HL Deb 03 December 1996 vol 576 cc608-19

4.37 p.m.

Lord Mackay of Ardbrecknish

My Lords, with the leave of the House, I would like to repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows: "Madam Speaker, I would like to make a Statement about the Council of Finance Ministers Meeting in Brussels which I attended yesterday.

"The Council considered at some length a new lending remit for the European Investment Bank. We considered and approved a report on employment policy to be submitted jointly by ECOFIN and the Social Affairs Council to be considered by the forthcoming European Council at Dublin. We transacted a number of other items of routine business which I will report to the House in due course by Written Answer in the usual way.

"We carried forward political preparations for the anticipated discussion at Dublin of economic and monetary union. Finance Ministers have been charged by the last European Council at Florence to prepare a progress report on preparations for EMU. Progress was made but no final conclusions were reached, mainly because of outstanding issues which remain to be resolved on the operation of the proposed stability pact and, in particular, on the definition of an exceptional and temporary deficit for the purpose of Article 104(c).

"I made a constructive contribution to the debate in an effort to achieve the widest possible measure of political agreement in preparation for the summit meeting. I made it clear at the outset that my agreement, while in line with government policy, was subject to a parliamentary reserve and could not commit the Government until parliamentary discussions had been completed. The Irish President of the Council confirmed that my parliamentary reserve would be reported and printed on the face of any document laid before the Dublin Council.

"Only two of the texts of the draft regulations which are currently subject to parliamentary scrutiny and were the subject of my Statement last Monday featured in the discussions at ECOFIN yesterday. They were the regulations on the legal framework for the euro under Article 235 and under Article 109(1)4 of the treaty.

"There never had been any question of legislative decision on EMU being taken at yesterday's meeting. These two regulations were considered and drafts will probably be attached to the eventual report to Dublin.

"The Council is at present agreed that there will be no final agreement on the operation of EMU or the text of any regulations until all the negotiations are completed. ECOFIN and every member state are working on the basis that nothing is agreed until everything is agreed. I now anticipate that no final agreement on any binding legislation on EMU is likely before, at the earliest, the planned European Council meeting in Amsterdam in June of next year.

"The draft Article 235 regulation causes no problems to the British Government as it now stands. We would like to see it progressed as quickly as possible to give greater legal certainty to existing commercial contracts in English law denominated in ecus or in currencies which might go into the euro.

"The Article 109(1)(4) regulation might have caused concern in this country as some people might have claimed, mistakenly, that the legislation to be enacted in due course by the member states of the euro-zone might be directly applicable to all member states in a way which contradicted the British opt-out. This interpretation would have been incorrect. However, I was able to obtain agreement of the Council to amendments to Article 17 of the draft regulation and consequential changes to the recitals of the regulations which make the position clear and beyond doubt on the face of the document. The amendments make the application of the regulation subject to Protocol No. 11 of the treaty and the amendments also make clear that the protocol stipulates, among other things, that Article 109(1)4 shall not apply to the United Kingdom unless we move to the third stage.

"I have also obtained agreement to changes to any text of the report that ECOFIN may eventually submit to the Dublin Council on progress towards EMU. I have obtained clear statements that membership of the proposed ERM2 for states outside the Euro will be voluntary. I have obtained explicit statements that the council can only make non-binding recommendations under Article 103 to member states outside the euro and outside ERM2 when carrying out surveillance of economic policies. We have, of course, been committed to economic and monetary co-operation and convergence of economic and monetary policies which are necessary for the further development of the Community ever since we signed the Single European Act. The present treaty and practice only commit us to seek to ensure that our domestic policies are geared to price stability and sound public finances and to seek to avoid an excessive deficit. No sanctions can be applied to this country for any failure to take effective steps to achieve that unless and until we move to Stage 3.

"The report will deal with budgetary discipline in Stage 3. The draft now states that euro area member states will be obliged to submit programmes and will be subject to agreed sanctions for failure to act effectively on excessive deficits. In the surveillance procedure, other member states will be obliged to submit convergence programmes only. In the excessive deficit procedure, sanctions cannot be applied to them. I will ensure that such statements remain in any report which may eventually be submitted to the Dublin Council. They are not being challenged by any other member state or the Commission.

