Previous Section Back to Table of Contents Lords Hansard Home Page



After Clause 1, insert the following new clause--

Report on economic and monetary union

(". A Minister of the Crown shall, on 1st May 2003, lay before both Houses of Parliament a report containing details and an assessment of--
(a) the constitutional impact,
(b) the monetary and financial impact, and
(c) the impact on economic and social progress,
on and in the United Kingdom of any measure adopted or to be adopted, or decision taken or to be taken, by the Union pursuant to the objective set out in Article B of the Treaty on European Union of establishing economic and monetary union ultimately including a single currency.").

The noble Lord said: My Lords, we had an interesting debate on the issue of the euro during the Committee stage of the Bill. I am returning to the debate today as I am a good deal more certain of the importance of the need for a clear report in five years' time than I was even two or three weeks ago. The reason is that we have had the meetings of ECOFIN and the Council of Ministers to start off the euro. If anything, it illustrates the point that we have to be vigilant about what government Ministers say. We also have to ensure that

12 May 1998 : Column 970

all the facts are laid at the disposal of the British people in a proper manner, before this country makes a decision to join the euro.

In Committee, we had just received the excellent report of the Treasury Select Committee of the other place. Indeed, I quoted from it fairly frequently during the course of my speech. Understandably, I did not receive much of a response on these points from the Minister because there is a convention that Ministers do not respond to a report of the Treasury Select Committee until the Government have responded collectively. Indeed, I do not suppose that I shall make any more progress today and drag from the Minister any comments on the Select Committee's report.

However, that does not in any way mean that your Lordships should not consider carefully what the Treasury Select Committee said. Indeed, the theme of my argument this afternoon--its text--is encapsulated in paragraph 40 of that report. I should like to read it to noble Lords, just in case they have not brought their copies with them into the Chamber. Paragraph 40-- in fact, so important is this that it is repeated in paragraph (f) of the committee's conclusions--says:


    "We agree that if the Government decides to recommend that the UK should join it is imperative that a 'final report' be produced. We recommend that it should also contain a comparative assessment of the consequences of entry and of staying out in the long term. For the reasons we have outlined, it would not be desirable for the final report from the Government before any referendum simply to contain an updated assessment of the five tests"--

that is, the five tests outlined by the Chancellor of the Exchequer--


    "However, we conclude that it will not be possible to judge 'clearly and unambiguously' either the 'success' of EMU or the answers to all of the Chancellor's five tests for at least five years. It will remain the case that the UK's decision will have to be made on a political and economic assessment of the balance of national advantage".

I believe that the proposed new clause before the House this afternoon expresses those views in a slightly different way, but, nonetheless, the conclusion is the same: the need for a report in five years' time. I should have thought that that will be so, give or take a year or so. The Treasury Select Committee has come to a conclusion regarding five years and I have come to a conclusion about 1st May 2003. That is about the right time to start contemplating such a report. My proposed new clause says that there "shall" be such a report at that time, while the Treasury Select Committee is a little more vague. Nevertheless, I believe that we have come to the same conclusion.

When we discussed the matter on the last occasion and considered the report of the Treasury Select Committee, we were looking forward to the vital weekend meetings of ECOFIN and the Heads of Government at the beginning of May when decisions would be made about who satisfied the convergence criteria and about the presidency of the European Central Bank. I pointed out then the need for an honest approach to the convergence criteria and referred to assurances from the party opposite that the criteria would be rigorously adhered to.

One has to look backwards before one looks forwards to the year 2003. My worry is even greater than it was before the meeting of ECOFIN. Despite all the pledges

12 May 1998 : Column 971

that we had received, I believe that "fudge" was the order of the day. For example, on 4th June 1997 in the other place, the Prime Minister said:


    "I have also made it clear, as we have always said, that the criteria for monetary union should not be fiddled, fudged or botched in any way. If they are, the answer is not to delay--the answer is not to proceed".--[Official Report, Commons, 4/6/97; col. 386.]

