UNCERTAINTY is the one word which sums up the European mood on monetary union. While Ireland debates the relative merits of different entry rates for the pound, many European states are playing for higher stakes.

The change of emphasis from the new British Labour government points to a greatly increased chance that Britain will enter monetary union, probably before the introduction of notes and coins in 2002.

A poll in one Sunday newspaper last week showed that two thirds of all the new British MPs were in favour of further progress on monetary union. Only one of 46 Liberal Democrat MPs was not in favour. At the same time a powerful consensus was building among the City banks, investment houses and big corporations - Unilever was at the front of a long line of businesses in favour.

The debate in Britain now centres on whether a promised referendum on entry to EMU should occur within the next 18 months or so or whether it should be by way of the next general election.

Many commentators expect the British electorate would endorse the move with the same sort of majority as it did enter in the 1970s.

The French elections could prove to be even more important. There is a growing consensus that a win for the socialist Mr Lionel Jospin could mean the end of the road for monetary union. However, even left wing trade unionists did not believe the socialists could snatch a victory.

At the same time, German tax figures published yesterday underlined the difficulties it was facing meeting key criteria for entering the single currency. Any massaging of the figures would make it very difficult for the Germans to criticise creative accounting by other countries - particularly the Italians.

The Italians, of course, are also very keen to enter the single currency. However, the Commission forecasts of a couple of weeks ago point to the likely reaction of the authorities to such an idea.

While the Italians are already practising their arguments - and some would say arm twisting - to be allowed to join the club, it must be possible that they would agree to wait and join in the second wave.

The Italians are pointing resolutely at that section of the Treaty which calls for qualified majority voting on who will join monetary union. A combination of Germany, France, Spain, Netherlands, Belgium, Portugal, Sweden, Austria, Finland, Ireland and Luxembourg could only muster 59 votes of the 62 needed. If Italy, Greece, Britain and Denmark all voted against the proposal, it could be stalled.

However, it seems more likely that the Italians will be pragmatic. The German elections are due to be held after the decision on which countries would participate and even the Italians would realise that it would be extremely difficult for Mr Kohl to go to the polls with the lira set to join in the first round.

The Italians may also have one eye on EU budget contributions. More importantly, there is a possibility that the Germans would enter a monetary union focusing primarily on the East which the outlying countries would find it very difficult to get into.

After all, the single currency project is primarily a political one. Germany's basic motivation rests on two basic ideas - the stability of the currency and of its eastern borders.

It is this sort of analysis which has led to the acronym "BAFFLING" for the countries which will join.

"BAFFLING" stands for Belgium, Austria, France, Finland, Luxembourg, Ireland, Netherlands and Germany. The "outs" then would be Portugal, Italy, Spain, Sweden, Britain, Greece and Denmark.

The one certainty is that there would be bumps on the road ahead. The autumn of this year has been pencilled in for some serious activity on the bond markets. Around the time of the EMI report due in November, the Italian market, for one, is expected to come under some serious pressure. Whether and how it stands up to this could be one of the most important tests of the entire project.