European Monetary System (Hansard, 24 October 1989)

The Paymaster General (The Earl of Caithness)
My Lords, the Government have made it clear that the United Kingdom will join the exchange rate mechanism of the European Monetary System during the so-called stage one of EMU, when there has been progress in a number of areas: in particular, towards lower inflation, free movement of capital in the Community and real response towards completion of the single market, not least in financial services.

§ Lord Ezra
My Lords, is the noble Earl aware that, in spite of what he has just said, there is growing confusion in the public mind about the Government's attitude towards the EMS and the exchange rate? On the one hand, the Chancellor of the Exchequer seems to prefer to have the currency linked to those of the major European countries and to regard the EMS and the exchange rate mechanism as desirable means of achieving that; while, on the other hand, it is reported that the Prime Minister and her adviser, Sir Alan Walters, take a different view. They prefer a market approach to the currency and do not favour the ERM. Does he not agree that this difference of opinion is causing a good deal of disquiet and is not adding to business confidence.

The Earl of Caithness
My Lords, the noble Lord is seeking to exploit a situation to confuse the public, if I may put it like that, because my right honourable friend the Prime Minister said in the House of Commons in a Statement on 29th June following the Madrid Summit, a Statement repeated in this House by my noble friend Lord Belstead: I reaffirmed our intention to join the ERM".—[Official Report, Commons, 24/6/89; col. 1108.] And she did so on the terms that I have already described.

§ Lord Harmar-Nicholls
My Lords, is my noble friend aware that it would be madness for this country to join the EMS before other nations have equalled our policy as regards exchange controls and the free exchange of professional services? To join and to expect them to do that afterwards would be 1264 short-sighted. Is my noble friend aware of the paradox that if they did these things there would be no need for the EMS?

The Earl of Caithness
My Lords, my noble friend feels very strongly on this matter as indeed do all noble Lords. There have been arguments that the ERM of the EMS might cease to exist if there were no exchange controls. We shall see whether or not that is true when France and Italy remove the remaining exchange controls in July next year. Meanwhile, the Government's position is as I have made clear.

§ Lord Barnett
My Lords, does the Minister accept that most of us would agree that the Prime Minister has every right to take advice from whatever source and to reject it or accept it as she wishes? On the other hand, does he also accept that it is positively harmful to sterling that next door to the Chancellor of the Exchequer should be working a man who clearly has alternative views to those of the Chancellor? Would it not therefore be helpful if he could confirm today that it is not just a matter of entering the exchange rate mechanism when the time is right but that there should be two clear conditions? The first would be very clear; that is to say, when there are free flows of capital; and, secondly, when inflation here is broadly in line with the average in the European Community. Are those the only two major reasons? It would be positively helpful to sterling if he were able to confirm that that is the case and there are not other reasons why the Prime Minister would not allow the Chancellor to enter the exchange rate mechanism.

The Earl of Caithness
My Lords, both my right honourable friends the Prime Minister and the Chancellor of the Exchequer have made clear on a number of occasions the criteria which they will adopt before entering the exchange rate mechanism. I was a little surprised by what the noble Lord said. Surely if one has an adviser, one can either accept the advice or not. But it is not our party that seeks to silence what the adviser says are his own views. Perhaps that is the policy of noble Lords opposite.

§ Lord Jenkins of Hillhead
My Lords, will the noble Earl confirm the Government's position that they are resolved to enter a half-baked scheme when the time is right? Does he agree that the season of mellow fruitfulness is so long delayed that it is an almost certain receipe for getting an unsatisfactory and rather addled portion of this blackberry pie?

The Earl of Caithness
No, my Lords, we shall join the ERM when the time is right. Clearly the noble Lord would prefer to take us in on more disadvantageous terms than we would like.

§ Lord Hailsham of Saint Marylebone
My Lords, could it be the case that my noble friend has read the autobiography of Mr. Denis Healey, the former colleague of the noble Lord, Lord Jenkins of Hillhead, in which he explicitly says that to join the EMS would be to hand over control of this country's economy to the Bundesbank?

The Earl of Caithness
My Lords, I have not yet had time to read the book to which my noble and learned friend refers, but it is well known that on the Opposition Benches there are numerous spokesmen who purport to speak on Treasury matters. Most of them contradict each other, and the Opposition have a policy which is totally imcomprehensible.

§ Lord Stoddart of Swindon
My Lords, will the noble Earl dispel the idea that joining the ERM is a panacea for all our economic ills?—because it is not. Moreover, will he agree that over the past few months, and indeed years, we have been shadowing the deutschemark and that that is the reason we now have interest rates at 15 per cent.? Is it not therefore absurd for people to suggest now that joining the ERM would be any different from what we have done in the past? Further, would not the right course for the Prime Minister to take be to sack Nigel Lawson?

The Earl of Caithness
My Lords, the noble Lord is right—and I think everyone is agreed—to say that the ERM is not a panacea.

Lord Morris
My Lords, is it as clear to my noble friend as it certainly is to me that some Members opposite are using the generally fatal, but tempting, practice of briefing themselves from gossip which has appeared in the newspapers?

The Earl of Caithness
My Lords, much as I should like to help my noble friend, I am not quite sure from where noble Lords opposite receive their briefings.

§ Lord Jay
My Lords, does the Minister agree with the Chancellor of the Exchequer or the Prime Minister?

The Earl of Caithness
My Lords, as there is no difference between the two people mentioned, I agree with both of them.

Lord Bruce of Donington
My Lords, on the assumption that the replies given by the noble Earl today are taken in conjunction with those he gave previously and that they represent the collective policy of the Government, including that of the Prime Minister, in the interests of free speech will he give the Prime Minister the opportunity to explain, after due consultation with Sir Alan Walters, exactly what she meant when she said, "You can't buck the market"?

The Earl of Caithness
My Lords, the quotation mentioned by the noble Lord, Lord Bruce of Donington, must be put into context. However, I am sure that my right honourable friend the Prime Minister will shortly be back in the country and will then be able to answer such questions.

§ Lord Annan
My Lords, having regard to the remarks made by the noble Lord, Lord Barnett, about the effect of these dissensions on sterling, cannot the Prime Minister give the same advice to her adviser as was given by another Prime Minister to another professor; namely, that a period of silence on his part would be welcome?

The Earl of Caithness
My Lords, it is very difficult to maintain a period of silence when one is asked questions. My right honourable friend the Prime Minister and my right honourable friend the Chancellor of the Exchequer have given exactly the same replies to the same questions time and again.