ONE of Britain's most influential economists yesterday gave a stark warning of the economic dangers posed by deeper European integration.

Dennis Turner, chief economist for HSBC, speaking at Cardiff Breakfast Club, said that Britain's unprecedented growth and low inflation could be traced back to the Tory withdrawal from the exchange rate mechanism in 1992.

In a provocative speech at St David's Hotel and Spa in Cardiff Bay, Mr Turner applauded both Chancellor Gordon Brown's record on inflation and his Euro- scepticism.

He said, "He looks at the European economy and sees something that doesn't work. When he looks at the US economy he sees something that works."

Mr Turner said that the lessons of the past were so clear that the economy was "no longer a political issue" in Britain, but that membership of EMU could wreck British prosperity.

Warning that much more was at stake than the future of the pound, he said, "What do the letters EMU stand for? It stands for Economic and Monetary Union.

"Economic union is a much bigger issue than monetary union. It's about tax harmonisation; it's about how government funds long-term liabilities like pensions - the French and German systems will collapse in about five years.

"It's about labour market legislation. There's a raft of legislation that could get dumped on British companies that you don't even want to think about."

Mr Turner said that the United States provided a model for how a federal union could encourage enterprise. He said, "Does the US economy work? It's a brave man who says it doesn't."

If the European Constitution is rejected in upcoming referendums in Holland and France, Mr Turner said those votes could have almost as great an impact on Britain as the Westminster election.

British politicians, he said, were now all committed to low inflation and steady, as opposed to spectacular, growth of around 2.5%.

He said, "What this Government has done is neutralise the impact of the economy as a political issue. There isn't a choice anymore about the economy."

This commitment to "mini-malist economic management", he said, had achieved "the best record we've had for 150 years". Politicians understood that the business community wanted "the economy to be the same as it was last year".

This hands-off approach was institutionalised when the Bank of England was granted indepen-dence.

While the Chancellor could be congratulated for his stewardship, he said that the present stability had its roots in the Conservatives' abandonment of ERM under Norman Lamont.

He said, "If the economy was wrecked the day he took over he couldn't have got it right quite so quickly. Go back to Norman Lamont and Kenneth Clarke, that's where it started.

"Brown was lucky. He had a good inheritance. His trick has been in not spoiling it."

However, Mr Turner cautioned, the Chancellor is facing several immediate challenges.

The biggest of these is debt. The Government gained a windfall of more than #22bn through sales of radio spectrum for 3G phones which helped fund increased public spending, but this has since evaporated.

Mr Turner said, "He has more than run it down, to where borrowing in a good year is #35bn."

The Chancellor is highly unlikely to significantly increase the level of borrowing, so where will revenue come from?

He said, "Brown has a clear preference for taxing people rather than business. If there are higher taxes after the election it might help government finances - it won't help ours."

Consumers are already in record-breaking depths of debt; a rising tax burden will further cool an already flagging high street.

An additional headache for politicians was how to deal with the problems caused by a mushrooming public sector workforce. He said, "They have gone into jobs that offer them a lot more shelter from the storm than if they had in the private sector.

"Are those people going to willingly make the journey back to the private sector?

"What's the implication forthe private sector? Either a wages explosion or increased outsourcing and off-shoring."

But Mr Turner was not alarmed by the cooling of the housing market ("banks aren't panicking") or the high-profile collapse of Rover. Desperately short-sighted planning laws needed to be axed so more houses could be built, he insisted, and British manufac-turers had to stop competing with newly-industrialised countries and develop niche areas of expertise.

He said, "Since the mid-70s, British Leyland/Rover has been a bankruptcy waiting to happen. Rover's problem was it wasn't really a volume producer. Too big to be small; too small to be big.

"Rover wasn't a car manufacturer. It was a car assembler and the added value came from component suppliers outside Rover."

Mr Turner opened with a description of the Chancellor as "tough, smart and shrewd" and concluded by paying tribute to the Prime Minister's own powers of political calculation.

He said, "He knows Labour will only win by being more conservative than the Conservatives."

Cardiff Breakfast Club is sponsored by the Western Mail, Morgan Cole, Marsh UK and the Bank of Scotland