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Lord Tordoff: My Lords, I hope the noble Lord will forgive me as I hate to interrupt him. I do not think that the publicity that has been given has reached the citizen directly but the noble Lord, Lord Tomlinson, took the trouble of sending a copy of the report to the chairmen of every member of the FTSE 100 index. He received a considerable number of helpful replies from those people. So it has had a quite wide circulation to those 100 people, their economists and staff.

Lord Plumb: My Lords, I thank the noble Lord for that extremely useful intervention. However, the noble Lord, Lord Bruce of Donington, said that the report only reaches those in the City involved in business and not the average person on the street. But it is those people who employ the individuals; we need to get the message to them.

Many of the individuals we meet on the street or in the workplace believe that joining the euro is a step too far. We hear so often that they believe that the single market--the freedom of movement of people, goods services and capital--is as far as we should go. Yet we see the gap--it has been as much as 25 per cent--between the value of the euro and sterling. That means that we have a totally unequal market. It is a playing field that I can only describe as a slippery slope. It is remarkable that over the past two or three years producers in this country have managed to survive in circumstances where products are pouring into the United Kingdom and we are denied the opportunity to export. In agriculture--the area I know best--in food production, 40,000 left the land during the past year mainly due to the disparity in the market place.

In his opening remarks, the noble Lord, Lord Tomlinson, said clearly that it is almost impossible to judge the full success of the euro. Yet the evidence received from almost everyone was favourable. He said that it can be judged only by the economic conditions of the European Union as a whole and its relations with the remainder of the world. We are all well aware of the growing influence and impact of the World Trade Organisation. In that sense, we in the European Union have a responsibility to get our act together with regard to the rest of the world in terms of trade.

My noble friend Lord Renton of Mount Harry said that the euro would be seen differently when in hard currency. I have made that point on many occasions. One can spell that out to the travellers. As the noble Lord, Lord Barnett, said, the benefits of the hard currency will come home to the 8 million travellers when crossing the borders in euro-land.

That leaves us with the overall situation in the European Union. It is often seen as economically sclerotic and politically bankrupt. We know that that is nonsense. Equally, we should know that our place in the European Union allows us to share in the benefits

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of the Union, which by any standards is one of the most economically dynamic regions in the world as well as being a bulwark defending democratic values. If the European Union were so awful, why would so many countries be queuing up to join, knocking on the door? It would be a tragedy if the United Kingdom were to turn its back on Europe just as it was on the verge of reuniting the continent of Europe. Shaping events, not reacting to them, is surely the order of the day.

The EU has a global influence on the economic and political plane. That will be reinforced by the European security and defence policy--and, many would say, by the euro itself. But that does not mean that it creates conflict with the United States. The United States is the closest global partner of the EU and will doubtless remain so under a different regime. For all the headlines, the reality is that the Atlantic relationship is flourishing, particularly in the private sector.

Any attempt to put a figure on the membership is doomed to failure. Any attempt to look forward over the next few years to determine what the economic climate will be is pure speculation. But most policies in the European Union--environment, trade, co-operation against crime, the drugs trade, the single market and economic and monetary union--have little or nothing to do with the Budget. Trying to quantify those matters makes no more sense than quantifying concepts such as collective defence, the rule of law or parliamentary democracy.

The assumptions following some public attitudes that we hear far too often are that the European Union is static and that the United Kingdom has no influence in it. Both are wrong. One has only to pick up a newspaper to see that there is a fundamental debate about how the European Union works on top of years of policy change in areas ranging from economic and monetary union to security, and from the fight against crime to economic reform. In many of those areas the United Kingdom has had a profound influence: in police co-operation, economic reform and moving towards a freer trade.

We need more input not less. I take seriously the comment of the noble Lord, Lord Peston. He said that the European Parliament was pathetic in its reaction to the present proposals. I served for 20 years in the European Parliament. I can only say that when the noble Lord, Lord Tomlinson, and I were there it seemed very different.

5.58 p.m.

Lord Desai: My Lords, my noble friend Lord Barnett said that I should be an exception to every rule. As the last speaker before the noble Lords who will wind up the debate, I am tempted to disagree with everyone but I shall not do so. I note that the Labour Party has a new invitation for the election: that we should vote with our heads and our hearts. On this topic, too often the heart is involved rather than the head.

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I used to be a wild enthusiast for EMU. In 1992 I wanted immediate entry without any convergence criteria. Since then I am a disappointed enthusiast. Since the Edinburgh summit when Mr John Major was Prime Minister, the EU has become arrested in its development. The steady march towards what I had hoped would be a more integrated state has not occurred. There has been no leadership since Jacques Delors gave up presidency of the European Commission. There is no leadership among chief executives, prime ministers or presidents of Europe, as was evident at Nice. That was no way to run any meeting.

I do not question whether the euro is good or bad, or whether we should go in. I wish to examine the euro critically. Having a single currency without a single state creates problems. Some Euro-sceptics fear that a single currency will lead to a single state. Those who love the EU get defensive about the issue. They do not want to admit that a single currency without a single state will cause severe problems.

