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The Earl of Clanwilliam: Before the noble Lord sits down, I believe he said that under certain circumstances if we pass the amendment we would be punished. Will he explain how and by whom we are to be punished, and with what draconian measure?

Lord Randall of St. Budeaux: I am willing to answer that question. I believe that in the global world, with global markets, with global investment across those markets, the reputation of this country must stand high and strong. If we were seen to be creating such volatility in policy, I believe that our reputation could be damaged. And when it comes to inward investment, the markets could punish us in that sense. I believe that we would make ourselves vulnerable.

Because this is a Committee stage, I do not wish to take more time on the issue. This is not the time to be making the case for or against EMU but rather to consider the detail of the amendment before us.

Lord Boardman: The noble Lord, Lord Randall, suggests that we might be punished, or that some horror might befall us if we vote for this vital amendment on the Amsterdam Treaty, which has such an impact on this country but which has been discussed only briefly in another place. I hope that in this Chamber we shall be able to assess the merits and demerits of the amendments we make.

I endorse the points made by my noble friend Lord Howell of Guildford. I shall not repeat some of those arguments. I agree also with much that the noble Lord, Lord Shore of Stepney, said. I find myself in sympathy with a great number of his comments. That is a not entirely usual experience over the years.

I confine myself to one point. The economy of the nation depends upon two key policies: its monetary policy and its fiscal policy. Those are twin steering levers that under normal circumstances the Chancellor of the Exchequer has at his command. This country has now passed monetary policy to the Bank of England. In Germany the Bundesbank controls to a large extent its monetary policy; and in America the Fed. I believe that as the Chancellor has been preparing his Budget he will have regretted very much that he did not have monetary policy under his more direct control. He could then control the interest rate at the same time as he considered taxes.

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As regards the Bundesbank, we all know what happened with the deutschmark years ago. The amount of freedom it has on the other side of the economy is fairly fragile; and the Fed is under similar control. But they all operate in their own nation. Those who control the monetary policy--the Bundesbank in Germany, the Fed in America, and the Bank of England here--work under the general economic conditions applicable in their own country. What is proposed here is to have a monetary policy controlled by people operating from Frankfurt, unknown, unelected and remote from the economies and circumstances of the individual countries whose monetary policy they are fixing. The fiscal policy will be left to the individual countries.

I have discussed this issue with many people in Frankfurt, Bonn and Brussels. I ask what will happen when each country cannot control its monetary policy but has freedom on its fiscal policy. The answer I receive is that there is a sort of understanding. People say that they will get together on the fiscal policy and will agree about taxation in order to fit in with what has been laid down on the monetary policy. I find that unrealistic and have said as much on occasions. It will only stand for a brief period while we apply fiscal uniformity throughout the countries that are in EMU.

A number of people believe that if we accept monetary policy we are bound to accept a fiscal policy binding upon those countries, and that leads to a political uniformity too. For that I have real fears. My point is this. To accept monetary policy as laid down in the treaty leaves us with a very limited control over our economic policy. The Chancellor has two levers: to steer right or left (for those who are used to driving tanks). But if he has to throw away one, he throws away any control of the monetary policy. He has to work out with the fiscal policy what is best for the economy of this country. I deplore that move. I think that it would be wrong to be party to it.

Lord Monson: The noble Lord, Lord Howell of Guildford, has done well to remind us that the problems arising from EMU are neither non-existent, as the Liberal Democrats would claim, nor speculative and well into the future, as rather less zealous Euro-enthusiasts would claim, but are with us already. The noble Lord spoke of the Republic of Ireland. It is booming because, as a result of massive transfer payments from the Germans and to a lesser extent the British, great inflationary pressures are rising. The current bank rate is 6.75 per cent. The central bank would like to raise it to well over 7 per cent. but it is not able to do so because it has gradually to reduce interest rates to the continental norm and it is expected that the European central bank will kick off with an interest rate of 3.3 per cent.

I support this amendment, tabled by the noble Lord, Lord Shore, and wish to quote from sources that are not normally thought of as being in any way Euro-sceptic. Even Mr. Adair Turner, director general of the Confederation of British Industry--unlike the Institute of Directors or the Federation of Small Businesses,

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the CBI is definitely not Euro-sceptic--speaking to the Deutsche-Englische Geselshaft in Berlin on 21st January, talked about the,

    "flawed analysis of the potential benefits of EMU".

Among other comments, he said:

    "What EMU will not do is solve Europe's unemployment problem and indeed we need to be clear that its ... temporary effect could be to make Europe's unemployment problems worse, not better".

The noble Lord, Lord Shore, quoted part of an article by Professor Martin Feldstein published on 8th May 1997. In addition to the points quoted by the noble Lord, Professor Feldstein said:

    "the adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows among the EMU members".

