Brown's right-hand man warns against rushing into the euro

Gordon Brown's closest aide has issued the Treasury's strongest warning yet that rushing into the euro would be disastrous for Britain.

The Chancellor's chief economic adviser Ed Balls has effectively declared war on the Blairite europhiles who want to join the single currency this Parliament.

Speaking at a conference organised by the Royal Institute of International Affairs yesterday, Mr Balls said bluntly that hurrying into the euro would damage the economy and cost jobs.

In recent weeks, Number 10 has been frantically trying to soften up the public to vote yes in any referendum on the single currency.

Party chairman Charles Clarke, Foreign Secretary Jack Straw and Europe Minister Peter Hain have been among the high-ranking Blairite ministers to promote the benefits of the euro.

Mr Hain in particular is seen as having a licence to speak out in favour of the euro by Tony Blair, who is reluctant to do so himself.

The Chancellor slapped Mr Hain down last week for suggesting that Britain could scrap the pound by next spring.

Mr Brown let it be known that he would not tolerate 'idle speculation' about timetables.

But his chief adviser's words yesterday are the strongest rebuff yet from the Chancellor's office to the notion that a referendum has been planned for as early as next May - a line leaked to pro-Labour newspapers yesterday.

Mr Balls said: 'If you enter the euro at the wrong time you could end up with circumstances damaging to the economy, to jobs and growth and damaging to the pro-European case.'

He added: 'Too often in the past in our history, decisions have been made for political imperatives which too often have been seen to override the economic imperative.'

He said that mistake must not be allowed to happen again.

Mr Balls was referring in particular to the ill-fated membership of the European Exchange Rate mechanism in the early 1990s.

He warned that the Treasury was not willing to have its hands forced by Downing Street over the date of a referendum on the single currency.

'We will not make the ERM mistake of allowing a short-term political imperative to override the economic factors in the national interest,' he said.

'We won't take short cuts. We won't take a risk.

'Our history and our experience shows that if you make political decisions when the economic case isn't properly made then the economic and political consequences can be damaging for the economy and the people who make that decision.

'If you allow politics to dominate it can have destabilising consequences.'

He said there could only be a 'settled and durable convergence' between the two currencies if interest rates and exchange rates were brought down slowly.

This latest power struggle between the Prime Minister and his Chancellor over the euro comes on the heels of a similar spat about the five economic tests drawn up by the Treasury as the guide for holding a referendum.

Treasury officials and proeuro ministers squabbled over whether the economic tests represented a solely 'economic' decision - resting entirely in Mr Brown's hands - or a political decision by the Cabinet as a whole.

Tory treasury spokesman Michael Howard said the Government was playing games with the public.

'Last week Peter Hain and Jack Straw told us it would be a tragedy for Britain to stay out of the euro, and that membership is a political decision.

'This week, Gordon Brown sends his adviser to slap them down.

'The Government are at sixes and sevens over the euro. They should stop playing games and stop acting out a good cop, bad cop routine with the British people.'