HL Deb 05 May 1998 vol 589 cc507-21

4.44 p.m.

Lord Richard

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Prime Minister about the meeting of the European Union Heads of State and Government on economic and monetary union which he chaired in Brussels on 2nd May. My right honourable friends the Chancellor of the Exchequer and the Foreign Secretary and my honourable friend the Economic Secretary were also present. The Statement is as follows:

"The aim of the meeting, and separate meetings of the Finance Ministers during the weekend, was to take decisions on which countries would participate in the single currency from 1st January 1999; on the nominations for the president, vice-president and members of the executive board of the European central bank; on the bilateral conversion rates that will apply between participating currencies from 1st January; and on fiscal discipline and economic reform. I have placed a copy of the resulting documents in the Library.

"The Heads of Government had before them a unanimous recommendation from the Finance Ministers on which countries should be in the first wave of economic and monetary union, and a supporting opinion from the European Parliament, which had met that morning to consider the Finance Ministers' recommendations. Heads of Government agreed unanimously that the following 11 countries should join the single currency from next January: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

"We also agreed without difficulty on the following nominations for the executive board of the ECB: as vice-president, to serve for four years, M. Noyer; and the following four ordinary board members: Herr Issing, to serve for eight years; Signor Padio-Schioppa, to serve for seven years; Señor Domingo, to serve for six years; and Mrs. Hamalainen, to serve for five years.

"Heads of Government also agreed on Saturday night a statement that, in future appointments to the executive board, appropriate weight and consideration will be given, according to a balanced system of rotation, to recommendations for nationals of member states not on the initial slate.

"The declaration on fiscal discipline and economic reform, which was adopted by Finance Ministers on Friday evening, is a significant document, building on a UK presidency initiative at the York informal ECOFIN in March. It emphasises the importance of fiscal consolidation in high debt countries and economic reform—both essential to help create jobs and to ensure that EMU is successful.

"All these issues were decided with relative ease. However, as is well known, there were very difficult negotiations over the presidency of the European central bank and it is important to set them out in detail. There was ready agreement on the following. First, that Wim Duisenberg, the current president of the European Monetary Institute, and a highly respected former Dutch finance minister and governor of the Dutch Central Bank, was the best choice as the first president of the ECB. As president of the European Monetary Institute he has already been in charge of the practical preparations of the euro. As president of the ECB he will be well placed to continue this role. Secondly, that we expected his successor to be French. President Chirac made clear his nomination would be Jean-Claude Trichet, again an experienced and respected governor of the Banque de France. Thirdly, that both nominations should be for the full eight-year term. Where there was disagreement was not on the substance of any of this but on the length and form of Mr. Duisenberg's tenure as president.

"Because of the controversy, not least in the European Parliament, it is important to he clear what the precise issue at stake was. Much of the subsequent press reporting has rested on this simple factual inaccuracy: that Mr. Duisenberg intended and wished to serve for a full eight years, as opposed to being nominated for that time, which is the time stipulated under the treaty.

"In fact this was not, and has never been, the case. Eighteen months ago, before any French candidate had been suggested, Mr. Duisenberg very properly made it clear that he would not want to serve a full eight years, in view of his age. Indeed, he did so publicly. At that time he was saying he would not guarantee staying more than two years. Later he talked of between three and five years, but he did insist on being nominated for eight.

"The issues for us were therefore these. If he wouldn't serve the full term was it nonetheless right to appoint him? What was the minimum term we should ask of him? Should there also be a maximum term, given the circumstances?

"The answer to the first question was yes, in our view, because as president of EMI and a highly respected central banker, Wim Duisenberg was plainly the right person to launch the euro. The answer to the second question was again clear for us: he should at least stay until the euro was launched and all transitional arrangements, particularly the introduction of the notes and coins, were in place. This accorded with Mr. Duisenberg's own wishes that he oversee this process and step down shortly after. It was over the answer to the third question that there was disagreement. Some preferred a fixed date for Mr. Duisenberg to retire, while others argued that this would not be consistent with the treaty. The protracted discussions were essentially over how to resolve this. Mr. Duisenberg's view, backed by ourselves as presidency, was that, though his intention was clear, there could be no question of there being any formal, obligatory end to his term.

