Euro (Hansard, 24 January 2002)

§ 1. Mr. Desmond Swayne (New Forest, West)
When he last met the Governor of the Bank of England to discuss the exchange rate against the euro. [27551]

§ The Chief Secretary to the Treasury (Mr. Andrew Smith)
The Chancellor meets the Governor regularly, and they discuss a wide range of issues.

§ Mr. Swayne
That is a matter of great comfort. Ministers have previously said that they have no intention of entering an exchange rate mechanism between sterling and the euro. Will the Chief Secretary now rule out absolutely the question of an exchange rate mechanism prior to any arrangement for joining the euro?

§ Mr. Smith
We have made it clear that we have no intention of rejoining the exchange rate mechanism. I am happy to confirm that that is indeed the policy.

§ David Taylor (North-West Leicestershire)
Following the letter in The Guardian this week from numerous Labour colleagues urging the Government to ignore the costly distraction of the euro, will the Chief Secretary discourage his more zealous Cabinet colleagues from 992 trying to pre-empt the debate on this issue, especially given the fact that the five economic tests are increasingly as obscure and ambiguous as tests set by Edexcel?

§ Mr. Smith
There is no inconsistency between investment in high-quality public services and a policy on the euro that is in Britain's economic interests. The truth is that we are delivering on both, whereas the Conservative party could do neither.

§ Matthew Taylor (Truro and St. Austell)
Will the Chief Secretary clarify an issue that seems to be dividing the Government? Does the Treasury maintain the view that the five tests can be answered clearly and unambiguously in economic terms, or is it a political test, as the chairman of the Labour party has suggested?

§ Mr. Smith
The five economic tests are clearly set out, and, as we have said time and again, it is our policy that it must be clearly and unambiguously in Britain's economic interests before we would recommend entry to Cabinet, to Parliament and in a referendum. When that recommendation is made, the issue will of course enter the political process and be the subject of political debate, but the economic tests must clearly and unambiguously be satisfied in the country's interest before we recommend entry.

§ Mr. John McFall (Dumbarton)
Does the Chief Secretary agree with me that we cannot have everything in this world, but that we do not want high interest rates, high unemployment and instability in finances, to which the shadow Chancellor is inextricably linked? We want low inflation, low unemployment rates and stability in public finances. Does my right hon. Friend agree that fiscal autonomy for individual member states is important? Will he and the Chancellor resist every attempt at harmonisation of taxes in Europe, ensure tax competition and that our policy delivers our economic stability and social justice objectives?

§ Mr. Smith
As I made clear in the Economic and Finance Council this week, the Government's priority is economic reform. As my hon. Friend says, we believe in tax competition, not tax harmonisation.

§ Sir Peter Tapsell (Louth and Horncastle)
It is meaningless for Ministers to go on saying that they will never join the exchange rate mechanism but that they hope to join the single currency in certain circumstances. If we were unwisely to join the single currency, we would, in effect, automatically be members of the exchange rate mechanism with no opportunity to get out of it, as we were able to do in 1992. Will the Chief Secretary take on board the fact that the concept that there might one day be a right rate of exchange at which sterling could join the euro is nonsense? The right rate of exchange for Britain changes from day to day, and from hour to hour. Would he accept that the economic crises that overtook Thailand and now Argentina stemmed primarily from the fact that their currencies were on a fixed rate to the dollar?

§ Mr. Smith
I thought that the leader of the Conservative party had urged his colleagues not to be monomaniacs on this issue, but it seems that they are not listening to him. As the Commission confirmed last week, 993 flexibility on the ERM condition has been shown to other entrants to the euro in the past. I repeat that we have no intention of rejoining the ERM. The sustainability of exchange rates will be factored into the economic tests on the sustainability of convergence.

§ Mr. Jim Cousins (Newcastle upon Tyne, Central)
Is the present exchange rate with the euro, which has been sustained for about four years, consistent with the Government's longer-term policies for growth and rising employment?

§ Mr. Smith
As we have made clear, we do not maintain a running commentary on satisfying the five tests. That assessment will be undertaken rigorously, and only if it is in Britain's economic interests, unambiguously and clearly, will we join.

§ Adam Price (East Carmarthen and Dinefwr)
Has the Chief Secretary read the report of the Ernst and Young Item club of economic forecasters, published this week? It argues that there has never been a better time for the Government to adopt an active exchange rate policy to bring about a more competitive exchange rate.
It is surely no coincidence that there has been virtually no growth in output and manufacturing since the pound appreciated five years ago. As the Secretary of State for Trade and Industry has said, there is something fundamentally wrong in the current euro-pound exchange rate Will the Government do something to make it right? Will they bring down the level of the pound by intervening in the exchange markets?

§ Mr. Smith
No, I have not read the report that the hon. Gentleman mentioned. As for what he says about the exchange rate, I have already made it clear that sustainability of convergence, one of the economic tests, would cover that.
Let me tell the hon. Gentleman, and others who share his view, that attempts by this country in the past to steer the economy by means of exchange rates were an unmitigated disaster.

§ Mr. Michael Howard (Folkestone and Hythe)
Yesterday the Secretary of State for Trade and Industry said: there is something fundamentally wrong in the current euro-pound exchange rate". Last week the Economic Secretary to the Treasury said: The Government should not try artificially to massage down the level of the exchange rate, which is properly the outcome of sound economic fundamentals."—[Official Report, Westminster Hall, 15 January 2002; Vol. 378, c. 24WH] Which of them is right?

§ Mr. Smith
My right hon. Friend the Secretary of State for Trade and Industry was rightly identifying the fact that manufacturers exporting to the eurozone are having to cope with the weakness of the euro. That is why we are taking steps to help manufacturing industry with the research and development tax credit and the cuts in business taxation. What is most important to manufacturing industry, as to other businesses, is that we continue to deliver a platform of economic stability. What 994 manufacturers certainly do not need is a return to the 15 per cent. interest rates—for a whole year—and the 10 per cent. inflation that they experienced when the shadow Chancellor's party was in government.