The full text of Peter Mandelson's speech on the euro to the London Chamber of Commerce and Industry.

The challenge of the Euro

The House of Commons Treasury Select Committee yesterday published an informed and even-handed report on the Single Currency but you would not have thought so reading some of its newspaper treatment.What passes for our national debate about the Single Currency is beginning to be about anything bar the actual economic implications of whether we go in or whether we stay out.

This pleases those who are opposed. They want it to be about politics rather than economics. Political sovereignty, political federalism, political splits, political rivalries, which politician is up, which down, who's in control.

But the reason why I - and getting on for 100 Labour MPs - have signed a backbench motion supporting British membership of the Euro and a referendum this Parliament is because we care about the economic consequences for our constituents, for hard working people to whom, in the longer-term, this decision could mean the difference of having a job or not.Of course there is, additionally, a major strategic dimension to the decision. As the Prime Minister said in his Party Conference speech last autumn, being at the heart of Europe is Britain's destiny.

Britain cannot be a leader in Europe if it is not part of Europe's core and that core is defined by Europe's single currency.

While remaining half in, half out of Europe, we not only deny the UK economy the benefits of being part of the eurozone but we sacrifice the vital political influence we need across the whole range of European policies.

I believe this political argument, first made by Tony Blair before Labour came to office, is stronger than it has ever been.

Britain should not leave it to others to dictate the shape of arrangements so vital to our own national interest.

If Britain wants to ensure that Europe works in constructive partnership with the United States; if we want a stronger European defence compatible with NATO; if we want to push through economic reform in Europe and benefit jobs in Britain; if we want to reform the CAP and pursue the Doha trade Round; if we want to ensure that Europe's new constitution does not pave the way to a federalist superstate - then there is only one thing to do.

"The way to get the right answers is by being in there, vigorous, confident, leading in Europe not limping along several paces behind". Not my words but Tony Blair's, last year.

But that is not the central reason for the Euro.

Membership is vital to our national economic interests; the jobs, living standards and future prosperity of hard working people, of trades unionists, middle managers and public servants across the country.

The economic case for the Euro

Europe's Single market is our home market.

The creation of the Euro represents a huge leap forward in economic integration within that single market - eliminating as it does currency risk and stimulating cross border trade within the Euro area.

Just as the railroad and the adoption of a single US dollar united America's regional markets into a vast continental economy a century ago - providing the foundations for America's spectacular economic success in the 20th century - so the Euro and accompanying measures to meld together Europe's national markets have the potential to invigorate Europe's economy in the 21st century.

Companies operating within the single market and single currency have a permanent long-term competitive advantage as a base for investment over companies operating inside the single market but outside the single currency.

This potential disadvantage for Britain has been masked as long as business thought that we were about to join.

But if business takes seriously the belief of no single currency for Britain before 2010 at the earliest, then the loss of confidence will be severe. And it will be investment, jobs, growth and productivity in Britain that will suffer.

One of the biggest single successes of economic policy in the last 15 years has been Britain's ability to attract the lion's share of inward investment into Europe's Single Market.

This has single-handedly led to the renaissance of car manufacturing in Britain.

It has brought new standards of quality, performance, training and personnel management across a wide range of industries.

It has meant new hope and new opportunity to traditional industrial regions like the North East that I represent in Parliament, as well as here in the south.

Rejection of the single currency this Parliament will put all this at risk as highly mobile global investors take long-term decisions based on their desire to locate at the heart of Europe's Eurozone rather than on its borders.

I know as co-chair of the Government's UK- Japan partnership how much is at stake in terms of future Japanese and other Asian investment in the UK.

As Carlos Ghosn, chief executive of Nissan, has said recently of the Government's decision on the Euro: " If the signs are clear and reassuring, we will reinvest in Sunderland. If there are too many risks we will go elsewhere. We want our main cost base in Europe to be the same currency as our receipts".

What could be clearer than that ?

Or the president of Toyota ruling out expansion of their plant due to "the Euro problem"?

Or the president of Alstom UK saying if Britain does not go into the Euro, he will "recommend moving 50 per cent of manufacturing out of the UK".

Or Niall Fitzgerald, chairman of Unilever, saying that staying out of the Euro would lead him to question whether Britain was indeed "the appropriate place for the headquarters of an international company".