"The outstanding matters to be resolved relate to the circumstances in which a member state of the euro may not be subject to this excessive deficit procedure and possible sanctions if a deficit is only exceptional and temporary.

"The preparatory work in ECOFIN is therefore proceeding precisely on the legal and political basis which I and my honourable friend the Exchequer Secretary and others have frequently described to this House."

My Lords, that completes the Statement.

4.43 p.m.

Lord Peston

My Lords, I thank the Minister for repeating the Statement of his right honourable friend the Chancellor of the Exchequer. This is a particularly difficult Statement to deal with. One obvious reason is that your Lordships will be debating all these matters tomorrow under a Motion submitted by my noble friend. I believe that it would be trying the patience of the House too much if I were to make the same speech again within 24 hours.

Lord Graham of Edmonton

Go on!

Lord Peston

My Lords, perhaps within 48 hours, yes, but 24 hours is too soon. I hope therefore that noble Lords will allow me to concentrate on a few of the points in the Statement and elaborate further tomorrow.

There is also a more delicate matter. As I understand from this Statement, the views of the right honourable gentleman the Chancellor of the Exchequer and mine are very similar: his inclination is towards monetary union in principle, subject to all sorts of conditions being met. That is the way he leans and that is certainly the way I lean, but I gather that one or two of his right honourable friends do not quite see the matter that way. Since I wish to see this matter proceed rationally, I shall not make mischief on the subject today or for that matter tomorrow.

As regards the report, perhaps I may say how much I welcome the second paragraph. I look forward very much to seeing the report on employment policy. I take it that the Minister will confirm in a few minutes that, when the report on employment policy is submitted by the Council of Economic and Finance Ministers and the Social Affairs Council to the forthcoming European Council at Dublin, your Lordships and Members of the other place will be able to see it, because what happens in the employment field is enormously important.

The material dealing with economic and monetary union raises the most obvious question. Some progress has been made but no final conclusions have been reached according to the Statement. But has as much progress been made as was anticipated? My impression—I was not there, so I am relying on the Statement—is that things are going more slowly than we expected. In particular—this is a matter that I shall deal with tomorrow concerning the definition of an exceptional and temporary deficit—can the Minister tell us whether Ministers at the meeting ran into the technical problems that those of us who study this subject are well aware of but which we have as yet been unable to solve? In other words, did Ministers hope to make progress, but they have not done so? As I said, I shall enlarge on that tomorrow.

Although my views on the opt-out are different from those of the Government, I believe that the Chancellor of the Exchequer was entirely right in that the Statement makes it clear beyond peradventure—which I assume is more for his honourable friends than for the rest of us—that the opt-out is genuine. That is essentially my way of summarising the various aspects. The Chancellor of the Exchequer has asked for various statements to be included in any documents, and he was right to do so. It is not that I agree with the substance of the matter, but having made an agreement, I agree that it should be made clear. I do not criticise the Government for that in any way whatsoever.

The questions that I have already asked lead to another question, which is this. Can we now expect anything serious in this area to occur at the Dublin Summit? From reading the Statement, and in particular that binding legislation will arise at the earliest at the European Council meeting in Amsterdam next June, it is by no means obvious that anything of use will happen at the Dublin Summit. I cannot imagine that the Heads of State would dream of cancelling the Summit, even though that might save their time and a certain amount of taxpayers' money. But one wonders what they can do to occupy themselves at that time if full progress has not yet been made on EMU.

The Statement also contains remarks on ERM2 quite separate from the evidence given to my noble friend's sub-committee. In terms, the Government have made it clear, not that they are open-minded on ERM or ERM2, but that they have no intention of joining ERM2. I have asked this question several times and have been unhappy with the answers. Since the Maastricht Treaty—which is a solemn treaty ratified in all proper ways—says that for a country to join EMU it must have been in ERM for two years within the relevant bands, can the Minister say whether it is still the Government's view that that commitment is somehow solemn but not binding? It puzzles me enormously—I am not an expert on matters concerned with law or treaties—that the Government persist in the view that they have not decided whether to join EMU but they have decided never to join an exchange rate mechanism and that somehow they find that compatible. In particular, I should like to ask the Minister—this is relevant to the Statement—whether the Government have received legal advice that their position stands up. I understand that people in other countries say that it could not possibly be legally correct.

