| Previous Section | Home Page |
Mr. Davies : It will be interesting to see what happens in France and whether the Gaullists will try to break the orthodoxy. I should be surprised if they did. I think that the Governments of Europe are all locked into it and that after a while they will not worry too much about their people. Perhaps I am digressing now, but I believe that there is a kind of political class that likes to latch on to that orthodoxy. I should be surprised if the Gaullists did otherwise, but I may be wrong.
May I now move on?
Mr. Gould : May I delay my right hon. Friend for a moment longer? Bearing in mind the powerful point made by the hon. Member for Milton Keynes, South-West about the Spanish experience, the even more powerful point made by my hon. Friend the Member for Brent, East (Mr. Livingstone) about the fate of the French socialist Government, and the fact that one of the few positive arguments for supporting the treaty ever advanced by our hon. Friends is that we must maintain and establish solidarity with our European socialist colleagues, does not my right hon. Friend think that it would be advisable for our hon. Friends at least to note the fate of the French socialist Government and the likely fate of the Spanish socialist Government? Even in terms of the most cynical electoral calculation, would not it be prudent to pause for a moment before blundering forward along the same course?
Mr. Davies : I agree. Indeed, about 30 of us recently went through the Aye Lobby to ask for a pause, but unfortunately I do not know where the rest of the Labour party was. Perhaps other Labour Members were in bed, or perhaps they did not want to pause--that must be the conclusion to draw. I agree that what my hon. Friend has described is a serious matter, not only for the so-called democratic left in Europe but for orthodox parties of the
Column 1154
right, too. We are taking economics out of politics, which is a dangerous thing to do. No doubt we can return to that debate. Article 109e (5) which deals with the Bank of England, says : "During the second stage, each Member State shall, as appropriate, start the process leading to the independence of its central bank in accordance with Article 108."That is a legal obligation. The second stage starts on 1 January 1994 and goes on and on until we reach a third stage. Presumably, if we do not reach a third stage, we shall remain in the second stage. My hon. Friend the Member for Oxford, East questioned the Financial Secretry once or twice on this matter and the Financial Secretary was not entirely clear about it. I think that he said, and I have heard other Ministers say, that we do not have to do anything about the Bank of England until the third stage--until we have opted in, if we decide to opt in. That is as it may be, but something has to be done by a member state, as my hon. Friend the Member for Oxford, East pointed out, to
"start the process leading to the independence of its central bank".
What is meant by the
"independence of its central bank"
is that the statute governing that central bank must be as nearly identical as possible to the statute governing the European central bank, which is also independent. It makes sense that they should be mirror images, like the German la"nder banks and the Bundesbank. The process has to be started.
The Bank of England Act 1946 did not nationalise the Bank of England. I heard Lord Jay making a number of speeches explaining that Act quite clearly. It merely enabled the Treasury to issue directives to compel the Bank of England to obey. Apart from once, over prices and incomes policy, when those at the Bank went off and paid themselves a lot of money, I do not think that the Bank has ever been threatened or issued with a directive. We were contemplating one in those days, but, in the end, it did not have to happen. So now there are directives held in reserve. If the Governor refuses to put on his top hat, get in his car and come down to No. 10 Downing street and give his advice on interest rates, a directive will be issued. The Bank of England Act will have to be substantially changed or repealed. The power to issue directives against the Bank of England will have to go. I should be surprised if that could be done by order. I do not see how it can be done except by repealing the Act. Mr. Dorrell rose --
Mr. Davies : I see that the Financial Secretary is ready to intervene. How does he envisage starting the process, which he will have to do in stage 2?
Mr. Dorrell : This country has no obligation under the treaty to move to stage 3. That is a choice which we have left until later. Furthermore, clause 2 provides that we would not be able to exercise our option of moving to stage 2 without a further piece of legislation going through the House. Clearly, as part of that legislative process, we should have to provide for an independent central bank which satisfied the terms of the treaty--if we chose to go to a single currency. We should have to provide arrangements for the Bank of England which satisfied the treaty, if we chose to exercise our option under our protocol. But if we choose not to exercise our option in
Column 1155
order to join a single currency, we are under no obligation under the treaty to change the arrangements for the Bank of England.Mr. Davies : Is the Financial Secretary saying that he does not start the process under stage 2 until just before the Queen signs the Act ?
