HC Deb 05 May 1998 vol 311 cc563-82 3.30 pm
The Prime Minister (Mr. Tony Blair)

With permission, Madam Speaker, I will make a statement about the meeting of European Union Heads of State and Government on economic and monetary union, which I chaired in Brussels on 2 May. My right hon. Friends the Chancellor of the Exchequer and the Foreign Secretary, and my hon. Friend the Economic Secretary, were also present.

The aim of the meeting, and of separate meetings of the Finance Ministers during the weekend, was to take decisions on which countries would participate in the single currency from 1 January 1999; on the nominations for the president, vice-president and members of the executive board of the European central bank; on the bilateral conversion rates that will apply between participating currencies from 1 January; and on fiscal discipline and economic reform. I have placed a copy of the drafts of the resulting documents in the Library.

The Heads of Government had before them a unanimous recommendation from the Finance Ministers on which countries should be in the first wave of economic and monetary union, and a supporting opinion from the European Parliament, which had met that morning to consider the Finance Ministers' recommendation. Heads of Government agreed unanimously that the following 11 countries should join the single currency from next January: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

We also agreed without difficulty on the following nominations for the executive board of the ECB: as vice-president, to serve for four years, Mr. Noyer; and, as ordinary board members, Mr. Issing, to serve for eight years; Mr. Padio-Schioppa, for seven years; Mr. Domingo, for six years; and Mrs. Hamalainen, for five years.

The Heads of Government also agreed on Saturday night a statement that, in future appointments to the executive board, appropriate weight and consideration would be given, according to a balanced system of rotation, to recommendations for nationals of member states not on the initial slate.

The declaration on fiscal discipline and economic reform, which was adopted by Finance Ministers on Friday evening, is a significant document, building on a United Kingdom presidency initiative at the York informal ECOFIN in March. It emphasises the importance of fiscal consolidation in high-debt countries and of economic reform; both are essential to help to create jobs and to ensure that monetary union is successful.

All those issues were decided with relative ease, but, as is well known, there were very difficult negotiations over the presidency of the European central bank. It is important to set out those negotiations in detail. There was ready agreement that Wim Duisenberg, the current president of the European Monetary Institute, and a highly respected former Dutch Finance Minister and governor of the Dutch central bank, was the best choice as the first president of the ECB. As president of the European Monetary Institute, he has already been in charge of the practical preparations for the euro. As president of the ECB, he will be well placed to continue that role.

It was also readily agreed that we expected Mr. Duisenberg's successor to be the French nominee—Presisent Chirac made it clear that his nomination would be Jean—Claude Trichet, again an experienced and respected governor of the Banque de France—and that both nominations should be for the full eight-year term. Where there was disagreement was not on the substance of any of that, but on the length and form of Mr. Duisenberg's tenure as president.

Because of the controversy—not least in the European Parliament—it is important to be clear what the precise issue at stake was. Much of the subsequent press reporting has rested on this simple factual inaccuracy: that Mr. Duisenberg intended and wished to serve his full eight years, as opposed to being nominated for that time as under the treaty. [Interruption.] In fact, that was not and has never been the case.

Eighteen months ago, before any French candidate had been suggested, Mr. Duisenberg properly made it clear that he would not want to serve a full eight years, in view of his age. Indeed, he did so publicly. At that time, he was saying that he would not guarantee staying more than two years. Later, he talked of between three and five years—but he did insist on being nominated for eight years.

The issues for us were therefore these. If Mr. Duisenberg would not serve the full term, was it right to appoint him? What was the minimum term we should ask of him? Should there also be a maximum term, given the circumstances? The answer to the first question was: yes, in our view, because, as president of the EMI and a highly respected central banker, he was plainly the right person to launch the euro.

The answer to the second question was again clear: Mr. Duisenberg should at least stay until the euro was launched and all transitional arrangements, particularly the introduction of the notes and coins, were in place. That accorded with Mr. Duisenberg's own wishes that he oversee that process and step down shortly afterwards.

It was over the third question that there was disagreement. Some preferred a fixed date for Mr. Duisenberg to retire, while others argued that that would not be consistent with the treaty. The protracted discussions were essentially over how to resolve that issue. Mr. Duisenberg's view, backed by ourselves, was that although his intention was clear, there could be no question of there being any formal obligatory end to his term.

In the end, it was Mr. Duisenberg's view that prevailed. [Interruption.] At our suggestion, he stated his position personally, in his own words, to the Council. He explained that because he would be 67 in 2002, he did not wish to serve the full term— [Interruption.]

Madam Speaker

Order. The House must come to order. This is totally disgraceful behaviour on the part of Back Benchers.

The Prime Minister

I think that the Opposition have a little difficulty with the facts.

Mr. Duisenberg explained that, because he would be 67 in 2002, he did not wish to serve the full term, but that it was his intention to see through the transitional arrangements for the introduction of euro notes and coins, including the withdrawal of national notes and coins. He made it clear that the decision was his and his alone. At the end of the negotiation, the Heads of Government accepted that.

I have no doubt at all that, although the process was very difficult, the decision was clearly right. What is more, as Mr. Duisenberg is under no obligation whatever to retire early, it is entirely consistent with the treaty. Moreover, if the nomination of Jean-Claude Trichet is eventually confirmed, as I expect, that will mean that two highly respected and experienced central bankers, noted for their independent views, will be in charge of the European central bank for a total of 12 years. That is an outcome which ensures long-term stability.

We were told that the financial markets would react badly, and that the pound would go through the roof. In fact, the deutschmark has risen against both the pound and the dollar since Friday. Stock markets in France and Germany are higher than at the close of business last week. British 10-year gilts have not moved since Friday. The markets across Europe and the rest of the world are calm. What they know is what we know—that the fundamentals are right, a good board is in place and the euro will be strong, not weak.

Many people had said that the euro could not be launched on time, or with a wide membership, and that the argument about the presidency could not be resolved satisfactorily. In the end, all those issues were resolved satisfactorily, and the single currency will become a reality on 1 January 1999.

