European Monetary Union (Hansard, 27 October 1997)

HL Deb 27 October 1997 vol 582 cc896-915 896

§ 4.6 p.m.

§ Lord McIntosh of Haringey
My Lords, with the leave of the House, I will now repeat a Statement which has been made by my right honourable friend the Chancellor of the Exchequer on European Monetary Union.
"Since the end of the Second World War Britain has faced no question more important and more contentious than that of our relationship with Europe.
"Divisions within governments of both parties, and hence indecision, have made British policy towards Europe, over many years, inconsistent and unclear.
897 "The economic consequences of these weaknesses have been a loss of international initiative and influence, recurrent instability and continuing questioning of our long-term economic direction.
"To break with this legacy, and to establish clear national purpose, which has eluded us for decades, economic leadership is essential, and Britain must now make the difficult decisions on Europe, however hard.
"The decision on a single currency is probably the most important this country is likely to face in our generation. Yet until now, there has been no detailed examination by government of the practical economic issues of EMU. There has been no proper preparation for a decision, because no previous government could agree on whether they supported it in principle, nor whether there was an overriding constitutional objection on grounds of sovereignty or not; nor whether, even if a single currency worked and worked well, the government would wish to be part of it. Forms of words like "keeping the option open"—while no preparations were ever made to render the option practicable—have similarly served as a pretext for postponing the hard choices.
"Now is the time to make these hard choices and set a long-term direction for our economic future in Europe.
"So I will deal, in turn, with the question of principle, the constitutional implications of EMU, and the economic tests that have to be met. In each area, I will set down the Government's policy.
"When we came into Government I asked the Treasury to carry out an assessment of the economic tests that have to be met. Accompanying my Statement is this comprehensive and detailed Treasury assessment which I am publishing today, copies of which are available in the Vote Office.
"I start with the question of principle. First, the potential benefits for Britain of a successful single currency are obvious: in terms of trade, transparency of costs and currency stability. Of course, I stress it must be soundly based. It must succeed. But if it works economically, it is, in our view, worth doing.
"So in principle, a successful single currency within a single European market would be of benefit to Europe and to Britain.
"Secondly, it must be clearly recognised that to share a common monetary policy with other states does represent a major pooling of economic sovereignty.
"There are those who argue that this should be a constitutional bar to British participation in a single currency, regardless of the economic benefits it could bring to the people of this country.
"In other words, they would rule out a single currency in principle, even if it were in the best economic interests of the country.
"That is an understandable objection and one argued from principle. But in our view it is wrong. If 898 a single currency would be good for British jobs, business and future prosperity, it is right, in principle, to join.
"The constitutional issue is a factor in the decision, but it is not an over-riding one; rather it signifies that in order for monetary union to be right for Britain the economic benefit should be clear and unambiguous.
"So I conclude on this question of principle: if, in the end, a single currency is successful, and the economic case is clear and unambiguous, then the Government believe Britain should be part of it.
"There is a third issue of principle—the consent of the British people. Because of the magnitude of the decision, we believe—again, as a matter of principle—that whenever the decision to enter is taken by government, it should be put to a referendum of the British people. So whenever this issue arises, under this Government there will be a referendum. Government, Parliament and the people must all agree.
"So we conclude that the determining factor as to whether Britain joins a single currency is the national economic interest and whether the economic case for doing so is clear and unambiguous.
"I now turn to the Treasury's detailed assessment of the five economic tests that define whether a clear and unambiguous case can be made. These are, first, whether there can be sustainable convergence between Britain and the economies of a single currency; secondly, whether there is sufficient flexibility to cope with economic change; thirdly, the effect on investment; fourthly, the impact on our financial services industry; and fifthly, whether it is good for employment.
"Of these, the first and most critical is convergence: can we be confident that the UK business cycle has converged with that of other European countries so that the British economy can have stability and prosperity with a common European monetary policy? That convergence must be capable of being sustained and likely to be sustained—in other words, we must demonstrate a settled period of convergence.
"Currently Britain's business cycle is out of line with our European partners. Interest rates here are 7 per cent. This is the level the Bank of England has set in order to achieve our inflation target. But in Germany and France interest rates are close to 3 per cent. Across the continent, because business cycles are more coincident, short-term interest rates have been converging for some time.
"This divergence of economic cycles is, in part, a reflection of historic structural differences between the UK and other European economies, in particular the pattern of our trade and North Sea oil. These differences are becoming less distinct as trade with the rest of Europe grows and the single market deepens.
"But divergence is also a legacy of Britain's past susceptibility to boom and bust: the damaging boom of the late 1980s; the severe recession of the early 899 1990s; and the previous government's failure to raise interest rates early enough in the current economic cycle.
