Sterling and the Euro (Hansard, 16 March 1999)

§ Lord McIntosh of Haringey
My Lords, the Government have no intention of shadowing the euro.

§ Lord Skidelsky
My Lords, in thanking the Minister for that reply, I have to say that, following yesterday's events, we should prefer the Government to shadow the Commission than the pound to shadow the euro. In the light of the Minister's reply, can he give the House an assurance that the Government will not try to influence the external value of sterling unless and until a referendum has declared in favour of Britain joining the single currency?

§ Lord McIntosh of Haringey
My Lords, the external value of sterling is not a primary objective of economic policy; it is, rather, the outcome of sound economic policies. As the noble Lord will remember from the debates on the Bank of England Bill last year, the primary objective is price stability. It would be unwise to have, as another primary objective, an objective which could conflict with price stability.

§ Lord Shore of Stepney
My Lords, do not the convergence criteria demand not formal membership of ERM II but a stable exchange rate for a period of roughly two years before we join the euro? If that convergence criterion is in operation, how can we achieve that stability without shadowing the euro?

§ Lord McIntosh of Haringey
My Lords, the convergence criteria which applied before the 11 countries signed up to the euro in May of last year were not interpreted mechanistically, even at that time. Finland and Italy qualified, despite not meeting the criteria; Sweden did not qualify but that was for other reasons, as well. As for the present time, no, there is no requirement that we should join ERM II and there is certainly nothing magical about a two-year period.

§ Viscount Cranborne
My Lords, can the Minister tell the House whether he thinks that the economies within the euro zone at present are converging or diverging?

§ Lord McIntosh of Haringey
My Lords, I think it is too early to say. The euro has been in existence for less than three months. What is significant about our relations with the European economies is that inflation and interest rates are converging with those in euroland as a whole, and the Government find that encouraging.

§ Lord Barnett
My Lords, does my noble friend accept that the Chancellor's own five tests before joining the euro included sustainable convergence? Does he accept that it is not possible to have that at the present level? What action does he propose to deal with that?

§ Lord McIntosh of Haringey
My Lords, sustainable convergence is indeed one of the five economic tests which the Chancellor set. But, of course, exchange rate convergence is not the only criterion; it is only one of the four convergence criteria, the others being price stability, sustainable public finances and convergent long-term interest rates.

§ Lord Howell of Guildford
My Lords, given the extreme volatility of the euro at present, I am sure that the Government's stated position on this matter is a wise one. Given that this country's earnings from dollar-denominated trade are growing as a total proportion of our trade, and growing considerably faster than our euro-denominated trade, does it not make sense 610 that, if there is any shadowing to be done—though personally I am against that—it should be of the dollar rather than the euro?

§ Lord McIntosh of Haringey
My Lords, there is no shadowing to be done and therefore the question does not arise.

Lord Bruce of Donington
My Lords, will my noble friend confirm that there is no necessity to converge with, follow or shadow any particular currency? The pound sterling is quite capable of holding its own. Would it not be better if we devoted some constructive effort to assisting the Commission in its present difficulties—largely self-inflicted—and to support the euro when it is appropriate to do so and when it ceases to have a mythical significance? Surely we can carry that on our backs as well.

§ Lord McIntosh of Haringey
My Lords, I sympathise with the desire of the noble Lord to anticipate the Statement which the Prime Minister is about to make, but he must not expect me to anticipate it.

§ Lord Ezra
My Lords, does the noble Lord not agree that in general it would be desirable for us to have a stable currency at competitive levels?

§ Lord McIntosh of Haringey
My Lords, I believe that I can broadly agree with such a broad proposition, yes.

§ Lord Davies of Oldham
My Lords, will my noble friend remind the House of the last Chancellor of the Exchequer to shadow a major European currency, from which party he came and with what results?

§ Lord McIntosh of Haringey
My Lords, it has been my consistent practice at this Dispatch Box not to intrude upon private grief.

§ Lord Pearson of Rannoch
My Lords, following on the answer which the Minister gave to the noble Lord, Lord Shore of Stepney, is he aware that there are six clauses left in the Treaty of Rome not included in Protocol 25 at Maastricht which commit us to running our economy on communautaire lines in precisely the same way as the convergence criteria did at the time? In those circumstances, can the noble Lord tell the House whether the Government intend to obey those clauses or to ignore them?

§ Lord McIntosh of Haringey
My Lords, the noble Lord is right in saying that in many ways we are required to run our economy on what he describes as communautaire lines. From the answers I have already given about the way in which the convergence criteria have in fact been interpreted, he will understand that that is not a very precise commitment.