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Opinion

Against the tide - The UK and Emu: the sixth test

by David Roche

UK entry into European economic and monetary union (Emu) is becoming less likely. There's scant evidence of cyclical convergence with the eurozone economies. Interest-rate differentials are widening. And the weak euro has increased the political risk of holding a referendum on membership.

A successful campaign for Emu entry will have to wait at least until after the next general election in 2001. And unless popular support for the project recovers, it may not happen at all.

Shortly after the Labour party's landslide election victory in May 1997, chancellor of the exchequer Gordon Brown spelled out the circumstances under which the UK would join Emu - sustainable economic convergence, flexibility, continued inward investment into the UK, no obstruction to UK financial services, and Emu participation boosting employment. His five economic tests were designed to pacify the doubters but left the door for British entry into Emu ajar.

Most of the tests are intrinsically quite ambiguous - more qualitative in nature than anything else. The only really verifiable test is the degree of cyclical economic convergence between the UK and the euro block.

On that test, there's little evidence to suggest that the growth gap is closing.

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