Mr. Dorrell : My hon. Friend the Member for Stafford (Mr. Cash) says that it is idiotic. As a statute is required to go through the House to make the changes to the Bank of England that are necessary to satisfy the requirements of the treaty, it seems to me not unreasonable to assume that the House would wish to consider the arrangements for the Bank of England at the same time as it made the choice whether to adopt a single currency. It would put the two things together. [Interruption.] With respect to my hon. Friend the Member for Stafford, it is not beyond the wit of man to fix a date on which a measure comes into force somewhat after the date of Royal Assent.
Mr. Davies : The Government will do the two at more or less the same time. We have not been told that before, so now we can move on. Of course, it means that the Government do not believe in an independent Bank of England. The present British set-up is excellent ; the Governor gives his advice, and the Prime Minister and Chancellor decide. The French have had a similar system for years, although I do not think that they bother to consult the Governor, who is told of the decision, whatever it is, after it has been taken. By that means, the French have done well--better than the Germans--on inflation. We note with interest that the Government are not rushing to create the great independent central bank, which we shall have to accept if we go for the idea.
Mr. Gould : My right hon. Friend is perhaps being too generous to the Financial Secretary, who said that no step need be taken towards the establishment of an independent central bank unless and until the preconditions for the implementation of stage 3 are acted on. Yet that is contradicted by the words that my right hon. Friend quoted. They provide that under stage 2--the question whether we ever get to stage 3 is irrelevant--each member state shall--it is a mandatory use of language-- start the process, leading to the establishment of the independent central bank. So my right hon. Friend was right to ask what steps the Government contemplate to fulfil that obligation. It has nothing to do with stage 3. We may never reach that stage, but that mandatory obligation would be in force as we proceeded through stage 2.
Mr. Davies : I am prepared to give the Financial Secretary the benefit of the doubt. I think he was saying that, for a magical moment, we shall be in stage 2, and then--whoosh--into stage 3. If he was not saying that, my hon. Friend the Member for Dagenham (Mr. Gould) is right.
Mr. Rowlands : If the Financial Secretary believes that this is the right process--that we can legislate for stage 3 when we come to the second piece of legislation--why are we putting so many articles into our domestic legislation now? If that formula is available in that case, why is it not available for other articles in stage 3, so that we can legislate for that stage when we decide to go into it?
Column 1156
Mr. Davies : My hon. Friend makes a good point, which has not so far been answered, except that what the Government are doing is tidy and makes the draftsmen happy. Of course, doing it this way avoids a terrible row, since our European colleagues will not have to accuse us of dragging our feet.
Mr. Legg : Should there be a prolonged period in stage 2 for the United Kingdom, and we have the provision stating that we shall start the process, will the decision to start the process be wholly in our hands? If Britain does not take that step in accordance with the treaty, other parties may apply pressure to get that part of the treaty enforced.
Mr. Davies : From a practical point of view, the answer is yes, something will have to be done. But it will all be done after the treaty has been ratified by joining the ERM--a subject to which I shall return.
Mr. Andrew Smith : The Government want to face in both directions simultaneously. They want to be able to say that the second stage can stretch ahead indefinitely, with the rest of Europe perhaps in stage 3, just as our proceedings today are actually taking place on Wednesday in parliamentary terms, even though Thursday Committees may soon start sitting. On the other hand, we must put every condition in place so that the Government can satisfy other European countries--and some of the Financial Secretary's other friends--that we will be in a position to satisfy the requirements of the treaty. The Government do not want to say which course of action they will take.
8.30 am
Mr. Davies : I will not be tempted too far. All the geniuses are on the Government Front Bench.
I shall refer to another institution. The number of institutions established by the European Community is amazing. There are institutions for all sorts of purposes. Article 109f provides for the European Monetary Institute. The Government's involvement must start at the beginning. The institution must be set up and the Government must be part of it immediately at the start of stage 2--which is 1 January, if everything goes all right. Basically, the EMI will be the shadow central bank. It will take over from the Committee of Governors, which already exists.
The process is clear : we have an obligation under the treaty, and we will obviously take a full part in the EMI. The statute of the EMI is set out in page 104 of the treaty. There are only one or two points to which I should refer. Paragraph 1.3 in article 1 of the protocol says :
"The Committee of Governors and the European Monetary Co-operation Fund (EMCF) shall be dissolved. All assets and liabilities of the EMCF shall pass automatically to the EMI."
