Full text of Lib Dem leader Charles Kennedy's February 25 speech to Britain in Europe.

"I am most grateful to Britain in Europe for inviting me here this morning. Britain in Europe hasn't had an easy time since its launch in 1999. But when I sat on that joint platform at the IMAX cinema with Tony Blair, Ken Clarke and the others, none of us were under any illusion that we were embarking on an easy ride.

We were then and we are now united in a great cause. It's easy when we talk about Europe to get too bogged down in the detail - to forget the big picture. Remember the first principles. The European Community was founded to achieve peace and prosperity. It's succeeded triumphantly. War between France and Germany is now unimaginable. Europe has enjoyed half a century of stability, half a century of social and economic growth. That was the vision of the founding fathers. We must never lose sight of it.

The euro is a powerful force for enhancing that stability and growth. It's high time we in Britain were a part of it. Those of us in favour of British membership know that we still have a big fight on our hands. But we're beginning to see clear signs that we're winning. We've seen the first polls actually showing a narrow lead for joining. One swallow doesn't make a summer, but the frosts of scepticism do seem at long last to be beginning to melt.

More significant still in my view is the majority response regularly recorded in poll after poll. 'I don't know enough about the euro yet', people say. 'I wish the government would tell me more.' Two thirds of those asked in the most recent survey admitted they were under-informed about the euro. 80 per cent said they wanted the government to give them more information.

So these aren't people who are root and branch opponents of the euro and all its works. They're sceptics in the good sense of the word. Not blinkered bigots. People who like to ask questions and have them satisfactorily answered before they make their minds up. That's a perfectly reasonable position to take.

The battle over Britain's role in Europe has raged for 45 years. One side effect is the collateral damage which it's done to the English language. The antis shouldn't have had the right to annex the word sceptic. Those on our side of the fence have always taken a properly sceptical view of any proposal for further European integration. We've examined the idea in detail. We've weighed all the factors in the balance. And then we've reached a judgment. We Liberal Democrats have never claimed that everything is perfect in the EU. We want wide-ranging reform of its institutions. We've argued for that long and hard.

The truth is that a great many of the so-called sceptics, on the other hand, are nothing of the kind. They're the ones who make knee-jerk judgments based on prejudice. They're euro-phobes, who cling on to an elusive and illusory notion of sovereignty. They will of course try to convince you at great length of their understanding of Europe. They'll claim to be great lovers of French cuisine or Italian opera or Portuguese port. But scratch the surface and in nine cases out of 10 you'll find a layer of the narrowest chauvinism.

They don't speak for the vast majority of people in the United Kingdom. There are large numbers of genuine sceptics out there waiting to be persuaded. We all have a duty to go out and sell the advantages of the Euro. But it's a particular duty for the government. They have the clout. They have the man and woman power. They're supposed to be masters of the arts of communication, black and white.

But up to now ministers, with one or two honourable exceptions, have been dragging not only their feet but every other part of their anatomies too. The prime minister's been particularly disappointing. I'd call on Tony Blair to have the courage of his convictions on Europe if I could really be sure that he had either courage or convictions on this issue.

What we need now is real commitment from the top. Just contrast the way in which another Prime Minister thirty years ago pursued the original goal of British membership of the Community. Ted Heath was single-minded, determined and visionary. If this Prime Minister won't claim his mantle, I shall be proud to do so.

I owe to Sir Edward, incidentally, my membership of the European Senate of Honour, for which he very kindly proposed me last month. I look forward to be addressed from now on as senator Kennedy.

There've been individuals in the other parties, like Sir Edward, who have given great service to the European cause. I look forward to working closely with them in the coming campaign. But over-long, frustrating years, it is only the Liberal Democrats who as a party have argued consistently, courageously and steadfastly for Britain to play its full part in the European Union .

In 2002 playing a full part in the European Union must mean joining the euro. 12 of the other 15 member states are in the single currency. Denmark and Sweden are both expected to plan referendums next year. That leaves Britain ignominiously straggling behind the field. We should take no pride in being the Eddie the Eagle of Europe.

The five economic tests - insofar as they have any meaning - are met. There remains one economic problem - the exchange rate. It's perfectly true that the pound is too high for us to enter the euro tomorrow. But if we set a clear timetable for euro entry, that in itself would push the pound down. Two years ago, we Liberal Democrats commissioned some of the world's most respected economists to look into the practicalities of joining the single currency. If the value of the pound was around 10 per cent less than it is at the moment, it would meet their criteria for joining. That's entirely achievable within a reasonable time frame. There's every reason to suppose that condition can be met and that we can hold a referendum in 2003.

And it's worth emphasising the benefits of bringing down the exchange rate of the pound. The overvaluation of sterling has had a devastating effect. 400,000 jobs lost in manufacturing industry since Labour came to power. This isn't down to the old British disease. We could still do better, but our industry has made progress in terms of productivity and investment. The problem is overwhelmingly due to the exchange rate - and to the volatility of sterling against the euro. It's meant a real struggle not just for our manufacturers to sell goods abroad - but for farmers and the tourist industry to make ends meet at all.