"In the end Mr. Duisenberg's view prevailed. At my suggestion, he stated his position personally, in his own words, to the Council. He explained that, because he would be 67 in 2002, he did not wish to serve the full term, but that it was his intention to see through the transitional arrangements for the introduction of euro notes and coins, including the withdrawal of national notes and coins. He made clear that the decision was his and his alone. At the end of the negotiation, the Heads of State and Government accepted this.

"I have no doubt at all that, though the process was very difficult, the decision was right. What is more, since Mr. Duisenberg is under no obligation whatever to retire early, it is entirely consistent with the treaty. Moreover, if the nomination of Jean-Claude Trichet is eventually confirmed, as I expect, this will mean that two highly respected and experienced central bankers known for their independent views will be in charge of the European central bank for a total of 12 years. This is an outcome which ensures long-term stability.

"We were told financial markets would react badly and the pound would go through the roof. In fact, the deutschmark has risen against both the pound and the dollar since Friday. Stock markets in France and Germany are higher than at the close of business last week. British 10-year gilts have not moved since Friday. The markets across Europe and the rest of the world are calm. What they know, as we know, is that the fundamentals are right, a good board is in place and the euro will be strong, not weak. Many people had said the euro could not be launched on time or with a wide membership and that the argument about the presidency could not be resolved satisfactorily. In the end, all these issues were resolved satisfactorily and the single currency will become a reality on 1st January 1999.

"The United Kingdom's own position on joining EMU was made clear by my right honourable friend the Chancellor of the Exchequer to Parliament on 27th October. It has not changed. But, in or out, it is in Britain's interests that the single currency is successful and strong. The decisions this weekend, despite the frustrating nature of the process, were in the end the right ones—right for Europe and right for Britain.

"The House will nevertheless agree with me that the biggest challenge to Europe lies ahead. To ensure that the single currency is successful, member states must continue to implement reforms of product, capital and labour markets and to promote employability and job creating entrepreneurship. That is the way to a genuinely prosperous future for Europe. It is what we will be pursuing at the European Council in Cardiff.

My Lords, that concludes the Statement of my right honourable friend.

4.53 p.m.

Viscount Cranborne

My Lords, the House will be grateful to the noble Lord the Leader of the House for repeating the Statement made by his right honourable friend in another place with his usual verve and conviction, although I believe that it must have strained even his powers of stage management to imbue that quality of conviction into his delivery of the Statement. But I agree with him on one point. This is a matter of some importance to this House, to the future economic management of this country and to the future economic prosperity of western Europe which matters so much to all of us.

Perhaps the noble Lord will recognise the following quotation: The criteria for monetary union should not be fiddled, fudged or botched in any way. If they are, the answer is not to delay—the answer is not to proceed". I am sure that the noble Lord will recognise the typical orotundity of the Prime Minister, in this case the ringing endorsement that he delivered on 4th June last year. Does the Leader of the House believe that the deal that he has announced to the House this afternoon conforms with the provisions of the Treaty of Maastricht and is not a fudge of the criteria set out in that document?

I give two examples where I believe it may be helpful for the noble Lord to explain to the House why he believes that it conforms to the provisions of the treaty. First, how does such an assertion square with the overall indebtedness of Belgium and Italy? Earlier this afternoon we covered this particular matter at Question Time. I believe that in this case conformism is the essence of virtue. I have heard it said that the Labour Party is occasionally more Methodism than Marx but, surely, this takes non-conformism too far.

The second example is the appointment of Mr. Duisenberg. The Statement indulged in casuistry of an extraordinary kind of which the Order of Jesus would itself be proud. Does the noble Lord agree with the member of the Bundesbank Council who is quoted as saying that the deal under which Mr. Duisenberg is to stay for only four years is a clear breach of the Treaty of Maastricht? Further, does he agree with Pauline Green, Leader of the Labour Group in the European Parliament, that the deal was accompanied by "unacceptable shenanigans"? The Treaty of Maastricht stipulates that the president of the bank should serve for eight years, yet the Prime Minister was still reported as saying—he said it in the Statement repeated this afternoon by the Lord Privy Seal—that he was "maintaining entirely the sanctity of the treaty". I find it difficult to understand—perhaps that is more my fault than that of the noble Lord—how that contention can be sustained when it is clear that Mr. Duisenberg has absolutely no intention of staying for more than four years in the first place. How does that conform with the treaty, in spite of the rather elaborate explanations that the House has been privileged to hear this afternoon?

