Tony Blair last night shifted position to avoid Britain being excluded by France and Germany from key decisions over the creation of the European single currency.
The Prime Minister was engaged in a rapid round of telephone diplomacy with European Union leaders to thrash out a deal before the Luxembourg summit on Friday.
Gordon Brown, the Chancellor of the Exchequer, had demanded a place for Britain on the "Euro-x" committee - the countries which have announced that they will be in the first wave to enter the single currency in 1999.
But in a move to avoid suffering a rebuff at the Luxembourg summit, Mr Blair shifted Britain's stance to insist that the committee remains subservient to Ecofin, the European Council of Ministers, which includes Britain.
It had been thought that Mr Blair would accept a compromise move to put Britain on the euro-x committee without voting rights.
The Italian Prime Minister, Romano Prodi, offered his support last week at a private meeting with Mr Blair in Downing Street for Britain to be given "observer" status on euro-x.
But Mr Blair yesterday told Jean-Claude Juncker, the Prime Minister of Luxembourg, which is due to hand over the EU presidency to Britain after the summit, that giving Britain a seat on the euro-x committee without voting rights would not be enough.
Mr Blair said a euro-x group comprising the "ins" would be discussing many issues such as employment policy, structural reform and the economic argument about labour market flexibility that crucially affected the "outs", including Britain.
The Prime Minister conceded that while there would be some areas which would apply only to the "ins", such as the entry of another country to the single currency, these should be the exception rather than the rule.
Ministers fear that the French and Germans are holding out for the exclusion of the "outs" to be the rule, rather than the exception, leaving hard bargaining at Luxembourg if a deal is to be reached.
Lionel Jospin, the French Prime Minister, underlined the resistance among the "ins" yesterday.
He told the Financial Times: "The rules have yet to be defined but the UK, which invented clubs, should not complain at being excluded."
The Prime Minister's official spokesman said: "The most important point is that Ecofin has to remain the main decision-making body. Any other body must be subservient to that and key decisions must involve the `outs' as well as the `ins'."
Asked whether Mr Blair would be using the veto to deadlock the talks if he did not get his way, the spokesman said: "We don't talk these things up in the way that the last government did."We aim to achieve these objectives - that Ecofin is the main body and any euro-x body must provide the `outs' can contribute as well as the `ins'."