I agree with my noble friend Lord Lea that it is too soon to judge whether the euro has arrived. There has been no major event in the past two years that could be described even as a shock, much less a symmetric or an asymmetric shock. We do not know how the system would cope with an asymmetric shock.

We have to examine the euro in an instrumental way as a currency. Is it working? As a past member of the committee, I know what an excellent committee it is and how carefully its reports are written. However, there is one major question for the country that the report does not address. I shall confine myself to my disagreements with the report. Praise will only go to the head of the noble Lord, Lord Tomlinson.

There is a problem of excess volatility. I agree with my noble friend Lord Peston that in a flexible exchange market there is no correct level and there will be volatility. However, I am worried that, although the euro-dollar rate, given in figure 4 on page 39, was more or less between 1 and 1.40 dollars between 1986 and 1999, it has gone below 1 dollar since the establishment of economic and monetary union. It may go up again, but we have to note not just the fluctuation but the fact that the trend of the euro against the dollar is downward. I know that it has turned up slightly in the past three or four weeks, but one must worry when a new currency shows such a steady trend against a leading currency.

It has been argued that the situation is due not to the euro's weakness, but to the dollar's strength. There has been an interesting change in the relationship between the pound and the dollar and between the pound and the euro. The pound used to move with the dollar, but now it has decoupled and is moving more with the euro. However, it is no good denying that the pound is overvalued against the euro. We have to ask why it is so.

I have argued previously that there is a fundamental institutional shortcoming in the Maastricht treaty: nobody is in charge of the external value of the euro.

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Even in a flexible exchange world, somebody has to be responsible for making a statement on whether the currency is too high or too low. In the United States, the Secretary of Treasury is the only person who makes a statement about the dollar. In Europe, everybody has an opinion and expresses it, from the Chancellor of Germany to every other Minister or member of the Commission.

Those arrangements will not do. That gap in the institutional set-up of the euro must be repaired. Somebody--perhaps ECOFIN--ought to be responsible. Whoever it is, people ought to know who to go to in a moment of crisis for an authoritative statement on whether the euro is high or low. Of course, ECOFIN cannot do anything about the problem because it can give only general orientation to the ECB about the external value of the euro. Some people think either that the external value of the euro does not matter or that devaluations are welcome. Our experience of devaluation has been pretty terrible, so I hope that nobody else starts to rely on it.

It would be very good if the euro were to settle down at some value--I shall not call it an equilibrium value, but some value, plus or minus 5 per cent--and stay there for at least six months. It has not stayed at any specific value for even three months in the past two years. It has been very successful at achieving price stability, but there was price stability before. There has been no great change on that. Inflation was low in the European Union countries and it has not been appreciably altered by the ECB.

This is not about whether we like the EU: it is about whether the currency works. That is a non-emotional question. Currencies are instruments. One cannot die for them--or at least I hope not.

Price stability has certainly not been worsened. I agree again with my noble friend Lord Peston--it is always a surprise when economists agree with each other--that the target has not been set up intelligently. However, the downward trend of the euro is news. We must acknowledge that and not live in a fantasy land where we believe that the euro is on its way up every time it appreciates by 1 cent and that it will soon beat the dollar. We need to forget about the ambition that the euro should be not just a currency, but a revenge against the United States to show how macho we are. The aim of the euro should not be to beat up the dollar. It should aim to be a stable currency against the dollar, at whatever level it chooses. It has failed to do that so far.

That structural defect in the operation of the euro ought to be addressed at some level, either in ECOFIN or at one of the rather untidy summits at 4 o'clock in the morning on the fifth day after the seventh shirt. That situation must be brought under control and the euro has to show that it can be stable to within plus or minus 5 per cent. I do not ask for parity with the dollar any more. I used to want that, but all my life my dreams have been disappointed and one more will not make any difference. It simply needs to stabilise at some level. There ought to be institutional arrangements in the EU to have a single, authoritative

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spokesperson for the euro. Once that is done, we can address the question of whether we should join. I am not a Euro-sceptic and never have been, but I do not want to join a disfunctioning currency. We have had a disfunctioning currency for too much of the past 40 years. Now that sterling is functioning properly at last, we cannot join another disfunctioning currency.

I should like a sixth condition on top of Gordon Brown's existing five: there needs to be some stability between the dollar and the euro at whatever level, plus or minus 5 per cent. The excess volatility and the euro's downward trend ought to be reversed or fought.

On the other issues, such as accountability, I entirely agree with my noble friend Lord Peston. It is shocking that the democratic deficit in the European Union has been further deepened by the central bank. The sooner the ECB starts to behave like an institution functioning in a proper democratic environment, the better for all of us. It is no good the central bankers hiding behind secret doors. We have to know why they do what they do--or do not do. They are answerable to the citizens of the European Union, because that is where their legitimacy comes from. They cannot be above the law. They have to be subject to the law. If not, when they fail we shall have no recourse to anything.

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