I believe that this is yet another example of Bellman politics. If the Government say it three times it must be true. Is it not much more convincing to take the evidence of one's own eyes and ears and conclude that the euro has been floated on a liquid sea of fudge? How is it possible, in the light of this latest addition to that liquid sea, to suggest that we are witnessing the launch of a solid, stable currency? After all, many believe that the Maastricht criteria are in themselves insufficient to ensure long-term convergence, particularly in view of the one-off measures that a number of aspirant members of EMU have had to adopt to get as far as they have.

Further, has the Lord Privy Seal noted the remarkable comments on the Prime Minister's chairmanship of the summit, particularly those made by the Prime Minister of Luxembourg and the Austrian Chancellor, who I believe was quoted as saying that he had never seen anything like it in his experience? I assume that that was a compliment. Can the Lord Privy Seal confirm that? Can he also tell the House whether, in view of the nature of the public comments of the Prime Minister's friends in Europe, he has received any private comments about his chairmanship in addition to those which the press picked up and whether they have been any more helpful?

I hope, too, that in view of the fudge, the noble Lord will share my gratitude to my right honourable friend the former Prime Minister, Mr. Major. He was skilful enough to negotiate an opt-out from EMU so that we could have the privilege of not having to take part in the fudge and at the least to see how events develop before the British people at a later date decide whether to join.

In that context, can the noble Lord explain to the House whether he regards EMU as purely an economic project or whether he agrees with Herr Waigel who said that he regarded EMU as a stimulus for European political union? If he disagrees, can he explain to the House how such a fundamental disagreement about the objectives of the policy can be resolved and European unity of purpose still be maintained?

On a more technical matter, can the Lord Privy Seal guarantee to the House that so long as we remain out of EMU we will keep our ability to set our own rules on clearing bank cash reserve ratios? I am sure that the noble Lord will have noticed that the Select Committee of another place addressed that matter and that some people who gave evidence believed it to be a technical matter which could have considerable effect on the ability of this country, in particular the City of London, to sustain its present competitive position.

Lord Richard

My Lords, I wish to make sure that I heard and understood the question. It was about the freedom of clearing banks—

Viscount Cranborne

My Lords, it was about cash reserve ratios. I am sure that the Minister is aware that all clearing banks in this country must keep a proportion of their cash reserves with the Bank of England and that those reserves are a smaller proportion than is common with continental banks. A smaller proportion of the total number of banks in this country have to keep those reserves than is the case on the Continent, which gives considerable competitive advantage to the British banking system.

In the light of that, will the noble Lord accept that what we saw in Brussels last weekend was not only a blow to the Prime Minister's reputation and therefore to the reputation of this country, but confirmation that as regards the euro sound money has been sacrificed to short-term political expediency for a purely political project? Will the noble Lord explain how that will help his aspirations, which we all share, for a strong currency, aspirations which the markets clearly discounted in view of their reaction in the past 24 hours?

5.3 p.m.

Lord Rodgers of Quarry Bank

My Lords, I join the noble Viscount in thanking the Lord Privy Seal for repeating in this House a Statement made in the other place by the Prime Minister. I share his view, although I would not use his words, that the appointment of the first president of the European central bank was uncomfortable, undignified and clumsy. Indeed, it was a somewhat messy deal and it is not unreasonable to examine why that happened.

If it was badly handled and if it can be ridiculed there is a point at which to stop. By next weekend it will be a minor part of the development of the European Union. I regret that the noble Viscount, Lord Cranborne, commented too much about matters which are insignificant compared with the large issues relating to the development of the Community. I also believe that we should not be too holier than thou in our approach. We are all aware of the need to "politically fix" from time to time—it is not as though it never happens here—and we know that the circumstances of the European Union often need compromises of a kind which we might not otherwise like.

