Qualification for joining the euro depended on straightforward statistical criteria, but Britain's self-readiness tests are much woolier. ``I have to say that the government's tests are so broadly drawn that a lot will depend on the eye of the beholder,'' said Stewart at Merrill Lynch. And it was not clear whether Brown's Treasury or Blair's government as a whole would do the beholding.
The tests pose five questions:
-- Are the British and Continental European economies capable of "sustainable convergence?"
-- Can the euro cope flexibly with economic upheaval?
How would British membership affect investment?
-- What would the disappearance of the pound mean for the City, Britain's Wall Street?
-- Would euro membership increase British employment?
Beyond those issues, Brown wants to be assured that the European Central Bank in Frankfurt, Germany, whose policies and pronouncements on monetary policy have so far tended to confuse investors, can operate as openly and effectively as the Bank of England, whose autonomy in interest-rate policy was enshrined when Blair first took office in 1997.
Some of the economic gaps between Britain and the rest of Europe are closing. Benchmark interest rates set in Frankfurt and London are now just 0.75 of a percentage point apart, down from 4 points in 1999. Long-term rates are close together as well, and Britain's inflation is the lowest in Western Europe.
But there remains the thorny matter of negotiating the exchange rate at which Britain would join. Many investors expect the pound to be devalued sharply before entry.
The EU accounts for half of Britain's foreign trade, so the fates of the pound and euro are already linked. Bloomberg calculated this week that the two moved up or down in step against the dollar 92 percent of the time this year.
But "the current market rate would lock Britain in forever at an uncompetitive rate," said Michael Klawitter, a strategist at WestLB. When the pound is high, British exports cost too much to sell well overseas, while domestic producers are undercut by cheap imports.
British exporters want a substantial devaluation. "Ten percent off is a good starting point," said Bishop, the consultant.
"But then the question is: how to manage the rate downwards without provoking a serious sterling crisis?"
A rapid movement could ignite inflation, he said, provoking interest-rate increases from the Bank of England and widening the rate gap with Europe, just when it should be narrowing.
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