The UK's own position on joining monetary union was made clear by my right hon. Friend the Chancellor of the Exchequer to Parliament on 27 October. It has not changed; but, in or out, it is in Britain's interest that the single currency is successful and strong. The decisions this weekend—whatever the frustrating nature of the process—were in the end the right ones for Europe and for Britain.

The House will nevertheless agree that the biggest challenge for Europe lies ahead. To ensure that the single currency is successful, member states must continue to implement reforms of product, capital and labour markets and to promote employability and job-creating entrepreneurship. That is the way to a genuinely prosperous future for Europe. It is what we shall be pursuing at the European Council in Cardiff.

Mr. William Hague (Richmond, Yorks)

Does the Prime Minister recall telling the House on 4 June last year that

the criteria for monetary union should not be fiddled, fudged or botched in any way. If they are, the answer is not to delay—the answer is not to proceed."?—[Official Report, 4 June 1997; Vol. 295, c. 386.] Where does that bold assertion stand today, now that the Prime Minister has colluded in the launch of a fudged and flawed single currency that could jeopardise jobs and investments throughout Europe? Is it not the case that he has not only broken the promises that he gave the House, but disregarded the terms of an international treaty to which this country is a signatory?

On the fiasco surrounding the appointment of the president of the central bank, does the Prime Minister agree that political horse-trading at the weekend serves as a warning that it is politics, not economics, which is the driving force behind the single currency? Has he seen the comments of a member of the Bundesbank council, who said yesterday that the deal was in clear breach of the Maastricht treaty? Has he seen the comments of his own MEP and the leader of the socialists in the European Parliament, who described his deal as "unacceptable shenanigans"?

Given that the Maastricht treaty clearly stipulates that the president of the bank should serve for eight years and that the Prime Minister has caved in to a shorter term, did he actually have a straight face when he said in Brussels that he was

maintaining entirely the sanctity of the treaty"? If he was maintaining entirely the sanctity of the treaty, what was the trouble all about? Can he really expect us to believe that it was not a political compromise in conflict with the treaty? If Mr. Duisenberg had such a strong view that he should retire early, why did lunch have to go on until midnight before that became apparent to everybody?

Does the Prime Minister recognise that, whatever the personalities and whatever the timings involved, the really disturbing thing about the row is that it shows a fundamental disagreement between participating countries about the political independence of the central bank? Is it not the case that, behind the argument, lies one way, the German way, which regards the independence of the central bank as sacrosanct, and another way, the French way, which stresses the importance of a politically accountable bank? Now that the Prime Minister has settled for an inadequate, possibly illegal and badly prepared deal, presumably he will call it the third way.

As the Prime Minister has said, it is in the interests of both Britain and Europe that the single currency is strong and stable. However, does he accept that, if it is to have the best chance of success, the criteria set out in the Maastricht treaty should have been strictly adhered to? Has he not now agreed to the creation of a weak and fudged single currency by the inclusion of countries which, by a very wide margin, fail to meet the Maastricht criteria and, in some cases, have national debts that are double the required level? Is that what he means by the fundamentals being right? Does he remember, in response to my question in the House about a month ago, saying that it was his

duty, as president of the European Union, to ensure that the criteria"— that is, the Maastricht criteria—

are properly obeyed."?—[Official Report, 25 March 1998; Vol. 309, c. 492.] Has he, at any stage in recent months, argued, counselled or voted against the breaking of the criteria? Has he, at any stage, warned against a decision of such immense economic importance being made through a political fix?

Did the Prime Minister see the comments of the chairman of the Bundesbank in the Bundesbank report a month ago, saying that

serious concern exists in the case of Belgium and Italy. This could be eliminated if additional firm substantive commitments are given"? Has he done anything in the past four months, as President of the European Council, to seek such commitments? Or did he decide that being all things to all men and trying to please everyone was an easier option than fulfilling the clear duty that he affirmed to the House?

The Prime Minister claims that the lack of volatile movements on the currency markets means that the City has given EMU a vote of confidence, and that the markets think that the euro is a strong currency. Is he aware that that view is contradicted by many in the City, where some say that they saw the fudge coming and priced it in long ago? Has he read the comments of the chief economist at NatWest, who said:

where we are is where we expected to be on Friday night. It is a fudged agreement"? Has he read the comments of the chief European economist at Nikko Europe, who said that the pound has stayed steady only because traders expect the Bundesbank to raise interest rates to shore up confidence in the euro? With which view does he agree, and is he really saying that all is well in the markets on the basis of two days' trading?

At this weekend's summit, all the major decisions about a single currency were fixed and fiddled, but can the Prime Minister tell us what happened behind the scenes that caused such anger among his fellow Heads of Government? How does he respond to the Italian Prime Minister, who said that he was "ill prepared"; or to the Prime Minister of Luxembourg, who, among others, protested that the Prime Minister had not even bothered to brief other leaders properly on the deal; or to the Austrian Chancellor, who complained that

"there were people much more experienced than me who said they had never seen anything like it"?

Has he been taking lessons in diplomacy from the Foreign Secretary? Is this what the Prime Minister means by a new relationship in Europe? After the weekend, is not the verdict on his presidency of the European Council that when he should have spoken up, he remained silent; when he should have led, he followed; when he should have prepared, he did not prepare; and when he should have done his duty, he failed in the duty that he owed this country?

The Prime Minister

With the greatest respect to the right hon. Gentleman, I think that the one group of people we are not entitled to take any lessons from about Europe are the Conservatives. They are split down the middle as to whether they are against the euro; they are split down the middle as to whether they want it launched; and they cannot even tell us whether they are in favour of an independent central bank in respect of the euro. Indeed, I think it was the right hon. Gentleman who said, first, that he was against the single currency in principle, then that he was against it in decades, then that he was against it in 30 years, then that he was against it in 40 years, and then that he was against it in two Parliaments—and now it is not even clear whether he is in favour of it or against it.