"Since coming into office, the Government have introduced long-term measures to ensure that we are capable of maintaining stability by giving operational responsibility for interest rates to the Bank of England and by implementing our deficit reduction plan for public borrowing.
"We will need a period of stability with continuing toughness on inflation and public borrowing. The Treasury's assessment is that, at present, the UK's economic cycle is not convergent with our European partners and that this divergence could continue for some time. To demonstrate sustainable convergence will take a period of years.
"I turn now to flexibility. To be successful in a monetary union, countries will need even more flexibility to adjust to change and to unexpected economic events once the ability of countries to vary their interest rates and exchange rates has gone and the euro and a single European interest rate are in place. Flexibility may be particularly important for the UK if there is any risk that our business cycle has not fully converged with those of the other EMU members.
"The Treasury assessment of the second test is that, in Britain, persistent long-term unemployment and lack of skills—and in some areas lack of competition—point to the need for more flexibility to adapt to change and to meet the new challenges of adjustment. The Government have begun to implement a programme for investing in education and training, helping people from welfare into work and improving the workings of our markets.
"Of course, other European countries need to tackle unemployment and inflexibility to make sure Europe as a whole is able to withstand any shocks that arise. The Government will continue to argue that employability, flexibility and stronger competition policies must be a top priority so that monetary union can be successful.
"The third test is investment: whether joining EMU would create better conditions for businesses to make long-term decisions to invest in Britain. The Treasury assessment is that, above all, business needs long-term economic stability and a well-functioning European single market. It concludes that membership of a successful single currency would help us to create the conditions for higher and more productive investment in Britain.
"But the worst case for investment would be for Britain to enter EMU without proper preparations and without sufficient convergence and with all the uncertainty that would entail.
"The fourth test asks what impact membership of the single currency would have on our financial services industry. EMU will affect that industry more profoundly and more immediately than any other sectors of the economy.
900 "The Treasury's assessment is that we can now be confident that the industry has the potential to thrive whether the UK is in or out of EMU, so long as it is properly prepared. But the benefits of new opportunities from a single currency could, however, be easier to tap from within the euro zone. This could help the City of London to strengthen its position as the leading financial centre in Europe.
"The fifth test relates to employment. For millions of people, the most practical question is whether membership of a successful single currency would be good for prosperity and jobs. The Treasury assessment is that our employment-creating measures, and welfare state reform, must accompany any move to a single currency. Ultimately, we conclude that whether a single currency is good for jobs in practice comes back to sustainable convergence. A successful single currency would provide far greater trade and business in Europe.
"The Treasury assessment is that in vital areas the economy is not yet ready for entry and that much remains to be done. The previous policy of keeping options open, without actively making preparations, has left parts of the economy unprepared.
"Our overall assessment is that Britain needs both a period for preparation and a settled period of sustainable convergence. Both require stability.
"Applying these five economic tests leads the Government to the following clear conclusions. British membership of a single currency in 1999 could not meet the tests and therefore is not in the country's economic interests. There is no proper convergence between the British and the other European economies now. To try to join now would be to accept a monetary policy which would suit other European economies but not our own. We will therefore be notifying our European partners, in accordance with the Maastricht Treaty, that we will not seek membership of the single currency on 1st January 1999.
"The issue then arises as to the period after 1st January 1999. We could simply leave the options open, as before, but with no clear direction either way for the rest of the Parliament. That would be politically easy but wrong.
"There would be instability, perpetual speculation about 'in or out', 'sooner or later', which would cause difficulties in the financial markets and for business and industry.
"It would make it harder to prepare for the possibility of a single currency because every step in preparation, every time the issue was discussed, would feed fresh bouts of speculation.
"It must be in the country's interest to have a stable framework within which to plan; and we are fortified in this because, on the economic tests we have set out, the practical difficulties of joining a single currency in this Parliament all point to the same conclusion.
"There is no need, legally, formally or politically, to renounce our option to join for the period between 1st January 1999 and the end of the Parliament, nor 901 would it be sensible to do so. There is no requirement under the treaty for this. What is more, no government can ever predict every set of economic circumstances that might arise.
"What we can and should do is to state a clear view about the practicability of joining monetary union during this period. Applying our economic tests, two things are clear. There is no realistic prospect of our having demonstrated, before the end of this Parliament, that we have achieved convergence which is sustainable and settled rather than transitory; and the Government have only just begun to put in place the necessary preparations which would allow us to do so. Other countries have for some years been making detailed preparations for a single currency. For all the reasons given, we have not. Therefore, barring some fundamental and unforeseen change in economic circumstances, making a decision during this Parliament to join is not realistic. It is also therefore sensible for business and the country to plan on the basis that, in this Parliament, we do not propose to enter a single currency.