I have been as brief as I possibly can, not because the subject is unimportant and not because I wish in any way to be disrespectful to your Lordships, but because we shall have an opportunity to look at other matters in much more detail tomorrow. Therefore, I hope that the Minister will bear with me if I do not pursue those other matters today.

Lord Ezra

My Lords, I too thank the Minister for repeating the Statement. I was a little surprised that we should have it because we had a similar Statement on 25th November and we have a full-scale debate tomorrow. Although the importance of the subject perhaps merits two bites of the cherry, three may be a little excessive. Like the noble Lord, Lord Peston, I shall therefore limit my remarks to just a few questions.

Like the noble Lord, I got the impression that the work done at the ECOFIN meeting yesterday was of a fairly limited nature. Only two of the four texts in connection with EMU preparation were considered and apparently no final agreements were reached on those two. Furthermore, somewhat to my surprise, it seems that the Dublin European Council meeting will apparently transact very little business because it was made clear that effective decisions will not be reached until the Amsterdam meeting in June of next year, a point to which the noble Lord, Lord Peston, referred. Perhaps the Minister will be able to explain exactly what is going to happen at the Dublin meeting and whether all is going to be decided at Amsterdam, which is mentioned as being the earliest date for such decisions, so this could probably go on for another six months until the next meeting.

In view of the rather fanciful press speculation, perhaps I may also ask the Minister—it is important that he confirms this—whether it remains the intention that the Government will continue to play a positive and active role in the negotiations. I feel that that is probably the intention, but as virtually every newspaper from the Financial Times to the tabloids has doubted that, I think it is relevant to ask the Minister on this occasion, and in advance of our full debate tomorrow, whether it remains the Government's firm intention to continue to play an active role in those deliberations. Following on from that, would it still be the Government's intention to pursue without ambiguity, whether in or out, a policy for "price stability", "sound public finances" and the avoidance of an "excessive deficit"—I quote from the Statement—and to promote such policy objectives within the EU as a whole? Those may appear to be somewhat redundant questions, but in view of this morning's press speculation I am sure that it would help the House to have clear answers to them.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to both noble Lords for what they have said and I shall try to join them in brevity as we shall be having a debate on this tomorrow. Indeed, we seem to be having a number of debates on the issue in fairly short order.

I turn first to the questions asked by the noble Lord, Lord Peston. I expect that the employment report will be attached to the conclusions of the Dublin Summit, so the noble Lord will be able to see it then.

The noble Lord asked me whether things were going slowly. I am not sure whether my right honourable friend the Chancellor has a timetable for such matters, but these are difficult decisions. The definition of "excessive and temporary deficits" is difficult because on that definition will hinge whether or not the procedures fall on top of the heads of any state which breaches the deficit—that is, if it is in the euro. Such definitions are difficult and, as I indicated a week ago on Monday, there is a view—this is clearly seen in the papers—that the Germans would like firm statements on these matters and are keener on "automaticity" (if that is the right word) while other countries think that there should be a little flexibility in case a member state gets into a deficit for purely temporary reasons which should be taken into account. As I have said, these are difficult issues.

The Dublin Summit will have plenty to do. It will consider the progress made so far in this area. As the Finance Ministers will be meeting a week come Thursday (before the heads of government meet), it is possible that more progress may have been made and they may have to consider that.

I think that I have answered questions on ERM and the treaty previously, but when the proposition was made that before one could join the single currency one had to be in the ERM, it was an ERM with narrow bands. No one has interpreted the treaty now that ERM is based on broad bands. As with other factors, it will eventually be for heads of state to decide whether any country joins the single currency. I think that I explained that last week and we shall no doubt return to the matter tomorrow.

I turn now to the points raised by the noble Lord, Lord Ezra. I think that the two matters under consideration yesterday were very important. The legal status of the euro is a very important issue for the continuity of contracts for those states which decide to join the euro. There needs to be a smooth transition between contracts delineated in their currency and contracts which would thereafter have to be delineated in the euro. I am sure that the noble Lord knows that the City of London is very keen that such matters are clearly resolved before there is any more towards the euro. As I have said, the legal status of the euro is a very important issue.