The right hon. Gentleman asked a series of questions, and I shall try to explain the answers to him. First, he asked what the trouble was about. I explained that in the statement. The difference was between those who said that Mr. Duisenberg should be obliged to leave on a particular date and that he should give a specific date for his departure, and those who said that that would be inconsistent with the treaty. In the event, no specific date was given, and in respect of Mr. Duisenberg's own view, let me quote what Mr. Duisenberg said in November 1996, before any French candidate had been put forward:

I will still be just under 63 at that time and I will be appointed for a period of 8 years, but I will not give anybody the guarantee that I will stay on for that full period. I do promise, however, that I will not stop after 3 months nor after 2 years, but my guarantee does not go beyond that. One has to be realistic and not forget about one's age. I assume from what the right hon. Gentleman is saying that he would have blocked Mr. Duisenberg's candidature. Is that right or not? It is very important. The right hon. Gentleman nods; he says that he would have blocked Mr. Duisenberg's candidature. If his candidature had been blocked, it would have been a disaster for Europe and for Britain. On Sunday morning, the right hon. Gentleman and the shadow Chancellor were saying that the pound would go through the roof as a result of the deal—that the markets would be in turmoil. As it happens, the markets are perfectly calm. Why? Because they know that the right decision has been taken. Had we decided to block Mr. Duisenberg's candidature, which the right hon. Gentleman has confirmed would be his policy, it would have been a disaster. Thank heavens the right hon. Gentleman has not been in charge of our negotiating position.

On the criteria, I shall explain why the right hon. Gentleman is wrong in the point that he keeps making. The criteria have not been fudged, botched or fiddled. There are five criteria, on inflation, interest rates, the budget deficit, exchange rate stability and debt. Nine countries reach all five criteria, or very close to them. Two countries, Belgium and Italy, conform with four of the criteria, but exceed the national debt criterion.

The criteria are expressed in such a way that the European Commission and the monetary institute are asked to decide whether the criteria, taken as a whole, mean that there is suitable and sustained convergence between the various countries. Those bodies have given their opinion that there is proper convergence and that sufficient progress is being made on national debt. The right hon. Gentleman says that the treaty does not make any such stipulation. Yes, it does, and he should go back and read it again.

The Commission and the monetary institute have both made their position clear. They believe that there is proper convergence. The right hon. Gentleman's comments in respect of the Bundesbank are wrong. There is agreement across Europe that the euro should be launched with all 11 countries participating. Presumably, if the right hon. Gentleman had been negotiating, he would have tried to block the candidatures of those two countries. A nod would do.

Mr. Hague

Answer the question.

The Prime Minister

If the right hon. Gentleman had been in charge of our negotiating position, he would have blocked the only candidate who was credible for the job, he would have ended up having to try to find a third candidate early on Monday morning, and he would have opposed the launch of the euro altogether, yet he accuses us of causing mayhem in the markets.

I entirely understand why the right hon. Gentleman may want to make debating points, but in the end the result was the right one for Britain and for Europe. If we had ended up with stalemate instead of a decision, it would have been a disaster. Once all the debating points are out of the way, I ask him to reflect whether he would have maintained as his negotiating position the position that he has outlined to the House. If he had done so, it would have been a disaster. Fortunately, that disaster was averted.

Mr. Paddy Ashdown (Yeovil)

I agree with the Prime Minister that the result was the right one for Europe. One should use the word "historic" sparingly in the House, but this genuinely was an historic event. The first sadness is that Britain, instead of being a part of it, was at best an umpire, but, as the Prime Minister well knows, actually a spectator at the sidelines. Is it not the case that, yet again, we shall in due course join an institution to which we did not belong when it was formed and which we have not effectively shaped?

Is not the second sadness the sad position to which the official Opposition—an increasingly inappropriate term—have sunk? They have locked themselves into a corner, and locked themselves out of mainstream domestic politics and European politics as well. Is it not a sad reflection on the party of Europe, as the Conservatives once called themselves, that, instead of commenting on the big event, they comment on the small compromise? It is a little like treating the news of the victory over the armada with a complaint that Drake did not play a very good game of bowls. It is a preposterous position.

Of course the compromise was messy. Some may even say that that is a specious description of it. However, that will not make the slightest difference to such an historic event. Two questions must be asked about the compromise. First, will the euro have effective government and leadership? The answer is yes, not for 10 years, but for 12. Secondly, do the markets express their confidence in that? The answer is resoundingly yes.

I shall make two further points to the Prime Minister. First, unhappily for his Government, who are more pro-European and could have much more influence in Europe, he is losing that by standing at the side and making the same mistake as the previous Government made, being led on Europe rather than leading on Europe. Secondly, for as long as he does that, Britain will lose trade, investment and influence. Is not the risk for Britain the fact that this weekend there was formed a soft but stable Europe, while we must continue with a high, volatile and unstable pound?

The Prime Minister

On the right hon. Gentleman's latter point, the decision must be taken in our national economic interest. Some people say that we should join the euro no matter what and others say that we should not join as a matter of principle. Both those positions are entirely understandable. The Government's position is that the matter should be decided according to our national economic interest. For reasons that we have set out many times, we do not believe that there is proper convergence between Britain and the economies of France and Germany, in particular, at present.

I do not believe that our position in that respect is the same as that of the previous Government. They could never decide whether there was an insuperable constitutional barrier to the single currency. We have decided that issue. They did not make preparations to ensure that Britain was in a position to join the single currency should it wish to do so. We can make that statement and are making those preparations. In the end, even though monetary union cannot be conceived of except politically, it cannot be made to work except economically. The Government believe that the economics must be right.

In respect of the right hon. Gentleman's comments about the euro, I think that it will be a strong currency. Those who claim that it will be weak and that the events of the weekend have damaged it are the same people who said that the euro would never happen, that 11 countries would never join and that it would be postponed. [HoN. MEMBERS: "Who?"] Conservative Members were among the leading proponents of that position—I thank them for reminding me of that.

The fact is that monetary union will happen. As to the compromise, I said in my statement that the media and others have missed a simple fact. Let me repeat it. It is claimed that Mr. Duisenberg wished to stay in his post for the full eight years. He has always made it clear that he did not want to do that, but he was insistent, as were others—including ourselves—that he could not be obligated to stand down. He has always said that he wanted to stand down once the euro was launched, and the question was whether he should be given a specific date for standing down. It is true that the matter was discussed for 10 hours, but it was worth it in order to secure that basic principle. In the end, the decision was basically in his favour.