The president of the Deutsches Bundesbank, Dr. Hans Tietmeyer, said on 20th February this year:

    "Monetary union is not a deus ex machina. It will not solve the European problems by itself nor eliminate the high level of unemployment, the structural problems in government finances and in the welfare system, or the poverty of those on the fringes of society ... It would ... cause considerable economic costs and above all great damage to the political foundation ... previous currency zones in history have in most cases only survived if they were sooner or later bound together in a far-reaching and lasting political relationship".

He goes on to cite the comment of Jacques Delors that monetary union is not an end in itself; it is a means towards an ever closer political union.

Another distinguished German professor, Wilhelm Hankel, speaking on 7th March, made a number of excellent points. He said:

    "Politicians are entering an irresponsible adventure with the Euro in 1999. The Euro will be neither stable nor durable. It will not hold Europe together or unite it".

There are those who believe it will have precisely the opposite effect.

Mr. Andrew Duff, director of the Federal Trust, writing in the January 1998 edition of the Parliamentary Monitor said that the British Government,

    "should use the Presidency as an opportunity to ditch some strange old British baggage, including hostility to tax approximation (without which the single market will not be stable)".

Indeed, the noble Lord, Lord Boardman, made exactly that point. It is obvious that there will have to be tax harmonisation if EMU is to work. As in the United States, there may be very small variations, as there are in sales tax between, say, Massachusetts and Connecticut, but no more than that--3 or 4 per cent. Excise duties will have to be reduced to continental levels, which will please smokers and drinkers but will infuriate the health fanatics; and I suspect that corporation tax will also have to be more or less harmonised. Much more could be said, but no doubt other noble Lords wish to take the debate further.

5 p.m.

Lord Grenfell: I listened with great interest to the remarks of the noble Lord, Lord Monson. I certainly do not wish to engage in, as it were, a war by quotation. If it comes to that, those of us who take rather different views on monetary union can match the noble Lord quote for quote. But that would not be terribly useful.

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I did find useful and interesting the intervention of the noble Lord, Lord Howell, in certain respects but not in all respects. The noble Lord was wise enough to point out that we are now only some six weeks away from the critical moment when monetary union will to all intents and purposes go ahead. He is wise to draw our attention to that.

However, I part company with some noble Lords, who, only six weeks away from that date, seem to give the impression that somehow the process can be brought to a grinding halt, or that it should be, were that to be possible. I do not know what is the collective noun for an assembly of King Canutes--it may be a "calamity" of Canutes--but there still seem to be a large number of people who believe that the whole process can be derailed. I am afraid that that is not going to happen. What we have to do is to see how it can be made to work.

I wish to turn to some issues raised by my noble friend Lord Shore of Stepney. He spoke of the stability pact. But one point he did not mention is that stability pact fines are not automatic. None of those to whom we have spoken during the course of the deliberations of Sub-Committee A--we spoke to the Bundesbank, to the European Monetary Institute and to others with great knowledge of these matters--has seen the stability pact fines as anything other than a rather necessary stick which they hope will never be raised to beat anybody at all. The truth of the matter (which was not put forward unless I missed out on it during the intervention of my noble friend Lord Shore) is that if a country gets into great economic difficulty and it can be shown that it has suffered a loss of output of 2 per cent., those would be the exceptional circumstances in which no fine would be levied. The stability pact as a threat to a country is aimed only at those that consistently overspend; it is not aimed at responsible countries which find themselves in understandable difficulties. That is a point which those who oppose the stability pact tend to gloss over; they simply raise the issue of how unconstitutional it would be for a body to impose fines on a country.

The noble Lord, Lord Howell, in remarking on the stability pact, said how strange it was that it came so late in the day. All I can say is: better late than never. It became quite clear that it would be very difficult to ensure the optimum operation of a single currency zone if it was not made clear that the convergence criteria were there for a purpose, and were not merely words on paper to be ridden roughshod over. There had to be some kind of sanction on those who were prepared to play fast and loose, not just to the disadvantage of their own populations, but putting at risk the economies of other countries in the European Union. There is a collective responsibility in a single currency. Where there is collective responsibility, there has to be some kind of sanction for those who wish to be part of the Euro zone but are not prepared to take the responsibility of trying to achieve the maximum benefit for all who are party to it.

The convergence criteria are desirable in themselves whether or not there is European monetary union. Aiming to keep our budget deficits at less than 3 per cent. of GDP and government debt at less

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than 60 per cent. are very laudable aspirations in themselves. I happen to live in France, where the forward pension liabilities of the French Government are presently something like 106 per cent. of GDP. The French are working very hard indeed to correct that position. They would be doing so whether or not there was European monetary union. So it is rather strange--

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