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Mr. Davies : I am sure that that is right.
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Mr. Bill Walker : The right hon. Gentleman might cast his eye a little further down the page. The presidency of the EMI is a full-time job for three years. That must have an impact on the decisions of the EMI.
Mr. Davies : As I read the provision, there are different spheres of responsibility. It may be that the two circles will occasionally cross, creating something of a problem. So far as I can see, in the exercise of the duties in respect of the EMI, which may very well be different from those relating to the Bank of England, the Governor will be independent.
Mr. Hain : I should like to direct my right hon. Friend's attention to two sentences that the Financial Secretary was very reluctant to read out. These are identical to the wording of article 7 on page 91, which specifically details the independence criteria governing the European central bank. I should think that the court will take note of that.
Mr. Davies : The Financial Secretary shakes his head again, but my reading is the same as that of my hon. Friend.
Article 23 provides--hooray, hooray--for the liquidation of the EMI. Unfortunately, the institution appears again in another form--the more powerful central bank. I am sorry to come back to the question of assets and liabilities, but I must do so. All the assets and liabilities of the EMI will automatically pass to the central bank. They started with the Co- ordinating Committee of European Governors, then went to the EMI, and are now to go to the European central bank. Article 29 of the bank's statute deals with the capital subscription--the weighting of voting of shareholders. I suppose that one can subscribe to things other than shares.
I do not understand this article, and I should not criticise the Financial Secretary for failing to understand it. It says : "Each national central bank shall be assigned a weighting in this key which shall be equal to the sum of :
--50 per cent. of the share of its respective Member State in the population of the Community in the penultimate year preceding the establishment if the ESCB :
--50 per cent. of the share of its respective Member State in the gross domestic product at market prices of the Community as recorded in the last five years preceding the penultimate year before the establishment of the ESCB".
As if that were not enough, the percentages have to be rounded up to the nearest multiple of 0.05 percentage points. That is an exam question in itself.
Presumably some of the value of these assets that have been transferred twice is ours. How does this work out in terms of ownership? Presumably the bank is the owner. There is nothing in this provision about 24 votes for the larger states and 11 votes for the smaller states. There is nothing about weighted voting. Perhaps the Financial Secretary, when he intervenes, will try to explain the meaning of article 29. What will the United Kingdom own, if we own anything, in the European central bank? Will it have those assets which belonged to it initially, passed through all the institutions? Will we have one third, one tenth, one fifth of the assets?
Mr. Rowlands : Article 29 has been puzzling me for some time. Unlike our vote on the Council, which is a simple matter to work out, it is almost impossible to work out the article 29 formula, which changes according to one's economic performance. Will the Financial Secretary tell us what percentage of the total number of members or
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votes on the new ECB--were we establishing it today--we would have based on our current economic and GDP performance ?9 am
Mr. Davies : I am sure that the Financial Secretary has heard the question.
Article 109f.2 states that the EMI shall co-ordinate monetary policy, aim at price stability and monitor the function of the EMS. The article also states :
"For the preparation of the third stage, the EMI shall : --prepare the instruments"
of monetary policy.
Paragraph 4 of the article on page 26 states :
"The EMI, acting by a majority of two thirds of the members of its Council, may"
carry out three functions. Presumably, on that basis, each member has one vote.
Mr. Livingstone : Are not the votes weighted to reflect the GDP ? Per head of population, the German vote will be worth twice the vote of Great Britain.
Mr. Davies : Even Luxembourg may not do too badly in terms of number of votes.
Paragraph 4 states :
"The EMI, acting by a majority of two thirds of the members of its Council, may :
--formulate opinions or recommendations on the overall orientation of monetary policy"--
we have had that policy before, but not in that form
"and exchange rate policy".
Another sphere has been opened up. We are dealing not only with monetary policy, but with exchange rate policy--I suppose that we cannot have one without the other.
The EMI must act on a majority of two thirds. I do not know whether the Chancellor of the Exchequer will be able to sit on the Governor to ensure that he votes, or whether the article on independence will be applied. I do not know where the references to the exchange rate policy leave a British Government who are not really part of the ERM. While we are, presumably, part of the EMS, we are not part of the ERM. The monetary system is nonsense ; it is the ERM that is important.
Mr. Dorrell : The easiest way of responding to the right hon. Gentleman is to refer him to article 3 of the protocol of the EMI. It clearly states :
"The EMI shall carry out the tasks and functions conferred upon it by the Treaty and this Statute without prejudice to the responsibility of the competent authorities for the conduct of the monetary policy within the respective Member States."
Monetary responsibility remains the responsibility of the member states during the time that the EMI is operating.
Mr. Davies : The Chancellor will be able to sit on the Governor and tell him what to do.
Mr. Gould : Article 109j provides that the duties laid on the EMI by the statute--the words quoted by the Financial Secretary--include the responsibilities of monitoring performance on exchange rates and monetary matters as laid down by our membership of the ERM.