As for the right hon. Gentleman's remarks about the Opposition, we all agree about that.

Mr. Robert Sheldon (Ashton-under-Lyne)

Does my right hon. Friend agree that, before entering the euro, it will be necessary to have a long period of stability, which means effectively shadowing the euro? As the Monetary Policy Committee has been instructed to look at price stability above all other matters, will my right hon. Friend consider giving it fresh instructions so that we may prepare for our entry into the EU monetary system?

The Prime Minister

Price stability is enormously important. That is one of the reasons why there must be a strong euro—I believe that it will be strong, and the early indications are that the market thinks so, too. From our position, it is important that we continue to make preparations. Britain should be in a position to join if we decide to do so.

It is important to emphasise that, in or out, the euro will affect Britain. The idea that we should carry on as we were before 1 May, making no preparations at all, is disastrous. Fortunately, the City of London is now probably better prepared for the euro than any other financial centre in Europe. That is extremely good news. I believe that our preparations are the right ones.

Mr. Peter Brooke (Cities of London and Westminster)

Does the Prime Minister really believe that no harm has been done by the course of events in Brussels this weekend?

The Prime Minister

Yes, I do as a matter of fact. I shall explain why. Real harm would have been done if the wrong decision had been taken. If we had done what the Leader of the Opposition suggested and blocked Mr. Duisenberg's candidature—

Mr. Michael Howard (Folkestone and Hythe)

He did not.

The Prime Minister

The Opposition have changed their mind already. [Interruption.] My hon. Friends are being very unfair: that policy lasted for all of 10 minutes. If we had ended up blocking Mr. Duisenberg's candidature, we would have ended up without him and without Mr. Trichet, and we would have had to search for a third candidate in the early hours of Sunday morning, which would have been disastrous.

The right hon. Member for Cities of London and Westminster (Mr. Brooke) knows from his experience in government that European negotiations are often difficult, but it is important that the result is right. This is the right result. We shall have for 12 years highly respected presidents of the central bank who will be tough disciplinarians, which is what the euro needs. Whatever the difficulties, the decision was right, so I do not believe that there was damage.

Mr. Tony Benn (Chesterfield)

Given that economic and monetary union has always been considered by its architects to be a political policy, is not it absurd to suppose that, with 15 million unemployed in the European Union, the bank will not be subjected to continuing political pressure throughout the life of the euro? Were a group of appointed and unaccountable bankers to hold the levers of economic power in the EU, would not that remove the rights of the electors, of the Parliaments and of the Governments of the countries within the Union and effectively destroy democracy itself?

The Prime Minister

My right hon. Friend criticises the political pressure that has been exerted on the central bank, but that is, as I understand it, the proposition for which he argues. Price stability and the independence of the bank are important, which is why it is better that the Bank of England is independent to set interest rates. In the longer term, that will produce greater stability and ensure that this country does not go back to the days of boom and bust and huge fluctuations of growth followed by recession, which we had under the Conservatives. If we consider the central banks not only of Europe but of the world, independent central banks are better.

Mr. Douglas Hogg (Sleaford and North Hykeham)

Will the right hon. Gentleman confirm that article 109a of the treaty provides that the term of appointment for the president "shall be eight years"? In view of what Mr. Duisenberg has said, is there not a clear breach of the treaty? Has the right hon. Gentleman lent his name to a fudge? How does he justify that, as he has frequently said that the criteria would not be fudged? Why have we signed up to a French president now? Is that contrary to the replacement procedure contemplated by article 11 of the protocol? Is the truth that neither the right hon. Gentleman nor his friends and colleagues at the summit will pay much heed to the language of the treaty?

The Prime Minister

No. The nomination is for eight years. At the press conference after the summit, I was directly asked what would happen if Mr. Duisenberg decided to stay for eight years. The answer is that he would stay for eight years. As I keep trying patiently to point out, he said well before Mr. Trichet' s candidature was even suggested that he did not want to stay beyond the launch of the euro, so we have a situation that is perfectly consistent with the treaty. He has said, "I will at least stay until the euro is properly launched, but I won't stay after that, because I do not wish to." He also made it clear in his statement that there is no obligation; he will choose the time of his leaving, but he thought it right to say to the Council, "If you nominate me for eight years, I will not serve the full eight years." That is perfectly reasonable.

The answer to the right hon. and learned Gentleman's question on the French nomination is no. The nomination process has to be gone through, and the French nomination has to be agreed formally by the Council. Mr. Duisenberg and Mr. Trichet are both highly credible, which is why the deal is a good deal. To have ended up blocking Mr. Duisenberg's candidature would have been a disaster for Europe and for Britain. The right hon. and learned Gentleman should imagine the situation had the markets opened on Monday with no agreement on the central bank. At one point on Saturday, it seemed as if that would be the case.

Mr. Giles Radice (North Durham)

Does my right hon. Friend agree that the weekend summit was an enormously important event—an historic event—marking, as it did, the real start of the single currency, with 11 participating countries, with the agreement on conversion rates and with, yes, a compromise on the presidency of the central bank, brokered by my right hon. Friend, which will ensure that for 12 years the ECB will be led by two highly respected—as I know—central bankers? Do not the critics have to say what the alternative is to the deal brokered by my right hon. Friend at the weekend? Many of us would like the United Kingdom to join EMU as soon as possible.

The Prime Minister

I shall not repeat our position on EMU, because we have already made it clear. My hon. Friend is right to say that the launch of the euro is an historic occasion, and he was right to say what he did about the presidency of the central bank. As I say, the problem is that there is the inconvenient fact that Mr. Duisenberg had made it clear throughout that he did not want to serve his full eight-year term, which all the comment has missed. That is the central fact and that is why the argument would always be not whether he left early, because he was making it clear that he would, but whether he was obliged to do so and would be given a specific date on which to leave, which was the position of some countries, or one country at least, or whether, which was our position and that of many others, and Mr. Duisenberg himself, although he would leave early, he could not be obligated to do so because that would be a breach of the treaty.

