Mandelson says post-war Britain should push to join euro

Tony Blair should push for British membership of the euro as soon as Saddam Hussein is toppled from power, Peter Mandelson, a former Northern Ireland Secretary, said last night.

Given his closeness to the Prime Minister, Mr Mandelson's remarks will fuel suspicions that Mr Blair is to use a war on Iraq to finally wrest control of the single currency policy from the Chancellor, Gordon Brown.

Speaking to a pro-euro group in Manchester, Mr Mandelson said that Britain would "slip backwards" in the European Union unless the Government made a decision soon to support the euro.

He explicitly linked the decision on the euro with military conflict against Baghdad, claiming that a resolution to the crisis would give a golden opportunity to finally "come off the fence" on the single currency.

"When the present crisis over Iraq is behind us, settled, I hope, in the interests of the people of Iraq and the region, and in accordance, fully, with the demands of the United Nations, we in Britain will have choices to make and ground to catch up," he said.

"Are we going to be talking a good game in Europe but, in fact, ultimately spurned because our actions don't seem to match our words?

"And are we going to perennially put off a decision about the euro because, somehow, the courage of our convictions eludes us? Putting off decisions is not what made New Labour what it is."

The Government is due to announce the results of the Treasury's assessment of the five tests for British membership of the euro by June at the latest. Many expect the verdict will be negative, but pro-euro campaigners want a "not yet" judgement that allows a further reassessment next year followed by a possible referendum.

Despite the scepticism of the Chancellor, Mr Blair has not given up on the idea of holding a poll this Parliament and privately confides that he is determined to see one happen.

Mr Mandelson suggested the Government should rewrite the Chancellor's prized five tests to ensure the costs of staying out of the euro were weighed against the risk of membership. Labour would not be lightly forgiven if it made a "painful misjudgement and lost nerve" over the euro, he said.