By the Select Committee appointed to consider European
Union documents and other matters relating to the European Union.
HOW IS THE EURO WORKING?
PART 1: INTRODUCTION
1. On 1 May 1998, the decision was taken that eleven
Member States would proceed to Stage 3 of Economic and Monetary
Union (EMU). In this inquiry, reporting two and a half years later,
we have examined the extent to which the hopes and expectations
of the participating Member States have been met.
2. In June 1998, the Committee produced a Report
entitled The European Central Bank: will it work? Broadly,
its answer was "Yes"largely because
"the political and economic
costs of failure would be such that we assume an overwhelming
political will to make [the single currency] acceptable and successful.
The European Central Bank is an essential element in the operation
of the single currency. While the risks are considerable we do
not expect it to be allowed to fail" .
At that time, the Committee identified the two principal
potential economic (as opposed to political) dangers to the success
of the single currency as "fiscal profligacyexcessive
and unjustified budget deficitsand failure to make structural
We have looked at how far those, and other dangers, have materialised.
3. The Government's position is that
"in principle, a successful
single currency within a single European market would be of benefit
to Europe and to Britain
If, in the end, the single currency
is successful and the economic case is clear and unambiguous,
the Government believes that Britain should be part of it".
This Report does not consider whether, or in what
circumstances, the United Kingdom should join EMU; it is intended
rather as a contribution to the debate on whether the single currency
has so far beento use the Government's word"successful".
4. During the summer of 2000, the House of Commons
Treasury Committee undertook an inquiry into Economic and Monetary
Union, with very wide terms of reference.
This influenced our decision to concentrate in detail on the actual
functioning of the euro to date, so that the two reports would
5. Part 2 of this Report provides a summary of our
conclusions, based on the evidence we received, which is presented
Part 3 looks at what was expected of the euro;
- Part 4 considers how the euro is working from
the point of view of the euro-zone as a whole and of the individual
participating Member States;
- Part 5 considers the functioning of the ECB;
- Part 6 looks at the reasons for the fall in the
value of the euro;
- Part 7 poses some remaining questions.
6. The inquiry was carried out by Sub-Committee A.
The membership of the Sub-Committee during the inquiry is listed
at Appendix 1. Because we were particularly interested in the
perceptions of the participating Member States as to how the euro
was working, we sought written evidence from their governments,
and took oral evidence from as many of their Ambassadors as time
permitted, as well as from others. Our witnesses are listed at
Appendix 2; we are grateful to all of them. The nature of this
inquiry required considerable background research and analysis:
for this we thank our Specialist Advisers, Professor John Driffill
and Mr Martin Christensen, who among other things provided the
comprehensive set of tables in Appendix 3. Readers may find the
Glossary in Appendix 4 helpful.
1 House of Lords Paper 112; 24th Report Session 1997-98,
paragraph 133. Back
Op cit, paragraph 131. Back
Chancellor of the Exchequer, Hansard, 27 November 1997,
cols 583-584. Back
Eighth Report, 1999-2000, HC 573. The terms of reference of this
inquiry were to consider "monetary conditions to date, including
the value of the euro and its position as an international reserve
currency, and the actions and structure of the ECB; the performance
and future prospects of the euro area economy and the progression
of economic convergence between Member States since the euro's
launch; whether developments in the euro area economy have made
any substantive difference to an assessment of whether the UK
satisfies (i) the Maastricht convergence criteria and (ii) the
Government's 'five economic tests'; the implications for the euro
of enlargement of the EU; the National Change-over Plan and the
level of preparation undertaken by (i) United Kingdom firms and
(ii) the public sector for possible entry into EMU". Back