European Central Bank (Hansard, 16 May 1996)

§ 6. Mr. Carrington
To ask the Chancellor of the Exchequer when he is next to meet his fellow European Finance Ministers to discuss the establishment of the European central bank; and if he will make a statement. [28495]

§ 7. Mr. Gapes
To ask the Chancellor of the Exchequer when he next plans to meet his German counterpart to discuss economic and monetary union. [28496]

§ Mr. Kenneth Clarke
I regularly meet my fellow European Finance Ministers to discuss a range of issues, including economic and monetary union. The next such meeting will take place on 3 June.

§ Mr. Carrington
Does my right hon. and learned Friend agree that if the European central bank comes into existence, it should reach its decisions on monetary policy in as open and accountable a way as he, with the Governor of the Bank of England, currently reaches decisions on monetary policy in this country?

§ Mr. Clarke
The European central bank is based on the concept of having an independent central bank with governors coming from all the central banks of the countries participating. It has a strict injunction laid on it to preserve the value of the currency and price stability, which would be essential. We have not even begun to discuss how that monetary policy will be delivered in practice, and, of course, it will rather depend on whether we are participating. I should certainly commend and wish to see in it the openness of policy that we have in this country, which has given greatly added credibility to the Government's determination to keep down inflation.

§ Mr. Gapes
In view of the remarks made yesterday by President Chirac and the Commission's report, does the Chancellor agree that it is now more likely that a single currency will be established? If so, is it still his view that the single currency is no threat to the nation state?

§ Mr. Clarke
The President yesterday asserted the position of the French Government. They are determined to achieve the convergence standards and go ahead with economic and monetary union on the timetable. My view is that the convergence criteria are more important than the timetable. I do not accept the Commission's forecast put out yesterday, for the reasons already given by me and by my right hon. Friend the Chief Secretary to the Treasury.
Our policy will be set on achieving the convergence criteria because it is good common sense to move down towards a balanced budget and low inflation. Combined with other Government policies, that policy will continue to create economic growth.

§ Mr. Duncan Smith
Does my right hon. and learned Friend agree that some of the words used by Mr. Chirac this time round may display his own concern that, should Britain take the decision not to enter the single currency, it may well be to the detriment of the others because of our competitiveness, which may be improved as a result?

§ Mr. Clarke
One of the things that I do not do here is answer for President Chirac, although I am fairly familiar with his views. He made it plain yesterday in the two speeches that I heard him give that his preference would be for the United Kingdom to participate in the single currency because he believes that that would be for the good of the rest of Europe and of France and the United Kingdom. We shall make our decision on our judgment of British interests, when and if the time comes.

§ Mr. Skinner
Why does not the Chancellor tell the European bankers, Chirac and anybody else—[Interruption.] it will do for me—that all this talk about a drive towards a central currency is much ado about nothing? It was going to be here by 1995, then it was 1997 and now it has been put back to 1999. The momentum has gone. Why does he not address a more important matter? The public sector borrowing requirement in Britain has been calculated wrongly in the last two years. It is more than £10 billion higher than it was supposed to be. Yet strangely the Tory party central office has managed to wipe out its deficit of £19 million and turn it into a surplus of £26 million. How many bribes and favours for that? If he can do it for the Tory party central office, why cannot he wipe out the debts of the nation?

§ Mr. Clarke
On the first point, I advise the hon. Gentleman to deliver his message to President Chirac himself. I do not think that I could rival his Bolsover French accent and he would put it best in his own impeccable way. On the second point, the Opposition are reduced to a pathetic state when they scrabble about with changes in the forecast for the PSBR. Look at what has happened to it. It was £8 billion down last year compared with the year before and £16 billion down compared with the year before that. We are on course for a balance in the medium term. That is why internationally people have confidence. We will achieve growth, falling unemployment and rising prosperity in this country.

§ Sir Peter Tapsell
Will my right hon. and learned Friend explain to the House his views about this proposed European central bank? He will recall from his careful studies of the Maastricht treaty that it would be entirely undemocratic and not answerable to any parliamentary organisation. As the treaty makes clear, it would be a criminal offence to try to influence its decisions in any way. It would have no interest in the maintenance of high levels of employment. Are we really even contemplating joining such an undemocratic institution in any circumstances whatever?

§ Mr. Clarke
I congratulate my hon. Friend on his studies of the Maastricht treaty, but if he is not careful I shall start trying to swap knowledge of the treaty with him, as I think mine is rather better. He has found some details in the treaty. The European central bank is intended to be an independent central bank, just as Germany has an independent Bundesbank and the United States has an independent Federal Reserve. That would be important for this country if ever we contemplated making the Bank of England independent, and I think that there are mixed views in this House about that. It is not, however, the most critical feature of the Maastricht treaty.

§ Mr. Mike O'Brien
Will the Chancellor confirm that he wants Britain to be in a position to choose whether to enter a single currency? The report from the European Commission yesterday predicted that the British Government's handling of public finances means that the Budget deficit will exceed 3 per cent. of GDP and will fail to meet the convergence criteria. The Government agreed those criteria at Maastricht. Are they so bad at managing public finances that they will not comply with what they have signed up to? Is it possible that Britain will not be in a position to choose whether to enter a single currency because of the Government's mismanagement of the economy?

§ Mr. Clarke
The Opposition have so little to say about what is happening now in the British economy that they keep scrambling about with these wretched forecasts. The Commission is forecasting growth and low inflation, but for some reason it is also forecasting a loss of public spending control. But as my right hon. Friend the Chief Secretary has said, that is not conceivable from a Government who, for the past three years, have delivered the tightest public spending control of any Government since the war. This year, for the first time in my recollection, we are anticipating a real terms reduction in the total of public spending while we continue to increase resources for our priority public services.
The threat to convergence—and the overall threat to the British economy—comes from the Opposition's proposed super-Treasury, with its new taxation and its ability to raise money in many other ways, including, for example, from people whose children stay on at school. There is no doubt that the shadow Chancellor dares not produce his other proposals because his colleagues will line up in turn to shoot them down and dissociate themselves from these wholly undesirable measures.

§ Mr. Forman
If there were to be a European central bank in, say, 1999 and if this country were to contribute to it because we had decided to join a single currency, does my right hon. and learned Friend agree that it is 1064 important, bearing in mind the traditions of the House, that we should seek to get as much public and parliamentary accountability to that body as possible? Does he think that such a bank should be accountable to the Economic and Finance Council—and hence to the various national Parliaments—or to the European Assembly? I would prefer the former.

§ Mr. Clarke
The bank certainly would be accountable to ECOFIN. I am seeking to establish in the present discussions that the European central bank must undertake certain obligations towards the non-member states as well as to the member states, and take into account the impact on non-member states in EMU, as well as member states, of the decisions it takes. The central bank would be bound by its legal obligations to deliver stability of currency and low inflation. One should encourage the maximum amount of openness in that.
I am not in favour of making these decisions subject to the European Parliament. I do not think that such decisions in any country should be subject to short-term political considerations, and that is why I am in favour of openness and a declared inflation target—something Labour does not have. [Interruption.] Of course I am accountable to this House for the decisions that I take, but I actually account for the framework of policy. In my lifetime, the House of Commons has never in advance of interest rate changes instructed the Chancellor as to what the rate should be.