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Lord Renton of Mount Harry: My Lords, I am not aware of having said anything of the kind. I believe that I said it was clear to citizens. I approve of the report. I served on the sub-committee that produced it, but I never said the words that the noble Lord has just mentioned.

Lord Bruce of Donington: My Lords, the words used by the noble Lord were, "clear to citizens". We shall see it in Hansard tomorrow. In the mean time, the total cost of the document, which will obviously appeal to the broad, general public, particularly those in gainful employment, is 20.30. I do not know the intended circulation of the report, or to what extent it may be claimed that it will be read by the mass of the population or is likely to impress the mass of the population, but it has not even very much impressed the press, to whom, presumably, complimentary copies have been sent. The report has, of course, been

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considered by those with the resources to acquire it, who do not comprise the bulk of the population either in Britain or in Europe. It has also been read and understood by a comparatively few trained economists, including econometricians for good measure, and by the business community. Those citizens of the United Kingdom have had the opportunity to see and understand the document.

There are precedents for this. One recalls that Ministers of the Crown do not always read the treaties that they sign. That was the case with the Treaty of Maastricht, when the noble Lord, Lord Hurd (as he now is), together with the then Chancellor of the Exchequer, admitted that he had not even read the treaty. Anybody who for one moment thinks that Ministers of the Crown read these reports is barking up the wrong tree. I probably would not include my noble friend Lord McIntosh of Haringey, who will wind up the debate and whose neutral stance I, unusually, support.

I turn to the report itself. At page 7, the report states in its conclusions:


    "Less than two years have passed since it was introduced, on 1 January 1999. Euro notes and coins will not start to circulate until 1 January 2002, and most of the general public will have little opportunity to judge how the euro affects their lives"--

You can say that again! The report continues,


    "and to reach conclusions about the success of the euro until some time after that. Even where deep-seated structural and macro-economic changes have begun, it is too soon for their full effects to be felt".

The euro has not been introduced in a vacuum; it must function within other political and legal frameworks. Those are set out in the stability and growth pact and in various other sections of the Maastricht Treaty. That seriously inhibits the action of member states within the euro and some outside. Does anyone believed that the ordinary people of the country are likely ever to be in the position of being able satisfactorily to judge the real impact of what is happening?

As is always the case when such complex issues are raised, there is a mass of statistical information. Indeed, 20 per cent of the report comprises tables of statistics which will not be intelligible to the ordinary people who inhabit the country. They will have to rely on second-hand opinions. Furthermore, there are some 43 pages of statistics from the Government's database and I have no doubt that sooner or later they will appear on a website. We know that the statistical material emanating from computers is not always permanent. Often, it is completely recast. There have been a number of cases in the United Kingdom in which millions of pounds have been spent on computer programs and print-outs which have subsequently proved to be inaccurate. The same thing applies to the statistics which are quoted with authority in the report.

It is no good for us to proceed on such a basis. There is no point in trying to dazzle people with the figures and arguments as they are currently presented. We know in advance that business and large commercial interests will be in favour but the public will not be sure

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unless a detailed and impartial presentation of the situation of Britain within the euro and outside is made to them in a manner that they can understand and appreciate as being fair. Until that is done, such reports will do no more than touch the periphery of opinion in this country--and mainly professional opinion at that.

It is already clear--it is clear even in the report--that the imposition of a single currency throughout Europe will not succeed for the simple reason that it will automatically impinge on the lack of ability to vary exchange rates and interest rates. That will deal a fatal blow to the expenditure plans of all governments. Only through government action can the lot of poorer people--the great mass of people in Europe--be articulated.

Such articulation stands no chance but it could not be put in words better than those used by M Trichet. It will be recalled that in a complete breach of the treaty M Trichet was appointed in advance, outside the scope of Protocol No. 10 of the Maastricht Treaty, in order that he could take over from Mr Duisenberg the leadership of the European Central Bank.

It is most interesting, therefore, to see exactly what he said about the position that would be likely to arise. In evidence to the committee, M Trichet said at page 38:


    "One of the observations we are also making is that in general it seems to us the level of public spending as a proportion of GDP is too high and should diminish and the best way to be on the safe side in terms of fiscal policy is to attack directly the question of public spending. In that respect I can mention that the euro area has received recommendations by the Eurosystem that are going exactly in that direction: let us diminish public spending as a proportion of GDP; let us try to have a fiscal situation that will be as sound as possible in all respects, including the one that you have mentioned".

M Trichet is due to take up leadership of the European Central Bank.

The attacks on public expenditure remain the settled polity of the European Commission. Sooner or later, the people of Britain will know that the only way of redressing their position as against those of the rich and powerful who govern will be progressively to bring pressure for more expenditure on public and other services in order that the yawning gap between the rich and the poor can partially be narrowed and suffer no further deterioration.

