Euro: Stability and Growth Pact Rules (Hansard, 7 October 2003)

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord Mclntosh of Haringey)
My Lords, since the start of the third stage of European monetary union, Portugal, Germany and France have been subject to excessive deficit procedures.

§ Lord Skelmersdale
My Lords, I am grateful to the Minister for that factual answer. However, given that the Government—or most of them, anyway—wish the United Kingdom to join the euro when the time is right, what effort are they making to persuade the Commission to enforce the stability pact?

Lord Mclntosh of Haringey
My Lords, the enforcement of the stability and growth pact and of the excessive deficit procedures is a matter for ECOFIN. We do not comment on the financial situation of individual member states.
We are encouraged by some of the developments in ECOFIN. For example, because we believe in multilateral surveillance, we are encouraged that the 144 broad economic policy guidelines now take into account labour market flexibility and structural economic reform, which we have been urging for many years. So our influence on ECOFIN has been entirely positive.

§ Lord Barnett
My Lords, does my noble friend agree that whether we are inside or outside the euro-zone— and I would personally prefer it if we were inside— there is a greater case for a more flexible approach to the rigid rules that at present exists? Will he suggest to others in the Treasury that they should be making representations along those lines?

Lord Mclntosh of Haringey
My Lords, I thought that in some sense I had already answered that point in my response to the supplementary question of the noble Lord, Lord Skelmersdale. Yes, we have always believed in a prudent interpretation of the stability and growth pact. We have always thought that it should take account of the economic cycle, sustainability and the important role of public investment. As I said, we are encouraged by movements within ECOFIN towards that greater flexibility which the noble Lord, Lord Barnett, and I want.

§ Lord Willoughby de Broke
My Lords, can the Minister say whether the stability and growth pact was enshrined in the Maastricht Treaty and would thus need a treaty change to alter its terms, as suggested by the noble Lord, Lord Barnett?

Lord Mclntosh of Haringey
My Lords, the stability and growth pact and the excessive deficit procedures are indeed included in the Maastricht Treaty and therefore were approved by Parliament in 1993. That agreement is fleshed out in Council regulations 1466 and 1467 of 1997, both of which were adopted by this country before the 1997 election.

§ Lord Newby
My Lords, does the Minister agree that in terms of increased flexibility on the stability and growth pacts, it would make sense to provide for flexibility to allow member states to deal with long-term structural problems?

Lord Mclntosh of Haringey
Again, my Lords, I think I have already answered that question. Yes, we think that there should be a degree of flexibility to allow member states to deal with long-term structural problems. That is exactly why our definition of a prudent interpretation includes issues of the economic cycle and sustainability. I think that is what the noble Lord, Lord Newby, is advocating, and I agree with it.

§ Lord Stoddart of Swindon
My Lords, is it not a fact that one of the ways—in fact, the main way—of enforcing the rules of the growth and stability pact is to impose swingeing fines on those who have broken the rules? Would that not make matters worse?

Lord Mclntosh of Haringey
Yes, my Lords, that is certainly the last stage of a series of procedures. There is a procedure which starts with an early warning and goes on to a recommendation that a particular member state is in breach of the excessive deficit procedures. If that continues, ECOFIN has the power in the last resort to impose very substantial fines—that is, a proportion of gross domestic product. That has not been necessary in the past, and I agree that it would have very serious implications for the economy of the member state concerned.

§ Lord Swinfen
My Lords, will the Minister answer the question of my noble friend Lord Willoughby on whether it would need another treaty to change the conditions of the pact?

Lord Mclntosh of Haringey
My Lords, I think that was implicit in my answer. It is in the Maastricht Treaty and to change it would require a change to the Maastricht Treaty. However, that does not apply to the implementation of the Council resolutions, to which I also referred in my reply to the noble Lord, Lord Willoughby.

§ Lord Campbell-Savours
My Lords, what are the implications of too much flexibility in the case of France?

Lord Mclntosh of Haringey
My Lords, we do not comment on the financial state of other member states. I understand that France is seeking to claim that there are exceptional circumstances. That is not for this country but for ECOFIN as a whole to judge.