---

Mr. Tom King (Bridgwater): Will my right hon. and learned Friend confirm that, since before the European

25 Nov 1996 : Column 28

Community was even thought of, this country has had the closest interest in the performance of the economies in Europe, and that it would be grossly irresponsible on his part and on the Government's if we did not recognise that it is absolutely vital, given that the euro and monetary union will be introduced among our most important trading partners, to ensure that they are set up on a basis that works? Will he again confirm that we shall ensure that our independence and our right to decide about our own economy, as long as we so choose, are properly preserved?

Mr. Clarke: I agree with my right hon. Friend; he makes an extremely important point. The continental markets are our most important markets, and our well-being is linked to theirs, with the result that when Germany and France are successful, we are successful, and when they get into economic difficulties, we slow down. It is therefore extremely important that in our single market we participate in discussions on a euro zone, even if only others will be in it; instability and failure in that part of the market have a knock-on effect on us.

I confirm entirely what my right hon. Friend said in his final point: I am not engaged in secret or evasive negotiations; I answer parliamentary questions every time I come back from ECOFIN; I submit piles of documents to the Scrutiny Committee, and huge mountains of them fly out and get overtaken the whole time; I am quite open about what I am negotiating for; and I negotiate in line with the policy of Her Majesty's Government--no more and no less.

I am determined to ensure that, unless we go into the euro zone, we shall retain complete control, as now, over our national economic policy, and that if we go in, we shall not be sucked into a system that goes beyond what is envisaged in the treaty and imposes unacceptable restraints on our independence as a nation state.

Mr. Malcolm Bruce (Gordon): Does the Chancellor accept that it is welcomed on the Liberal Democrat Benches when he declares that, regardless of whether Britain joins monetary union, if it goes ahead, it is in our interest to ensure that it is a success? Will he nevertheless acknowledge that the House has to some extent exercised a scrutiny reserve on him and his Government, in that it is difficult to believe, given that the ECOFIN discussions are to go forward as proposals to the summit, that ECOFIN has no substantial influence on the shape of the possible proposals?

Will the Chancellor give the lie to the suggestion made by one or two of his Government colleagues that the discussions do not matter, because monetary union will affect only the member states that join it, given that his and the Government's position is that the United Kingdom may well be a founder member of monetary union?

Those who are opposed to our membership of monetary union should realise that the terms and conditions regulating how members of EMU operate are bound to be the basis of how they conduct themselves in relation to states that remain outside. Either way, the conditions are vital to our national interest.

Mr. Clarke: I agree with the hon. Gentleman. Under the treaty, we have a right at any time in the foreseeable

25 Nov 1996 : Column 29

future to exercise an option to go into economic and monetary union. That means that we are now negotiating the legislation that will apply--would apply--whenever the United Kingdom exercises that option, under whatever Government. Therefore, it is extremely important that we make a positive contribution to that. We must avoid the mistakes of the past. We would not have the common agricultural policy that we now have if a former generation of politicians had not taken the utterly bizarre view that it would never affect the United Kingdom, so they pretended that it was not going to happen and left it to be set up on a basis that no one in the House thinks is any longer satisfactory.

For the reasons that I have given my right hon. Friend the Member for Bridgwater (Mr. King), it is equally important that, if we stay out, the euro zone is a stable element in the middle of our European Union and single market, and there are not destabilising consequences from it. I shall seek to ensure that as well.

As I made clear, I give descriptions to the Scrutiny Committee of documents that, strictly speaking, perhaps I should not be giving. I go beyond what is absolutely necessary for scrutiny sometimes. What I ask is that, while I submit myself to scrutiny, one cannot keep ringing up from ECOFIN at every stage of the negotiations to try to keep Parliament covered. One must understand how we negotiate. I would rather that other member states did not know at every stage exactly what I was pushing for, exactly what I was going to withdraw, what I really meant, what was a try-on and what I was actually trying to secure. A process of permanent parliamentary debate, permanent parliamentary scrutiny and occasional parliamentary hysteria is not always in the national interest.

Mr. Norman Lamont (Kingston upon Thames): May I thank my right hon. and learned Friend for his statement? As someone who helped to negotiate the opt-out at Maastricht in addition to the Prime Minister, might I say to my right hon. and learned Friend that I agree with his interpretation? I believe that he is correct to say that fines would not apply to us provided that we did not join the single currency. I agree with him that the monitoring of our economy by the European Commission will not in any way interfere with the ability of the British Government to conduct our own economic policy.

To that extent, our opt-out remains intact, but my right hon. and learned Friend has made it clear this afternoon, and on many other occasions, that he would quite like to join the single currency. If that happened, the fines and the scrutiny would apply to us. The House is entitled to debate the level of the fines and the flexibility and the inflexibility of the system. That has not been debated adequately so far, until this afternoon. If it had been, this needless row would have been avoided.

