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Lord Saatchi: My Lords, the Official Opposition's view is always to take an interest in what the public think and what are the public's concerns. Therefore, naturally, we are interested in what they have to say.
Lord McIntosh of Haringey: My Lords, I join with other noble Lords who have congratulated the committee, its chairman, it special advisers and its Clerk on an excellent report. I was particularly grateful--at least for a short time--to my noble friend Lord Tomlinson for his introductory remarks when he said that the committee had ruled out discussion of UK entry and any discussion of the future. I thought to myself, "Well, that cuts out nine-tenths of what I was going to say so I can strike through it". Indeed, I have struck through it.
But, unfortunately, the debate did not take that line. Most noble Lords who have taken part have been talking about UK entry and the future and it is incumbent on me, to some extent, to follow the debate which has taken place.
I do not know that I can follow the exquisite speech of the noble Lord, Lord Saatchi. A debate on public opinion addressing the euro is neither covered by the committee; nor is it covered by the rest of the debate. But I enjoyed his speech very much. I shall read what he said with great care and as a past practitioner in survey research I shall be very interested to see how he arrived at the conclusions he has reached.
I shall go back to the more fundamental issues rather than the issues raised by the report. But in doing so, I should say that I shall save until the end my response to the unfavourable reaction--I put it as neutrally as I can--to the Treasury's response to the committee's report.
The starting point in the report is the criteria by which the success of the single currency could be measured. That is set out very well by the committee in paragraph 8 on page 7 of the report. It is set out as being the view of witnesses rather than the view of the committee but the committee gives general endorsement to the points made in paragraph 8 and the Government would broadly accept that those are reasonable criteria for judgment.
The important point about our response to those criteria would be contained in the comments made by the Chancellor to the Treasury Select Committee hearing in another place on 25th July last. He said that the test of the success of the euro is implicit in the five domestic tests we are applying. In other words, he was reminding the committee that we have indeed set out five economic tests and I was almost driven to repeating them in Starred Questions this afternoon. Those are tests that we would apply to a successful euro. Therefore, before we apply those tests it is incumbent upon us to reach a judgment as to whether the euro is successful. That is where the committee's work in relation to this report, the previous report and the forthcoming reports that are promised, is so important and valuable. Even the noble Lord, Lord Desai, who appeared to be searching for areas of disagreement with other noble Lords, would agree that one has to make a judgment about success as implicit in the five domestic tests we are applying.
A number of noble Lords have said that those tests are meaningless. My noble friend Lord Bruce of Donington said something of that nature; and my noble friend, Lord Barnett, believed that no judgment could be clear and unequivocal, a view with which I sympathise. However, if a test is meaningful and it is not met we would fall into the trap of making the old mistakes. We would mistake exchange rate stability for more general economic stability which would leave the way open for the stop-go economic policies and stop-go economic results that were a feature of much of the past 20 years.
I do not believe that the tests are meaningless; they are challenging. Therefore, I believe that making a decision during this Parliament is not realistic. A period of stability and settled convergence is needed before membership can be considered seriously. I know I am not saying anything new and I do not intend to, but we have said that we shall make an assessment of the five tests early in the next Parliament.
Having said that, my noble friend Lord Bruce challenged me to say whether the Government were neutral on such issues. No, the Government are not neutral. The Government want the euro to succeed for the benefit of Europe and for the benefit of the United Kingdom. The issue of UK entry is, and in our view always has been, dependent on UK economic interests.
On the success of the euro in European terms, which is the thrust of the report, we accept that some of the tests are still to come, as the noble Lord, Lord Shaw of Northstead, and the noble Baroness, Lady Sharp, said. That is true. The noble Lord, Lord Shaw, thinks that we are too early and my noble friend Lord Peston thinks that we are too late. Nevertheless, it is true that we have not been through what one may describe as a full economic cycle. What is wrong with starting at the right time? It must be remembered that at the beginning there were fears of serious economic shocks from crises in East Asia that threatened to spread around the world. Those shocks have been well-absorbed and well-resisted by euro-zone.
That is important not just for Europe, but also for us, because Europe is fundamental to our economy. We have about 3 million jobs that are directly affected by our economic ties with Europe. Over 50 per cent of our total trade is with the European Union; nearly 50 per cent is with the 12 countries in the euro-zone; and the European Union is our largest trade and investment partner. That is why in October 1997 the Chancellor said, as I have quoted so many times:
By helping to sustain a zone of economic stability across Europe, a successful single currency should reduce the harmful effects of volatility on investment, employment and ultimately economic prosperity. That view has been reflected by nearly all speakers. The noble Lord, Lord Saatchi said that the score was 13 to 2 and with him it became 13 to 3. I ask myself why the Euro-sceptics fled away from this debate. Was it
It is also important to recognise the truth of what is said in paragraph 17 of the report, in contrast to the general level of comment in the UK press. It speaks of the advantage to the economies of European countries of the low euro in its opening months. The noble Lord, Lord Taverne, rightly said that the European business world disagrees with that and the noble Lord, Lord Cobbold, made a valuable point about the growth of the euro bond market and how that shows the approval of the European business community.
On economic development, much has happened in the two months since the report was published. There have been a number of developments in the global economy. There has been a sharp slowdown in the United States and in emerging Asia; some renewed weakness in Japan; a cut of 100 basis points in the US Federal Reserve interest rates; and the prediction by Alan Greenspan of growth "close to zero" this quarter as the momentum of weak consumer spending is exacerbated by falling consumer and business confidence.
The Commission's spring 2000 forecasts projected that GDP was likely to show relatively robust growth rates. The most up to date forecasts available from the Consensus survey in January 2001 showed slightly reduced, but not dramatically reduced, projected growth rates. As the noble Lord, Lord Cobbold, said, the euro has had a significant impact on producing a capital market to rival that of the United States.
The supplementary memorandum to the committee produced by the Treasury after its witnesses had given oral evidence cited the European Central Bank's analysis of January 2000. It said that there had already been consolidation in the financial services industry; it pointed out the increase in the numbers of firms listed in equity markets and in the growth companies. The evidence is that the euro is having profound effects on European financial markets with pervasive consequences not only on their functioning, but also on their contribution to the overall efficiency of the economic system.
In looking at those economic trends it is important to look behind them at the issue of economic reform; in other words, the benefits can be realised only if monetary union is underpinned by markets that work well. We need to make more progress, to build on the foundations of the single market and to improve the functioning of our product, labour and capital markets. That is made easier by the transparency of the single market for all the reasons that I have already given.
A number of your Lordships spoke about Ireland. I tend to agree with the noble Lord, Lord Newby, that that is hardly a horror story. My noble friend Lord Tomlinson described Ireland as a special case. I believe it is generally accepted that Ireland's share of the euro-zone economy is such that it could be treated as de minimis. The noble Lord, Lord Renton of Mount
If ECOFIN at its next meeting considers the stability and convergence programmes, including Ireland, the United Kingdom will not be backward in arguing for robust and accurate assessments of every member state's stability or convergence programme. That is because we believe that the process of multilateral surveillance within Europe involving peer review is rigorous. It seems to me extreme to argue that Ireland has in any way disproved the success of the euro.
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