Moreover, as recently as 25th March of this year, the Prime Minister said:


    "I also agree that it is our duty as president of the European Union to ensure that the criteria are properly obeyed. We shall do so".--[Official Report, Commons, 25/3/98; col. 492.]

I am not entirely sure that the Prime Minister obeyed his own words and that the criteria were not indeed fudged, and fudged again. We have gone over the matter, and I shall not do so again in any detail, but, however one looks at the criteria, they were certainly fudged in a very big way.

The Treasury Select Committee warned us of the fudge. At paragraph 12, the report says:


    "Substantial concerns remain with regard to the state of the public finances. Although deficit levels have fallen and it appears that 14 of the 15 potential members had deficits below the 3 per cent reference value, a number of these countries benefited from one-off measures which reduced the deficit for a temporary period only. Progress on reducing debt levels has been far from convincing. The average debt level across the EU area stands at over 70 per cent of GDP and 11 of the 15 potential EMU members currently have debt levels of over 60 per cent. of GDP ... In particular the very slow progress on fiscal consolidation made by Belgium and Italy provoked the EMI to comment that 'there is an evident ongoing concern as to whether the ratio of government debt to GDP will be sufficiently diminishing and approaching the reference value at a satisfactory pace and whether sustainability of the fiscal position has been achieved'. The general assessment from both the EMI and Bundesbank reports, which was further expounded by the Governor, was that there is still a very long way to go before fiscal positions are sufficiently robust to ensure that the majority of member states will achieve the aims of the Stability and Growth Pact in the medium term".

Yet, despite that, they all signed up. The criteria were not met. Everyone knows that they were not met. This is simply an arithmetic version of what I believe--if my memory serves me rightly--the queen in Alice in Wonderland said, "Words mean what I say they mean". In this case, the arithmetic means what I say it means.

When we consider the position of the United Kingdom in relation to the euro in the future, we cannot lose sight of the way the heads of government clearly decided that the end justifies the means. We heard that phrase just the other day in connection with another part of the world. But if the end justifies the means, I believe that we have to put some kind of stumbling block, test or whatever it may be, into the legislation on this treaty to make sure that before the United Kingdom makes any decisions a clear, concise report is available on all the various issues which are set out in my amendment. I shall discuss them in detail shortly.

It was not just the arithmetic that was fudged. The other fudge concerned the presidency of the European Central Bank. I think that Wim Duisenberg is a pretty good choice. He has made some robust comments since he was appointed president. I am not entirely sure whether that will endear him to some of the people who agreed to the fudge. It was quite clear that every member

12 May 1998 : Column 972

state bar one had decided that Wim Duisenberg should be president of the new central bank. That one state was, of course, France which dug its heels in. It is amazing that when any country, with the exception of Britain, digs in its heels, no one says, "Oh, they are not being communautaire". Yet the moment we dig our heels in about anything we are accused of being anti-Union, anti-communautaire and all kinds of other things. Yet France dug its heels in pretty effectively. France did not give way--as we used to be told good Europeans should give way--and it forced a compromise which was clearly in breach of the Maastricht Treaty.

The Prime Minister described the situation in his Statement to the House of Commons, which the noble Lord the Lord Privy Seal repeated in this House. The Prime Minister almost denied that there had been a compromise. The noble Lord the Lord Privy Seal repeated the Prime Minister's words in this House, saying,


    "Much of the subsequent press reporting has rested on this simple factual inaccuracy: that Mr. Duisenberg intended and wished to serve for a full eight years, as opposed to being nominated for that time, which is the time stipulated under the treaty ... Mr. Duisenberg very properly made it clear that he would not want to serve a full eight years ... he should at least stay until the euro was launched and all transitional arrangements, particularly the introduction of the notes and coins, were in place. This accorded with Mr. Duisenberg's own wishes that he oversee this process and step down shortly after".--[Official Report, 5/5/98; cols. 508-9.]