Mr. William Cash (Stone)

Will the Prime Minister explain why he thinks that there is no constitutional barrier in the United Kingdom to going ahead with economic and monetary union, and does he seriously believe that Mr. Duisenberg is telling the truth when he says that he would be perfectly happy to stand down? Is not that just an example of a total sham, which illustrates the eternal contradictions, the lies and the entire confusion behind the whole project, of which the British presidency, to our eternal shame, has been the midwife?

The Prime Minister

The problem is that those who adopt the hon. Gentleman's position, which he holds entirely honourably, simply will not accept any facts that get in the way of their arguments.

Let me read again what Mr. Duisenberg said in November 1996. [Interruption.] I shall deal with the hon. Gentleman's other point as well, but he effectively alleged that Mr. Duisenberg was not telling the truth when he said that he wanted to go earlier. In November 1996, before any other candidate was ever raised, Mr. Duisenberg said:

"I will not stop after 3 months nor after 2 years, but my guarantee does not go beyond that. One has to be realistic and not forget about one's age."
Mr. Cash

Why have him as a candidate?

The Prime Minister

The reason is that he is president of the European Monetary Institute—[Interruption.] That is a fact. He is charged with the preparations of the euro. It therefore makes perfect sense, albeit for a shorter time, to have him then oversee the actual mechanics of launching the euro. Although everyone always knew that his candidature would be shorter than the eight-year period because of his own desire to leave earlier, he was, none the less, the right candidate.

When it is then asked why it took 10 hours to reach that position, the answer is that it did not take 10 hours to persuade Mr. Duisenberg to go early. In the very first conversation that I had with him on Saturday, he said again that he would leave before his full term. The reason for the discussion was the insistence of one country that he should be obliged to go early, and that was what was unacceptable.

In relation to monetary union and the constitutional barrier, I say that there is no insuperable constitutional barrier because, although there are constitutional questions of sovereignty, the issue in the end is whether that is an absolute barrier. If it is an absolute barrier, the position of the hon. Gentleman's party—saying, "We might join after 10 years"—is absurd. I know that that is not his position; he is the leader of the other Conservative party. However, it is an absurd position. We must decide first of all whether or not the constitutional question is an insuperable barrier. He says yes; I say no. I say that, in the end, if it is in the interests of British jobs, investment and industry, we do it; if is not, we do not.

Dr. George Turner (North-West Norfolk)

Does my right hon. Friend agree that the successful launch of a common currency is in the interests of all the industrialists who have been concerned about the high exchange rate? Does he agree that the actions of the Conservative party seem to be designed to discourage a successful launch of the currency, and are, therefore, against the interests of British industry and the British people? Does he further agree that this country needs to ask whether, although the City of London may be prepared for a common currency, our business and industry are properly prepared? Are we prepared not only for the challenges, but for the opportunities that it will present?

The Prime Minister

My hon. Friend is absolutely right. The problem with Opposition Members is that they—or, at least, some of them—want the euro to fail. Had we followed the course that I assume that they must be advocating, it would have been a complete disaster.

Yes, the City is largely prepared, but business and industry have far more preparation to undertake; that is why we are organising that now. They will deal with many companies and trading partners that will be dealing in the euro. Some people in this country will decide to deal in the euro. I have no doubt that people and businesses here will end up taking the euro. It is important that we make proper preparations, and that is precisely what the Chancellor is doing.

Sir Teddy Taylor (Rochford and Southend, East)

Is not the real disaster for Europe the emergency of an army of 18 million unemployed, and the upsurge in the racial filth parties in France and Germany that always seems to go with mass unemployment? Will the Prime Minister remind his colleagues in Europe that when Britain endeavoured to get involved in this kind of thing with the exchange rate mechanism, we had to create an extra half a million unemployed? Will he make a point of reminding his colleagues in Europe that every attempt in the world to form a common currency among a number of countries—as in Scandinavia, Europe, Africa and Asia—has collapsed in massive unemployment and misery? Will he appeal to his colleagues in Europe to think about facts, about people and about the unemployed, instead of going ahead with what, quite honestly, appears to be utter nonsense?

The Prime Minister

Obviously, we shall not agree on the single currency, but I understand that unemployment in Europe is the big challenge. That is why we are putting forward a series of proposals, and making unemployment the main subject of the Cardiff Council. Of course there are countries, some of which propose to be part of the euro, which have low unemployment rates. One should not think that every country that wants to join the euro has high unemployment. It is important for us to have the right investment and education skills, and the necessary flexibility and encouragement of small businesses. We must be at the forefront in all those things.

I must say to the hon. Gentleman and those of his colleagues who are implacably opposed to the euro that it will affect Britain. We cannot put our heads in the sand and pretend that it will not exist. It is going to exist, and it is important that, whatever our view of the euro, we should make strong preparations to put ourselves in a position in which we can deal with its consequences and effects. I have set out the Government's position on the euro, and I do not need to repeat it. What is important is that we make preparations.

Mr. Tam Dalyell (Linlithgow)

May I support my hon. Friend the Member for North Durham (Mr. Radice) in wanting to go in in the present circumstances, now, as soon as possible? Will the Prime Minister tell us in which year his elusive concept of the proper convergence is likely to occur?

I believe that my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and I are the only two remaining Labour Members who voted in favour of our European Community entry in October 1971. Along with him, may I ask what is the proposal for shadowing the euro in the run-up period? My right hon. Friend has asked the Treasury four times about shadowing the euro; can the Prime Minister clarify the position?

The Prime Minister

In relation to shadowing the euro, as we have made clear, we will run our own exchange rate policy until such time as we decide that we want to change that in accordance with the criteria that we have set down. I am asked to name a year when there may be convergence. I do not think that we can name the year, but it is possible for there to be convergence between different economies. There is a large degree of convergence between France and Germany in terms of economic policy, growth and so on, so it is important that we make a judgment in the round on that. There is no economic convergence between Britain, and France and Germany at present. Therefore, if we join when the economics are wrong, we shall pay a heavy price.

