Ever since Jose Manuel Barroso set the ball rolling earlier this month, it has been nagging away at me.

Could Gordon Brown, having abandoned his own fiscal rules, embraced bank nationalisation in a way that echoed the 1945-51 Labour government and announced a rise in the top rate of tax, produce the biggest u-turn of all? Could he, and you may want to sit down at this point, take Britain into the euro?

Euro entry is an issue that was once very hot but went into the deep freeze. In 2003 it was the biggest story in town, Brown and Tony Blair wrestling over whether to take Britain in. If it is of any comfort, the day will come when we look back on the credit crunch in a similar vein.

Until the European Commission president’s remarks I had thought euro entry remained in the freezer. He said, to remind you, Britain was “closer than ever before” to joining, that “the people who matter” were thinking about it, and that those same people were also saying, “If we had the euro, we would have been better off”.

It would be easy to dismiss this as simply reflecting a high-profile transfer from Brussels to London. Lord Mandelson has made no secret of his enthusiasm for sterling to take what he sees as its rightful place in the euro. He is close to Barroso, so you don’t need to be a Maigret to work it out.

Last week’s intervention by Peer Steinbrück, the German finance minister, will not have warmed anybody in government to Europe. There is plenty to criticise about UK policy and our soaring borrowing. But his attack, in an interview with Newsweek, was pretty lame.

The pre-budget report cut in Vat he attacked is trivial and temporary in the context of Britain’s deteriorating public finances. For a finance minister to be asking whether people will buy a DVD player because it costs £39.10 rather than £39.90 shows he does not know how tax cuts work. Any cut, whether Vat, income tax or corporation tax, is small in its microeconomic impact but cumulatively can add up to a significant macro effect.

Steinbrück also misunderstands “supply-side” economics, which he said had been replaced by “crass Keynesianism”. What he means, I think, is fiscal prudence. Such prudence, as we saw in Brown’s early days, came alongside the higher taxes and red tape that harmed Britain’s supply-side.

Actually, there is quite a lot of misinformation around, some of which has contributed to the pound’s fall against the euro. Sterling traders in London don’t need much excuse to sell the currency. For years it was their default position. Then the pound enjoyed a run of stability from 1996 to 2007, and the euro became the pariah currency. Now they are back in familiar territory.

There was, it should be said, a logical, credit-crisis-related reason for sterling to fall over the past year. Until summer 2007 capital flooded into Britain either because foreign companies were taking over UK firms or, more important, because some of the surplus savings from other parts of the world flowed into the City. Without these capital flows, the counterpart to which was a large current-account deficit, a lower pound has to be one of the routes to making the balance of payments balance.

As always, though, the markets take these adjustments too far. A caricature view is that Britain is worse off than the eurozone because of the importance of financial services to the UK economy.

But, as economists at Goldman Sachs point out, this importance is usually exaggerated. Financial services make up 8% of the UK economy, just over half the size of the manufacturing sector. It is bigger than the eurozone average of 5% but smaller than America (just over 8%) or Switzerland (nearly 9%). Meanwhile, despite some awful UK manufacturing data last week, down 4.9% on a year ago, this was smaller than the eurozone’s 5.3% fall. Germany’s Ifo Institute predicts a 2.2% GDP fall for its economy next year, and a 0.2% drop in 2010.

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