I can assure the noble Lord, Lord Ezra, as I have on a number of occasions, that we shall continue to play a full and active part in all negotiations and discussions. As on a number of occasions, I fully agree with the noble Lord that price stability and avoiding excessive deficits are not only good with regard to a possible single currency but are sensible and should be pursued in any sensible economy.

4.58 p.m.

Lord Harmar-Nicolls

My Lords, I am confused about the purpose of these various Statements. In my experience, Statements are given to keep Parliament informed of what the Executive are doing. This Statement—and one or two like it—does nothing of the sort. Indeed, the Statement itself said that no agreements were made. I can understand that because the final agreements will be made at the end and after Dublin. Although no agreements were made, the Statement went on to say that we had secured opt-out powers for this country. There has to be some sort of agreement by somebody if we are able to say that that has been re-established because there has been a lot of doubt. Furthermore, the Government say that no agreements have been made and yet progress has been achieved. Progress from where to where? In which direction was the progress? What does it mean?

I do not think that my noble friend or the Government should be easily satisfied with the comments made by those on the Labour and Liberal Democrat Benches. They will agree with whatever is done, provided that it is a move in one direction, which seems to me to lead to federalism or something like it. So their comments about wanting to know more about this can be disregarded. Their interpretation of "progress" is of progress in that direction. The Statement really should indicate in which direction we are progressing and how far we have got. I fully accept that the ultimate decision must be taken later.

Lord Mackay of Ardbrecknish

My Lords, the decisions about the legal basis of the euro and the stability pact are vitally important for the future of this country whether we are in or out. Their importance is obvious if we are in. They are equally important if we are out. The single market and the European Community will remain our single most important trading partner. It is essential to our economy that any single currency created by some member states is stable. That is why I have said on a number of occasions that the stability pact is very important. As I have explained to the noble Lord, Lord Ezra, the legal status of the euro is also important. If my noble friend doubts that, I invite him to ask those in the City of London whether these matters are of vital importance to them.

As regards Statements, when my ministerial colleagues return from Europe having discussed a variety of subjects they usually report to Parliament, in particular the House of Commons. This is done usually by Written Answer but sometimes by Statement. We believe that that is the right way to report these important issues to Parliament in order to keep Parliament informed so that it can express its views. I make no apology for this Statement. My right honourable friend the Chancellor has given Written Answers time without number on his return from ECOFIN meetings. On this occasion he has chosen to make an oral Statement because of the importance of these issues and the interest expressed in them in the other place and in your Lordships' House.

Lord Monkswell

My Lords, I, too, thank the Minister for repeating the Statement. I believe that all noble Lords recognise that whether this country is in or out of the common currency regime it is important that it succeeds. Nothing could be worse for Europe than for such a regime to be set up and within a short space of time to find it falling apart. I believe that that sentiment is shared all round the House and across Europe. We have heard from authoritative sources that the present method of setting it up is not viable. My noble friend Lord Desai said that a greater proportion of GDP should be available to the central budget than is currently the case. My noble friend Lord Healey has referred to social instability as a result of the implications of EMU. Perhaps I may ask the Minister whether any work is being done on the transfer of funds and the increase in the proportion of GDP available for budgetary purposes, in particular in terms of unemployment benefit or pension provision at European level, rather than that those matters should remain the sole responsibility of member states, the implication being that the European budget covers less than 2 per cent. of GDP.

Lord Mackay of Ardbrecknish

My Lords, over recent weeks I have dealt with a number of these issues. I hope that I have made the position of the Government abundantly clear. As far as concerns pension provision in other member states that have pay-as-you-go systems, I thought that I had made it abundantly clear that the Government were firmly of the view that there was no question of Britain having to pick up the tabs for any deficits in those schemes. That is clearly set out in the Maastricht Treaty which provides that one country will not be expected to take on the deficit of another. As far as concerns the budget of the Community, I believe that I have also made it clear on a number of occasions, as have the Government in another place, that Britain will not agree to any increase in the budget. In that we are now happily joined by a number of other countries who are either new entrants to the Community or are becoming budget donors (so to speak) and not budget recipients.