In that light, I commend the report to the House. Had I time, I could mention many more niceties within it. I hope that it will be appreciated and I sincerely trust that, despite its supporters here today, it will receive a wider circulation than has been the case.

4.40 p.m.

Baroness Sharp of Guildford: My Lords, I speak from these Benches as a member of the sub-committee which helped to write the report. As the noble Lord, Lord Bruce, noted, the report is substantial, although when we began our deliberations the inquiry was to be a short sequel to the earlier report by the sub-committee on the European Central Bank. We regarded this subject as appropriate to fill the overspill

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period before the gracious Speech. As it turned out, the exercise was very much more substantial than originally envisaged.

The report is extremely useful from many points of view. I reassure the noble Lord, Lord Bruce, that the report may cost 20 but it can be downloaded from the Internet, which many university students use to obtain the report. I believe that your Lordships' reports are used extensively by universities in this country. Certainly, speaking as someone concerned with the economics of science and technology, the reports of the Select Committee on Science and Technology were regularly used by both me and my students.

When we embarked on the exercise we recognised that it was too early to take any definitive views on what would happen to the euro because the period was still very much a transitional one. The European Central Bank had been set up and a single interest rate covered the euro 11, now the euro 12. Big business used the euro for the purposes of trade and the financial markets in the euro picked up and developed in a substantial way, as the noble Lord, Lord Cobbold, mentioned. But if one visited any country in euro-land one would find that people still used local notes and coins and, although prices were quoted in euros, most still thought in terms of local rather than euro prices and the euro meant very little to them.

Above all, when we tried to take a view as to how the euro was working and looked at the statistics--we spent some time pouring over pages of figures produced to us--we had difficulty in distinguishing the effects of the euro from the general upswing in the macro-economic situation within the Union. Undoubtedly, the recession of the early 1990s, which Germany and France hit somewhat later than the UK--therefore, they went into recession later--had been extended by the build-up to the single currency and the stringent demands placed on many countries by the stability and growth pact. Nevertheless, we believed that it was useful to flush out what was and what was not available and look at the evidence.

The first issue was what criteria should be used to judge how the euro was working. What does one mean by "success"? On page 7 of the report one finds a very long list of issues that can be used to judge success. I very much liked the approach of Sir Edward George, Governor of the Bank of England, who said clearly that it should be judged by its performance. He went on to point out that growth was up, unemployment down and inflation, given the rise in oil prices, surprisingly stable. He summed it up by saying:


    "Basically ... it is actually not at all a bad performance; in fact, it is quite a good performance".

The problem in performance that Sir Edward George saw was the one that we all witnessed: the fall in the value of the euro. The general public, certainly in this country, asked what was wrong with the euro and why it had dropped so substantially against the dollar. As other speakers have made clear, Sir Edward George said that he did not think that that was the result of the fundamentals of euro-land but the extraordinary outward flow of both direct and

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portfolio capital from euro-land in particular, but also the UK, into the United States. He believed that the cause was the imbalance across the Atlantic rather than across euro-land. It is interesting that, as the noble Lord, Lord Tomlinson, noted, the glamour of the dot.com economy, which in part pulled in this money, has faded since the time the sub-committee took evidence from the Governor of the Bank of England. One now sees some rebalancing of the two currencies of which Sir Edward spoke. I found that a particularly interesting exercise.

In the early and mid-1990s I had been somewhat sceptical about the development of the euro. I accepted that it could be seen as the logical conclusion of the single market project and that there could be problems if within that single market countries began to adopt competitive devaluation positions. In particular, I recognised that Germany had fears about Italy and Spain, even the UK, using devaluation as a means of positioning themselves more favourably in the market. But I have also spent much of that time studying the underlying competitiveness of European countries, in particular the relationship between the less advantaged and more advantaged countries in the EU-- "cohesion" in euro-speak--and the divergence and convergence among those economies. As a result, I was well aware of the divergence between different parts and regions of the European Union. That led me to conclude that the single currency project needed to be taken slowly rather than too quickly. I believed that the more important project politically was enlargement in order to bring in the countries of eastern Europe rather than the single currency.

But I am a political as well as an economic pragmatist. Once it became clear that the all-important axis of France and Germany was determined to press ahead with the single currency, and therefore it became a political project, I believe that Britain would be ill advised not to participate. It was important that if it went ahead we should make it as successful as possible and that we would do better--as in 1958--to be at the table at the beginning helping to shape it rather than come along as a Johnny-come-lately asking people to change the rules.

At that stage I was very interested to see how it was shaping up. Two particular issues influenced me in becoming far more optimistic about the project than I had been earlier. One was the fact that the effect of price transparency was much stronger, even at the early stage, than had been expected. Several witnesses spoke about the degree to which, even before the introduction of notes and coins, consumer prices had been pushed down as a result of everything being priced in euros. That important matter had been noted by Ireland in particular, but it also emerged from other witnesses.

