European Monetary System: Membership (Hansard, 14 March 1989)

§ The Parliamentary Under-Secretary of State, Department of Transport (Lord Brabazon of Tara)
My Lords, the view of the Government remains unchanged. We shall join the exchange rate mechanism when the time is right.

§ Lord Ezra
My Lords, will the noble Lord not agree that to join the exchange rate mechanism now would take pressure off sterling, enable interest rates, which were discussed earlier this afternoon, to be reduced below their present very high level and prepare us more effectively for the competition that will arise from the single market? Furthermore, perhaps he can explain something which is puzzling me and maybe other noble Lords. Why is it that when ex-Cabinet Ministers go to Brussels to become commissioners, thereafter the Government generally ignore their advice?

§ Lord Brabazon of Tara
My Lords, the noble Lord has asked me a number of questions. It is impossible to say whether membership of the ERM would prevent sterling fluctuations in the market. Countries within the ERM engage in realignments from time to time and ERM membership has no 82 bearing on sterling/dollar fluctuations. As to taking the pressure off higher interest rates, joining the ERM would not be a soft option. Countries in the ERM change their interest rates too. I cannot answer for my right honourable friend Sir Leon Brittan or say what his views are now that he is in Brussels, so the noble Lord should perhaps ask him.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that if we join the EMS we would certainly be giving up an option to deal with our problems in a way that we think would be the best for the United Kingdom? Will he not agree that, with all our problems, this is not the time to give up any option if we want to overcome the troublesome and difficult times that face the whole of Europe?

§ Lord Brabazon of Tara
My Lords, my noble friend makes some good points. There is very little that I can add to what I said in my original Answer, which is that we still intend to join the ERM when the time is right.

Lord Stoddard of Swindon
My Lords, is the noble Lord aware that I entirely agree with him that to join the ERM will not be a panacea for all our economic ills? Is he also aware that between 1980 and 1987 countries inside the EMS, such as Germany, Italy and France, had lower manufacturing output increases than we did in this country? In Germany, manufacturing output was 5.6 per cent.; in Italy, it was 2.6 per cent.; and in France it dropped by 1 per cent. All those countries are inside the EMS. In Britain, which is outside the EMS, manufacturing output rose by 9.6 per cent. Does the noble Lord not agree that, among the welter of bad decisions, the Government made at least one good decision by not joining the ERM?

§ Lord Brabazon of Tara
My Lords, I confess that I am somewhat surprised. That is the first time from the Benches opposite that I have heard those kinds of figures quoted at us over here. I am very pleased that the noble Lord should choose to do so. I would not know whether membership of the ERM has much bearing on those figures, but it is very encouraging to hear good news relayed back from the Benches opposite.

§ Lord Grimond
My Lords, as was said by my noble friend, we cannot speak for our colleagues on the Continent, but is it not most extraordinary that a fairly recent member of the Government—who are supposed to have a collective view on these matters—now expresses a totally contrary opinion to that which he apparently held some 18 months ago?

Lord Bruce of Donington
He is no longer afraid, my Lords.

§ Lord Brabazon of Tara
My Lords, I should not say that he holds a totally contrary opinion. Sir Leon is entitled to his own views. In his speech he said that he felt the time was now very right indeed. What I have said at Question Time on innumerable occasions in this House is that we shall join when the time is right. It is purely a matter of timing.

§ Baroness Seear
My Lords, what could be more contrary than for Sir Leon Brittan to say that the time is ripe, and for the Government to say that it is not ripe? I cannot see anything more contrary than that.

§ Lord Brabazon of Tara
My Lords, what I said was that we would join when the time was right. Perhaps we disagree slightly about the timing.

§ Lord Callaghan of Cardiff
My Lords, on this difficult question where the arguments are not one way or the other, cannot the Government help those of us who are rather simple about these matters by telling us the criteria by which the Government judge whether the time is ripe? Is one criterion the level of the exchange rate? Is one the degree of productive capacity in this country? Is one the level of interest rates? What combination of these or other factors will tell us and enable us to judge, as well as the Government, whether the time is right?

§ Lord Brabazon of Tara
My Lords, I appreciate the noble Lord's interest in this matter. The problem of course is that if one were to declare the exact circumstances that made the time right, that would possibly give rise to difficulties in the markets.

§ Lord John-Mackie
My Lords, is the noble Lord aware that the analogy of this problem of ripe time is with fruit? If one waits too long it goes rotten!

§ Lord Stanley of Alderley
My Lords, does my noble friend realise that to delay joining the EMS makes solving our already difficult agricultural problems even more difficult?

§ Lord Brabazon of Tara
My Lords, I am afraid that I cannot necessarily see a connection between our agricultural problems and membership of the exchange rate mechanism. My noble friend will no doubt have the opportunity of pointing out the connection.

§ Lord Rochester
My Lords, in this matter do not our major exporting companies desire a stable exchange rate, particularly in relation to the German mark? May not the difference between a rate of 2.98 marks to the pound sterling in December, 1987, compared with 3.20 marks in December, 1988, have made all the difference between success and failure in striking deals of great potential value to this country's balance of trade?

§ Lord Brabazon of Tara
My Lords, of course we appreciate the importance of a stable exchange rate, but our overriding priority is to maintain an anti-inflationary stance. We are not willing to see sterling depreciate, which would only add to inflationary pressures, which would be even more damaging to British industry.

Lord Bruce of Donington
My Lords, leaving aside, as the noble Lord did, the sterling/dollar rate, are we to understand from the noble Lord's Answer that he is quite willing to continue, by means of higher interest rates, to sustain an exchange rate with our 84 EC colleagues which is artificially high, thus subsidising imports into this country? Is he aware that in the past year with the EC alone our deficit was some £15 billion? Surely the noble Lord must be able to do a little better than that. Does he desire to keep a high exchange rate so that imports may be subsidised at a low price, thus helping him to use the trade deficit as some kind of aid to keeping down inflation?

§ Lord Brabazon of Tara
My Lords, the Government will not allow the exchange rate to depreciate to accommodate inflationary pressures.