However, I say with regret that the view murmured by my noble friend Lord Harris of Greenwich that the remarks of the noble Viscount were trivial seem to be near the mark. The fact is that the bank is launched; the fact is that it was launched on time; the fact is that it has a highly experienced board; and the fact is that the markets have been little disturbed by the course of events, which greatly disappointed some people.

Of course there is confusion about the wishes of Mr. Duisenberg and his intentions. I am surprised that the noble Viscount did not draw attention to his remarks to a Select Committee of Your Lordships' House in February when it appeared that it was a matter of eight years or none at all. There have been apparent inconsistencies in his views, but I do not believe that your Lordships should lose too much sleep over that. Events will soon lose their salience and whatever may have happened at the weekend it is far better that your Lordships' House contents itself with wishing the bank well under its first president and executive board. The aim of the meeting, as set out in the Prime Minister's Statement, was to make four decisions. Those decisions were all made. It was a historic occasion, whether we like it or not, and the caravan moves on.

My main concern is different from that expressed by the noble Viscount. It is with the United Kingdom's position and the Chancellor's Statement on 27th October. From the foundation of the Coal and Steel Community, through the conference at Messina, through the signing of the Treaty of Rome and at every major development in European union, United Kingdom Governments have said, "It will not happen". When it did happen, they said, "It will not work"—but it did. My anxiety is that once again we have missed the opportunity. We have been far too cautious. We have had many opportunities to lead in Europe, but we have turned them all down. The EMU will work and I greatly regret that Britain is not taking a lead but again is on the sidelines watching sceptically, perhaps on this occasion hoping for success but not prepared to take the necessary step and to show the necessary courage to play its full part.

I am prepared to concede that this Government are marginally better and more positive than most over the past half century. However, it must be said—it is a wider comment on Britain's position in the world—that this Prime Minister and his Ministers are happier in Washington than in Paris, Bonn or Brussels because they find it easier to do business there. The time must come when Prime Ministers and their governments believe that paying attention to and bothering with the detail of their partners in Europe is at least as important, even though it is harder work, than lunching with President Clinton and his successors in the White House.

I have a single question for the Lord Privy Seal. It is simple to ask but perhaps more difficult to answer. It is at the heart of Britain's position. While remaining on the outside, how do the Government propose to help the European Union to make the most of the decisions reached this weekend? How will they help to make EMU a success?

5.10 p.m.

Lord Richard

My Lords, I listened with great interest, as I always do, to the noble Viscount's response to what I have to say. He thanked me for repeating the Statement made by the Prime Minister in another place. I reciprocate by thanking him for repeating the comments made by Mr. Hague in another place with regard to my right honourable friend's Statement.

As the Prime Minister referred to them and categorised them in the House of Commons, they were somewhat facile debating points. I shall try to answer some of them. The noble Viscount referred to a technical matter. He asked whether we should be able to retain our freedom on clearing bank cash reserve ratios. I am informed that no decision has yet been taken by the European central bank on the level of reserve ratios applying in participating member states. But it is quite clear that such requirements will not apply to banks located in the United Kingdom unless and until we join the single currency. I hope that that clarifies the position for the noble Viscount.

He asked me a number of questions about Mr. Duisenberg. Perhaps I may read an extract from an interview with Mr. Duisenberg in November 1996, long before Mr. Trichet ever appeared on the scene. Mr. Duisenberg said: I will still be just under 63 at that time", that is, when he will first become president of the European central bank, and I will be appointed for a period of eight years". So he has. He went on to say that, but I will not give anybody the guarantee that I will stay on for that full period. I do promise, however, that I will not stop after three months nor after two years, but my guarantee does not go beyond that. One has to be realistic and not forget about one's age". As my right honourable friend said in his Statement, which I repeated to the House, Mr. Duisenberg met the Council in Brussels when this was being considered so that the Council would have the benefit of his own words in regard to his position. He said: I want to thank you for the honour of nominating me for the function of the President of the European Central Bank on this historic occasion. I explained to the President of the European Council that I will, in view of my age, not wish to serve the full term. On the other hand, it is my intention to stay at least to see through the transitional arrangements for the introduction of the euro notes and coin and the withdrawal of the national notes and coin in accordance with the arrangements as agreed at Madrid. I wish to emphasise that this is my decision and my decision alone. It is entirely of my own free will and mine alone and not under pressure from anyone that I have decided not to serve the full term. Also, in the future the decision to resign will be my decision alone. This must be clearly understood". As the noble Viscount was criticising the Government on the position of Mr. Duisenberg, I asked myself whether the Opposition would have vetoed the appointment of Mr. Duisenberg because I cannot imagine anything that would have been more destructive to the creation of the euro which the noble Viscount is so insistent should be launched strongly. Would the party opposite have prevented the appointment of Mr. Duisenberg, the man who at present is the president of the EMI and is obviously the best person to do the job? Of course they would not have vetoed him nor should we have been prepared to do so, which is what I presume the Opposition are now urging that the Government should have done.