Over the past 20 years in this country we have suffered from the collusion between retailers and manufacturers in the car market to keep prices somewhere in the region of 20 per cent above those in the rest of euro-land. To some extent, the development of single pricing in the European Union is one of the factors which exposes that collusion and gives the

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Government, as well as the EU competition authorities, something of a stimulus to do something about it, whereas before they turned far too much of a blind eye to it. The issue of consumers benefiting from transparency of prices is of considerable value. If it already exists at a time when we are not using the notes and coins, how much greater it will be when we have a single currency.

The second interesting issue is the stability and growth pact. It has been mentioned that Belgium and Finland both talked about the advantage to their administrations of the stability and growth pact in terms of providing a degree of external discipline to goverments. I had expected Italy to find life within the euro difficult. In my studies I worked fairly closely with a group of Italian economists. I asked them: "What are your views? How are things working out in Italy in relation to the single currency? Are you being pressed too hard by the stability and growth pact?" A tall man--I confess they were all men--relied: "No, Margaret, you must understand this has been of enormous value to us. At long last we have some external discipline on our government that actually reins in public expenditure. No, it has been tough meeting the criteria but it has very definitely been worth while".

I conclude that I have been influenced by a number of issues, but these are two issues I highlight as being a slight surprise in the evidence that we found. The noble Lord, Lord Shaw, made the point that so far we have seen the euro working at a time when the economy is moving forward quite fast. It is important in the sense that trying to make changes within the economy is rather like trying to change gear with derailleur gears: as long as you go forward you can change gear quite well; it is when you stop that the chain falls off.

That is a test still to come. But my reading of the evidence that we received was that the euro has made a good start. Given the confidence that is now being built up in the euro, and given the reassertion of its fundamentals against the dot.com economy of the US, I am fairly confident of its future.

4.52 p.m.

Lord Peston: My Lords, this is an excellent report. I shall not waste time listing everything with which I agree. Instead I shall concentrate on some points of contention. That is less to do with the committee's report and more to do with the precise form of EMU itself.

However, I should tell your Lordships--other noble Lords have done so--where I stand personally on EMU. I use the language so beloved of my right honourable friends in government; namely, that it is in our national interests to join economic and monetary union. The net economic gain is as clear and unambiguous as anything in economics is or is likely to be. That is my position.

The noble Lord, Lord Shaw of Northstead, said that it all started too early. He must know that this matter goes back some 40 years. I certainly started to get

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involved in it in the early 1960s when people were thinking of it as both a theoretical and practical project. I certainly talked to the noble Lord, Lord Jenkins of Hillhead, when he was president of the Commission in 1975, about the practical prospects then. Far from being too early, this should have happened long ago. The other comment that one should make at this point is that, given the history of what has happened, the fact that EMU has started is actually a miracle. To anyone who knows the problems at every stage in moving forward, it is a remarkable achievement of which Europe can be proud.

I turn to the report. I look first at paragraph 14, again as a point of contention. I do not regard the end of internal competitive devaluation, coupled with differential interest rates, as a potential downside; quite the contrary. The essence of economic and monetary union is that one gives up competitive devaluation and one gives up separate interest rates. That is the point. It cannot possibly be a downside. Indeed, the point of it is the efficiency benefits that will occur in the way the single market is operating in that monetary and micro-economic framework. Therefore, one should not approach the subject in that way. I add that it is a matter of sadness to those of us who believe strongly in the single market how slow we are still being in removing the large number of market imperfections and restrictive practices that remain, both in European Union producer and consumer markets. But EMU will help, I hope, in moving us in the right direction there.

I turn to paragraph 16. Here I agree with the committee. It says that,


    "the ECB has been more transparent than expected".

But, as none of us who knows anything about Europe expected it to be transparent at all, anything it has done is more than expected. But it is surely not transparent enough. The ECB compares most unfavourably in this regard, as in so many other ways, with the Monetary Policy Committee of the Bank of England, which is a model of transparency and openness. Therefore, I do not accept that it would be inappropriate for the ECB to publish minutes and voting records. Independence is not, in any way, threatened by so doing or by requiring such secrecy in order for the bank to operate in an independent way. If one really believes that, one has no faith in the European Union in the first place. To say that the ECB would be threatened by normal democratic transparency is a most ridiculous proposition.

That takes me on to accountability. This is a matter that unites most of your Lordships' House, given our own peculiar way of getting here. Accountability to democratic institutions is the essence of democracy. Here again, the ECB compares most unfavourably with the position prevailing in this country with regard to the Monetary Policy Committee. So far, the European Parliament's role in this has been pathetic. I should like to see it show some courage and start to demand an accountability role.

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I do not see what the problem is--again I slightly disagree with the committee: if it reflected on the point, I am not sure whether it might not come to agree with me--


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