Osborne in euro attack on Labour

The euro would make economic recovery harder, Mr Osborne will say

George Osborne is to attack Labour's "euro-fanatics" following speculation that senior government figures have talked of joining the single currency.

European Commission boss Jose Manuel Barroso caused a stir after saying recently that he believed the UK was "closer than ever" to joining the euro.

Senior ministers have denied this, saying it is not being considered.

In a speech later Mr Osborne will say euro supporters had "seized on economic difficulties for political ends".

'Wrong solution'

Scrapping the pound will make the UK's economic problems worse not better, the shadow chancellor will argue in a speech to business leaders in the north east of England.

Referring to the debate about the UK joining the euro in an interview with French radio, Mr Barroso said "the people who matter in Britain are currently thinking about it".

The move is now seen as more attractive because of the effects of the global credit crunch, he claimed, adding that "some British politicians have already told me, 'if we had the euro, we would have been better off'."

Our deteriorating position is not a good reason to join the euro George Osborne

The value of sterling compared with other currencies has fallen during the credit crunch, and the UK government has had to spend massively in recent months to try to support the economy.

But Mr Osborne will say this is precisely one of the reasons the UK should not countenance the euro.

"The dramatic fall in the value of the pound over the last few months has led some to conclude that the answer is to abandon it [the pound] altogether," he will say.

"That is exactly the wrong solution. Sterling's decline is the result of a damning verdict from international markets on British economic policy. The solution is better policy to restore confidence in Britain's long-term prospects."

He will add: "It is true that our economy is doing worse than the rest of Europe. But our deteriorating position is not a good reason to join the euro."

Senior Labour figures have distanced themselves from Mr Barroso's comments, saying the government's policy - that the UK has no plans to join - has not changed.

Speaking on BBC's Question Time programme on Thursday, health secretary Alan Johnson said "now is not the right time to join the euro".

He said such a step would require a huge national debate and that everyone was "focused" at the moment on getting through the current economic difficulties.

Business secretary Lord Mandelson has said he still favours eventual UK entry but the move is not right now.

Five tests

In 1997 Gordon Brown, seen as less keen on the euro than Tony Blair, set five economic tests which had to be met before ministers would recommend UK euro entry and holding a referendum.

The key test is whether the UK economy is coming together with those of countries in the eurozone and whether this can be sustained in the long-term. The second test, linked to this, is whether there is sufficient flexibility to cope with economic change.

The remaining three tests assess the impact of joining the euro on jobs, foreign investment and the financial services industry.

Opinion polls have suggested that any vote on scrapping the pound and adopting the euro would be lost, and in the UK the currency has not been a significant political issue for years.