The prime minister and the chancellor have suggested that there will be no referendum on joining the single currency this year.

Tony Blair and Gordon Brown jointly issued a Treasury document stating that EU countries had not modernised their economies sufficiently to ensure the euro was a complete success.

The study - "Meeting the Challenge: Economic Reform in Europe" - suggests the Treasury's second test for membership of the euro, on economic flexibility, has not been met.

The report states: "To be successful in EMU [Economic and Monetary Union], countries need even more flexibility to adjust to change and to unexpected economic events, since the ability to vary interest rates and exchange rates within the euro area no longer exists."

The chancellor said last night: "Levels of productivity, employment and growth have consistently under-performed those of the US in the past decade."

Meanwhile, a Financial Times survey of 40 foreign companies with manufacturing bases in the UK warns they would be less likely to invest here if Britain decides against euro entry.