HL Deb 05 May 1998 vol 589 cc476-8

2.51 p.m.

Lord Chesham

asked Her Majesty's Government:

As President of the European Union, what factors led them to agree that Italy met the convergence criteria for the single currency.

Lord McIntosh of Haringey

My Lords, Italy passes the economic criteria for inflation, interest rates and exchange rates as well as the requirements for legal convergence. The key issue for Italy is the sustainability of the fiscal position. The deficit was 2.7 per cent. in 1997 and is forecast to fall further. In the latest draft outline budget debt is forecast to fall by at least 3 per cent. a year. Italy ran a substantial primary surplus of 6.8 per cent. of GDP in 1997. The draft outline budget has broad political support with approval from the budget committees of both Houses of the Italian Parliament last Thursday. The stability and growth pact locks in fiscal discipline for the future in EMU. The new declaration by ECOFIN on Friday re-emphasised the importance of fiscal discipline in EMU and brought forward implementation of certain aspects of the stability and growth pact to ensure its effectiveness in the important early years of EMU. Taking these factors into account, the Government endorsed the recommendation that Italy should join the single currency on 1st January 1999.

Lord Chesham

My Lords, I thank the Minister for his reply. I understand that there was a requirement under the Maastricht criteria that debt should be no greater than 60 per cent. of the GDP of the country. Currently, Italy's debt is running at 122 per cent. of GDP. That figure has been brought down by a one-off tax this year to reduce borrowing. When will Italy meet the Maastricht criteria? When will that figure be sustainable at less than 60 per cent. of GDP? I should like to have a date.

Lord McIntosh of Haringey

My Lords, the important matter, as recognised by ECOFIN, the European Parliament and the meeting last weekend, is not compliance with the convergence criteria but the trend. All of the trends in Italy are in the right direction. It is not appropriate for me to give a date.

Lord Taverne

My Lords, was it not always sensible to view the convergence criteria in perspective and essentially as guidelines to the important question of whether or not member states could sustain a lower rate of inflation? As the debt criterion is the least important, rather than adopt an attitude of carping superiority towards Italy, as so many Opposition statements have done, would it not be more appropriate to congratulate the Government of Italy on their extremely successful and strenuous effort to impose financial discipline, which has resulted in their economy coming in well below the really important 3 per cent. deficit criterion?

Lord McIntosh of Haringey

My Lords, the noble Lord is absolutely right. It is worth recording that the Italian Finance Minister was congratulated by his fellow Finance Ministers at the meeting in Brussels last weekend on exactly those achievements.

Lord Grenfell

My Lords, does my noble friend agree that if Italy had been excluded on the ground that its debt to GDP ratio was too high and was falling too slowly, the almost inevitable result would have been an immediate rise in interest rates in Italy? If that is so, would it not have meant that a perfectly laudable debt reduction scheme would have been virtually ruined by the enormously increased cost of servicing the debt? Does my noble friend agree that that would be a case of Europe shooting one of its own in the foot?

Lord McIntosh of Haringey

My Lords, my noble friend rightly draws attention to the interaction and interdependence of the convergence criteria. He is right to say that if we pick on one at the expense of all the others we will be in danger of doing greater damage to the economy of Italy.

Lord Campbell of Alloway

My Lords, when the noble Lord refers to "financial discipline", does he mean simply the convergence criteria or something else? What happens when that financial discipline breaks down and shatters?

Lord McIntosh of Haringey

My Lords, I thought I made it clear in my initial answer that the Government were looking wider than the requirements for legal convergence. In particular, in the case of Italy we were looking for sustainability of the fiscal position. I have no intention whatever of answering hypothetical questions about what might happen if this broke down.

Lord Stoddart of Swindon

My Lords, can my noble friend confirm that the Italian Government were able to push through their special tax only by promising that they would repay the tax in due time? Can my noble friend tell the House the timescale of that? Secondly, as my noble friend has said that in his view the noble Lord, Lord Taverne, is absolutely right about the Treaty of Maastricht, does he agree that if the provisions of that treaty can be ignored as far as this matter is concerned therefore all other matters under the treaty can also be ignored?

Lord McIntosh of Haringey

Good try! My Lords, of course one does not take a single year when considering the deficit. The facts of the matter are that Italy's deficit has fallen from a peak of 11.1 per cent. in 1990 to 2.7 per cent. in 1997. It is forecast to fall further to 2.5 per cent. in 1998 and to 2 per cent. in 1999. Therefore, the so-called euro tax is simply one point in that process. No implications should be drawn from the sensible interpretation of the convergence criteria for any other aspects of the Treaty of Maastricht.

Lord Mackay of Ardbrecknish

My Lords, does the noble Lord agree that while it is one thing to take a sensible view of the convergence criteria surely it is quite a different matter to view 118 per cent. of GDP as anything vaguely in the same ball park as 60 per cent. of GDP, which is what the Maastricht convergence criteria say about debt as a percentage of GDP? Is it not a long way from 60 per cent? Further, is it not odd that when the Government were being so kind to the Government of Italy, Prime Minister Prodi said of the Prime Minister of Britain after the weekend that he thought he was singularly ill-prepared for the weekend's council?

Lord McIntosh of Haringey

My Lords, the Government were not being kind but agreeing with ECOFIN that, taking all of the convergence criteria into account, Italy was moving in the right direction and should therefore be admitted to the single currency on 1st January 1999. I have no comment to make on the alleged statement of Prime Minister Prodi. I would not dream of commenting on alleged statements of the heads of state of other member states.

Lord Bruce of Donington

My Lords, is the Minister aware that, under the terms of the treaty, Her Majesty's Government have no responsibility in these matters? The conditions of convergence are finally determined by the Commission on whose authority they rely in terms of advice on reaching decisions, as set out in the Treaty of Amsterdam. The Government have no responsibility whatever. Is the Minister further aware that the final terms of convergence in conformity with the sanctity of the treaty are determined by the Commission, which is responsible for the production of all the figures? Her Majesty's Government are entirely innocent and have no responsibility whatever. Indeed, they have never had any power in the matter!

Lord McIntosh of Haringey

My Lords, I hope the House will agree that in view of the Prime Minister's Statement today, which is to be repeated in this House, it would be inappropriate for me to answer questions about anything other than Italy, which was the subject of the original Question.

Lord Marlesford

My Lords, would it not be easier for us to move forward on these issues if we accepted that the draftsmen of the Maastricht Treaty were people of great precision, but that the interpretation has been handed over to Humpty-Dumpty?

Lord McIntosh of Haringey

My Lords, my answer to the previous question applies.

Lord Chesham

My Lords, I wonder whether—

The Lord Privy Seal (Lord Richard)

My Lords, we are in the 24th minute. I think that we should move on.