"There are those who urge us to seek consent in principle in a referendum now or soon, but with a view to entering some time later. Any serious gap between the referendum and the actual entry date would undermine the conclusions of the referendum.
"Because the essential decision is economic, it can be taken only at a time when government and then the people can judge that sustainable convergence has been established.
"So, in our view the interval between the decision to join and our joining must not be unduly protracted.
"I have said that if a single currency works and is successful Britain should join it. We should therefore begin now to prepare ourselves so that should we meet the economic tests we can make a decision to join a successful single currency early in the next Parliament. At present, with no preparation it is not a practical option. We must put ourselves in the position for Britain to exercise genuine choice.
"The questions of preparation are immense—practical questions for business, as well as for government. Euro notes and coins will, for example, be circulating across Europe from 1st January 2002. Some companies like Marks and Spencer have already decided to prepare to accept euros in Britain. Others will want advice on what is best for them.
"Because both the Government and business must prepare intensively during the next years, we will commence work on the detailed transition arrangements for the possible introduction of the euro in Britain, including the introduction of notes and coins should we wish to enter; step-up the work on what business should do now to prepare for the introduction of the euro in 1999, whether we are in or out; and work with business on what government must do to prepare for EMU should we decide to join it in the next Parliament.
902 "To help with essential preparations, I have invited the Governor of the Bank of England and Sir Colin Marshall, the President of the CBI, to join me and the President of the Board of Trade in leading a standing committee on preparations for EMU. I am pleased to say that they have agreed. I am also inviting the President of the Association of British Chambers of Commerce to join us. I can also announce that from January a series of regional and sectoral conferences on preparations for monetary union will be held.
"Also, the Prime Minister has today decided to extend Lord Simon's Treasury responsibilities to include European business preparations in the Government, covering the long-term planning of the new standing committee.
"In addition to these practical preparations, there are reforms we can take which are both right in themselves in the national economic interest and which will help us to meet the five economic tests.
"We will promote greater flexibility in the UK economy and in Europe through our Getting Europe to Work initiative.
"We will be introducing new competition legislation, which draws on the best of European and wider international policy and practice as well as continuing to negotiate to secure the best interests of our financial sector and for opening up the single market in financial services.
"We will set as one of the key objectives of our EU presidency completion of the European single market.
"In my Mansion House speech I said that if we succeed in strengthening the ability of the British economy to sustain growth with low inflation, and if international conditions permit, I would hope to lower the inflation target. So we will monitor our inflation target and do so in the light of the European Central Bank; and we will ensure that our fiscal rules and our deficit reduction plan continue to be consistent with the terms of the stability pact, thus underlining our commitment to avoid an excessive deficit under Article 104c of the Treaty and supporting greater coordination in ECOFIN.
"In Britain's interests we need to keep inflation low and public borrowing firmly under control.
"The single currency will affect Britain, in or out of it. It is in the British national interest for it to work. Vital decisions will be made during our EU presidency in the first half of next year. We will use our position constructively and supportively and we will play a full part in ensuring its launch is successful—something that is in Britain's interests as well as Europe's.
"To sum up, we believe that in principle British membership of a successful single currency would be beneficial to Britain and to Europe. The key factor is whether the economic benefits of joining for business and industry are clear and unambiguous. If they are, there is no constitutional bar to British membership of EMU. Applying the economic tests, it is not in this country's interest to join in the first wave of EMU starting on 1st January 1999 and, barring some 903 fundamental and unforeseen change in economic circumstances, making a decision this Parliament to join is not realistic; but in order to give ourselves a genuine choice in the future it is essential that the Government and business prepare intensively during this Parliament, so that Britain will be in a position to join a single currency, should we wish to, early in the next Parliament.
"On Europe, Madam Speaker, the time of indecision is over. The period for practical preparation has begun. Today we begin to build a new consensus—modern and outward looking—for a country that throughout its history has looked outward to the world.
"We are the first British Government to declare for the principle of monetary union; the first to state that there is no overriding constitutional bar to membership; the first to make clear and unambiguous economic benefit to the country the decisive test; and the first to offer their strong and constructive support to our European partners to create more employment and more prosperity.
"The policy I have outlined will bring stability to business, direction to our economy and long-term purpose to our country. It is the right policy for Britain in Europe. More important, it is the right policy for the future of Britain, and I commend it to the House".
My Lords, that concludes the Statement.

