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LONDON, (Reuters) After years of caveat and caution, Prime Minister Tony Blair must decide this year whether to try to lead Britain into Europe's single currency and claim his place in history.

With the smooth New Year launch of euro notes and coins in 12 European Union nations, many political experts expect Blair to have the courage of his pro-euro convictions and tackle a British public that is sceptical about giving up the pound.

But if, by year's end, the Labour government is still pursuing a carefully honed wait-and-see policy, all bets are off for euro membership before an expected 2005 general election.

"I'm going to put my money on May 1, 2003 for a referendum," Graham Bishop, a euro expert and former government adviser on Europe, said.

"The sceptics have run out of things to criticise. It has happened and it has happened with few problems," he said of the January 1 birth of the euro.

Officially, Blair has only promised to make an economic assessment of the case for British entry by mid-2003 and to offer the public a referendum if he believes joining is the right move.

In reality, he must hold a referendum close to then if he wants to complete the process before a 2005 general election. The government says it will take at least two years after a "Yes" vote to prepare Britain to switch currencies.

For a May 2003 referendum, the economic assessment will have to be made late this year, Bishop said. "And there will have to be a softening up (of public opinion) first." Even in the few days since the new currency was introduced, the mood music from government has been raised several decibels.

Minister for Europe Peter Hain said he doubted Britain could run a "parallel currency economy" forever. Charles Clarke, chairman of the ruling Labour Party, said 2002 was a "decisive year" for Britain and the euro and senior minister Robin Cook counted the political cost of staying outside the single currency.

"If we want to continue with (our) very strong, powerful leading role within the European Union then it's going to be more challenging to do that if we're outside the euro club," the former foreign secretary, now government business manager, said.

Elections for the Scottish and Welsh parliaments are already scheduled for May 1 next year, so voters will be in the polling booths anyway. And pollsters say hostility to ditching the pound is significantly weaker in Scotland and Wales than in England.

The other non-euro countries, Sweden and Denmark, both also made 2003 their target for a referendum this week. If they joined, Britain alone of the 15 EU members would be outside the currency zone.

"Tony Blair's target year for asking the people to choose is 2003. That makes 2002 his own decision year," said Andrew Rawnsley, the Observer's political commentator and a journalist with close links to the Blair administration.

Opinion polls show Britons have not yet been swayed by the launch of new notes and coins although ministers hope they will once they travel abroad and use them.

Polls show up to two thirds of the public want to keep the pound. Closer examination shows less than a third are adamantly anti-euro but the majority feel ill-equipped to make a decision.

"A high proportion of Britons still keep an open mind on the perfectly reasonable basis that they don't (yet) know enough to come to a decision," Roger Mortimore, senior researcher at pollsters MORI, said.

Blair, encouraged by those figures, has stated he believes he can turn public opinion around.

Veteran political expert and pollster Peter Kellner noted that prior to a 1975 referendum on membership of the European Community, polls showed a three-to-two majority in favour of withdrawal but government advocacy of staying in won the day.

But if there is no sign of a shift in popular sentiment later this year after millions come back from European holidays, the government may yet shy away.

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