I ask a similar question in relation to Belgium and Italy. Would the Opposition have vetoed the membership of Belgium and Italy in the single currency? What is their position on that? That was approved by the EMI and recommended by the Commission. Both Belgium and Italy were recommended for inclusion in the first wave.

What is the Italian position? Italy passes four of the five criteria with no problem. They are: inflation, interest rates, exchange rates, the requirement for legal convergence. The only issue where there is any question mark is the sustainability of the fiscal position. In 1997, the deficit was 2.7 per cent. and forecast to fall further to 2 per cent. in 1999. In the latest draft outline budget, debt is forecast to fall by at least 3 per cent. per year. Italy is running a substantial primary surplus of 6.8 per cent. of GDP in 1997. That draft outline budget has broad political support inside Italy with approval of the budget committees of both houses of the Italian Parliament last Thursday.

In addition, it is also extremely important—and the noble Viscount did not mention this—that the new declaration by ECOFIN on Friday re-emphasises the importance of fiscal discipline within EMU and it brought forward implementation of certain aspects of the stability and growth pacts to ensure its effectiveness in the important early years of EMU. Taking those factors into account, the Government endorsed the recommendation that Italy should join the single currency on 1st January 1999.

The noble Viscount referred to this as being a weak currency and a bad launch. The markets do not seem to think so. On Friday and Saturday Conservative spokesmen were going round the country saying that the pound was going to go through the roof. It has not. On the contrary, the markets seem to have recognised the fact that the euro is launched, is launched properly and with a suitable person at its head. Therefore, the noble Viscount will forgive me if I do not take particularly seriously a great deal of the criticism which he has thrown at us this afternoon.

I was very pleased with much of what the noble Lord, Lord Rodgers, said. He concluded by asking me a single question which he said is easy to ask and difficult to answer. It is difficult to answer. He wants to know how, while remaining outside, the Government will help the euro to function properly. On many occasions we have said that we wish the euro to succeed. On the occasions when we have an opportunity to put that into practice, as last weekend, that will be the principle that we shall adopt. In other words, we want it to succeed and we shall do whatever we can, as a Government, to make sure that it does.

5.16 p.m.

Lord Marsh

My Lords, will the noble Lord confirm that he really does believe that this is not a terribly serious issue? Is he really telling the House that this all arose and was public knowledge suddenly over the weekend? That is disputed in many quarters, the suggestion being that Duisenberg changed his mind after the original decision and that, in fact, there was 18 months' notice of that problem. Is he aware that Mr. Leon Brittan was saying on the radio yesterday that he thought it was a great pity that it turned out like this? He had 18 months to get used to it and convince people.

These arrangements, and specifically the term of office, were designed with one objective and one objective alone: to protect the central bank from political interference by national governments. As I understand the noble Lord's argument, it is that it was not really a question of pressure from national governments, it was just that this chap Duisenberg would not do it that way. May I ask the noble Lord whether he is really saying that this extraordinary arrangement, this crisis over the weekend, was not due in any way to totally, clearly improper political pressure by the French Government but instead was due simply to the insistence of Mr. Willem Duisenberg who, for the past 18 months, has said that all the national governments must surrender to his personal convenience? Will he tell us that?

Lord Richard

My Lords, the noble Lord expresses himself in his customary rather florid way. If he is asking me a serious question, I shall try to answer it seriously. But there is no question about Mr. Duisenberg wishing to serve the eight years, as I understand it. He would have been appointed for eight years, as indeed he was appointed for eight years. But there is no compulsion on him to retire during that eight year period.

