Tony Blair's preparations for a referendum on the single currency are about to be dealt a severe blow by France, which plans to block his demand that the European Union agree on key economic reforms.
France's refusal to budge will be seized on by ministers – led by the Chancellor, Gordon Brown – who are sceptical about an early referendum and want to see further change in the EU before Britain joins the euro.
Last year, the Prime Minister described an EU summit, due to take place in Barcelona in March, as a "make or break" meeting that would have a "crucial" effect on Britain's decision on whether to join the euro.
At the time, Mr Blair hoped that France would finally drop its ban on British firms selling electricity and gas in France. The UK has already implemented rules under the EU's single market that have allowed French firms to take over British energy companies.
Now British ministers admit the French government will not give way because the summit is due just before France's presidential election and the move would be unpopular.
Ministers have begun a drive to lower expectations ahead of the summit. Peter Hain, the minister for Europe, said he did not expect "a major final solution" on energy liberalisation but hoped there would be some progress on economic reform.
In a speech on Wednesday, Mr Hain will urge British firms to quicken the pace of reform by working more closely with their European counterparts.
Two years ago, the EU's first economic summit in Lisbon agreed to an ambitious target to create 20 million jobs over the next 10 years. So far, two million have been created and Britain wants to quicken the pace.
Foreign Office sources said yesterday that the Government was "not downbeat but realistic" about the prospects for a breakthrough in Barcelona. But they insisted that the EU's 10-year reform programme was "on course".
Officials in Brussels conceded that an agreement on gas and electricity would not happen in March. "We have to get real and focus on what is achievable," one diplomat said. In a progress report on Tuesday, the European Commission is expected to criticise the EU member states for not delivering on their promises to implement reforms.
The so-called "dot.com" summit in Lisbon in 2000 pledged to "speed up liberalisation in areas such as gas, electricity, postal services and transport". While little progress has been made on the first two, EU member states have agreed to allow more competition into the postal service.
The follow-up summit took place a year later in Stockholm. Romano Prodi, the president of the European Commission, is frustrated over several stalled initiatives.
The commission's chief spokesman, Jonathan Faull, said this week's report would give details of "what has been done and what needs to be done to fulfil what was laid out at Lisbon and achieve the goal of making the EU the world's most competitive economy by 2010".
There is the prospect of progress on some important, unresolved issues, including the establishment of an EU patent. This initiative has been bogged down in a dispute over which languages should be used and fears that the British patent office will boost its position.
A breakthrough may be possible over efforts to reach a deal on setting in place an agreement on creating a "single European sky". It has so far been deadlocked because of friction between Britain and Spain over Gibraltar airport. Other initiatives that could prosper include ideas for pension reform, a review of state aids and moves to boost internet access throughout the EU.Reuse content