HC Deb 28 January 1999 vol 324 cc461-3
4. Mr. Graham Brady (Altrincham and Sale, West)

What representations he has received on the possibility of Britain entering the exchange rate mechanism. [66517]

14. Mr. John Cryer (Hornchurch)

If he will make a statement on Britain's future relationship with the European exchange rate mechanism. [66530]

The Chancellor of the Exchequer (Mr. Gordon Brown)

The Government have no intention of rejoining the exchange rate mechanism.

Mr. Brady

I thank the Chancellor for that answer. If he does, however, intend to keep open Britain's options of joining the euro in 2002 or before, how does he plan to ensure that Britain complies with article 109j of the Maastricht treaty, now article 121 of the Amsterdam treaty?

Mr. Brown

The hon. Gentleman should know that the resolution that came out of Amsterdam said clearly: Participation in the exchange-rate mechanism will be voluntary for the Member States outside the euro area. I believe that that answers his question. Any questions about the Maastricht treaty would be better directed to the shadow Chancellor, who signed it.

Mr. Cryer

My right hon. Friend will know that the Bank of England has already signed an agreement with the European central bank called "ERM II", which is effectively the new exchange rate mechanism. We are, therefore, already in the new exchange rate mechanism and the bands will narrow as we approach 2002. How does that affect the Government's neutrality on the single currency?

Mr. Brown

I must correct my hon. Friend: the Government have no intention of rejoining the exchange rate mechanism. We are not part of it.

Mr. Francis Maude (Horsham)

If the Chancellor wants guidance on this important article of the Amsterdam treaty, formerly the Maastricht treaty, may I remind him that it requires not membership of the ERM, but observance of the normal fluctuation margins provided for by the ERM for at least two years? That obligation is in the treaty, and the Government will be obliged to follow it if they wish to keep that option open. Does he agree that it is a serious requirement for any country that aspires to join the single currency?

Mr. Brown

The right hon. Gentleman should read what was said at Amsterdam. The Amsterdam European Council resolution of June 1997 said: Participation in the exchange-rate mechanism will be voluntary for the Member States outside the euro area."— [Interruption.] I know that Conservatives are obsessed about every detail of treaties, but I remind the shadow Chancellor that he signed the Maastricht treaty.

Mr. Maude

That provision is still in the treaty, and it is there for a serious purpose: to ensure that, before an economy joins the single currency, it shows the right degree of exchange rate stability. Therefore, at some stage the Government will have to change the Bank of England Act 1998 in order for the Monetary Policy Committee to shadow the euro rather than pursue a domestic inflation target.

Mr. Brown

indicated dissent.

Mr. Maude

The Chancellor shakes his head in a complacent and dismissive way. Does he agree with Gavyn Davies of Goldman Sachs, who said that, at some point—[Interruption.] The new Chief Secretary should listen, because the Government will have to deal with this point if they insist on railroading the country towards a single currency. Gavyn Davies said: at some point the Bank of England will have to be told to 'shadow' the euro (instead of inflation) for a two-year period to stabilise exchange rates ahead of joining". Does the Chancellor agree with that?

Mr. Brown

The shadow Chancellor is right on one thing: it will be the Labour party that has to deal with those matters right into the next century, because we shall be in government and the Conservatives will be out of government. As for the resolution of Amsterdam, let me repeat: Participation in the exchange-rate mechanism will be voluntary for the Member States". I have said clearly to the right hon. Gentleman that we have no intention of rejoining the ERM. It is only the Conservatives who are obsessed by the ERM, and we now know why that is: when the right hon. Gentleman was at the Treasury, the Conservative Government took us in, and we had to leave ignominiously as a result of their mistakes.

Mr. Robert Sheldon (Ashton-under-Lyne)

I welcome my right hon. Friend's comments on the ERM, but is he aware that the later the date set for our entry into the euro, the more difficult will be the conditions applied to us? Will he take that into account when deciding that date?

Mr. Brown

I set out the Government's position on economic and monetary union in October 1997 and I see no reason to change that position. In principle, we are in favour of monetary union and being a part of it, subject to the economic tests that I have set down being met. I have said that it is not a realistic option to join in the current Parliament, but that we shall consider it in the next Parliament and apply those economic tests. Incidentally, in October 1997, I also said that we had no intention of rejoining the ERM, and I am absolutely consistent on that as well.