People go back over the exchange rate mechanism experience. Perhaps the right lesson to learn from that is that, whatever the politics of the situation, the economics have to be right. I think that most people felt that that was the problem on the membership of the ERM; its timing was judged politically. Unless the economics are right, there is a problem.

Mr. John Butterfill (Bournemouth, West)

I am sure that all hon. Members accept that the euro's success is vital to this country's economy and will wish the euro well, but that makes the issue of the corporate governance of the central bank even more important. The Prime Minister has said that there will be an important principle of rotation of board members, but will he confirm that Mr. Noyer, a Frenchman, will be the vice-president for the first four years, to be followed by Mr. Trichet, another Frenchman, who will be the president for eight years? When the Prime Minister embarked on his marathon lunch with Mr. Kohl and Mr. Chirac, where lunch went on to tea, then to dinner and then to supper, did he realise that they were going to have him for breakfast?

The Prime Minister

I cannot say that there was much lunch as far as I was concerned. Obviously, it is sensible to try to rotate members of the board. Some of the more critical comments that were made by some of the smaller countries were unsurprising because they did not have places on the European central bank board, but the question surely is whether we have the right people for the board. I think that we do because all of them are highly credible, able people. They have credibility in international banking circles. Both Mr. Duisenberg and Mr. Trichet are central bankers of huge repute. I repeat: it would have been far worse if we had blocked Mr. Duisenberg, thrown his appointment out, not had Mr. Trichet and tried to go for someone else. That would have been the wrong thing to do.

Mr. Stuart Bell (Middlesbrough)

Will the Prime Minister note, in response to the question that was put to him by the hon. Member for Rochford and Southend, East (Sir T. Taylor), that unemployment in France fell below 3 million at the weekend and that forecasts coming out this week in Germany will show that unemployment is falling further there? Will he also note, in response to the Leader of the Opposition, who said that the markets were waiting for the Bundesbank to raise its rates, that the only rate that has risen today in the Europe Union is that of Denmark which, of course, is not a member?

Does the Prime Minister agree with my hon. Friends the Members for North Durham (Mr. Radice) and for Linlithgow (Mr. Dalyell) that this is a question of political commitment and political will, and that 11 nation states coming together at the weekend to indicate their determination to create a single currency on the back of a single market indicates the political will? The Prime Minister has indicated his own political will, when economic convergence arrives, when there is a referendum and when there is a yes vote. Does he agree that those who believe in the single currency and in the European Union should now begin their campaigns?

The Prime Minister

I am sure that my hon. Friend is right in saying that the single currency and the single market will be launched, and that the political will and commitment exist. He is also right in pointing out that the markets have reacted, contrary to the predictions that were made, with great tranquillity. I also think that it is important, when we talk about unemployment in other countries, even in respect of France and Germany, where there are high unemployment rates—although it is important to consider the fact that there are significant differences between east Germany and west Germany—not to be complacent about our economic position. If we compare the productivity levels of the British economy with those of France and Germany, we realise that this country has to do a lot of work. There is a danger that, because we are at a different stage of the economic cycle, we shall become complacent about our problems. If we consider French or German gross domestic product, we see that we still have a bit of a way to go.

Mr. Ian Taylor (Esher and Walton)

The Prime Minister may not have had his best ever weekend during the past few days, but he may have found it ironic, as some of us did, that by behaving as he did President Chirac was doing what the British media think the British Prime Minister should do during summit meetings. Now that there will be 12 years of leadership in the European central bank under two expert governors, there remain two questions. First, how does the Prime Minister intend to manage the British economy so that we can enter economic and monetary union on the right terms and at an early date? Secondly, how will he influence the other 11 members of the single currency as they take decisions while we are not in it? Regardless of the fudge at the weekend on the Euro X committee, we shall not be party to some of the key decisions that will affect 80 per cent. of our home market in the European Union.

The Prime Minister

On the hon. Gentleman's last point, although we shall be present at the Euro X committee for any decisions that affect all 15 member states, it is right and inevitable that if we are not in the euro, we cannot participate in the decisions of the euro currencies. That fact must be faced.

As for managing the British economy for entry, it is important that we do so in a way that is right for our economy. The advent of monetary union has been a reason for some countries to take action on their budget deficit, public finances and monetary policy. It is worth pointing out that some of those countries have made extraordinary progress in trying to meet the monetary union criteria. In Britain's case, it is important that we take these steps in any event. We are dealing with the budget deficit, taking action to squeeze inflation out of the system, and to have a stable and prudent monetary and fiscal policy. I think that our system of management should not change.

The hon. Gentleman referred to the position taken by the French. We could have tied the matter up at 2 o'clock on Saturday afternoon had we agreed to a split term, but we could not agree to that because it was in breach of the treaty. In the end, it was agreed that Mr. Duisenberg would be nominated for eight years. As I keep trying patiently to point out to hon. Members, Mr. Duisenberg had already said that he wanted to go early, and he could not be obligated to go on any particular date. He is free to stay for the eight years, but he has indicated his intention to leave earlier. That point was worth securing, and it was worth waiting for what in European negotiating terms is hardly a very long time.

Mr. Dennis Skinner (Bolsover)

Will the Prime Minister give a guarantee that, despite the clamour from Labour Members, from the Liberal Democrats and from a few Tories for Britain to join the euro before the next election, which would be not a compromise but a failure of integrity by the Prime Minister and the Labour party generally, the matter will be resolved after the next election and after a referendum? If he is a betting man, would he like to put some money on whether this fellow Duisenberg, who will have four years, will last longer than the Leader of the Opposition?

The Prime Minister

The Tory party may be looking for a split term. We have set out our position clearly. We do not believe that there will be convergence during this Parliament. There will be a referendum; it will ultimately be the decision of the British people, and that is right. The position of the official Opposition nowadays—if there is such a notion—is that the pound should be lower, which is an odd position for the Conservative party to argue.

Sir Michael Spicer (West Worcestershire)

Whatever the Prime Minister may say, is not the truth about the Duisenberg deal that this is the first time that Ministers have arrogated to themselves powers that are precisely defined in the treaty as resting elsewhere? Does not that bust apart the acquis communautaire?

