The debate over the UK’s entry into the eurozone has been in a strange state of suspended animation for four years now. Within the next 18 months, the government will give it the electric jolt that will revive it. But its lifespan may be brief.

Soon after Labour’s first election victory in 1997, the government put the euro on ice. It promised not to try to take the UK in before the next election, that the decision would be put to a referendum, and that the referendum would only be held if the government judged that joining would be in Britain’s economic interest.

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In terms of domestic politics, the policy has been a masterstroke. It has taken the sting out of an issue over which the government, for once, finds itself at odds with the majority of the British public, and it has created huge problems for the opposition. The Conservative party is deeply divided over Europe - it was the central issue in this year’s party leadership contest - and the longer Labour can keep the euro question open, the longer those divisions will persist.

"Wait and see" has been a policy that has served Tony Blair, the prime minister, well. But its time is almost up. In February, Mr Blair promised that within two years of the election, held last June, he will have taken a decision on whether to put the question of the euro to the British public.

Since 1997, ministers’ official comments have amounted to little more than reiterations of the policy set out four years ago. Subtle shifts, such as Mr Blair’s two-year deadline, have been seized on. Secondhand reports, such as recent remarks apparently made by one of Mr Blair’s advisers to some members of the European Parliament, are scrutinised intently. But even relatively clued-up Britons complain that they have not heard nearly enough of the arguments on both sides to come to a properly informed decision. As the June 2003 deadline approaches, that is going to change. Gordon Brown, chancellor of the exchequer, has revealed that the Treasury has begun “preliminary and technical” work on its assessment of the five tests, which cover economic convergence, flexibility, the effects on the financial services industry and inward investment, and the overall implications for employment and growth.

Treasury officials are promising an intellectually robust assessment that will reflect the arguments on both sides. Mr Blair has been at pains to stress that the tests are genuine: a serious attempt to determine Britain’s best economic interests, not a cloak for whatever decision is politically expedient.

Some of the tests point towards going in. The City of London’s position as a financial centre does not appear to have suffered significantly by being outside the euro, but there may be benefits from being inside. The UK is still the EU’s top destination for inward investment, although its share has declined a little; again, there probably would be some gains from joining.

Macroeconomic convergence is not perfect, but closer than it was in 1997. The increasingly close synchronisation of the economic cycles of the UK and the eurozone over the past few years is now breaking down a little. Against expectations, the eurozone has suffered more from the global slowdown than the UK. But the interest rate differential is now small – the Bank of England’s main repo rate is currently just 0.75 percentage points higher than the European Central Bank’s. However, the central question about the euro is whether that convergence can be sustained, given the structural differences between the UK and the eurozone. British consumers’ continuing enthusiasm for borrowing and spending points to an economy that is more responsive to movements in short-term interest rates than most of the rest of the eurozone. A move to eurozone interest rates today would further fuel the UK’s powered-up consumers; at some point in the future, it might puncture the housing market and send consumer spending into a slump.

The exchange rate is a problem, too. With the euro worth around £0.62, the pound is at least 5 per cent and probably more like 10 per cent overvalued compared with what economists and businesses would consider a sustainable exchange rate. Getting the pound down would risk pushing inflation up.

The UK’s economy is relatively flexible - as can be seen from its combination of the lowest inflation rate and one of the lowest unemployment rates in the EU. Is it flexible enough to cope with these possible dangers from EMU entry? That is the judgement call that Mr Blair, Mr Brown and their advisers will have to take -– and that decision will be influenced by politics as well as economics.

Mr Blair has said he believes that if he were to campaign for joining the euro, then public opinion could be turned around. But if in a year’s time the polls show the British people to be still implacably opposed, it will require enormous courage for him to lay his personal credibility on the line.

An announcement that joining the euro would not be in the UK’s interests would not mean staying out for ever. As in 1997, the decision would be binding only for the life of the current parliament. Given the present state of the opposition, Labour would seem to have a good chance of being returned to government for a second time in 2005 or 2006.

But deciding to stay out would put off entry for another five years. Hungary, Estonia and Poland could end up joining the eurozone before the UK.