UK 'must join new ERM'

In a move that is certain to infuriate the Tory right, Europe's big powers yesterday launched a new drive to force Britain into a single currency, and insisted it must join a new exchange rate mechanism in preparation.

The European Commission raised the stakes further by proposing that countries that did not join full monetary union in 1999 should be inside it by the year 2002, when Euros and cents will come into circulation.

It also proposed that EU member states whose economic performance does not meet the rules for monetary union should have their budgets vetted in Brussels before being passed by national parliaments. The idea was described by a leading Tory last night as "in the world of fantasy".

At a meeting in Verona, Italy, yesterday, European finance ministers took no view on these proposals. But Germany and France insisted Britain must join a new exchange rate mechanism (ERM2) in the run-up to European monetary union.

The unexpectedly rapid drive towards a common currency is already alarming Tory backbenchers, and MPs returning from the Easter recess on Tuesday will warn Mr Clarke that Britain must say "Sorry, no."

The Chancellor said yesterday he had won agreement that there would be no obligation on Britain to join an ERM2. "There is no prospect of Britain joining any ERM in the foreseeable future," he insisted. There were no legal provisions that could force Britain to join, he said.

However, Germany and France, backed by the European Commission, insisted "a majority" had agreed membership of an ERM2 would be a "condition" of entry to monetary union, and that Britain would have to be inside an exchange rate mechanism for two years prior to joining. Only Sweden took Britain's side in arguing the Maastricht Treaty contains no legal right to insist on ERM membership.

Tony Marlow MP, a leading critic of the EU, said 90 per cent of Tory backbenchers had become Eurosceptic over the past four weeks because of "the total nonsense over BSE". On the currency issue, he added: "The whole thing is bogus. The Commission doesn't have these powers, and we will not give them to them."