There is one other quotation I would like to give the House. Mr. Wim Kok, the Prime Minister of the Netherlands, a man whom one would have expected to be the most bruised if improper political pressure had been applied, said: We must respect that Duisenberg has said that he will not serve the full eight-year term in view of his age". The Prime Minister is pleased that Duisenberg will stay on at least until 2002 when the introduction of the euro notes and coin has taken place. Duisenberg himself will decide the timing of his departure. That is in line with the independent position of the bank president. Mr. Wim Kok said that the Netherlands had won a double victory: We have the right man, in the right place and the European Treaty has been respected. If that is the view of the Prime Minister of the Netherlands—and Mr. Duisenberg is, after all, Dutch—it should at least encourage a degree of hesitation on the part of some Members of this House on the extent to which the euro was damaged.

Lord Boardman

My Lords, is the noble Lord the Lord Privy Seal—

Lord Barnett

My Lords—

Lord Richard

My Lords, I find it very difficult to referee. However, I think that it is the Government's side first, followed by the Cross-Benches, then perhaps the Opposition and then the noble Lord, Lord Boardman.

Noble Lords

Lord Boardman!

Noble Lords

The Opposition!

Lord Boardman

My Lords, is the noble Lord the Lord Privy Seal aware that on 27th February this year Sub-Committee A of the Select Committee took evidence from Mr. Duisenberg in Frankfurt and that that evidence, although recorded, has not yet been published? In that evidence, Mr. Duisenberg was asked specifically about the eight-year term of the proposed presidency. His answer was very clear and in complete contrast to the answer reported in the Statement repeated by the noble Lord the Lord Privy Seal. It is inconceivable that that Statement could have come wholeheartedly from the man who gave evidence to the Select Committee of this House earlier this year. It casts considerable doubt on the credibility of EMU.

Lord Richard

My Lords, with great respect to the noble Lord, what it casts doubt upon is the credibility of the statement of Mr. Duisenberg that I put to the House. I can actually give your Lordships chapter and verse for it. Indeed, it came from an interview to a Dutch magazine called Opzij—and I hope that I have not done too much harm to it by my pronunciation. The interview appeared in an issue dated November 1996 and the following is a direct quote from the article written by Mr. Duisenberg: I do promise, however, that I will not stop after three months nor after two years, but my guarantee does not go beyond that … I will not give anybody the guarantee that I will stay on for that full period". I can only go by the evidence in front of me, in just the same way as the noble Lord can only speak according to the evidence available to him. I should say that Mr. Duisenberg repeated that when he came into the Council during the course of deliberations on Saturday. Indeed, I have already told the House what he said on that occasion.

Lord Barnett

My Lords, I should tell my noble friend that I very much regret the events which took place over the weekend. Perhaps my noble friend can explain to me why some governments never seem to be willing to say that a compromise has been reached, especially in the case of Europe. As far as concerns the noble Viscount, I am not clear as to whether he was arguing in favour of qualified majority voting on a greater scale. I see that the noble Viscount indicates that he was not. Therefore, he would either have done a compromise deal or would have done no deal at all. I see that the noble Viscount is nodding his head in agreement. However, I believe that that would have been a disaster.

The real problem is not that what was done will destroy the economic independence of the European central bank; indeed, that is not at issue. What has always been a problem with this whole issue is the independence of the European central bank, balanced by some form of accountability. That is the real issue: whether there will be any accountability. As regards Duisenberg and Trichet, I do not wish to divulge the unpublished minutes of my committee. I have the honour to chair that committee and the noble Lord, Lord Boardman, is a very distinguished member of it. He disagrees with me fundamentally on most issues, but the plain fact is—and I am sure that the noble Lord will not disagree with me on this—that Duisenberg and Trichet are both very impressive central bankers. When you have central bankers of that kind then, whatever is done in appointing them, there will be independence in the European central bank. Indeed, we should make no mistake about that fact. The power given to those two by the treaty will be used to the fullest extent.