Mr. Clarke: My right hon. Friend did a very good job, as he did on many other things, in his negotiations on the opt-out at Maastricht. I have never had the slightest trouble with the provisions of the treaty as we now have them. The treaty always envisaged that at some stage we would move to detailed regulation making of the kind that we are now engaged on. The treaty always envisaged, and we accepted it in our negotiations, that for the ins there would a system of deposits and fines. The detail of that still has to be negotiated. I entirely accept that that is something that the House should scrutinise and consider.

25 Nov 1996 : Column 30

As I said in my statement, I welcome the views of the House. I revealed, as the documents that I sent to the Commissioners revealed to everyone, that I have been arguing throughout that the fine should not be excessive. We do not want bovine spongiform encephalopathy crisis-type financial obligations falling on a country that is already struggling to cope with an excessive deficit. I have argued that, as one goes down that path, the procedures should be reasonable and flexible, and at all times should be under the political control of the Council of Ministers.

I suspect that my right hon. Friend and the bulk of my right hon. and hon. Friends would agree with me on those points. I am--or was--making good progress on those matters in the Council, and I was also making good progress in the Commission--perhaps it has influenced matters. When I wrote to the Commission, I thought that something closer to the more rigid, automatic procedures of other member states would emerge, but what emerged was nearer to our procedures. It was still not perfect and I welcome the House's scrutiny of those procedures.

Mr. Peter Shore (Bethnal Green and Stepney): The Chancellor has certainly not reassured me with his statement. His statement this afternoon that he would put a reserve on any detailed agreement reached does not go far enough. He has reaffirmed today what he said in his letter on Friday: the purpose of the meeting on 2 December is to reach an agreement. He has reaffirmed that he will seek to reach a political agreement on 2 December and that that will form a report to go to the European Council 13 days later, or whenever it is. The fact that on 2 December the Chancellor will reach a political agreement on the report's general shape raises the question of what is being agreed--what is being agreed is the idea of a stability pact.

Is the right hon. and learned Gentleman really saying that he, as Chancellor of the Exchequer, is prepared in future--we all know that he wants to join the single currency--to have the Budget judgment made for him in Brussels rather than here in London? Is he prepared--like a rate-capped local authority--to have fines imposed on him because he has dared to exceed the limit of the 3 per cent. ceiling on gross domestic product? I find that shameful.

The Chancellor mentioned the EMI report and tried to describe how it came about--I accept that. Is it true that that report contains a recommendation that in future Britain should force the pound sterling to shadow the euro, and that arrangements will be put in train to bring that about? If that is so, we shall find ourselves without the advantages that we would otherwise enjoy were our currency not absorbed into the euro.

Mr. Clarke: Any political agreement will be subject to parliamentary scrutiny reserve until we have satisfactorily completed parliamentary scrutiny. The political agreement that is likely to be reached is on a report that will set out member states' differing positions. What I expect now is what I expected before. We shall proceed and seek to resolve--indeed, we have a mandate to do so--as many of the difficulties as possible, but not to resolve them finally--we never intended to do that.

The next step will be for ECOFIN to do the best that it can to resolve the disagreements and forward them to Dublin, where they might or might not be agreed--all that

25 Nov 1996 : Column 31

is subject to scrutiny reserve. It is true that the stability pact is being contemplated--in particular, members that are in may find themselves subject to fines and penalties. It has always been true that the Maastricht treaty contemplated that those in economic and monetary union would be subject to deterrent penalties, to ensure that they all continued to follow the convergence criteria once they had joined. I am in favour of that, and most people looking at economic and monetary union think it sensible.

It is no good aspirant member states hitting a target in the relevant year--particularly if they fiddle it--and then assuming that they can satisfactorily proceed with economic and monetary union, without keeping within those convergence criteria. The treaty as drafted by my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) always contemplated pressures to ensure that members stayed within the convergence criteria. I agree with the Germans on the principle and I also agree that they should not fudge the convergence criteria. My position is that I would expect myself to be against this country joining economic and monetary union if the criteria were fudged, or if there were not adequate guarantees that we would stay convergent after we had joined, because the whole thing would set up intolerable pressures and this country would be much better out of any such arrangement if it went ahead.

Finally, there is no question in the EMI document of shadowing the euro or any other currency. Sterling is now a floating currency and I have no intention of shadowing any currency as long as it remains floating, because it would be futile and damaging to do so.

The right hon. Gentleman's other points might be clarified by a little internal debate in the Labour party--it gets fairly bewildering, seen from Conservative Benches.

---