ECU: Rate of Exchange (Hansard, 5 July 1990)

The Paymaster General (The Earl of Caithness)
My Lords, as my right honourable friend the 2264 Chancellor of the Exchequer made clear in his recent proposal, both sterling and the hard ecu would be in the ERM and subject to the disciplines of that mechanism.

§ Lord Ezra
My Lords, we welcome the initiative taken by the Chancellor of the Exchequer in contributing a further dimension to the interesting debate on the future of monetary policy in the European Community. But does the noble Earl agree that there is uncertainty about the long-term objective of this proposition? Does he accept that the Chancellor and the Governor of the Bank of England have given the impression that ultimately this could lead to the creation of a single currency, whereas the Prime Minister in answer to Questions in another place gave the impression that in her view the ecu would remain a parallel currency? If it were to remain a parallel currency, would it not simply be a thirteenth currency within the European Community?

The Earl of Caithness
My Lords, I am grateful for the noble Lord's welcome for what I said. It is true to say that if the system does not evolve into a single currency it will remain a parallel currency.

Lord Bruce of Donington
My Lords, to revert to the Question on the Order Paper, is it not the case that the value of the hard ecu will be determined by reference to the highest valued currency? At present will that not mean the deutschmark, which today stands at 2–95 to the pound? Does the Minister agree that the impact upon the United Kingdom of entry into the exchange rate mechanism will largely depend upon whether the United Kingdom chooses to be in the broad band or the narrow band in terms of convergence? Will he please clarify the matter so that the House and the country are not put into too much doubt as a result of the quite obvious divisions of urgency and emphasis between the Prime Minister and the Chancellor of the Exchequer?

The Earl of Caithness
My Lords, as the noble Lord is aware, the lower band of the exchange rate mechanism is 2.25 per cent. There could be some fluctuations. It is a matter that is about to be discussed in the inter-governmental conference. It is a matter on which further work needs to be done before the inter-governmental conference. Your Lordships' views are most welcome.

§ Baroness Seear
My Lords, the noble Lord said that there are two possible and directly opposed interpretations of the policies put forward —one by No. 11 and the other by No. 10. Is it not extremely damaging to our reputation in the Community that we put forward two policies which cannot be reconciled, as the noble Lord has said?

The Earl of Caithness
My Lords, no, it is not two policies; it is one policy. There is the proposal to put forward a hard ecu which could evolve into a single currency if that was what we wished at the time. That decision does not have to be taken now. The great strength of the British proposal is that it is evolutionary.

§ Lord Jenkins of Putney
My Lords, is it not the case that if the ecu rate is fixed it will tend to become the international rate of exchange, whereas if it is variable great confusion is bound to arise between the ecu and international currencies? What is the Government's position on this matter?

The Earl of Caithness
My Lords, with respect, the noble Lord is not quite aware of the implications of the ERM, in which any currency can trade within a narrow band at present.

§ Lord Jay
My Lords, in fairness to the present Government, should it not be acknowledged that the Chancellor's hard ecu is probably the least damaging of all these crazy schemes?

The Earl of Caithness
My Lords, it has certainly been accepted as a matter for very serious consideration with our European partners.

§ Lord St. John of Bletso
My Lords, will the Minister comment on the practicalities of carrying a hard ecu, a soft ecu and sterling, and the practicalities of drawing up separate price lists?

The Earl of Caithness
My Lords, there would not be a soft ecu because one would have a hard ecu and the national currencies, as at present. The hard ecu would be in line with the strongest of the European currencies. We believe that it offers good opportunities for tourists and business to begin with. But it may then evolve in its own way as people desire.

§ Lord Cobbold
My Lords, I should like to echo (or should I say ecu?) the welcome given by my noble friend Lord Ezra to the hard ecu scheme. I believe that it represents a serious attempt by government to get back into the mainstream of the debate. It also contains a great deal of good technical work. However, I have great difficulty in following the Government's logic.

Noble Lords
Question!

§ Lord Cobbold
My Lords, do the Government seriously believe that the full benefits of the single market, which they so fervently support, can be achieved with 12 separate, individual currencies, with 12 separate interest rate differentials, and —if one allows for the union between the Belgian and Luxembourg franc —with 11 balances of payments? It seems to me to be an impossibility.

The Earl of Caithness
My Lords, I am grateful for the noble Lord's welcome for our proposal. I was not aware that he still had difficulty on this matter. I knew that he had difficulty with the previous proposition. If the noble Lord reads the proposal very carefully I am sure that he too will come to such a conclusion.

§ Lord Hailsham of Saint Marylebone
My Lords, will my noble friend encourage the Oxford University Press, or some other appropriate body, to issue a concise dictionary of technical terms in current use by Eurospeak in translatable English?

The Earl of Caithness
My Lords, I understand my noble and learned friend's concern on the matter. If he is concerned and confused, what hope is there for the remainder of us?