§ 4.27 p.m.

§ Lord Mackay of Ardbrecknish
My Lords, I begin by thanking the noble Lord, Lord McIntosh of Haringey, for repeating the Statement made by the Chancellor of the Exchequer in the other place. Certainly this Statement was needed to clear up the confusion over the Government's policy in relation to the single currency over the past few weeks. Contrary to an assurance given to me on Wednesday when I raised this issue, the noble Lord, Lord McIntosh, has not been asked to clarify the events of the past few weeks or to give any explanation of the confusion at the centre of government.
What is one to deduce from the article in the Financial Times of 26th September by Robert Peston? Does one conclude that it is without foundation? If so, who is the Minister quoted in that article? Indeed, in the article in The Times on 18th October it was quite clear that a Minister was quoted because another of the spin doctors had told him that the Minister quoted in Robert Peston's article was not in the decision-making loop. I believe that is a lovely phrase. If he was not in the decision-making loop they must know who he is. Can noble Lords be informed who was the Minister who made that statement to Robert Peston?
But if Robert Peston's article in the FT of 26th September was false, why did it take three weeks before the Government decided to try to clarify the position? Over those three weeks they watched an entirely false market in both equities and sterling being created in the City. They knew why that was happening and they did nothing to try to rectify it.
904 Further, the Statement gives no explanation as to why on the afternoon before Robert Peston's article appeared the value of sterling began to decline markedly. Equally mysteriously, on the 17th October, the day before the Chancellor gave the interview to The Times, the value of sterling began to rise from the start of trading to the end of it. Perhaps the spin doctors were at work. It is not just that we ought to be told; it is absolutely incumbent on the Government that they tell us what is going on.
I believe that it took the noble Lord about 19 minutes to repeat the Statement. It contained a good deal of lovely language. If that flowery language was stripped away it could perhaps be best summed up by the rather briefer words that I have used; namely, that the matter should be judged on whether or not it is good for Britain. That seems to me a far quicker explanation without all the flowery language. If that is, indeed, what the Government now believe—in other words, they agree with the previous government's policy—I welcome that. I am not entirely sure that I should not read the flowery language more carefully, and I shall come to some of it.
We were assured by the noble Lord, Lord Williams of Mostyn, who was brought in to help the Treasury team last week, that when it came to the referendum question on the single currency there would be a triple lock. I read carefully, and listened carefully, to the words of the noble Lord, Lord McIntosh of Haringey. I presume that the triple lock will be for this Parliament; the next Parliament; for any Parliament; it will not be just for this Parliament. I can assure the noble Lord that my party's pledge of a referendum, which was mocked by the Labour Party when we made it, and then, of course, like so much else in the past two years, adopted, is for whenever a Conservative government decide to go in. Is the lock just for this Parliament or will it feature in the party opposite's manifesto at the next election'? That is a question to which we should like to know the answer.
On the issue of the period of convergence and the convergence of the economic cycles, which is one of the important tests, I wonder how long the settled period is. One part of the document talks about developing sustainable convergence and that that will take a period of years. The single currency will not be up and running among those who join in 1999 until 2002. How many years after 2002? That is important. If the Government want to have stability, they should explain what they mean by that sustainable convergence.
My worry, although the phrase "a period of years" reduces it, is that as we are out of "sync", which I gather is the expression in the trade cycle, we shall find, in two, three or four years' time, as we go into a labour recession, that our statistics meet those of a European revival. Therefore, for a week or two, a month or two, or whatever, there will be convergence, but a different convergence. It is the convergence of two buses passing for a brief moment whose journeys are in opposite directions. I hope that the Government mean "a period of years". I want to hear the Minister underline the fact that it will not just be convergence coming about for a 905 few moments, so to speak, because one is going down and the other is going up, but that it will be genuine convergence.
I brought the message of flexible markets to you Lordships many times. Flexible markets in this country have not been helped by the Government signing up to the social chapter. It is not this country that has the problem with flexible markets; it is the problem of our friends in Europe.
The employment test is clearly a bigger problem for our friends in Europe than it is for us. If, when they receive it, noble Lords look at UK membership of the single currency—the assessment document produced by the Treasury—Chart 2.2 shows clearly what we all know. Thanks to the policies of the previous government, this country's unemployment rate has been declining while the unemployment rate of our principal competitors in Europe has been increasing. They have something to learn from what we have been doing. My concern is that in our determination to get alongside them we shall damage the very unemployment reduction that we have all welcomed. I notice that the Government are now welcoming it also.
As to the conclusions on EMU, I notice and welcome the fact that the Government have decided to take advantage of my right honourable friend John Major's opt-out. I find it ironic, given the derision encountered by my right honourable friend when he came back with the opt-out, that the Government are today saying to this House that they are going to use the very opt-out upon which they poured such contempt.
The Statement deals with the question of the rest of the Parliament, and says that simply leaving the options open would not be the right thing to do. I can see that. Then the Government say that, in this Parliament, we do not propose to enter a single currency. So far, so good, but later the Statement says that, barring some fundamental and unforeseen change in economic circumstances, making a decision this Parliament to join is not realistic". That caveat seems a little odd. I wonder what it adds up to.
I notice and welcome the fact that the Government are making preparations for the euro. So were we. Indeed my right honourable friend Mr Kenneth Clarke was constantly at meetings doing just that with our European friends. I welcome in particular the expansion in the Treasury of the remit of the noble Lord, Lord Simon. I wonder whether I shall have the pleasure of crossing swords with him across the House when he comes to answer for the Treasury, so relieving the poor overworked Deputy Chief Whip of answering for the Treasury and just about every other department sometimes, it seems to me.
I seriously hope—I am sure that the noble Lord, Lord Simon, is capable of answering for himself and crossing swords with me—that the noble Lord will answer for his Treasury responsibilities and, indeed, for the whole of the Treasury, in particular on the European question. I have to say that, thanks to the noble Lord, Lord Bruce 906 of Donington, we have two or three little tests in the next week or two which will give the noble Lord, Lord Simon, the opportunity to answer for the Government.
I notice, on the question of preparations, that there is nothing about the ERM. Noble Lords will recall that it is laid down in the treaty that a country has to be in the ERM for at least two years prior to entry into the single currency. Does that figure as part of the Government's plans for the future? When might they be doing that? Will that be in this Parliament? Or is it something else that they will leave? Will they leave it to the other side of a referendum?
The peroration for this—I am sure that the pro-Europeans would think it if they listened merely to the peroration—sounded like a clear decision to enter. Yet elsewhere the Statement says that it will be a period of years before a decision can be made. That seems to reflect a fair degree of conflict inside the Government. It is a conflict reflected in the press briefings I mentioned earlier. It sounded a bit like Saint Augustine's, make me chaste, Oh Lord, but not yet. I believe that fear of a referendum and fear of the reaction of the Murdoch press has had a great deal to do with the Statement we have heard today.

