Tony Blair's decision to consider entering the euro within two years of a Labour Party election victory in Britain is better news than had been expected for Ireland. The move, which sets down a firm timetable for the possible entry of Britain into the euro zone, surprised the Tories as well as some of Mr Blair's cabinet colleagues.
The British Labour Party is now almost certain to make the crucial assessment of whether Britain would join the euro within two years of a Labour party victory at the next British general election, widely expected to be in May.
But making the assessment is simply the preamble to a referendum which, judging by the current public mood, would be very difficult for Mr Blair to win. The European Commission's latest Eurobarometer poll published yesterday showed that British support for the euro fell to 21 per cent late last year from 22 per cent in the spring, the lowest in the EU states. The referendum would have be held before autumn 2003, although most observers say autumn 2002 is more likely.
The Tories are also being increasingly vocal in their Euro-scepticism. Michael Portillo, the shadow chancellor, has insisted that the UK economy has more in common with the US than Europe. They also have a powerful ally in the International Monetary Fund. Earlier this week, the IMF said the UK would have had higher inflation if interest rates had been set by the European Central Bank. It also said that UK economic cycles were not well synchronised with those in the rest of Europe.
The result is that even the money markets did not take Mr Blair's announcement too seriously. If sterling were to enter the euro zone, there is speculation it could do so at a rate around DM2.70, well below the current level of DM3.1. A surefire announcement that the UK was entering would certainly have driven sterling downwards.
Inflation, interest rates and growth rates are now more closely aligned as the UK economy has gone through a downturn and Europe has picked up. Whether this amounts to the equivalent of ships passing in the night and could be followed by renewed divergence or, alternatively, constitutes proper convergence, is a matter of some debate.
Yesterday's interest rate cut by the Bank of England helps. It means there is only a one percentage point gap between rates in the two zones. The other criteria would also be met. The UK economy is one of the most flexible in Europe; there is an argument that foreign direct investment would benefit from euro membership which would also boost jobs. The impact on the financial services sector is unlikely to be substantial in either direction.
But the passing of these tests is unlikely to persuade the electorate. Convincing sceptical UK voters is likely to an uphill task.
The potential rewards for Ireland of British euro membership are certainly great. Almost all commentators here believe Ireland's experience within the euro would be far more beneficial if the UK were a member. That would get rid of uncertainty over the exchange rate between the British and Irish currencies, which is still a huge factor for many businesses.
It should also take some pressure off inflation as imported goods from the UK, still our largest trading partner, would no longer impact on the index. This would ensure that more than half our imports would originate in the euro zone, a more stable position than the current 80 per cent.
Even on the political front, the result would be positive. The UK would be a useful partner in the euro group when the controversial tax harmonisation, opposed by Ireland, next comes on the agenda. Ireland's current row with the Commission, and its apparent lack of friends at EU level, puts this in stark relief.