Mr. Davies : Even if the Governor puts up his hand to vote in the way that the Chancellor wants, if two thirds
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vote the other way, we shall be outvoted. It is qualified majority voting and they can formulate opinions and make recommendations. It states :"The EMI, acting by a majority of two thirds of the members may formulate recommendations on the overall orientation of monetary policy and exchange rate policy as well as on related measures in each Member State."
It will be able to pronounce on exchange rate policy on a two thirds vote, and that might be contrary to the wishes of the Governor who would, according to the Financial Secretary, take his instructions from the Chancellor.
Sir Russell Johnston (Inverness, Nairn and Lochaber) : Does the right hon. Gentleman think that it would be rather good if we needed a two thirds majority in this country in order to make such decisions?
Mr. Davies : What decisions where?
Sir Russell Johnston : The decisions that the right hon. Gentleman has just read out. A two thirds majority is required to set in train those various propositions. He criticised that, and I said that it would be rather nice if that was necessary in this country.
Mr. Davies : Some measures need a two-thirds majority, and others need a simple majority. One cannot give a blanket answer about that. I am not criticising it : I am just reading it out. Euro-enthusiasts have very thin skin. When one reads out the treaty, they say that one is criticising it, and when it is read out again, they say, "Well, it doesn't mean that at all." When it is read out again, they say that it is not there at all. It is like the sub-atomic particles, quarks or whatever they are called, that are seen only when one looks for them. Apparently they are all over this treaty.
Mr. Roger Knapman (Stroud) : Does the right hon. Gentleman agree that the best majority would be by a referendum on this whole wretched treaty ? Bearing in mind that, tonight and every night, the Liberals will maintain the balance of power, if they really want a referendum they could obtain one.
Mr. Davies : That is a good point.
Mr. Livingstone : Has my right hon. Friend seen the statement reported on the tapes, that the Liberal democrats have decided to make progress on this ? They are outraged by the time that it is taking, and have given undertakings to the Tory Whips that the votes will be delivered day by day to ensure that the treaty is carried ? Those are the people who will hawk themselves around Newbury saying that they are there to defend local people when they are propping up the Government and the treaty.
Mr. Davies : That does not surprise me at all. I have been in Parliament longer than my hon. Friend, and I know what to expect from the Liberal party in these matters.
Article 109h deals with balance of payments, and I suppose that it gives some hope to the Financial Secretary of some money to sort out the huge balance of payments deficit. Obviously, strings will be attached. Article 109j deals with convergence conditions. Curiously--or perhaps not curiously --those conditions are set out in the part that deals with the second stage. I suppose that that has to be done like that, so that one knows what they are to get to
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the third stage. I shall not ask the Financial Secretary for a legal opinion, because I do not think that I am on a good legal point.I am a little worried that all the convergence criteria are in a second stage, which imposes on us a treaty obligation. I do not want to press that too far, but all four criteria are in the second stage, which says that we must do this and that. There seems to be an obligation on us to achieve a high degree of price stability in stage 2. Is there such an obligation? [Hon. Members :-- "Yes."] The people's court says yes. I do not know what the lawyers will say.
Mr. Dorrell : One of the earlier, over-arching articles commits us to the achievement of price stability as the condition precedent--in the Government's view and based on our experience over a long period--to the achievement of the growth and social objectives that we all share.
Mr. Davies : I know that the Financial Secretary is keen on price stability. That is a good thing. When he began answering, he gave me the impression that there was a treaty obligation.
Mr. Dorrell : Article 2, which has been much quoted in our discussions, states :
"The Community shall have as its task by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community sustainable and non-inflationary growth".
Mr. Davies : That is so, but the Financial Secretary is missing his best point, which is not the flabby language of article 2 but the precise language of article 109j. The Financial Secretary was right the first time. Perhaps he is a little worried now about what he said.
Mr. Dorrell indicated dissent.
Mr. Davies : He is not. We will move on to the article's other provisions, which include
"the achievement of a high degree of price stability".
That is a good thing, but its achievement is an obligation. Yes? No?
Mr. Dorrell : I quoted where there is an obligation. In the context of article 109j--as I said when I addressed the House in January--the "achievement of a high degree of price stability"
is one of the convergence criteria that are not precise treaty obligations. They are conditions precedent on the establishment of a single currency. They are the trap through which a candidate member of the single currency has to pass before it is entitled to join under the terms of the treaty.
Mr. Davies : I do not deny that, but perhaps the Financial Secretary's initial reaction was the better one. Paragraph 1 states also that the report that the EMI make
"shall also examine the achievement of a high degree of sustainable convergence"--
we had the list before--
"fulfilment by each Member State of the following criteria". That certainly imposes an obligation to fulful certain criteria in stage 2.