§ Lord Jenkins of Hillhead
My Lords, we naturally welcome the constructive, pro-European framework into which the Statement is set. That is a vast advance on the unrealistic scepticism, mingled with sour with which the previous government approached the subject. At the same time, there is a major tactical misjudgment as to how to approach this most vital, and, on the experience of successive governments, dangerous subject.
The Government would have kept better command of events and more fortified their position had they decided to go for an earlier decision. I accept that there are technical reasons associated with the different phases of the UK and Continental economies as to why entry in 1999 is difficult, although I believe that statesmanship is often most marked when it rises above technical reasons. However, even if entry is to be delayed, an earlier referendum—they are committed to a referendum—would have been desirable.
I am confident that with a firm lead from the Government, and the economic and political line-up which would have followed, a referendum at a fairly early date could have led to a successful conclusion in favour of entry into a single currency. I speak on the issue with a recollection as president of the Keep Britain in Europe campaign at the time of the 1975 referendum. Six months before that referendum we were in a far more adverse position. I am amazed to see, on the latest figures, that 37 per cent. still pronounce themselves positively in favour of going in. That is in the face of a complete dearth of any propaganda from the previous government or, to be honest, from almost anyone else. Therefore, I believe that 37 per cent., as a starting point, is a remarkably favourable base. As noble Lords will recollect, the 1975 referendum, starting from a more unfavourable point in the autumn of 1974, resulted in a two-to-one majority on quite a high turnout.
907 I believe that the period of "wait and see" is bound to be somewhat deleterious to our influence in Europe, although not necessarily permanently or disastrously so. Waiting to see if an action is successful before one decides whether to join is not traditionally the most noble or glorious course. Very few Victoria Crosses have been won that way. Nevertheless, I welcome, first, the new constructive tone; secondly, the fact that the constitutional and/or sovereignty arguments have been so decisively set aside; thirdly, the fact that action is to be taken to explain and advocate the reasons for going in; and fourthly, as I understand it, the fact that the detailed preparations will welcome, more or less, the use of the euro as a parallel currency in this country. I say in passing that I am extremely glad that the responsibilities of the noble Lord, Lord Simon, have been extended to include that aspect of the matter. From these Benches, we greatly welcome that and believe that the noble Lord has very much to contribute. Fifthly, I applaud the positive desire to get us into "sync", the current phrase, at the earliest possible moment.
The Statement is far from eradicating the chronic British national disease of always being late which has afflicted successive governments since 1950. But at least we now avoid complaining about what others are doing or indulging in complacent and mis-placed scepticism and an attachment to the shadow of sovereignty while allowing its substance to be gobbled up by the global economy which has played a major part in reducing the Conservative Party to the state in which it finds itself today. The European issue has been a great destroyer of governments and Prime Ministers. I hope that that lesson has at least been partially learned.

