Outlook: Erm, here's a piece of Euro-fudge to chew on

BACK in the 1970s Britain was the basket case of Europe. Rigid labour markets, an overweening state sector, high inflation and a tax and spend mentality. You name it, we had it. Then Mrs Thatcher came along and the painful process of readjustment began. Just as the experiment was about to succeed she was lured into the Exchange Rate Mechanism. Two years later Thatchernomics was dead and the country was in the grip of a deep recession. The climb back to recovery only began the day Norman Lamont sang in his path, Britain left the ERM and the pound underwent a competitive devaluation.

It is easy to see why the present government is wary of re-entering a fixed exchange rate system. The 1990s-style Britain could walk into Economic and Monetary Union tomorrow but it will not, indeed cannot, because the accompanying reduction in interest rates would blow the lid off the economy.

Eleven other European countries have no such qualms, however. Yesterday they were duly declared fit and proper members of the single currency after a classic piece of Euro-fudge.

The architect of the project, the European Commission, has chosen to ignore the fact that two of the founder members, Italy and Belgium, have debt to GDP ratios that make the eyes water. They are double those permitted under the Maastricht convergence criteria. That spells pain to the people if they are to keep within the limits of deficit to GDP at the same time as servicing their debt.

Likewise plucky little Finland is being welcomed into the euro-fold even though it has not been in the ERM for the requisite two year period whereas the Swedes, who do not want to be in the first wave anyway, are not being admitted because they are not ERM members at all.

Gordon Brown reasserts that Britain has no intention of re-joining the ERM. Brussels meanwhile talks tough about membership being a necessary pre-cursor to joining the single currency.

But as yesterday's pantomime shows, qualifying for entry depends more on having the political will than meeting the convergence criteria. If and when Britain chooses to sign up, some other fudge will be found to smooth the way. The question is whether, by then, it will want to join the sort of club that would have it as a member.