The UK government’s policy on membership of the single currency (the euro) remains as set out by the Chancellor of the Exchequer in his statement to the House of Commons in October 1997, and again in the Chancellor’s statement on the five tests assessment in June 2003.

The determining factor underpinning any UK decision on membership of the single currency is the national economic interest and whether the economic case for joining is clear and unambiguous. The Chancellor announced in the 2005 Budget that “In this Budget the Treasury does not propose to initiate a further euro assessment”. The Treasury will again review the situation in the 2006 Budget.

The five economic tests

Convergence: are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis?
Flexibility: if problems emerge, is there sufficient flexibility to deal with them?
Investment: would joining EMU create better conditions for firms making long term decisions to invest in Britain?
Financial services: what impact would entry into EMU have on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets?
Growth, stability and employment: in summary, will joining EMU promote higher growth, stability and a lasting increase in jobs?

Current assessment

The five tests assessment of 9 June 2003 came to a clear position.

“Overall the Treasury assessment is that since 1997 the UK has made real progress towards meeting the five economic tests. But, on balance, though the potential benefits of increased investment, trade, a boost to financial services, growth and jobs are clear, we cannot at this point in time conclude that there is sustainable and durable convergence or sufficient flexibility to cope with any potential difficulties within the euro area."

"So, despite the risks and costs from delaying the benefits of joining, a clear and unambiguous case for UK membership of EMU has not at the present time been made and a decision to join now would not be in the national economic interest.”

For further general information, including details of the Government's policy and on the euro and business, visit HM Treasury's euro website.