§ Lord McIntosh of Haringey
My Lords, for different reasons, I am grateful to both noble Lords for their response to this important Statement. The noble Lord, Lord Mackay of Ardbrecknish, used the first three minutes of the time available to him complaining that I took 20 minutes to discuss the issues but refusing to consider the issues at all. He was concerned only with the surface politics of the past three weeks. I am sorry to say that he does not appear to have read or listened to what was said from this Dispatch Box on that occasion. I do not wish to spend much time on the matter but surely it would be right for the Official Opposition to pay attention to what the Chancellor said rather than to major, as the noble Lord did, on the press speculation which surrounded those statements.
For our part, the position has been entirely clear and has not changed. In other words, we said at the very beginning that we saw formidable obstacles to joining in January 1999. We set the Treasury the task of examining the economic criteria—I stress that the economic criteria are far more important in the long run than the largely fiscal criteria laid down at Maastricht—saying that when that review had been completed we would come back to Parliament and state our position. That is exactly what we have done.
The noble Lord, Lord Mackay, finds agreement with us in that we both think that the criterion for membership or otherwise should be what is good for Britain. But that is an extremely minimal degree of 908 agreement, is it not? It is the absolute lowest common denominator of agreement. Of course, we all think that it should be good for Britain but what we think is good for Britain and why we think it is good for Britain is subject to a great deal of disagreement. On this side of the House we have set out our stand in this Statement. We have ruled out those options which are not tenable and have set our path for the future with all the clarity and responsibility which have been called for.
In more than 10 minutes, the noble Lord, Lord Mackay, did not make a single reference to his own party's policy reaction to the Statement: he was concerned largely with trivia rather than with the major thrust of the Statement or government policy. The noble Lord asked me whether the triple lock will continue; whether it is still the combination of the view of the Cabinet, Parliament and the people in a referendum. I believe that the Statement makes clear—and I can understand that in a long Statement, the noble Lord may have missed it—that that commitment to a triple lock continues as long as is necessary and if necessary into the next Parliament.
The noble Lord asked about the definition of a settled period of sustainable convergence. That is a very serious and important question, and he was right to raise the matter. We do not know in terms of numbers of months what is the definition of sustainable convergence. We cannot say in terms of a number of days what is a settled period. But the forward markets give us some idea of what it is likely to be. It is because we wish a settled period of sustainable convergence to be the primary criterion for us that we have been obliged to say that we do not see that we shall be entering or making the decision to enter within this Parliament.
As to the question which the noble Lord raised about the rules for the time between a decision to enter and the final adoption of a single currency, the rules for later entrants will be the same as the rules for original entrants.
The noble Lord chided us on first criticising and then using the Maastricht opt-out. I believe that he has a point there. It is true that the result that came back from the Maastricht Treaty negotiations has proved valuable. I think that that was recognised in both Houses of Parliament when those matters were debated.
The noble Lord asked about the meaning of the caveat of "wholly unexpected and unforeseen circumstances." I have made it clear that although we are determined to be proactive in making sure that our preparations are powerful and effective, no government—this Government or any other—can be certain under all circumstances that we can predict what the economic circumstances will be in the future. But if the noble Lord is claiming seriously that the Conservative government made real preparations for entry into the European Union, all I can say is that he certainly fooled me. Much more important, he certainly fooled the leaders of business in this country because there has been no significant element of conviction by the business community, as has been made clear by the CBI and many others, that the Conservative government at that time, even under Mr. Kenneth Clarke, expected 909 seriously that we should enter European monetary union and therefore expected British business to make realistic preparations. If that had been so we might have had something proposed by the last government along the lines of the standing committee which is now to be established and we might have had someone of the calibre of my noble friend Lord Simon of Highbury taking responsibility for such matters in the Treasury. However, we did not. In all of this there was no proper response to the issue of policy which I believe this country expects to be debated within the next few years. On future occasions, I hope that the noble Lord will feel it possible to join in the debate rather more seriously than he did today.
I turn now to the remarks made by the noble Lord, Lord Jenkins. Of course I am grateful to him for what he said. I know that he recognises how serious we are and how important is the change in policy which has been announced. The noble Lord confirmed the importance of the Statement in that this is the first government to declare for the principle of monetary union, to declare that there is no overriding constitutional bar and to declare that it must be "clear and unambiguous" economic benefit which determines the final choice which will be made by the people of this country.
I was slightly surprised by the noble Lord's suggestion that it would be desirable to go for an early referendum, even if we were not proposing to act upon it until a later date. The noble Lord described our position as being a tactical misjudgment. However, if a referendum is to be a genuine consultation of the British people, I suggest to the noble Lord that it must be taken at a time when both the Cabinet and Parliament have satisfied themselves that these serious economic tests have been achieved, so that it is possible to put the position to the British people with a sufficient degree of confidence.
The noble Lord described the change from the position of "wait and see" of the previous government. I agree with him. I rather like the suggestion in today's press reports that we have moved from a position of "wait and see" to one of "prepare and join". It is for the judgment of the British people to determine whether or not that is the case. I very much hope that it will be.

§ 4.52 p.m.

§ Lord Boardman
My Lords, when repeating the Statement, the noble Lord referred to the importance of stability and coherence. He will no doubt agree that, to achieve those two objectives, control over internal interest rates will be needed. Therefore, having divested themselves of control over interest rates, does the noble Lord believe that the Government will reverse their policy in that respect? Alternatively, are they prepared to leave the settlement of such matters to those whom they do not control?

§ Lord McIntosh of Haringey
My Lords, we have not divested ourselves of control over interest rates. We have said that the short-term decisions on interest rates shall be the responsibility of the Bank of England, which 910 will in turn act in accordance with criteria having particular reference to inflation which will be set by government. That is not abandoning responsibility in any sense of the word.

Lord Bruce of Donington
My Lords, many of us will be most grateful to the Government for having made such a clear Statement this afternoon. One thing is absolutely clear; namely, that we have at least four years during which informed debate can take place, not only in this House and in another place but also throughout the country. Can my noble friend say whether the Government will use their best endeavours, not least by example, to prevent the arguments that will be forthcoming from becoming sloganised instead of being examined critically on the basis of the facts as they become available?
Further, can my noble friend say whether the Government are prepared to accept responsibility for making as many facts as possible, not slogans, available to the whole country—and, indeed, to this House and another place—so that we shall be able to arrive at rational decisions while respecting the views of others, but nonetheless be able to speak on the basis of our own convictions based upon the facts which are produced to us for our consideration?
In that connection, can my noble friend say, finally, whether the Government will do as their predecessors did in 1984 and make available to this House and another place a cost-benefit analysis of our developing relations, not only with Europe but also with the rest of the world? Speaking personally for a moment, I should say that the Government have my utmost goodwill. I hope that we shall not have sonorous platitudes from them that pass for statesmanship, but that we shall have statements of real intention and of real honesty.

§ Lord McIntosh of Haringey
My Lords, I am deeply grateful to my noble friend for his constructive contribution to the debate. Indeed, I would be the last person to say that there should be any inhibition in this House or anywhere else on informed debate. My noble friend was right to draw the attention of the House to the need to avoid sloganising. My noble friend asked whether we would publish a cost-benefit analysis of the issues that face us in preparing for membership of the European monetary union. The Treasury document referred to in the Statement, which my noble friend will not yet have had a chance to read, is very much a precursor to the kind of cost benefit analysis that he requests. It would not be a good idea for us to be publishing such cost-benefit analyses at regular, predetermined intervals. However, as information becomes available which is relevant to the debate, we shall of course make it available to the public and to Parliament.
While talking about informed debate, I must emphasise the fact that we are not simply embarking upon a period of four years, or whatever, of debate; we are embarking upon a period of preparation. Unless we use the time available to us for preparation for entry into EMU, the question which we put to Parliament and to the people in a referendum will be meaningless. There 911 is no point in putting forward a question to which the answer is, "Yes, we would like to do it, but we are not ready". It must be a period of active preparation rather than a period of theoretical debate, however well informed.