The Earl of Onslow

My Lords, can my noble friend confirm that the articles from which Britain can opt out are those referred to in paragraphs 3 to 9 of the Protocol to the Maastricht Treaty? Can he also confirm that under those articles we can be fined under the stability pact, and cannot opt out of any of them until we have specifically notified the Council under paragraph 2 that we do not intend to move to Stage 3? Therefore, we do not have an opt-out from any fine under the stability pact until we exercise our opt-out from Stage 3.

Lord Mackay of Ardbrecknish

My Lords, I am not entirely sure that I understand the thrust of my noble friend's question. We do not have an opt-out from the fines until we say that we intend to opt out. That seems to me to be logical. Our opt-out position is clearly delineated in the Protocol. It states clearly that we shall notify the Council that we do not intend to move to Stage 3, and we shall be under no obligation to move to Stage 3. If that happens, paragraph 5 of the Protocol delineates the articles that will not apply to the United Kingdom. I make clear yet again that if we decide to exercise our opt-out and formally notify the Council that we will not move to Stage 3, there is no possibility of our being fined under the excessive deficit procedure.

The Earl of Onslow

My Lords, is it not the case that we can be fined if we have not exercised the opt-out?

Lord Mackay of Ardbrecknish

My Lords, I find it difficult to understand my noble friend's question. If we have not exercised our opt-out but have decided to join up for the euro we shall have signed up for whatever stability pact arrangement is decided upon in order to keep the euro stable. I understand that my noble friend does not approve of the whole concept. However, I do not believe for a moment that he wishes it to be unstable, because that will damage our economy as well as our important markets on the Continent.

Lord Monson

My Lords, on the face of it there is some reassurance in the Statement repeated by the noble Lord, Lord Mackay. However, perhaps he would be kind enough to clarify one closely related matter. On "World at One" today the Deputy Prime Minister, Mr. Michael Heseltine, was asked why the Government were so determined to postpone any decision about joining EMU until June 1997 at the earliest. To paraphrase his reply, he said that in Britain's national interest it was essential to keep a seat at the negotiating table for as long as possible. Of course, one would not disagree with that. But is it not correct to say that in law we have an absolute legal right to remain at the negotiating table whether or not we announce shortly our intention to stay outside EMU for the time being?

Lord Mackay of Ardbrecknish

My Lords, I am not entirely sure whether or not in law we would be allowed to remain at the negotiating table if we said at this stage that we did not wish to enter the euro at any stage. But even if we were allowed to stay at the negotiating table I do not believe that our negotiating position would be very strong. It is important that we remain at the table and that we take a decision about whether Britain should join the euro currency scheme when that decision has to be made and when we see the results of the formal negotiations about the stability pact and how strictly the convergence factors are being obeyed. To paraphrase my right honourable friend the Chancellor (just as the noble Lord paraphrases my right honourable friend the Deputy Prime Minister), he said that if the convergence factors are fudged, brushed over and not obeyed at all, he will be doubtful about the value of joining in that kind of proposition. We are clear that we should be at the negotiating table and should ensure, whether we are in or out, that if the Euro comes about it is stable and sensible and that this major trading group to which we belong, and on which our prosperity heavily depends, is stable in future.

Lord Stoddart of Swindon

My Lords, if some noble Lords are sceptical about the copper-bottomed guarantees that the Chancellor has just given to the House of Commons, perhaps they will recall that the same kind of guarantees were given about our opt out from the social chapter. Yet, only two or three weeks ago we saw just how "copper-bottomed" they were when the 48-hour week and various other employment matters were imposed on this country over the head of Parliament by the European Court of Justice. As far as concerns ERM, we were told that the conditions would be agreed by the heads of state. Those conditions are already in the Treaty of Maastricht. They provide that to qualify member states must have been members of the ERM for two years. That seems to be explicit, or are heads of state, as the Commission has already done, prepared to have a creative accounting system, as they have in France, for example, over meeting the convergence criteria in relation also to the ERM? Those are serious matters.