The Statement continues at col. 509,


    "At my suggestion"--

that is the Prime Minister's--


    "he stated his position personally, in his own words, to the Council. He explained that, because he would be 67 in 2002, he did not wish to serve the full term, but that it was his intention to see through the transitional arrangements for the introduction of euro notes and coins, including the withdrawal of national notes and coins".

The amazing thing is that Mr. Duisenberg then went to see the European Parliament and was refreshingly honest with it. According to a report in The Times of last Friday, he dissociated himself with the,


    "British brokered compromise at last Saturday's summit which effectively ended his tenure in 2002. He said, 'I have never stated that I will serve only four or five years. What I have done is indicated that I regard it not likely that I will serve the full term of eight years'".

When asked if he might stay for the full term, he drew applause when he replied,


    "Given good health, then yes".

That is in fair contrast to what your Lordships and the other place heard last week. All he had promised the summit was that he would stay at least until the deadline for the changeover to euro notes and coins in July 2002. He said,


    "I do not know how long beyond that I will serve. I do not intend to stand down at a specific moment in time which I would have in my mind now".

He went on to say,


    "There were efforts to convince me that I should announce a day to stand down. That is why it took so long last Saturday. I refused to do so. In that case I would not have accepted the job".

That contrasts quite markedly with what we heard in your Lordships' House last week. I do not wish to embarrass the noble Lord the Lord Privy Seal in his

12 May 1998 : Column 973

absence, but I cannot resist one further quotation. The noble Lord said in replying to questions on the Statement,


    "But there is no question about Mr. Duisenberg wishing to serve the eight years, as I understand it".--[Official Report, 5/5/98; col. 516.]

That was not what Mr. Duisenberg understood when he went to see the European Parliament. He said,


    "Given good health, then yes".

What is clear about the events of the past two weeks--whether they concern the convergence criteria or the presidency of the European Central Bank--is that we cannot leave the decisions on whether Britain should join, or when we should join, if that is the decision that has to be made, just to the Government and to the heads of state. We need some clear, legal obligation that a proper report will be produced. That is what this amendment calls for. I refer not just to the Chancellor's five tests. I make no apology for repeating my next point. The Chancellor's five tests are the Chancellor's selected five tests. Many more tests could be applied, and perhaps they should be applied. At paragraph 25 of the report from the Select Committee on the Treasury, Christopher Johnson is quoted as having argued that,


    "'The Chancellor's tests are so loosely defined that anyone will be able to say that they have been either passed or failed, according to the dictates of political expediency'".

Mr. John Arrowsmith suggested that,


    "if no commitment is given as to when a further assessment will be made, 'there will be a lot of guessing going on and a lot of uncertainty generated in financial markets that could actually prove to be destabilising and, if you like, upset the apple cart'".

At the end of that paragraph, the Select Committee concluded,


    "We believe that the Treasury response to this Report should set out more precisely the ways in which the tests will be assessed, particularly to avoid uncertainty in the financial markets".

My proposed new clause sets out in some detail the issues which the tests ought to address in order not just to prevent uncertainty in the financial markets, but also--dare I say it?--to prevent uncertainty in the political climate in this country. That is why I ask for a report which would examine a number of specific issues. It would, for example, examine the constitutional aspects not just of "going in" but also of "staying out". We are talking of whether we go in or stay out. That is an option which the British people and the British Parliament will have to decide.

The constitutional position will be important. However, given the public opinion polls in Scotland, one is a little fearful for the constitutional position of the United Kingdom in five years' time. However, that is another issue. As I said, the constitutional position is important. I do not normally share some of the more fevered suggestions--I describe them kindly--of my noble friend Lord Pearson of Rannoch or of some noble Lords opposite as regards the European Union. However, I am in some danger of being smitten by their fears when I read, for example, what Chancellor Kohl said to the Bundesrat just recently. I have taken to reading The European. In The European of 27th April

12 May 1998 : Column 974

my attention was drawn to evidence given to a Bundesrat committee by the German chancellor. The article states:


    "He made it clear that monetary union is a process which will make European unification irreversible. He sees EMU as the single most significant step on the road to a federal Europe. He even regretted that the Amsterdam Treaty did not take integration further ... Mr. Kohl's vision of a united Europe is based on the German model of a decentralised federal state: 'What has been achieved over 40 years in terms of arrangements between the German federation and its constituent Lander--and it was no simple process--can nonetheless happen in the development of the EU.' There will be substantial devolution of power, as there is to the German Lander, but Europe is to have a federal government more powerful than anything admitted to in London".