§ Lord Howell of Guildford
My Lords, the noble Lord said earlier that it was in Britain's national interest not only that we should enter successfully when we do—indeed, that is obvious—but also that it is in our national interest that the single currency system as a whole should work in the longer term. Can the noble Lord tell us what we are to do to contribute to that task, whether from a position of "out" or "pre-in" or "in" the system, given the fact that the whole system will remain extremely fragile for many years; that there is not much convergence throughout the whole of Europe let alone between Britain and the continental economies; that there is very little labour mobility; and that we remain extremely vulnerable to the major kind of shocks that nearly destroyed the old ERM and which could destroy us again, as threatened by Asia?

§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble Lord for his question. The Statement refers to our responsibilities in the first six months of the presidency next year and then subsequently for ensuring that EMU does work, even during the period when we are not members. Although we take part in the work of the European Monetary Institute at present, that will cease when its responsibilities are transferred to the European Central Bank. However, ECOFIN will carry on and we will still be a part of it. Discussions and decisions on the single market will continue and we shall remain part of that process. It will still be the case that trade barriers within Europe will have to be dismantled and we shall play a part in the decision making as regards that dismantling. In all of those areas we shall still play an active part, as we shall in the Council of Ministers, on decisions on trade between the member states of the European Union and the operation of the single currency. It is difficult to be more precise at the moment about the way it will work until we see how the UK presidency proceeds. However, I can give the noble Lord an assurance that we shall seek to be closely involved in these decisions and to make sure that nothing happens that will rule out our subsequent entry when the time is right.

§ Lord Taverne
My Lords, is there not a basic contradiction and inconsistency in the Government's position because despite the encouraging words, fundamentally there has been no commitment? Can the Government really expect industry to spend tens of millions of pounds—and in some cases hundreds of millions of pounds—on preparation for an event which according to the Government may never take place?

§ Lord McIntosh of Haringey
My Lords, I do not know what a commitment is if it is not the commitment that has been declared this afternoon. We have declared for the principle of monetary union. We have declared that there is no constitutional bar and that the unambiguous economic benefit to this country is the 912 overriding criterion. But we have also said—as we have always said—that this is a decision of such importance that it has to be a decision for the British people. If we were to abandon the triple lock and if we were to abandon the principle of a Cabinet recommendation to Parliament, and then a recommendation through a referendum before legislation is introduced, we would abandon the pledge we have already made. We cannot go further than we have done in ensuring that this is a democratic decision while at the same time ensuring that it is realistic in economic terms.

§ Lord Desai
My Lords, I wish to ask my noble friend about the criteria for convergence as our inflation rates have converged and our unemployment rate is better than that of Europe. Are we now to consider only interest rates; that is, is it when interest rates converge that we shall think we are in sync? Are they short-term interest rates or long-term interest rates? Do we wait for a complete cyclical agreement to rejoin after a full cycle has been gone through, in sync, or do we do so before that happens?

§ Lord McIntosh of Haringey
My Lords, cyclical convergence as we have described it is wider than inflation rates or indeed inflation rates plus interest rates. I do not think our inflation rates have converged. It is certainly not true to say that our short-term interest rates have converged with those of most other European countries. My noble friend is of course quite right that one of the major benefits of a single currency will be the reduction of longer-term interest rates. We saw some benefit in that direction immediately after a government took over who were prepared from the beginning to re-examine the question of European monetary union. As to my noble friend's specific question about how convergent economic cycles have to be, the answer is that they can never be completely convergent. The judgment we are making now is that the lack of convergence between our economy and that of other European countries is so great that the economic benefit, which is our fundamental criterion for membership, simply does not exist at the moment. In answer to my noble friend's final question, it would not have to be seen through a whole cycle in order to be proved. Indeed the whole thrust of the Government's economic policy is to avoid the kind of cyclical boom and bust which has been the characteristic of our economy for so many years.

§ Lord Campbell of Alloway
My Lords, can the noble Lord confirm quite categorically that the commitment of this Government is that the debate will ensue on the basis of full factual information, as proposed by the noble Lord, Lord Bruce of Donington, as to when and if it is right to go in, and that we will not go in unless it is considered, on objective analysis, that it is—as put quite simply by my noble friend—in the interests of Britain?

§ Lord McIntosh of Haringey
My Lords, unless there is some trap which I do not expect from the noble Lord, Lord Campbell of Alloway, I think I can agree with him. However, I shall have to read his words carefully. I do 913 not know whether the noble Lord has ever appeared on those television programmes where one is asked the same question 10 times in the hope that on one occasion one will be out of sync, and that answer will be taken up as it is in conflict with the others. However, in principle, the noble Lord is right.

