, in spite of plans by more than 100 Tory MPs to fight on personal manifestos, rejecting a single currency.
The setback for Mr Howard was seen by Euro-sceptic Tory MPs as a final defeat for their campaign to force the Chancellor to rule out entry into the single currency for the lifetime of the next Parliament.
Mr Clarke agreed to return in the New Year with a further report setting out the basis on which the Government will judge the convergence criteria for the single currency. That could enable Mr Howard and other Euro-sceptic ministers to rally in the New Year, but the prospects for a policy change were discounted at Westminster.
"As far as the Cabinet is concerned, it's all over now," said one leading Euro-sceptic. Mr Howard failed to gain support around the Cabinet from other Euro-sceptics. "Michael Portillo does not say much these days," said one former minister.
John Redwood, the champion of the Tory right, yesterday said the single currency preparations were causing unemployment across Europe and the criteria were being fudged. He called on the Cabinet to show unity: "It is most important that the Cabinet speaks with one voice, and that there are no stories of splits or rows."
A senior Conservative source said: "They had a discussion about the election strategy and then remained in political session to discuss the Chancellor's paper and EMU. The Cabinet confirmed the present negotiate-and-decide strategy.
"It was agreed that the Chancellor of the Exchequer would bring forward a paper exploring the basis on which the Government would judge those criteria at the right time."
The meeting followed reports that Mr Howard had defeated the Chancellor when he won Cabinet backing for him to present a paper to the Cabinet on the single currency criteria.
Hopes were raised among the Euro-sceptics that the his critics would ambush Mr Clarke, who had made clear he would be against entry into the single currency if the convergence conditions were "fudged". Euro-sceptic Tory MPs said the French government's use of public sector pensions to lower its debts was evidence of the criteria being fudged. The Treasury said it would be after the election, in late 1997, before it could make any judgment.