Mandelson believes delay would damage the UK

Failing to join the euro will leave Tony Blair almost powerless in Europe, former cabinet minister Peter Mandelson has warned.

Mr Mandelson used a speech to a Britain in Europe dinner on Thursday to say the UK's position on the euro would define its future influence in the European Union.

He was saying the UK must "come off the fence" over the euro.

In a speech billed as his most passionate intervention in the euro debate so far, Mr Mandelson warned that outside the single currency, the prime minister would merely be "talking a good game" in Europe.

The Hartlepool MP is renowned as one of the most pro-euro of Labour MPs and his speech will be interpreted as an attempt to keep up the momentum for the pro-euro camp.

The question of the euro, more than any dispute over America, will determine our future position in the EU Peter Mandelson

The Treasury will give its verdict on the five economic tests for joining the euro by June this year.

There is speculation that the verdict will be negative amid reports that Chancellor Gordon Brown is increasingly sceptical about joining the euro.

Mr Mandelson, speaking in Manchester, said: "Until we come off the fence over the euro, our European partners will not come off the fence over Britain's role in Europe.

"The question of the euro, more than any dispute over America, will determine our future position in the EU."

The MP highlighted what he said were the trade benefits of joining the euro and warned that the UK could "slip backwards" in its relations with the EU if it stayed outside the currency.

Heart

He argued the UK's role as a bridge between the US and Europe could only be effective if Britain played a strong role in the EU.

The government must make its decision by 7 June

"We can only take our American links and our American friendship into the heart of Europe if we are fully in Europe, and trusted in Europe," he said.

"And we will remain excluded from the leadership position our national interest requires until we make up our minds on the single currency.

"Until we come off the fence over joining the euro, our European partners will not come off the fence over Britain's role in Europe.

"They will hesitate to back us on European issues even when they think they are right.

"The question of the euro, more than any dispute over America, will determine our future position in the EU.

Dangers

"If we do not make this step before too much further delay, we will not stand still in Europe, we will slip backwards.

"We will put in jeopardy the dramatic progress we have made since New Labour came into office in 1997."

Gordon Brown is reported to be sceptical over euro

Mr Mandelson warned of what he said were the economic dangers of staying outside the euro, particularly if other new EU countries join the currency, creating pools of cheap labour.

He said the UK's national interest is at stake and warns the government over "a moment of painful misjudgement and lost nerve".

Failure to join the currency would damage the country and Labour, he said. "Putting off decisions is not what made New Labour what it is."

"Are we going to be talking a good game in Europe but, in fact, ultimately spurned because our actions don't seem to match our words," he said.

"Are we going to perennially put off a decision about the euro because, somehow, the courage of our convictions eludes us?"

Anti-euro Labour MP John Cryer was unimpressed with the speech.

Mr Cryer said: "With the eurozone struggling with massive unemployment and slow growth, for Peter to suggest that joining the euro would be good for 'influence' is plain wrong.

"These comments stand reality on its head, the progress that's been made since we came to power, has been made outside the eurozone.

"If we were inside we would be in the sorry mess that Germany and Portugal are in."