The Prime Minister

A strange element comes out in the remarks of Members of the European Parliament, of certain people at the Bundesbank and of the hon. Gentleman. It should be made absolutely clear that the decision on the appointment of the head of the central bank and the board is a political one. It is a political appointment. With the greatest respect to Europe's central bankers, it is not their appointment, it is ours, the politicians. Once the appointment has been made, it is a matter for the central bank, and it will have independence. I therefore find odd some of the European Parliament's criticism and questioning of why a political deal is being done. It is a political deal, as that is its very purpose. Power to nominate the members of the central bank has been given to politicians, not to bankers, because it is a political deal. I had always thought that people sharing the hon. Gentleman's political perspective argued that that was the right thing, not the wrong thing, to do.

It is important that we say to Europe's central bankers: "You have your place in this system—once nominated, you will serve, and serve independently—but you do not take the decisions on nomination. We take the decisions."

Mr. Rhodri Morgan (Cardiff, West)

Does the Prime Minister agree that this weekend's events were effectively a search for Europe's equivalent of Alan Greenspan, chairman of the Federal Reserve, and for someone who is as committed to fighting inflation as to ensuring full employment? To use the old American phrase: we want sound money, and plenty of it. Will the Prime Minister explain how the weekend's events have moved us forward in finding Europe's Alan Greenspan?

The Prime Minister

The short answer to that question is that it depends on the credibility of the two people who will be running the bank, effectively for 12 years or more. I do not think that anyone doubts that both Mr. Duisenberg and Mr. Trichet are eminently credible people. Therefore, as I said, once we blow away the froth and speculation about the matter, we get down to the fact that, for 12 years, we shall have credible and strongly disciplinarian central bankers.

It is odd that, on various parts of the political spectrum, people are saying that Mr. Duisenberg should have been forced to stay on for the full eight years, as if that would somehow assist the situation. Surely the best situation is one in which the person who has been overseeing the euro's preparations carries through those preparations to their reality, and then—as he has already said that he wishes to do—steps aside for another highly respected central banker, who will perform exactly the type of role performed in the Federal Reserve, as described by my hon. Friend. The euro's credibility will rest on those people's credibility.

Mr. John Swinney (North Tayside)

The Prime Minister, in confirming the Government's stance on economic and monetary union, has effectively confirmed conditions that are likely to lead to the pound remaining strong for some considerable time. What consideration do the Government plan to give to the position of manufacturers and exporters—who will have to cope not only with those trading conditions in the next two to three years, but with the difficulties of convergence with the euro at some time in the future? What action will the Government take to ease the burden faced by manufacturers and exporters, to provide realistic and fair trading conditions for important United Kingdom companies?

The Prime Minister

The euro is not the only reason for a strong pound. As events of the past few days have shown, much more than the euro issue is behind the strong pound. It is important that we do not think that a lower pound is the answer to all manufacturers' problems. If the pound becomes unnaturally high at certain points—about which people can argue—it will, of course, cause difficulties. Ultimately, however, the single most important thing is that action is taken on investment and productivity to raise the standard and quality of British industry. As I said, we still have a way to go on that matter.

The best thing that we can do is not to try to intervene and artificially to devalue the pound—which is the policy currently being advocated by the Conservative party—but to ensure that we do not return to the boom-and-bust instability that resulted, at the end of the 1980s and in the early 1990s, in interest rates of 15 per cent., in the deepest recession that the United Kingdom has had, in record borrowing and in record bankruptcies. That is not a way in which to run the economy.

Mr. David Winnick (Walsall, North)

Does my right hon. Friend accept that there will be little interest or excitement in the United Kingdom about who heads the central bank, and that that is not the dominant issue in people's minds? The dominant issue is largely whether a single currency will help or hinder jobs, prosperity and growth. Does he accept that that is the really substantial issue, and that—although certainly not at this moment—the British public will have to be persuaded that a single currency would be in the overall economic interests of our country?

The Prime Minister

My hon. Friend is right. The issue, whether Britain is in or out, is whether a single currency is good for British jobs, investment and industry. It is in our interests to have a strong euro, which is why the decisions made at the weekend are right. I doubt whether people are discussing the relative merits of Mr. Duisenberg and Mr. Trichet in the country's clubs and pubs, but they understand that it is important that the euro is strong, and the decisions made at the weekend will strengthen it.

Sir Peter Emery (East Devon)

The right hon. Gentleman said that it is essential for Europe that the euro is a success. If that is the case, ought not the Government to be doing everything possible to make it a success? If that is so, two questions arise. First, would not that success be more quickly achieved if Britain entered sooner—as soon as possible? Secondly, as many European countries have had to impose stringent financial and monetary disciplines to qualify for entry, what specific cost does the Prime Minister think would arise from the changes to Government policy on financial and monetary structures that would be necessary for Britain to enter?

The Prime Minister

I agree with the right hon. Gentleman that we have to try to do everything possible to make the euro a success. That is why I thought that, however messy the process, it was extremely important on Saturday to sort out the ECB and decide on credible people. We can promote economic reform in Europe and place the emphasis on education and skills rather than on over-regulation as the best way in which to produce a competitive market.

The disciplines that Britain would be required to follow are those that we should be following in any event. It is important that we run essentially stable and prudent monetary and fiscal policy. That is why we gave the Bank of England independence over setting interest rates. Interest rates have had to go up—rightly—to squeeze inflation out of the system. It is interesting that long-term interest rates are now below the levels that we inherited on 1 May 1997. That is because there is greater credibility in the system. By being financially prudent, we have almost eliminated the country's structural debt. Those are the actions that we would need to take if we wanted to join the euro; my point is that it is worth taking them in any event.

Dr. Lynne Jones (Birmingham, Selly Oak)

I listened in the previous Parliament to prime ministerial statements after a European Union summit. It is clear that my right hon. Friend's predecessor would have been very pleased to have made this statement announcing decisions that have been greeted in the markets with such calm. Surely everyone agrees that it is vital that the euro is seen as a strong currency. Would not there have been greater confidence in the common currency if Britain had joined in the first wave? How can it be said that the economies of Italy and Belgium are more convergent than that of the United Kingdom with those of Germany, France and the Netherlands?