I do not know what the European monetary co-operation fund is. Perhaps the Financial Secretary could tell us what assets the fund has at present, what its liabilities are and what percentage of the assets--or perhaps more importantly, the liabilities--Her Majesty's Government own or for which money is owed. All the assets and liabilities will go to the EMI. Presumably, the fund passes out to the joint ownership of the British Government to some extent and comes under the
Column 1157
ownership of the EMI, which then becomes the central bank. I hope that the Financial Secretary can clarify that matter.In article 2, we are told the objectives of the EMI :
"The EMI shall contribute to the realization of the conditions necessary for the transition to the third stage of Economic and Monetary Union".
It is not any old economic and monetary union, but the one provided for in the treaty. The Financial Secretary does not know whether we want to join that union.
An institution will be set up, perhaps on 1 January 1994. Its job will be to prepare the way for the central bank. The British Government will have to play their full part. Whatever money or effort it costs, and whether the Financial Secretary likes it or not, the Government will be part of an enterprise which will drive the countries of Europe towards a central bank, a single currency and economic and monetary union.
The article says that the EMI will make
"preparations required for the establishment of the European System of Central Banks (ESCB), and for the conduct of a single monetary policy"--
the Government will be playing a full part at the heart of the institution in Europe--
"and the creation of a single currency in the third stage." The Financial Secretary or the governors will also oversee the development of the ecu, which will presumably be the single currency.
Mr. Davies : We lost the hard ecu somewhere along the way. I do not know what happened to it. Given the balance of payments deficit and the PSBR, we cannot talk about hard currencies. So to propose a hard ecu is perhaps not a good idea for the Government.
Mr. Davies : A marshmallow ecu, the hon. Gentleman says. Article 3 of the protocol says :
"The EMI shall act in accordance with the objectives and principles stated in Article 2 of the Statute of the ESCB."
Then we are told what its primary tasks will be. I will not go through them all.
Mr. Hain : My right hon. Friend mentioned that the EMI would have to act in accordance with the objectives and principles stated in article 2 of the ESCB statute. If my right hon. Friend turns to page 90, he will find that the treaty lays down that the EMI will be directed to achieve price stability in a determined, laser-like fashion, in accordance with article 3a. So we have come full circle. Although supposedly we are not yet in stage 3 and the House will take a free decision to enter it, in practice we are lining ourselves up lock, stock and barrel to worship at the shrine of price stability at all costs and without prejudice to anything else.
Mr. Davies : That is right. As I said at the beginning of my speech, price stability appears in paragraph 2 of the transitional provisions. It appears right through the treaty. As the Financial Secretary accepted in another debate, price stability is close to zero inflation, if not zero inflation. That is what it is all about. We are told in paragraph 4.1 of the protocol that the EMI will "normally be consulted by the national monetary authorities before they take decisions on the course of monetary policy in the context of the common framework for ex ante co-ordination."
Column 1158
That means that, even under stage 2, the British Government will no longer be free to set their own monetary targets and determine how they control monetary policy. The EMI will be able to come to the Government and say, "We want to look at your monetary targets. How do you do it?" The job of the EMI is to create a common monetary policy for when stage 3 arrives. It will be ready to take over with the M3, M4, M10 or whatever totem pole of monetarism is in fashion when we reach the first stage of EMU.Mr. Spearing : My right hon. Friend will agree with me that we have dealt with profound issues in the last two debates. Our problem is in describing them to those who are not habitually interested in international banking matters. Does he agree that what he has just described amounts to saying that, in stage 3, we are invited to enter a series of financial and economic straitjackets? However, in stage 2 we are not in the jackets, but we have to act as if we are. Therefore, when we reach stage 2, we shall be told by whatever Government are in power that we can easily move to stage 3, because we shall not have to act any differently. That is perhaps a rather crude analogy. Is it not approximately the position in which the treaty and the matters referred to by my hon. Friend the Member for Neath (Mr. Hain) put us? Therefore, when the time comes for choice, it will be easier superficially for the Government or any Administration to say that we should enter stage 3 so that we can influence future events.
Mr. Davies : I quoted the last sentence of paragraph 4.1 of the protocol, but, as my hon. Friend has said, some of the sentences are stronger and bolder. One of them talks about strengthening "the co- ordination of the monetary policies of the Member States with the aim of ensuring price stability ;"
Another states that regular consultations must be held on "the use of monetary policy instruments".