Those noble Lords who have heard me debate European issues know that I am a supporter of the European Union. But I am not a supporter of the kind of federal Europe that some noble Lords seem to think will be inflicted upon us. When I read Chancellor Kohl's views I become a little worried that someone in such an important position believes in going a good deal further than I, and I think the majority of your Lordships, would be happy to go. Perhaps the Minister can give me a flavour of what the Government feel on the constitutional aspects of moving ahead in the way Chancellor Kohl describes.

The next part on which we would like a report is the monetary and financial impact. By 2003 we shall be in a better position than today to judge how the monetary and financial aspect is working. I need say no more on that; it is self evident. We all hope that the Euro will work. If it does not work, the consequences for all the economies in Europe will be very serious indeed. But we wish to see how the monetary and financial systems are working together before we in this country decide to go in.

The third aspect is the impact on economic and social progress. That is very important indeed. I wish to draw your Lordships' attention to two points of view. They are not the only two, but I give them as examples. One is unemployment. I noted that in the Treasury Select Committee report at paragraph 32 it says:


    "The Governor of the Bank of England argued that, 'wide divergences in unemployment rates pose a real question as to the sustainability of that situation in the absence of much more flexibility in labour markets in Europe' ... if structural differences persisted, 'you could have difficulty in getting a single monetary policy which is appropriate for the area', giving rise to 'high unemployment persisting in some parts of the area with potentially inflationary pressures persisting in others'".

I could continue at some length about the difficulty of one interest rate throughout all the 11 member states; and how for some of those member states that interest rate will be too low, and for others too high. However, we know that for the past five years under the previous government, we successfully pursued labour market monetary policies which enabled our unemployment to come down month by month on whichever count one takes, whereas our friends on the continent saw their unemployment rise month after month. It gives me no pleasure to say that, but that is a simple fact. Therefore employment is an important aspect.

The other aspect that I believe important--I know a little about it from my experiences in the past government--is pensions. By 2003 we shall be in a

12 May 1998 : Column 975

better position to see how the social policy--for example, pensions provision--is panning out in Europe. The impact of the ageing population in all our countries will be considerable. Some of our European friends have huge unfunded pension promises for the future. We are fortunate in that we have considerable funded pension provision in place--although, frankly, not nearly enough, and not covering nearly enough of our population. But at least it is a good deal better than that of our European friends. We shall want to be sure that no effort is being made by 2003 to translate those unfunded obligations from the individual member states to the union.

I believe that the new clause accords with what the Treasury Select Committee asks the Government to do: to produce in five years' time a balance sheet of the economic, social and constitutional advantages and disadvantages of joining up to the single currency. Given the events of two weekends ago, it seems sensible to tie this down in a legislative framework in case after the five years the Government treat the whole issue in the same fudging way as it was treated two weekends ago. I believe that that would be to the detriment of this country.

5 p.m.

Lord Renton: My Lords, before my noble friend concludes, will he bear in mind that the various matters set out in the amendment, with which I fully agree and which he has stressed as being important, will start revealing themselves within 12 months? I should have thought that within three years conclusions could be reached upon each of them. Five years in politics and economics is an eternity. If we wait until 1st May 2003, it means that this Government will be under no obligation to submit a report on these matters until after the next general election. Surely on further reflection my noble friend may at a later stage accept an amendment to make the period three years instead of five.


Next Section Back to Table of Contents Lords Hansard Home Page