§ Lord Campbell of Alloway
My Lords, there is no trap and I do not appear on television programmes.

§ Viscount Waverley
My Lords, the Statement referred many times to greater EU trade. Will the Government concern themselves with the effect of embracing a national minimum wage and social chapter that would render our capacity to compete more difficult? What was the Treasury advice on the effect on this country's non-EU trade of which we have a far greater percentage than our partners?

§ Lord McIntosh of Haringey
My Lords, I reject that premise. I do not agree with the noble Viscount that a minimum wage would affect our competitiveness and make it harder for us to compete, particularly in Europe. But having said that, he will recognise that many European countries have minimum wages. It is still a matter for determination and we have a commission under Professor George Bain which is considering at what level a minimum wage is set.

§ Viscount Waverley
My Lords, I asked a question about non-EU trade of which we have a far greater percentage than our partners.

§ Lord McIntosh of Haringey
My Lords, the share of our international trade with other European markets continues to increase and my rejection of the noble Viscount's original premise applies to non-European trade too.

§ Lord Hooson
My Lords, the Chancellor has emphasised the risks of going in in 1999, and has ruled out entry then, and of course there are risks for every country going into the euro. However, what the Chancellor has not spelt out, it seems to me, are the risks of this country not going in. I refer to possible speculation against the pound. If the pound becomes overvalued, and if we have high interest rates, the economic risks for this country are great. Will the Government try to instigate a broader debate on not only the risks of going in but also the risks of staying out when there is a successful launch of the euro?

§ Lord McIntosh of Haringey
My Lords, I am bound to say I thought that a large part of the Statement was taken up with an assessment of the risks both of going in and of staying out. I thought that we had recognised that in a balanced way. The assessment which the Treasury has made of the economic tests, which are our criteria for the decision to join, has led to the conclusion that going in is a risk not worth taking. However, that is alleged against an assessment of the risks of staying out. If I may indulge in some advertising, I refer the 914 noble Lord, Lord Hooson, to the document of my noble friend Lord Currie on the pros and cons of EMU, a summary of which was published by the Treasury in July. I believe that document sets out the situation fairly and that it is still applicable.

§ Lord Stoddart of Swindon
My Lords, is my noble friend aware that I think the whole project of EMU and a single currency is so risky that I would not touch it with a barge pole? Is he further aware that my noble friend Lord Desai asked him a number of questions about convergence which I believe he did not answer? Just whom will we be convergent with? Are we to be convergent with the Stalinist French, or with the Germans, or with the Italians, or with the Spanish with their unemployment rate of 22 per cent? If we are to be convergent, how long does my noble friend think convergence will take, and what will happen to the British economy while we are converging with those states?
Will my noble friend give absolute priority to employment and a continued reduction in unemployment, until there is full employment in this country? That was what I thought the Labour Party was about—and I hope is still about.
Finally—the question was asked of him by the noble Lord, Lord Taverne—has any estimate been made of the total cost to industry, commerce, Government and individuals of preparations for something which may not happen? I sincerely hope that it will not happen.

§ Lord McIntosh of Haringey
My Lords, my noble friend has the supreme virtue of consistency. I have never been in any doubt as to what he felt about these issues; and I am not put in any doubt by what he says now. I hope that my noble friend Lord Desai will agree that I answered his questions about convergence criteria. I did not answer a question—I had not been asked it—about with whom we are convergent. My noble friend Lord Stoddart seems to think that there is something wrong with having convergent economic criteria with those who have different economic policies. One of the points that my noble friend will have to learn is that a single currency does not mean a single economic policy common to all countries. There will still be considerable scope for variation in economic policies, significantly for the protection of high and full employment, as he asks.

§ Lord Pearson of Rannoch
My Lords, may I ask the noble Lord to appreciate that his Statement came as something of a disappointment to many loyal Euro-realists on this side of the House? We had begun to hope that the Labour Government were going to be so foolish as to join this crazy scheme. In order to support that position, can I ask the Minister whether he is aware how difficult it is now to find foreign exchange dealers in the City who will tell the truth as to how ill fated they regard the whole EMU project to be because they have already taken out enormous forward positions which will prove very profitable when it fails to fly, as they are sure it will?
915 Perhaps I may raise two final points of detail on his Statement to the Minister. First, he agreed with the value of our opt-out. Before he is convinced of that, can I ask the Minister to examine the 10 articles which are left in the Treaty of Rome which are not excluded in the protocol giving us our opt-out and which may nullify it in the end? Finally, when he considers the cost of preparation for EMU, will the Minister be very honest with the public as to the costs of transition to this absurd currency in the future and put them against the much vaunted savings in transaction costs?

§ Lord McIntosh of Haringey
My Lords, let me deal with the noble Lord's last question first. Yes, of course we shall be very honest with the British public about all aspects of the costs of entry into the European monetary union, although I do not think that in the wording of the referendum we shall talk about "this absurd currency".
At the same time, I sympathise with the disappointment of those whom the noble Lord calls the Euro-realists in the Conservative Party. I had rather thought that those he calls Euro-realists—some of us call them Europhobes—had taken over the Conservative Party. I rather look forward to the next election when we shall see how far the noble Lord's views dominate the manifesto of the Conservative Party.