So it's time to concentrate minds. We should set a clear timetable for a referendum on the euro next year. June 5 would be an obvious date - the exact anniversary as it happens of the pro-European victory in the 1975 referendum. That means a bill in this year's Queen's Speech to allow the vote to take place. It'll take two years from a successful yes vote before Britain can actually sign up to the euro. Put the referendum off any longer, and the next general election could take place before we're in. The last thing we need is the further confusion of the Tories campaigning in that election on a 'let's get out before it's too late' ticket.

Our party must be bold and resolute in our fight for this cause. Labour have fallen down on the job. We have to go out there and sell the advantages of the euro. We have to tell people about the extra jobs it will bring, the lower mortgages, the cheaper prices, the boost to trade, the savings made by not having to change money when you move from one European country to another.

It's a powerful case - an overwhelmingly powerful case. More shame on the government for not having made it. New Labour's so timid that you sometimes feel that it's afraid of its own shadow.

And come the referendum itself, we shall enjoy another advantage - the forces ranged against us. They'll be led by Iain Duncan Smith, Bill Cash and Michael Howard. Not just something but everything of the night about that group of individuals. The forces of light have every chance of prevailing. But only if we keep fighting the battle even harder than we have already. Only if we get the long-overdue reinforcements that we need from the Labour Party.

Let's consider for a moment the latest argument from the eurosceptics. The euro, they say, is a distraction. The government has a more important task to perform. Ministers should be getting on with sorting out the public services, not bothering their heads with changing currencies.

This argument is, of course, total nonsense. No government in British history has had the luxury of being able to deal with one issue at a time and ignore everything else. What are the sceptics suggesting? That Britain should have sat out the international coalition against terrorism? So why shouldn't the government be capable of entering the euro and improving hospitals, schools and transport at the same time? As Hugo Young said in the Guardian last month, 'awaiting public service perfection is just another excuse for never putting the euro to the people'.

In any case, it's no accident that schools, hospitals and trains are all a great deal better in the eurozone than they are in the UK. Even Iain Duncan Smith has been forced to admit that they do some things rather better on the Continent than we do here. His shadow ministers have been touring the member states. Presumably they wanted to see what Britain could have been like if we hadn't had eighteen years of Tory government. But there's one truth which they'll never admit. The euro is creating a prosperity which will give these countries better public services still.

The comparisons are stark. Who would seriously opt for a one-stop £1.50 ride on the London Underground against paying a fraction of the price to go as far as you like on the clean and reliable Paris Metro? Who would choose to rattle along on a slow, delayed overcrowded British train from London to Manchester rather than take the TGV from Paris to Lyon? Who would rather wait a year for an operation at a British hospital than have it on demand in a German one?

The other argument beloved by the sceptics is one size can't suit all. One country, they say, might need a cut in interest rates at the same time as another's rates had to go up. Well, there's some strength in this argument. But interest rates are not the only economic lever which a government has to pull. It can still change levels of tax and spending.

Besides, all countries - with the possible exception of Argentina - operate with a single currency within their borders. The pound has the same value all over the UK. But often the economy of the North East, for instance, might be depressed while the economy of the south east of England is overheating. In the 10 years to 1999, GDP in the South East grew by 82 per cent. In the North East it only went up 51 per cent. Yet nobody argues for separate North East and South East currencies. You don't need to check the exchange rate between the Geordie groat and the Guildford guinea. Within national borders, governments find other ways of stimulating the economy or damping it down.

But not having the same currency can be a severe barrier to trade. Take Canada - a country I know well - my sister lives there. Canada's part of the North American Free Trade Area which includes the United States. If you look at the map, you can see the logic of businesses in the Canadian provinces trading with their southern neighbours in the USA. Communications between British Columbia and Washington State, for instance, are just as good as they are with the next-door Canadian province of Alberta. Yet the Canadian provinces do 20 times as much trade with each other as they do with the United States. The overwhelming explanation must be the currency barrier.

Britain's trade with the EU is already much more important than our trade with any other region. The eurozone takes over 50 per cent of our exports. The United States takes a mere 15 per cent. Joining the single currency would give a big boost to our trade. We could look forward to greater prosperity, more jobs and lasting stability.

If the economic arguments for joining are powerful, the political arguments are stronger still. There's a great deal which I want to see changed in Europe. We urgently need to see reform of the Common Agricultural Policy. The way the CAP was originally framed was contrary to the interests of Britain and its farmers. Reform so far has fallen far short of the changes needed. The EU can't be enlarged unless they go much further. But why was the CAP formed that way? Because Britain had shown no interest in joining the original Common Market. And why has our view on reform not prevailed up to now? Because we haven't been prepared to full part in the EU. Because we haven't joined the Euro. We can't expect our partners to pay full heed to our views while we stay on the sidelines.

There are other changes which are urgently needed too. The EU must become more open and more accountable. The Council of Ministers must stop meeting in secret when they're acting as a legislature. We need a constitution for Europe, which will set clear limits to its powers. But again we can't expect our arguments to prevail if we're only off-peak members of the club.

I've been fighting for Britain to engage properly with the rest of Europe for all of the 20 years that I've been in full-time politics. It's often been a frustrating experience. But the rewards if we succeed will be enormous. The end is now in sight. Let's have the referendum and let's put every effort into winning it. Because Britain will be a better, stronger and more prosperous country as a result."