Despite what was negotiated and agreed yesterday by the Chancellor, does Article 103 involve the intervention of the ECJ in the whole matter, and irrespective of what we agree will the decision of the ECJ just overrule what has been agreed, not just yesterday, but in any subsequent intergovernmental agreement? Was there any discussion at that meeting about the stresses and strains being caused in various countries by the restrictive nature of the convergence criteria? I am thinking of course of the lorry strikes which caused so much difficulty in France and elsewhere.

Finally, was the Chancellor helped at all in his negotiations by the intervention in our internal affairs by M. Santer when he said, as reported in the Financial Times yesterday, that pressure from the City and big business would force Britain into a single currency irrespective of any sceptical views?

Lord Mackay of Ardbrecknish

My Lords, I am not going to become involved in the internal affairs of other members states on matters of employment and the like. That we firmly believe is a matter for individual states. As I believe that to be right when they look at us, obviously it is right for us, when we look at them.

So far as concerns the ECJ, the court would be extraordinarily creative were it to overturn the clear specifications of the Maastricht Treaty, the protocol, and many of the agreements that have been made since. One cannot compare that with its decision about the 48-hour week. It would be of much greater significance than that as a legal precedent. Having read all the material, I believe that were the court to take the view, for example, that Britain did not have an opt out so far as concerns penalties, it would probably be more creative than any court has ever been, because the opt out is clear on the face of all the documents, and in all the agreements that my right honourable friend the Chancellor has reached. It is clear what it is an opt out from. It includes the fines.

On the first part of the noble Lord's question, my understanding—all these matters are complex, but I am pretty certain that my memory is right on this—is that when a member decides that it wishes to join, it is not just its say so, there has to be a decision by the other 14 that it can join. That is the point to which I was referring earlier.

Lord Shaw of Northstead

My Lords, does my noble friend realise that we welcome the Statement specifically because it is the custom to have Statements whether or not there is much to say? There would have been severe criticism had that practice not been followed on this occasion. I welcome the fact that the negotiations show every appearance of taking longer and being more drawn out than first envisaged, because is it not true that the longer the negotiations go on the more the problems are teased out and the greater is the likelihood that a proper, long-term, satisfactory solution will be arrived at? Nothing could be worse than having a botched-up hasty decision. The longer the negotiations go on the more important it is that we in this country make our presence felt to ensure that all the problems are properly analysed and that proper solutions are found. To that end, will my noble friend take back the feelings—I hope from the whole House—that we are entirely behind the Prime Minister and the Chancellor of the Exchequer in the negotiations that they are at present conducting?

Lord Mackay of Ardbrecknish

My Lords, I am grateful to my noble friend for his support of my position here and, more importantly, the position of our right honourable friends the Chancellor and the Prime Minister. It is vital in this country's interests that we get right all the issues surrounding the euro. It is a huge step for the European Community to take, either in whole or in part, to move to a single currency. It is a step which, if it were not taken carefully and with many safeguards, could lead easily to disaster. That disaster would encompass the economies of us all, whether we are in or whether we are out. That is why we are certain that we must be in all these negotiations, ensuring that the conditions for the euro are commonsense and stable, and that Britain's voice, as an important player and contributor to the European budget, is heard throughout, and that our point of view is listened to. With my right honourable friend the Chancellor doing that, no one can have any doubt that our voice will be listened to.

Lord Bruce of Donington

My Lords, I have just one question for the Minister. Will the account of the proceedings at ECOFIN that the Chancellor of the Exchequer gave in his Statement be supplemented by an official communiqué as to what happened and to which we can refer? On the basis of experience it is not always the case that the Commission, for example, and some member states, agree with the versions of various conferences that we for our part, in good faith, have laid before Parliament. What means have we of verifying that other member states will agree with our Chancellor of the Exchequer's version of what happened?

Lord Mackay of Ardbrecknish

My Lords, as my right honourable friend said in the Statement, he will, in the usual way, be making a Written Answer giving more of the detail of various other aspects discussed and agreed to at the Council. So far as concerns a communiqué at the end of the Council, these are more in the nature of working meetings. The communiqué on these matters will come at the end of the Dublin Summit at the end of next week.