Blair plans new drive to 'talk up' the euro

Tony Blair is to lead a concerted government drive to "talk up the euro" because of Treasury assessments that the pound's exchange rate with the single currency is the biggest bar to British membership this Parliament.

The Prime Minister is being advised to refer to the problems of the exchange rate in every speech he makes on Europe to try to persuade the markets to lower the value of sterling.

Although both Downing Street and the Treasury are determined not to be seen "talking down the pound", there is now a recognition that a signal needs to come from the highest level if Britain is to join the euro in the next four years.

The move comes amid economists' projections that sterling needs to depreciate by between 10 and 15 per cent against the euro to make British membership sustainable.

The Treasury dismissed reports that a 30 per cent devaluation would be needed, repeating that the Chancellor's five economic tests had to be passed before a referendum could be recommended.

An old-style devaluation would be politically impossible for Labour, and the Government is aware that a sudden drop in sterling could trigger inflation.

Just as important will be the Prime Minister's reiteration that he believes passionately in membership of the euro in principle, and convinced that a referendum is winnable.

Pro-euro ministers are sure that the Chancellor's five tests, particularly economic convergence, will be met in the Treasury's assessment.

However, they are aware that both the pound-euro and the dollar-euro exchange rates are a much bigger obstacle to British membership.

"We can't just hope the exchange rate will move. We have to do something to send the markets the message," a senior source said.

Mr Blair told The Independent last week that the public was now "less afraid" of joining the single currency and that he was "more than ever convinced that Britain's rightful place is at the centre of Europe". Senior government figures also believe support for the currency will increase this year as more Britons travel abroad in the summer.