However, the truth is that an independent central European bank—and I put this to my noble friend—is the last thing that its critics want. They will not admit it, but that is so. They include the noble Viscount, his right honourable friend in the other place and, if he was speaking for them, his honourable and right honourable friends. I cannot say whether he was speaking for all of them; indeed, I doubt whether he can. Nevertheless, they really want the European central bank to fail. That is what it is all about. They will not admit it, any more than my noble friend will admit that a compromise deal was done over the weekend, as often happens in the European Union. Why do we not admit it? Why do we not say so? It is better than doing nothing and it happened. If they wanted a qualified majority voting system they could have had it, but they do not. They have objected to some of the QMV that has gone on so far. Therefore, perhaps my noble friend can tell us whether or not it is a fact that the Opposition and the critics want the ECB to fail.

Lord Richard

My Lords, I have no doubt about that at all. I am intrigued by the sudden zeal for the purity of the treaties which is now coming from the very people who protested most, strongest, longest and loudest about their imposition. My noble friend is quite right.

Lord Blaker

My Lords, the noble Lord deserves the congratulations of the whole House on the remarkable feat of having repeated the Statement and given his answers with a straight face. Is not the most regrettable aspect of the proceedings in Brussels the fact that one important nation pursued its own national interest as it thought—and it may have been wrong—to the detriment of the interests of the Community as a whole? Does that encourage the Government if they still intend to join the single currency in due course?

Lord Richard

My Lords, I do not share that view and my face is perfectly straight. The reason that my face is straight is that, when the Government arrived in Brussels on Friday and Saturday, they were faced with a real difficulty; namely, that Mr. Duisenberg was letting it be known—and indeed, had let it be known—that he was not going to serve for the full eight years. I trust that noble Lords will accept that for the sake of argument. They may not agree with it, but I ask them to accept it at this stage.

If that was the position—and, so far as I can tell, it clearly was the position in the minds of almost everyone who was present in Brussels—clearly some way out of it had to be found. Indeed, two or three ways could have been found; for example, the treaty could have been torn up and people could have said, "Right, Duisenberg will have four years and Trichet will take over from him at the end of that time". However, that would have been in contravention of the treaty and my right honourable friend the Prime Minister was well aware of that fact. Therefore, he negotiated to try to preserve the obligation in the treaty that the appointment had to be for eight years. How could one do that? The only way in which it could be done was to create a situation whereby Duisenberg would be appointed for eight years, while recognising that at some stage during that period he will go. The precise timing of his departure is very much a matter for Mr. Duisenberg.

My right honourable friend the Prime Minister was asked at a press conference immediately after the Council meeting: "What if he changes his mind?". That is an interesting thought. If Mr. Duisenberg were to change his mind, that is a matter for him as my right honourable friend said. If he were to change his mind, who knows when M. Trichet would become the governor of the European Central Bank?

However, the fact of the matter is that the terms of the treaty were preserved and Mr. Duisenberg's position was protected to his satisfaction. Every other country that was present seemed to be reasonably satisfied with the outcome. The Dutch have expressed their satisfaction with the end result. The result of the weekend is that the euro is launched with a membership of 11 countries. Some people, like the noble Lord, Lord Rodgers, think it is a great shame that we are not the 12th country. That is a view which I know is held strongly in some quarters. As I said, the euro is now launched. All the dismal Johnnies who said that it would not happen or that it would not work or that the markets would not react to it are wrong.

Lord Randall of St. Budeaux

My Lords, does my noble friend agree with me that this is a good news Statement in the sense that we now have 11 participating countries in the single currency and we have also chosen the president of the bank? I wish to explain why I believe this is the case and why some of the arguments that have been put forward are wrong. Is my noble friend aware that we have now chosen two people to be president of the bank? Is he also aware that the treaty makes this central bank the strongest central bank in the world? Is he also aware that M. Trichet and Mr. Duisenberg are honourable men who I believe will fulfil their functions properly? Does he agree with me that the combination of the treaty and the right people will result in a successful bank?

Lord Richard

My Lords, it is interesting to note that in this entire exchange no one has questioned the independence, integrity or competence of M. Trichet. No one has alleged that M. Trichet is a French stooge because he clearly is not. No one has alleged that he will not be a good, competent and independent central banker because he clearly is such a person. As regards the people who will run the central bank for approximately the next 12 years, both of them are highly experienced, independent central bankers. That is thoroughly to be welcomed.

