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Analysis: June 9 decision day for Britain

By MARTIN WALKER, UPI Chief International Correspondent

WASHINGTON, May 15 (UPI) -- The British government is to announce June 9 its decision whether or not to recommend replacing the pound sterling with the euro, paving the way for a historic and risky referendum. Current opinion polls suggest that British voters are against the euro by a margin of close to 2:1.

In announcing the June 9 decision day, Prime Minister Tony Blair is trying to head off a sharpening crisis within his Cabinet and Labor Party over Britain's future relations with Europe. Although a full member of the 15-nation European Union, Britain has refused to join the single currency, and its staunch support for U.S. President George W. Bush in the Iraq war put Blair at odds with his European Union partners in France and Germany.

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The debate over the euro comes at the same time as a separate crisis in Britain over plans now being drafted in Brussels for a new EU constitution.

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Blair is in the difficult position of saying that British voters should have their say on joining the euro in a referendum, but he has ruled out any referendum on the new EU constitution.

Bitter attacks upon the new constitution's supposed plan to submerge Britain into a "United States of Europe" have been launched in the up-market Times (of London) and down-market Sun (both owned by Rupert Murdoch's News Corp).

"The biggest betrayal in our history," ran the headlines in Thursday's Sun, the best-selling newspaper in Britain. Beneath the headline was a photo of Blair, oddly lit to give the look of a silent movie villain, and alongside Blair's picture was smaller photo of Adolf Hitler -- a suggestion that Blair's pro-European views were the gravest threat to British independence since the Nazi leader.

"Tony Blair is about to sign away 1,000 years of British sovereignty," the Sun said. "The Prime Minister will nod through the broad thrust of a new European Union constitution next month that will hand control of our economic, defense, foreign and immigration policies to Brussels. The EU will also gain authority over our justice, transport, health and commerce systems -- and dictate the strength if union power."

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The June 9 decision will follow a series of intense discussions inside the British Cabinet. Blair, long a supporter of the euro, and his powerful chancellor of the exchequer, Gordon Brown, more of a skeptic on the European currency, will over the next three weeks jointly consult all other members of the Cabinet one by one, before the government comes to a final decision.

The British Broadcasting Corp. reports, however, the decision has virtually been taken, with Brown concluding that his "five economic tests" of joining the euro had not been met. Broadly, the tests were designed to assess whether the British and European economies were converging sufficiently to justify the currency change.

With higher interest rates, much lower unemployment and significantly higher growth rates than the core European economies of France and Germany, Britain stills looks to be more aligned with the U.S. economy than with its partners in the EU.

Although the decision on the euro is being presented by Blair and Brown as essentially economic, the political implications of joining the EU single currency are huge.

Not only would the queen disappear from the currency, but Britain would surrender control over its exchange rate, interest rates and money supply to the board of the unelected European Central Bank. And it would face ECB discipline, and massive fines of up to $10 billion, if it then broke the eurozone rules on budget deficits, sanctions that currently loom for France and Germany.

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The decision on the euro has already threatened sharp splits within the Cabinet and the ruling Labor Party, whose chairman John Reid said this week it was no longer a question of "whether" but "when" Britain enters the euro. Scottish Secretary Helen Liddell then tried to outflank Brown's five tests by inventing a sixth -- the possible opportunity costs of staying out of the euro. Along with a group of leading businessmen, Liddell this week warned that shunning the euro could damage foreign investment in Britain as a way into the vast EU market.

The Cabinet tensions were a grim reminder of Europe's power to destabilize British politics. Former Conservative Prime Minister Margaret Thatcher was overthrown when senior colleagues challenged her mounting skepticism about Britain's place in Europe. The government of Thatcher's successor, John Major, was constantly undermined by splits within the party between Euro-skeptics and Euro-enthusiasts. The same fate now threatens Tony Blair, already exhausted by his personal battle to join President George W. Bush in the war on Iraq, despite widespread opposition in Britain.

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