The launch of the euro has been a stunning technical success. European consumers have adapted swiftly. Barely a whimper has been heard about the demise of the D-Mark, French franc and 10 other legacy currencies.

Much credit should go to the European Central Bank in Frankfurt. A cadre of professionals oversaw the introduction of millions of notes and coins, ensuring that the biggest logistical exercise in continental Europe since World War II was a success.

Yet the economic and political implications of the introduction of the euro are far less clear-cut. The single currency has certainly delivered a competitive shock, triggering consolidation in areas such as banking and financial services. But economic growth remains sluggish, markedly in Germany. The currency has been endemically weak, especially against the dollar.

More broadly, the euro has so far not proved much of a catalyst for much-needed labour market reform in the eurozone. Above all, there are serious questions about political governance, notably the relationship between finance ministers and central bankers.

Dominique Strauss-Kahn, the former French finance minister and one of the leading thinkers on the European left, says bluntly that the ultimate test of the euro will be economic growth and lower unemployment. Using the single currency as an instrument to conquer inflation will not be enough, he says.

Mr Strauss-Kahn belongs to a number of influential politicians and academics who believe it is time for a more constructive dialogue between eurozone finance ministers and the ECB. Since the locking of exchange rates on January 1, 1999 (which preceded the introduction of euro-notes and coins on January 1, 2002), the debate has drifted into sterility.

The ECB has made it clear that it wants to see strongevidence of structural economic reforms and fiscal discipline before it cuts interest rates. Finance ministers have pressed (largely unsuccessfully) for lower interest rates to stimulate growth as a platform for economic reform. This dialogue of the deaf was best captured by Wim Duisenberg, ECB president, who responded to pressure for rate cuts with the immortal words: "I listen, but I do not hear."

The push for higher growth is one reason why Europe's politicians are now pressing for more room to manoeuvre on fiscal policy. Part of the problem lies in election year promises of tax cuts in France, Germany, Ireland, the Netherlands and Sweden. But it also suggests that politicians are thinking twice about the German-inspired Stability and Growth pact for enforcing fiscal discipline in the eurozone.

The Stability pact was forged in the mid-1990s on the insistence of the the German government which was worried about fiscal laxness in the so-called Club Med countries which were about to join the eurozone. It provides for automatic sanctions for countries which run deficits in excess of three per cent of GDP.

The irony is that Germany itself finds itself the victim of its own pact. The Berlin government only narrowly escaped a formal "early warning" from the European Commission over its deficit, after promising to return its budget close to balance by 2004. Now even that target could prove elusive.

The difficulty in rewriting the pact is that it would remove one of the cornerstones of the eurozone. It could also antagonise the ECB which views itself as the guardian of price stability and fiscal discipline. So what are the prospects for a new bargain between he politicians and the ECB on policy co-ordination in the eurozone?

The first test will be whether France and Germany can forge a common position after their respective national elections. The omens are not entirely promising. Jacques Chirac, re-elected as President, is a mercurial figure with a less than certain grasp of economics. In Germany, Chancellor Schroeder is struggling in the polls. A centre-right government led by Edmund Stoiber would not necessarily be viewed more favourably in Paris.

In the past, the European Commission has helped to broker solutions between the French and Germans. But Romano Prodi is no Jacques Delors. Under his presidency, the decline of the Commission's political influence in the councils of Europe has if anything accelerated. Pedro Solbes, the former Spanish finance minister and now monetary affairs commissioner, has been steady but uninspiring.

Here we come to yet another irony. The single most creative thinking in Europe today comes not from a member of the eurozone but from the UK treasury in the shape of Gordon Brown. Mr Brown has consistently led the field, first with his ground-breaking legislation bestowing independence on the Bank of England and then with welfare reform.

Mr Brown has been doing serious thinking about the operation of the ECB, particularly regarding transparency and its monetary policy. He favours his own model of the Monetary Policy Committee at the Bank of England. He also regards the Stability Pact as unnecessarily rigid and would like to see more generous treatment of capital - rather than current - spending in the assessment of deficits.

Tony Blair, prime minister, is weighing whether and when to call a referendum on the euro. A decision is expected in the next 12 months.

In Britain, this is rightly seen as a momentous decision for the country and its relations with Europe. It will also be a big moment for the future of the euro.

Lionel Barber was European Editor of the Financial Times between 2000 and 2002.

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