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Mon, May 26, 2003 - Page 12 News List

Five economic tests give open space for political maneuvers

DELIBERATE AMBIGUITY A fresh chapter in the debate over whether the UK is ready to adopt the Euro and a common fiscal policy has begun


As British ministers pore over reams of research on whether five economic tests for euro entry have been passed, experts warn the questions are so ambiguous they can be made to say almost anything the government wants.

While the vagueness is deliberate, they say, it renders much of the debate on what is perhaps Britain's hottest political topic somewhat redundant.

Initially published in 1997 spanning a 40-page document, the five self-imposed economic tests were designed by Britain's Treasury to see whether a "clear and unambiguous case can be made" for abandoning the pound.

Chancellor of the Exchequer Gordon Brown is due to announce the decision on June 9 after discussions with his ministerial colleagues.

Cabinet members were therefore handed last week the Treasury's response to the tests -- no fewer than 18 studies totalling almost 2,500 pages.

The decision to impose the tests was originally "a sound one," says Professor Ray Barrell of the National Institute of Economic and Social Research, a leading independent economic think-tank.

"In 1997, it would have not been wise to join, the exchange rate wasn't right, the economies were different," he said.

"It was a good idea, but the five tests are clearly ambiguous. It was politically intentional, the tests can be answered in a number of different ways."

The first two tests -- whether there is enough economic convergence between Britain and the existing euro zone, and if sufficient flexibility would remain once monetary policy is decided in Frankfurt -- appear especially open to interpretation.

With Britain and the rest of Europe currently experiencing different economic conditions, the first test could easily be used as a culprit, said Barrell.

"If a politician were looking for an excuse to say that the tests have temporarily been failed, it would be an obvious one to choose," he said.

On the issue of flexibility, the government could also find fault.

The European institutions are getting bad press and the European Central Bank has been criticized, while France and Germany are breaching the euro-zone budget deficit rules which are seen as inflexible, Barrell noted.

The next two tests, concerning the effect on investment in Britain and on the country's financial services industry, would appear more straightforwards.

Yet even here the anti- and pro-euro camps can both claim the high ground, with a series of top business leaders backing either side of the argument.

Perhaps the vaguest test of all is the last: Overall, will joining the euro "promote higher growth, stability and a lasting increase in jobs?"

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