I would not want to stretch the point, but that is getting pretty close to interest rates which are part of monetary control. Towards the end, there is a requirement to
"supervise the technical preparation of ECU bank notes". I do not know whether that means painting the name on them, but perhaps in Birmingham where they used to print pound notes they will be printing ecus.
The British Government are tied in by treaty obligations to do all those things, yet they have to pretend that, one day in the distant future, a pristine, unfettered, uncluttered decision will be taken to go in or to stay out. The Government are not credible when they say that ; we are in pretty deep, and if we do not have the courage to cut this Gordian knot and say that it is all nonsense, we shall not have the courage to do it in five or six years' time, when we are all sitting nicely on our EMIs and other institutions, rushing back and forth from Brussels for splendid meetings. I do not believe that it will happen like that.
Mr. Chisholm : Is it not also the case that all the references to monetary policy must include exchange rate policy? Does not that give the lie to the idea that Ministers are peddling, in order to gain the votes of Conservative Back Benchers, that they will retain the freedom to set the exchange rate during stage 2? Is it not the case that we shall not be able to have a floating exchange rate and that that will be controlled, or at least influenced, by the EMI?
Column 1159
Mr. Davies : Indeed. I shall return to the interesting subject of the ERM. My hon. Friend is quite right.
Article 6.1n, on the European Monetary Institute, talks about a Council regulation 1969/88
"establishing a single facility providing medium-term financial assistance for Member States' balance of payments."
I see the Financial Secretary's eyes lighting up at the chance to get some money out of the Commission to help to cover the Government's huge balance of payments deficit. It was £17 billion this year, and if we have the recovery that the Government want, it will be £20 billion and will continue to rise.
It sounds a bit like the IMF, which was formed to help member states with balance of payments problems. That was its primary task, although I do not know whether that is still the case.
The EMI and the Commission will help out member states with their balance of payments problems, but there will be no free lunch. There will be a multiannual programme which will set out where the cuts should be made and how many hospitals and schools should be closed and whether there should be cuts in social security and welfare payments, which is what they are trying to do in Belgium and Germany, and facing some problems. Taxes will not be cut, as that would not be right, but it will be possible to cut public expenditure. If we want help with the balance of payments, we are going to have to pay the Danegeld.
Article 7 refers rather innocuously to other tasks :
"Once a year, the EMI shall address a report"--
we shall have plenty of institutions and reports going back and forth all the time--
"to the Council on the state of the preparations for the third stage."
That means the state of the preparations of member states, I assume, for the third stage. The report will go to the Council and it will say that the British Government have done nothing at all, apart from issuing a funny little book with a red cover and calling it a multiannual report. It will say that the Financial Secretary is sitting on his backside in the Treasury, doing nothing. And there will be terrible trouble.
But that will not happen, will it? Her Majesty's Treasury is a very law- abiding, responsible and proficient organisation, and we shall be doing our best at the heart of Europe, not like those Italians, dragging their feet, and those terrible Spaniards. We are northern people, Anglo-Saxons, we abide by the law, we do things right, our word is our bond.
Mr. Enright : We are not all Anglo-Saxons ; some are Celts. 8.45 am
Mr. Davies : Yes, indeed, some of us are Celts. I was being respectful to my English colleagues who are in a majority in this House.
Nevertheless, we are Anglo-Saxon people, and we have those qualities that Anglo-Saxons are supposed to have, and that means that we will abide by the law. So we will be preparing it, working at it, doing all the things, getting the convergence going ; and the report, no doubt, will be quite a good one in that sense. We will get lots of marks for effort. Maybe we will not always get our sums right, and sometimes the figures will be far out, say, on the public sector borrowing requirement, but at least we will be working hard at it, and that again will be the reality.
Column 1160
Article 7 goes on to say,"These reports shall include an assessment of the progress towards convergence and cover in particular the adaptation of monetary policy instruments"--
back to those monetary policy instruments again ; they love them-- "and the preparation of the procedures necessary for carrying out a single monetary policy in the third stage"--
so there will have to be preparation of procedures ready for the third stage--
"as well as the statutory requirement to be fulfilled for national central banks"--
oh yes, missed that--
"as well as the statutory requirements to be fulfilled for national central banks to become an integral part of the ESCB."
The Financial Secretary has not seen that, has he ? It is on page 106. He has it.
