The currency conundrum: Brown warms to euro as US fears challenge to dollar

The Chancellor faces probing questions in Brussels. Sarah Helm reports

The Chancellor, Gordon Brown, will today meet European finance ministers, amid intense speculation about the new Labour government's intentions towards the single currency.

Expectations that this government will take a more positive attitude towards monetary union than the previous Tory government were raised last week when the Chancellor announced moves to create an independent Bank of England - a key stipulation of the Maastricht treaty.

Although there will be no formal discussions on the changes at today's Brussels meeting, the reforms will be raised over lunch, when Mr Brown's colleagues are certain to take the chance to probe him on his attitude towards the euro. They will hear him repeat his assertion that the changes to the Bank of England are unconnected with the single currency. Furthermore, the Chancellor is certain to assert again that joining in the first wave is "very unlikely" and that Britain must "wait and see".

Nevertheless, other European leaders are well aware that the decision on the Bank of England came after a week of strong pro-European overtures from the new government on several fronts and a clear desire to start shifting public opinion away from the intense Euro-scepticism, fuelled during the election campaign.

Last week also saw the decision to appoint an avid supporter of the single currency, Sir David Simon, to a key ministerial role promoting competitiveness and the single market in Europe. In a recent pamphlet - Emu the case for joining, Sir David argued that introduction of the single currency would be a boon to British industry and entry should not be delayed.

Mr Brown should almost certainly be taken at his word when he says it is "very unlikely" that Britain will join in the first wave.

However, it must be reasonable to assume that his government will soon start preparing to join in a second wave - probably by 2002. This is the year that euro notes and coins are due to start circulating for the first time, and the year by which it is assumed all states which do not join at first will be inside the euro zone.

Whatever date may be considered, it must be true that from now on the question dominating British government thinking on Emu will not be "if", but "when."

Mr Brown, already the most committed supporter of Emu in the Cabinet, will discover today at the finance council (Ecofin) just how concrete plans for the single currency already are.

Until now Labour, like the pervious government, had been able to claim that Britain can "wait and see" because the single currency may not even happen. But the Chancellor will now realise that time to "wait and see" is fast disappearing and that Emu is likely to happen on time. Certainly, Germany will struggle to bring its figures into line this year and success by French socialists in the French elections could affect the Emu timetable.

But as Mr Brown rubs shoulders with the likes of Theo Waigel and Jean Arthuis, the German and French finance ministers, he will sense the massive political will to meet the deadline. The Chancellor will also see for himself the highly advanced plans to ensure the project works.

Mr Brown will help to finalise details of the stability pact, the system of rules and fines which will underpin the entire operation on the single currency. He will also consider a plan for a new exchange rate mechanism (ERM 2) which countries outside the first wave are to join. Mr Brown will even have a chance to discuss the design of the new euro coins.

Furthermore, the Chancellor will find that Britain's path to membership now lies open should it choose to join. Thanks to Kenneth Clarke, the previous chancellor, Britain is already lined up to meet the criteria. The most crucial deadline now facing Britain is the obligation, contained in the Maastricht treaty, to "notify" its partners of whether it intends to join the first wave of Emu by the end of this year. Decisions on which countries can join on 1 January 1999 are to be taken in early May next year, under the British presidency.

The Government is unlikely to focus attention on its decision until next month's Amsterdam summit on European political reforms is safely behind it.