The Prime Minister

On my hon. Friend's second point, we must make decisions in our national economic interest. The problem with our economy at present is that we are at a different stage of the economic cycle from France and Germany. We have been at the peak of the cycle and they have not, which is precisely why interest rates are far lower in France and Germany than in Britain. We are not convergent in the way we need to be.

Cliffhangers such as those in the negotiations at the weekend happen all the time in Europe. The issue is whether we get the right result in the end. My hon. Friend is right to say that the result is better for Britain and for Europe.

Sir Peter Tapsell (Louth and Horncastle)

Is the Prime Minister not being disingenuous in pretending that he cannot understand the simple legal and political fact that article 109a of the Maastricht treaty invalidates the appointment of anyone to be president of the European Central Bank who is not intending and hoping to serve an eight-year term?

As on these occasions, Back Benchers are now briefly allowed to quote, may I remind the Prime Minister of what I said to his Treasury Ministers on 23 April?

"Is the Economic Secretary aware of the widely reported horse-trading going on between Germany and France, to the effect that whoever is appointed, whether the French or German nominee, will agree to step down after four years—despite the fact that the Maastricht treaty lays down that it should be an eight-year-term—to make way for the nominee of the other great power? Is that not an augury of the way in which Europe will be run in future; Germany and France will stitch everything up"—[Official Report, 23 April 1998; Vol. 310, c. 962]—
Madam Speaker

Order. The regulations state that quotations must be very brief, but the hon. Gentleman is being very long-winded. Will he please come to his question?

Sir Peter Tapsell

My question is this: is not what I predicted 12 days ago exactly what has happened under the ineffectual presidency of this British Prime Minister?

The Prime Minister

When we as politicians are driven to quoting our previous speeches, there is always a bit of a problem. I simply say to the hon. Gentleman that he is wrong about this. The eight years is the period of nomination. There is nothing in the treaty that says that the person is obliged to serve for the full eight years. If he reflects on that for a moment, he will see that that would have been a slightly odd thing to have required. He talks about horse-trading. There was not horse-trading; there was a simple clash. I shall explain it again.

The clash was not about whether Mr. Duisenberg retired early; he had always made it clear that he wanted to do that. The issue was whether he should be obligated—in other words, that we should have a split term, which was what one of the countries was advocating. The issue took 10 hours to resolve because Mr. Duisenberg, backed by the British presidency and by other countries, refused to say that he would step down on a specific date. As a result of the agreement, he does not have to go on a specific date. He has indicated his intention, but he is not tied to any particular date, and it is entirely up to him when he goes.

Dr. Julian Lewis (New Forest, East)

But what if he changes his mind?

The Prime Minister

The hon. Gentleman shouts out that Mr. Duisenberg could change his mind. That was the very question that I was asked at the press conference after the meeting, and I answered yes. That is so, which is why it is not in breach of the treaty.

The right hon. Member for East Devon (Sir P. Emery) says that politics is involved. I find it odd that he, from a right-wing perspective and others from a left-wing perspective—some in the European Parliament—say, "Isn't it disgraceful that there has been politics in the appointment of the head of the European central bank?" My answer to that is no. Under the treaty, the politicians decide the head of the central bank. Under the treaty, the politicians decide what should be the case. Once appointed, it is for the central bankers to be independent. I make no apology for the politicians having decided this. The politicians should have decided it—and we did.

Mr. Bill Rammell (Harlow)

Does the Prime Minister detect any logic and coherence in a political position that, first, opposes operational independence for the Bank of England, secondly, criticises the appointment procedure for the president of the European central bank on the ground that it will undermine operational independence and, thirdly, opposes the general principle of a single currency because politicians will not have day-to-day control? Do not those policy prescriptions, which, by the way, are those of the Conservative party, show how far from power that Opposition party is on this national and crucial issue? Is not it a travesty and an undermining of confidence in the parliamentary process that the Conservative party will use any argument, any time, anywhere to undermine the single currency, regardless of the consequences for this country and the economies of countries throughout Europe?

The Prime Minister

My hon. Friend is quite right. On Sunday morning, the shadow Chancellor was saying that the pound was going to go through the roof. It is simply an indication of how much credibility the Conservatives have left that it did not move an inch on Monday.

Mr. David Curry (Skipton and Ripon)

The Prime Minister would have come out somewhat better from this inglorious episode if, instead of pretending that everything in the garden was lovely and that an absolutely super weekend was had by everybody, he had acknowledged that horse-trading is at the heart of international organisations—the European Union—and that the job of the presidency is to manage it. Does he agree that what matters is the outcome? If the single currency is successful, no one will care a hoot about its origins five years from now. Will he say whether Mr. Duisenberg's eventual resignation is political, moral, legal or aspirational, and how he intends to manage the Chancellor's five tests?

The Prime Minister

I agree with the right hon. Gentleman on his first point. In fact, I may even agree with him altogether—we shall have to wait and see. I am not saying that the weekend was wonderful. He has been at such negotiations as a Minister, so he knows that they are extremely difficult and protracted. The problem arose precisely because we were not going to say that Mr. Duisenberg had to step down on a particular date. The meeting could have been tied up at 2 o'clock in the afternoon and we could all have gone home—which would have suited me fine—but people were not prepared to give on that basic question of principle. I entirely agree that what matters is a good outcome.

The right hon. Gentleman asked whether Mr. Duisenberg's resignation would be political, moral, aspirational or whatever. The resignation will be personal—if Mr. Duisenberg decides that he wants to go, that is when he goes, as was made very clear in his personal statement, and in what I said as president both in the Council and at the press conference afterwards.

The right hon. Gentleman asked how we would manage the Chancellor's five tests. We shall manage them according to the criteria that we set out. The tests come down to same issue, so the basic question will be whether there is sustainable economic convergence between Britain and the other main countries in Europe. If there is, the tests will be satisfied; if there is not, they will not be satisfied.