Mr. Cash : The right hon. Gentleman will recall that section 4 of the Bank of England Act 1946 is the exclusive basis upon which the Chancellor of the Exchequer and therefore the voters of this country are able to give directions to the Governor of the Bank of England. The provision that the hon. Gentleman has just mentioned, in article 7.1 and article 8 of the protocol--which I do not want to pre-empt but which deals with whether the Governor of the Bank of England, in that EMI, can seek or take instructions from the Treasury--blows the whole thing wide open. Not only have they to set up this bank, but they will have to repeal section 4 to make sense of it.
Mr. Davies : I do not know about that, but certainly article 8 mentions--it is the same article about independence as we find in the central bank protocol
Mr. Dorrell : I think that there is a fundamental misunderstanding. The first sentence of article 8 reads :
"The members of the Council of the EMI"--
the national central bank governors--
"who are the representatives of their institutions shall, with respect to their activities, act according [to] their own responsibilities."
That means according to their existing responsibilities as defined by their existing national law. [ Hon. Members :-- "Read on."] The article then goes on :
"In exercising the powers and performing the tasks and duties conferred upon them by this Treaty and this Statute, the Council of the EMI may not seek or take any instructions from Community institutions or bodies or governments of Member States."
The key point about the second sentence of article 8 is that it is the Council of the EMI as an institution which is not allowed to take instructions. The members of the Council, acting as individual members of the Council, do so on their own responsibility. [ Hon. Members :-- "Come on."] That is what that article means. It is no good hon. Members saying, "Come on" ; that is the meaning of the article. I concede that the article is not the model of clarity of other articles in the treaty, which is why I intervened at an early stage to enable the House to proceed on the basis of a correct understanding of it.
Mr. Davies : I paid the Financial Secretary a compliment earlier this morning, saying that--unlike the Minister of State, Foreign Office--he does not rush in to give legal opinions on the hoof. [Interruption.] I hope that he did not ask the legal advisers at the Foreign Office--or did he? I hope that he did not ask the Treasury Solicitor, either.
Column 1161
Mr. Gould : I hope that I shall not embarrass the Financial Secretary, or anyone else, by revealing that, a long time ago, I taught him international and constitutional law. I disclaim all responsibility for what he has just said.
Mr. Davies : Some of us do not consider international and constitutional law to be law. As far as some of us are concerned, looking at the words is the law.
The Financial Secretary has an acute mind, and as he read on he started to wobble and to worry a bit. For a start, the article is headed "Independence", and a judge would be quite impressed with that.
Mr. Spearing : Does my right hon. Friend agree that it will not be international and constitutional law, but law as interpreted by the European Court of Justice, in respect of the treaty, which is quite a different matter? Is it not probable that that court may say that it is true that one must not influence that body, as a body, and that that also means that one must not try to influence its members, because in so doing one is trying to influence the body. Although I would not say that that is my interpretation, or that of the court, surely it is just as logical and likely as the interpretation given by the Financial Secretary.
Mr. Davies : The way that I read the article is that, when exercising their duties, whoever sits on the Council--presumably it will be the Governor of the Bank of England--will be subject to the Bank of England Act 1946. However, in exercising duties as a member of the EMI, the Governor must not take any instructions from anyone. Mr. Dorrell indicated dissent.
Mr. Davies : The Financial Secretary shakes his head, but that is a perfectly reasonable interpretation of what may not be an easy article. I suggest that, within the context of both the EMI and the central bank, and the thrust of the independence of those institutions, the European Court might be more likely to accept my interpretation than that of the Financial Secretary.
Mr. Dorrell : I concede that, even if I had been privy to the advice of my former tutor, I think that I would have had some difficulty in interpreting the article on my own. The interpretation that I placed on the two sentences that I quoted is given extra authority when I tell the House that the first sentence of the article is lifted directly from the present terms of reference of the Committee of Governors of the central banks. As far as I know, no one argues that, when acting as members of that committee, they are required to be independent of their national accountability mechanisms.
Mr. Davies : Maybe not--perhaps it is a looser institution and the article is referring to something more precise, but it is still headed "Independence". However I do not want to labour the point.
Mr. Legg : In saying that, because certain phraseology is taken from previous legislation and treaties, it must have the same interpretation as before, the Treasury has misinterpreted some areas of the treaty. The Government Front-Bench spokesman seemed to miss the point : that the phrases have been lifted and put into the Maastricht treaty in a different context, which adds a different interpretation and weight to the words involved.
| Next Section
| Home Page |