Lord Tordoff

My Lords, can the noble Lord the Lord Privy Seal explain one passage in the Statement that I find a little troubling? I believe he said that it was agreed that the next president would be French. However, it was not said that the next president would be M. Trichet. That seems to me to be a mistake. If it is to be M. Trichet, that is all well and good—assuming that M. Trichet is around at that time—but it should not be assumed that any French candidate should follow Mr. Duisenberg.

Lord Richard

My Lords, I shall repeat what I said. My right honourable friend said, There was ready agreement on the following … we expected his successor to be French. President Chirac made clear that his nomination would be Jean-Claude Trichet, again an experienced and respected governor of the Banque de France". It was M. Trichet—not just a Frenchman—who was nominated.

Lord Pearson of Rannoch

My Lords, the Statement makes much of the fact that the financial markets remained steady in the wake of the events of last weekend. I put it to the noble Lord the Leader of the House that those markets react unsteadily only when they are surprised. They were certainly not in the least bit surprised by the laughable events of the weekend.

But what is much more important, I am sure most noble Lords will agree with the final paragraph of the Statement which starts with the following sentence: The House will nevertheless agree with me that the biggest challenge to Europe lies ahead". I ask the noble Lord the Leader of the House a question about EMU, which I have tried to put without success to some of his colleagues and which encapsulates what is perhaps the greatest challenge to be faced by EMU; namely, given the lack of labour mobility in Europe, what effect do the Government think the single interest rate required by EMU will have in Italy, for example, if the Italian economy is in decline but a majority of the other euro economies are doing well? Will the interest rate be fixed to suit the Italians, or will it be fixed to suit the others, and at what cost in terms of unemployment and interstate transfers?

Lord Richard

My Lords, the rate will, of course, be fixed by the central bank according to the criteria which it considers appropriate. It would be foolish indeed for any spokesman in your Lordships' House this afternoon to attempt to say what those criteria would be and how they would be applied in the hypothetical case that the noble Lord has indicated.

Lord Bruce of Donington

My Lords, I draw the noble Lord's attention to Protocol 18 to the Maastricht Treaty which sets out the statute of the European System of Central Banks and of the European Central Bank itself at Chapter III, Article 11.2. If the noble Lord reads that article, he will find that the protocol of this section states nothing about nomination at all. All it states is the following, Their term of office shall be eight years and shall not be renewable". I cannot recall any amendment being moved to that protocol. We had negotiations on the Treaty of Amsterdam where no point on this was raised. The correct point at which to raise an amendment to this article was at Amsterdam. It was not important then in spite of the prior knowledge which was apparently held that in 1996 the nominated president had some doubts about the matter. I find this a difficult issue. Why was no amendment moved to make the whole thing completely open and above board? Does the noble Lord expect us to stomach the story that this difference between the French and the Germans is somehow dreamt up by the press? It either exists or it does not. If there was a conflict, why was that? I am afraid that the explanations sound a little thin.

Lord Richard

My Lords, my noble friend will not be surprised to hear that Chapter III, Article 11.2 of Protocol 18 of the Maastricht Treaty is not exactly my bedside reading, nor indeed is it either on my lips or at my fingertips. I find it extremely difficult to believe that the whole of the Community, the Commission, EMU, and the Council of Ministers, together with their respective civil servants, are moving in one direction, but somehow or other they have all missed an obvious legal point which my noble friend has been adroit enough to appreciate. I shall consider Chapter III, Article 11.2 of Protocol 18 of the Maastricht Treaty. I do not know what opinion I shall arrive at, but I suspect that my opinion will probably be on the side of the Council, the Commission and the legal departments of the Commission and the Council and the lawyers in the Foreign Office. I may be wrong and I may experience a Damascene conversion to the legal expertise and perception of my noble friend, but we shall see.

In some ways this 40 minute discussion on the Statement has been rather sad. I believe that noble Lords have concentrated on the trivial and have missed the important point. The important point is that the euro is launched. The markets are treating it as a strong currency and we in this Government will do our best to make sure that it is a success.