ONLY six weeks after Black Wednesday, when the pound was bundled out of the exchange-rate mechanism (ERM), David Cameron wrote a secret memorandum for the Prime Minister advocating closer ties with Europe.

Mr Cameron, who was a special adviser to Norman Lamont, the Chancellor, also argued that there were benefits to Britain joining the single currency.

In the memo, a copy of which has been passed to The Times, Mr Cameron said: “There is no doubt that a single currency would have a number of benefits. Transaction costs and exchange-rate risks would be eliminated and, as a result, trade would increase subtantially.

“Also, a central bank and a single currency, if established in the right way, could help to make Europe a zone of permanently low inflation.”

Eurosceptics will seize on the memo to try to project Mr Cameron as unsound on the critical issue of Europe. David Davis and Liam Fox, two of his leadership rivals, are implacable opponents of the single currency.

Mr Cameron, whose supporters maintain that he is a genuine Eurosceptic, added an important caveat in the memo. “We have always recognised that there are potential drawbacks, which is why we have negotiated an opt-in, opt-out clause,” he wrote.

Mr Cameron had been asked to write a memo with a distinct “political slant” on the options facing John Major, the embattled Prime Minister whose opinion poll rating had collapsed after the humiliating withdrawal from the ERM. The Tory party was in danger of descending into civil war on Europe.

Mr Cameron, who was 26 at the time and a highly regarded adviser in Whitehall, was attempting to walk a diplomatic tightrope. When Mr Major took over from Margaret Thatcher 18 months earlier, he pledged to put Britain back at the heart of Europe.

After Britain left the ERM, after a run against the pound, Mr Lamont was reportedly so happy that he was said to have been heard “singing in the bath” at No 11 Downing Street. Yet in his memo, Mr Cameron appeared to be advocating sterling’s return to the ERM straitjacket. While not speculating on timing, he wrote: “Will return to the ERM when it is in Britain’s best interests to do so and not before.”

He then turned his attention to negotiations within the EU, with Britain’s partners preparing to ratify a treaty committing themselves to monetary union.

He wrote: “We have two choices. Either we can participate in that process, secure in the knowledge that our opt-out clause means that we do not have to join a single currency. Or we can simply stand aside and let others determine the future of Europe.”

A senior Tory who was embroiled in the negotiations said: “This memo means that Cameron effectively was digging John Major into a deeper hole. The majority of the Tory party was delighted to be out of the ERM. They were angered that Thatcher had even gone into it.” He said it suggests that Mr Cameron did not consider that there were other options “such as not joining a single currency and not going back into the ERM”.

Mr Cameron’s memo also described benefits to Britain of the ERM. “Britain’s membership of the ERM helped us to reduce inflation from 11 per cent to under 4 per cent in just two years,” he wrote.

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