EMU: Proposed Entry Requirement (Hansard, 28 November 1995)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, under the provisions of Article 30 of Protocol No. 3 to the EC Treaty, the national central banks of member states that participate in Stage 3 of economic and monetary union have to provide the European Central Bank with foreign reserve assets, receiving in exchange an equivalent claim on the ECB. The amount of each participating national central bank's contribution of foreign reserve assets cannot be determined until the identity of the member states participating in Stage 3 of EMU has been ascertained and the ECB has been established.

§ Lord Boyd-Carpenter
My Lords, first, will my noble friend confirm that the sum involved will be very large? Secondly, if a country that has joined the common currency withdraws, does it get back its deposit?

§ Lord Mackay of Ardbrecknish
My Lords, as to the first part of my noble friend's question, the treaty provides for transfer of foreign exchange reserves to the ECB from all participating member states of up to 50 billion ecu. Of course the actual sum that one member state will have to pay will be decided by the number who participate and the amount up to that 50 billion ecu it is decided should be put into the ECB. As to the second part of his question, what happens if a country joins and then wishes to leave is not something that has been addressed fully.

Lord Bruce of Donington
My Lords, will the Minister inform the House that in addition to the deposits to which the noble Lord, Lord Boyd-Carpenter, referred, the same sections of the treaty provide that the European system of central banks has also the right to control the transactions with the remainder of the world outside the European Continent itself of the member states which join? And that in the case of the UK, which has wide transactions with the rest of the world, far exceeding its transactions within Europe, all of those transactions, the principles underlying them, and the rules enforcing them, will be subject to the control of the ECB itself?

§ Lord Mackay of Ardbrecknish
My Lords, it is obvious that if countries participate in a single currency 512 and we have an ECB, the point of having that ECB will be that it will control the central currency. If it is any consolation to the noble Lord, all the participating member states will have a seat on the board—if I may call it that—of that central bank and an equal vote. This may be a long way into the future. The spectre that the noble Lord is trying to raise is a bit false.

§ Lord Marsh
My Lords, I return to the Minister's answer about leaving the EMU. Does the Minister agree that in the real world the dangerous situation is that while it will be relatively easy to slide in, it will be almost impossible to come out?

§ Lord Mackay of Ardbrecknish
My Lords, there is a certain amount of truth in that statement, which is why I said to my noble friend that these matters have not been addressed fully. The point that the noble Lord, Lord Marsh, makes is well worth hanging on to. It should be recalled that the Government have decided not to sign up in advance to a single currency, and that is one of the reasons why we decided that. It would be interesting to know whether the party opposite agrees with our decision not to sign up to a single currency at this point.

§ Lord Renton
My Lords, does not my noble friend's original Question mean that the decision whether to join made by a government of a nation state will be made only if they know the amount of the deposit, but that they will not be able to join because they cannot be told the amount of the deposit until everyone concerned has decided whether to join?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is right to ask now what we might have to contribute up to the 50 billion ecu. The point surely is that as these matters progress, and, so to speak, the day of judgment for the British people and the British Parliament comes nearer, we shall have a far better idea of how many countries are likely to participate and the amount that each country will be called upon to pay. The basis upon which the amount will be determined has to do with GDP and the population, which will be relatively easy to quantify when we reach the stage of knowing who will participate.

§ Lord Eatwell
My Lords, will the noble Lord confirm that Article 48 of the statutes of the European Central Bank states that a country which does not join the European monetary union may still be required by a two-thirds majority of the council of the Central Bank to pay its subscription to the bank's capital, whether it joins or not? Given that Mr. Clarke suggested yesterday in Brussels that monetary union is on track for 1999—not a long, long way away, as the Minister suggested—will the Minister tell us what budgetary provision the Government are making for that subscription which we shall have to pay whether or not we join?

§ Lord Mackay of Ardbrecknish
My Lords, I do not carry about all those different articles. As I understand the position, the payment to the central bank will be asked for from participating countries. One of the interesting discussions which was held yesterday at the 513 meeting of ECOFIN, to which the noble Lord referred, was a discussion about the relationship between participating and non-participating countries. It is worth pointing out to your Lordships that not only will a country like ours decide at the time whether or not to join but other countries do not look as though they will be able to fulfill the criteria in 1999 or, indeed, into the next century.

§ Lord Clark of Kempston
My Lords, what effect would the unlikely event of this country joining a single currency in the foreseeable future have on the public sector borrowing requirement of this country?

§ Lord Mackay of Ardbrecknish
My Lords, one of the criteria for any member state to participate in the single currency is the ratio of the deficit, which roughly speaking is the public sector borrowing requirement, to its gross domestic product and, indeed, the debt which the country has as a ratio of its gross domestic product. We should have to do as we are doing; that is, to control the public sector borrowing requirement and keep it under control. Perhaps I may say to my noble friend that it is as a result of an attempt to keep that under control that the French Government are currently having such problems with their trade unions.

§ Lord Callaghan of Cardiff
My Lords, before the House runs away with itself on this issue, should we not keep a sense of proportion? We already have large deposits with the IMF. When we joined the EMS, we swapped the pound sterling and a certain amount of gold for similar reserves. Does the Minister and the House really think that, quite apart from keeping the 1999 date open, with which I agree, it would be worse to put some pounds sterling into reserves backed by the deutschmark than to keep the pound sterling on its own?

§ Lord Mackay of Ardbrecknish
My Lords, the noble Lord is quite right to point out that we currently have money with the European monetary institution. In fact, we have something like £75 million invested by the Bank of England in EMI. The noble Lord makes a valid point. If we reach the decision at the time which we have to make it that we should enter the European currency, depositing some of our reserves with the ECB will be part and parcel of that decision.