Mr. Rowlands : Presumably, although there is an obligation of some kind on member states, the Government and the Treasury would tender almost a nil return to the Commission and the EMI, because none of those conditions should apply or be enforced unless we
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decide to go to stage 3. Is the alternative interpretation of the paragraph that we will not have such an opportunity, but will be reported on whether we like it or not?Mr. Davies : It applies anyway. Whether or not we ever decide to go to a single currency, stage 2 places on the British Government the obligation to do everything they can to achieve zero inflation or something close to it.
Mr. Davies : Is the Financial Secretary saying that I am wrong?
Mr. Dorrell : I heard the right hon. Gentleman say that article 109j places such an obligation on the United Kingdom. That statement was incorrect, which is why I said, "No."
Mr. Davies : Then on whom does it place that obligation? Nobody?
Mr. Dorrell : I was waiting for the right hon. Gentleman to resume his place, to--
Mr. Davies : Consult the Foreign Secretary's former tutor?
Mr. Dorrell : The right hon. Gentleman asked on whom the obligation in article 109j would be imposed. The obligation is contained in the first sentence of paragraph 1 :
"The Commission and the EMI shall report to the Council on the progress made in the fulfilment by the Member States of their obligations regarding the achievement of economic and monetary union."
Those obligations are not imposed by the article but arise way outside it. Article 109j is concerned with the obligation placed on the Commission and the EMI to report to the Council on the achievement or otherwise of convergence criteria by candidate members of the single currency.
Mr. Davies : It is a bit like the article on independence. Article 109j states :
"The Commission and the EMI shall report to the Council on the progress made in the fulfilment by the Member States of their obligations".
"Their" does not refer to the Commission and the EMI, or to the Council ; it refers to the member states. The article goes on : "regarding the achievement of economic and monetary union." Those obligations are imposed on the member states by treaty under stage 2.
Mr. Dorrell rose --
9.15 am
Mr. Davies : I am sorry ; I will not give way to the Financial Secretary again. Perhaps he should get the Attorney-General or someone to give him some better advice.
The criteria are
"the achievement of a high degree of price stability the sustainability of the government financial position ; this will be apparent from having achieved a budgetary position without a deficit that is excessive as determined in accordance with Article 104c". That means getting the deficit down to 3 per cent. It does not mean anything else : that is the obligation imposed on
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us. My hon. Friend the Member for Oxford, East (Mr. Smith) can wriggle and hope for flexibility as much as he likes-- I do not mean that in a pejorative sense.This is the criterion that I was really coming to :
"the observance of the normal fluctuation margins provided for by the Exchange Rate Mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other Member State".
I was a bit dubious when I heard about the opinion given to Conservative Members by someone of the name of Howe ; I have not read it, but it sounded a bit political, like the judgments of the European Court. Having read this, however, I am beginning to have second thoughts. Perhaps I did the right hon. Member for Mid-Sussex (Mr. Renton) an injustice.
Mr. Betts : Paragraph 1 of article 109j merely refers to the production of reports. It is paragraph 2 that deals with their assessment, and may start to lead on to obligations for Britain. Paragraph 1 of the protocol on the opt-out, further back in the treaty, specifically says :
"The United Kingdom shall notify the Council whether it intends to move to the third stage before the Council makes its assessment under article 109j(2) of this Treaty".
There seem to be no obligations on the United Kingdom under article 109j, bearing in mind that protocol.
Mr. Davies : Article 109j places an obligation on the Commission and the EMI, quite rightly, to make a report to the Council ; but that report is about the fulfilment of the member states' obligation, which is to meet those four criteria.
Mr. Legg : We are facing a misunderstanding. Britain has not opted out of economic and monetary union : that is the central point. Our opt-out relates to stage 3 ; we have a commitment to economic and monetary union. We are in stage 2. Article 109j concerns the obligations of member states during stage 2, from which we have no opt-out because we are committed to economic and monetary union. As the right hon. Gentleman said earlier in his speech, this is a seamless garment.
Mr. Davies : I do not think much of this, but the convergence criteria outlined in article 3 on page 112 spell out the position with regard to the exchange rate mechanism. It states :
"the Member State shall not have devalued its currency's bilateral central rate against any other Member State's currency on its own initiative for the same period."
That is close to an obligation.
Article 109m on page 30 is the last article on the transitional arrangements. It states :
"Until the beginning of the third stage, each Member State shall treat its exchange rate policy as a matter of common interest." That presupposes that member states have an exchange rate policy. One does not have to have one ; one could let it float. Perhaps it is an exchange rate policy not to have an exchange rate policy. The article presupposes an exchange rate policy which, I should have thought, would be
"a matter of common interest."
If there is a commonality of interest, we are all part of the ERM. Whether there is a specific legal obligation, whether it is all a bit vague or whether we can be taken to the court is academic. Once the treaty is ratified, and once
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