---

Mr. Clarke: I had better read the hon. Gentleman's question when it appears in Hansard. I would also invite him to read my statement, which dealt with those attachments. I do not say that disrespectfully. Because of a minor matter of a fire in my Department, I had to write it myself, so I am more familiar with it, but it is not altogether clear until one reads it twice.

We shall attach two draft regulations to the report. They are two of the draft regulations that are currently subject to scrutiny in the House. I have, as set out in the report, had amendments made to article 17 of the regulation under article 109(l)(4), to make it clear that in this country we have no binding consequences from that because of our opt-out from article 109.

I have set out the position as clearly as I can in the statement and the explanatory memorandum. If we stay out, we have to produce convergence programmes, we are subject to surveillance and we can have non-binding recommendations made against us. That has gone on for years. We accepted all that in the Single European Act, when my right hon. Friend Baroness Thatcher was Prime Minister and I was a member of the Government.

If we joined the single European currency, we would have no opt-out from the sanctions, which is why it is so important that the details of that are argued by British Ministers. Yesterday I took a very active part in the debate, because it is important for everyone that we get that right.

Mr. James Couchman (Gillingham): Further to the question by the right hon. Member for Chesterfield (Mr. Benn), did my right hon. and learned Friend have a chance to discuss with the French Finance Minister what the impact of last week's ruinous settlement will be on that country's eligibility to join EMU? For without France, surely EMU will have to be postponed.

Mr. Clarke: I did not have such an opportunity except conversationally, which obviously I would not report, but I follow events in France with interest and I agree with my hon. Friend that the whole thing will not happen unless France can achieve the convergence criteria.

I agree with those who say that achieving the convergence criteria means putting the interpretation on it that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) did a moment ago--strict compliance with the convergence criteria, so that the country is likely to be able to sustain a healthy financial position. But it is for the Government of France to address their internal problems and to ensure that, first, they can achieve that standard if they wish to enter EMU, and secondly, they can make themselves competitive with

3 Dec 1996 : Column 807

other countries in northern Europe, which they will face on very level terms if they enter economic and monetary union with them.

Mr. Dennis Skinner (Bolsover): Is the Chancellor aware that one of the reasons why he is here today to speak about ECOFIN, as opposed to providing written answers or attending the Scrutiny Committee, is that 18 members of the Cabinet do not agree with it? My right hon. Friend the Member for Dunfermline, East (Mr. Brown) asked whether the Chancellor still agreed with economic and monetary union, not because my right hon. Friend particularly wanted an answer for himself, but because he wanted the Chancellor to tell the Euro-sceptics on his Back Benches that he is still in the same place as before.

The problem, as the Chancellor knows only too well, is that large numbers of people in Britain know that, to meet the criteria, up to £18 billion-worth of public expenditure would have to be cut, which would mean throwing more people on to the dole. That is why there are strikes in France and other Common Market countries. Workers there are saying, "So far, but no further."

Mr. Clarke: Whether or not I appear before the House is a matter for the usual channels. I am but the servant of the House, and I am always happy to appear before it. I do not regard the shadow Chancellor as a simple inquirer after truth. He may have other motives when he seeks answers to questions.

The path that I have taken in ECOFIN is in pursuit of the Government's policy, clearly restated, accepted collectively by the Cabinet and reiterated by every member of it, as my statements repeatedly make clear.

On the matter of controversy, the hon. Gentleman's description of the consequences of pursuing sound fiscal policies is bizarre. No country can prosper by running up huge public deficits, incurring huge debts in proportion to its gross domestic product and allowing inflation to rise.

Mr. Skinner: You should know.

Mr. Clarke: No, the hon. Gentleman should know. He supported Labour Governments who tried that and should have demonstrated to the rest of the world that it was pure folly.

Mr. Tony Marlow (Northampton, North): Can my right hon. and learned Friend say whether article 3 of the convergence protocol--the one dealing with ERM--is operative? Are there circumstances in which European institutions can take legal action against the United Kingdom if they perceive that we have devalued in a competitive way?