Already outside the Euro, our share of inward investment is falling.

According to the UN World Investment Report, Britain's share of foreign investment in the EU has slumped from 28 per cent in 1998, the year before the Euro's launch, to an estimated five per cent last year.

Of course, timing must be determined by the economics, but economics of the real world and not just that of economic theoreticians.

In 1997 our inflation and interest rates were significantly out of line with the core Euro area.

Sterling was overvalued and was about to strengthen more.

These arguments provided a proper justification at the time for postponement of our entry.

But inflation and interest rates are now substantially convergent - and the pound has fallen against the Euro. And indeed we are more convergent today than many of the Euro zone countries were in 1997 or are today.

As a result, the risks of joining today are infinitely less than they were three or more years ago.

Announcement of the Government's intention to join would send a signal to the market to complete the necessary adjustment. Because inflation is low, and output below capacity, we could manage that sterling depreciation.

In many ways it is an ideal time to do it although I can understand the desire, in view of current international economic uncertainty and the continued easing of the housing market, to take a final look next year.

The costs of staying out

Yet despite the clear evidence that the economics is coming right, the realistic possibility of a referendum may be ruled out for this Parliament.

I have not seen the assessment and I wish the research work undertaken for it could have been published for everyone to examine.

And contrary to the way this subject is reported, I do not make speeches on behalf of Tony Blair. I do so because I believe passionately in what is in this country's interests.

But when a Labour Government committed by its own statements to British membership of the Euro has been elected by massive majorities, and when to most objective eyes, the progress towards convergence has been substantial, we cannot blame international business for cavilling at what looks like another Duke of York act of marching the troops up the hill and marching them down again.

For promises of another look "sometime in the future" or in the "next Parliament", I fear business will read "never" and act accordingly.

It may be that it is possible to demonstrate that the Five Tests have not been passed in a "clear and unambiguous" way.

But by ignoring the costs of staying out - lost trade, lost inward investment, lost productivity gains, instability caused by a volatile currency and a loss of influence over European economic reform - the achievement of this Labour Government's central economic objectives is being endangered.

First to suffer will be the much needed rebalancing of the economy away from private consumption towards investment, manufacturing and exports. For that is the rebalancing that joining the Euro at a sensible exchange rate would bring.

Second, the regions will lose trade, inward investment and the jobs that depend on them.

These are in the main good jobs with decent pay and conditions in good manufacturing companies - Labour jobs in Labour areas that have brought hope and opportunity to the deprived regions of Britain after the devastation Thatcherism wrought.

Third, there is the issue of productivity.

A volatile currency, an unbalanced economy and a lack of competition - all of which are linked to our Euro isolation - are holding back productivity in the economy and, with that, the potential for increasing living standards in future.

Fourth, we will be less able to afford decent public services.

In the short term, we have to hope for the big bounce back in business investment and buoyancy in corporation tax receipts foreshadowed in the Budget.

But an adverse Euro decision makes business less likely to choose to invest in Britain. It undermines the health of our long term economic base and makes it more likely that at some point in future we will have to make hard choices as a government between tax increases and lower public spending.

Of course, a decision to join the Euro is not without some economic difficulties. Living successfully within a single currency does require a more flexible economy. Britain's economy is widely recognised as being among the most flexible in the world - and it has become more so since 1997 - which makes us all the more capable of outperforming our continental rivals once the handicap of using a separate currency is removed.

Germany certainly needs economic reform. Europe's economy as a whole grows more slowly without this, whether Britain is in or out of the Euro. But "in" we could argue more credibly for reform.

Yes, changes are needed in the Eurozone's Stability Pact but, as it is, there is no risk of it restricting Britain's freedom of manoeuvre because of the strength of our fiscal position.

The Cabinet's decision

My plea, therefore, to the Cabinet is that they look at the position in the round, and over the long-term.

Not to do so, given that the Euro is such fundamental importance to jobs, growth and the long term prospects for greater social justice in this country, would truly be a dereliction of our duty to the people who elected us.

That's why I say the time has come for everyone, but for the Labour Party and trade unions in particular, which have taken a settled pro-European position for nearly two decades, to wake up to what is at stake for hard working families in Britain. There is still time to get this decision right.

I hope for all our sakes, the door is not slammed shut again.