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IN OPPOSITION, Tony Blair used to mock the Tories' vacillating policy of “wait and see” on the euro. What kind of leadership was that, for heaven's sake? Labour's approach on coming to power would be much more manly and purposeful: instead of “wait and see”, a new policy of “prepare and decide” was unveiled. Admittedly, “prepare and decide” would be an odd strategy for, say, building a house: clear the site and put in the foundations, then decide whether you want the house. But at least it would involve doing something, and that was the main thing.

Six years on, the preparations are not much in evidence and the decision seems about to be postponed again. Give the government its due, however. There has been lots of activity. Labour's approach, unlike the Tories', reflects countless man-hours of Treasury toil and thousands of pages of supporting analysis. When this government concludes that it had better wait and see, it really knows what it is talking about.

Gordon Brown, the chancellor of the exchequer, will shortly announce the results of all that furious analytical effort in the form of a verdict on his “five tests” (see article). The prime minister is keen in principle to take Britain into the euro system—but this should happen, says the less-keen chancellor, only when the tests have been satisfied: when inflation and interest rates have converged with conditions in the euro area, when Britain and the euro economies are flexible enough to get along without the shock absorber of their own exchange rates, when Britain's investment prospects as a member look positive, when the City is positioned to thrive under the new regime, and when the overall implications for “jobs and prosperity” are favourable.

The chancellor has framed his tests so vaguely that he can announce that the economy has passed or failed any or all of them more or less on demand. The government, as a matter of political calculation, is not yet ready to put the issue to the British electorate. Therefore Mr Brown is expected to rule that more time is needed to satisfy all his criteria. Actually, this is fine. “Wait and see” still makes excellent sense. The only flaw is that the economic tests that ought to be satisfied before Britain joins are rather different from those on Mr Brown's list. There are three.

First, the sensitivity of the economy to changes in interest rates needs to diminish, so that it is closer to the euro-area average. This has little to do with the current level of interest rates (included in Mr Brown's tests). The question is how abruptly the economy responds to changes in interest rates, remembering that once Britain adopts the euro its rates will be set not with Britain's conditions exclusively in mind, but according to conditions on average across the whole of the euro area. At present Britain is much more sensitive to changes in interest rates than most other European economies because of its preponderance of floating–rate mortgage debt. This in turn is a legacy of the high inflation of previous years: people bought houses on credit as a hedge against rising prices, and banks and building societies lent at floating rates rather than fixed because of uncertainty over the future course of monetary policy. Low inflation will gradually erode this difference, but joining the euro system before the change is well advanced would be risky.

Second, the European Central Bank (ECB) needs to be given a different mandate. Rather than being told to achieve “price stability” and left to define that objective for itself, it should be given an explicit inflation target by the Council of Ministers (in the same way that the Bank of England is set an inflation target by the Treasury). The ECB has not distinguished itself as a good judge of monetary policy, but this is partly because it has set itself an unduly strict operational target for inflation: it aims for inflation of 2% or less (rather than the Bank of England's 2.5%, with a margin above and below).

Third, Europe's inept Stability and Growth Pact should be improved, preferably to the point where it ceases to exist. Flexibility in fiscal policy is of paramount importance once economies lack control of their own interest rates. The pact insists that fiscal deficits stay small even when economies are in recession. Germany's attempts to comply with these rules (introduced at Germany's insistence, by the way) are even now retarding its recovery from a needlessly prolonged slowdown.

Once these tests have been met—and there is no reason why they should not be—the economic benefits of Britain's adopting the euro would most likely outweigh the economic drawbacks: the gains from fiercer competition within the European market and the spur to cross-border investment would more than make up for the loss of exchange-rate flexibility. But the choice is only partly, and secondarily, a matter of economics. Joining the euro system is also an act of commitment to a political cause—that of deeper European integration.

Britain's euro-enthusiasts emphasise that the country cannot play its rightful leadership role at the centre of the European Union unless it takes up the new currency. In fact, that is debatable, but even if it were true, one would still need to ask whether Britain should want to exercise such a role. The answer depends on what political form the emerging new Europe takes, and this remains much in doubt. Radically different visions of Europe's future—a Europe of independent nations, or a United States of Europe—are still in contention. Should Britain want to be at the centre of Europe regardless of what Europe decides to become?

A constitutional convention is drawing up a design for Europe's political future. The signals emerging from this body have been mixed; the Union's future shape is far from clear. Nonetheless, when Britain assents in due course to a new EU constitution, the country will be choosing how deeply embedded in Europe it wishes to be. At that point, one more reason for hesitating on the euro expires. “Wait and see” is not for ever, but it will do just fine for now.

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