Mr. Clarke: I ask my hon. Friend to refer me to the particular article in clearer terms, and perhaps to put his question in writing. I shall try to give him a clear reply.

It is not true that if we opt to remain outside the euro zone, we can be made subject to sanctions. We can be made subject to non-binding recommendations under

3 Dec 1996 : Column 808

article 103, but as the term implies, we are free to disregard them. Article 189 of the treaty makes it clear that the recommendations are non-binding.

Rev. Martin Smyth (Belfast, South): In his statement, the Chancellor said that nothing would be agreed until everything was agreed. That expression is usually used to give reassurance. Whom was it intended to reassure? In the discussions in which I was involved several years ago, nothing was agreed and that was the end of the understanding. Those who disagree will walk away, and those who want to move on will keep moving on, until someone gives in. Do the Chancellor's words imply that the majority veto will be given away, or are they intended to reassure a particular group?

Mr. Clarke: I realise that the hon. Gentleman has experience of negotiations on matters of the most fundamental importance, which gave rise to the idea that nothing is agreed until everything is agreed. In less emotively charged but extremely important negotiations such as those in which we are engaged, it is a perfectly sensible rule to apply, so that agreement is steadily produced, with give and take on all sides and everyone reserving the right to revisit the whole if a new issue arises.

However, these negotiations are not proceeding on that basis. No one wishes to get rid of vetoes; the whole process is based on the treaty. No Minister and no one in the Commission seeks to reopen the treaty base or to extend the treaty's provisions. Although everyone reserved their position last night when we finally left the meeting, we were reduced to discussing pretty obscure details of precisely what kind of economic downturn could give rise to a deficit that might be described as excessive and temporary. A great deal of feeling is expressed on the matter and there is a wide divergence of views. However, ultimately it is not likely to destroy the whole process.

Mr. Iain Duncan Smith (Chingford): In answer to a question from my right hon. Friend the Member for Wokingham (Mr. Redwood) on 25 November, my right hon. and learned Friend gave an undertaking that he would seek copper-bottomed reassurances about the use of article 103 for those who remained out under recital 13. I have listened to my right hon. and learned Friend, but I still cannot see the difference between what he said on 25 November and his comments today. Is not the key to using article 103 the fact that it allows the court to be used at some point for possible infraction proceedings? Is not the best way of copper-bottoming it simply to say, "Let us take recital 13 out of the use of article 103," which would then solve the problem?

Mr. Clarke: Article 103 is concerned solely with the provision of information. In so far as regulations are made under article 103, they are procedural rules. The only way in which they can give rise to sanctions is in the theoretical manner that one can be made subject to infraction proceedings for any non-compliance. However, that has not yet given rise to any fines and it would be rather bizarre to go to infraction proceedings on procedural points. Although people occasionally make statements that imply otherwise, it cannot give rise to any proceedings against a member state for failing to comply

3 Dec 1996 : Column 809

with economic surveillance recommendations, for example, because the treaty expressly provides that those recommendations are non-binding.

Recital 13--the regulation to which my hon. Friend referred--did not come up yesterday because the regulation was not addressed. I think that it will come up at a meeting of ECOFIN some time in January or February next year--I am not sure when we shall face it next. As my hon. Friend knows, I do not agree that recital 13 has the effect that some people fear. When we come to it, I shall address it in the way that I addressed the two regulations yesterday and the report that we had, and seek to get on the face of the document clarity as to its meaning. The recital cannot alter the nature of article 103.

Yesterday I had not the slightest difficulty in getting statements made: my colleagues regard them as bald statements of the obvious truth. We are fairly familiar with the treaty, having spent many hours of our lives discussing it together. I shall seek to come back from discussions on that regulation with a statement that makes it clear. Recital 13 will not matter in the slightest once we see the regulation to which it refers: the regulation that will bring up to date the convergence procedures for those who do not go into the euro zone. According to the latest information that I have, that regulation is not even drafted yet and it has certainly not been tabled by the Commission.

---