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Mr. Denzil Davies (Llanelli): The Chancellor has emphasised the importance that he attaches to convergence, not only on 1 January 1999, but thereafter if there is a euro. Will he confirm that, while the stability pact applies to Government deficits, it does not apply to Government debts? If that is the case, after 1 January 1999 there will be no sanctions to prevent divergence from national debt.

Mr. Clarke: That is not finally settled--some versions include debt and some include deficits only. The argument is that, in setting fiscal policy, the fiscal deficit for each year is most immediately within Government control. If a Government achieve fiscal deficits that are below the rate of growth of GDP, the total stock of debt as a proportion of GDP is bound to come down. The argument for concentrating on deficits is: if one gets the deficit right, the debt problem will be resolved in consequence.

I see the right hon. Gentleman nodding; he is very well informed and expert in such matters. I respect his judgment and I look forward to hearing his views. I am merely explaining the reason why everyone is concentrating on deficits rather than debt at present.

Mr. John Wilkinson (Ruislip-Northwood): Can my right hon. and learned Friend explain why there is such preoccupation with budget deficits? One understands the treaty commitment and the pursuit of convergence, but has not experience on the continent shown that convergence of itself brings pain and grief--notably high unemployment and recession, especially in France and Spain? As a sovereign independent country, should we not place greater emphasis on other economic criteria, such as levels of employment, investment, competitiveness and technical innovation?

Mr. Clarke: I realise that healthy public finances are not the only thing that matter in economic policy, but

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they matter quite a lot. Their relevance in this context is that modern states, sovereign nation states, have limited freedom in this area because they are subject to the discipline of today's unregulated markets. If a Government get their fiscal policies wrong, they are rapidly punished by the reaction of the markets. The difficulty if one goes into a single currency or economic and monetary union is that if one member of EMU gets it wrong, all the members are punished by the markets. There is a tendency to weaken the currency or drive up interest rates--not necessarily, but they will tend in that direction--if one of the member states gets into a fiscal problem. That is why there is so much concentration on that subject.

The treaty refers to other matters that should be taken into account. I am not sure that unemployment levels are much of a guide, but flexibility in other respects, including flexibility in the labour market, is highly relevant. If countries agree that they can combine their monetary policies so that shocks that might occur--which previously had been absorbed by changes in the exchange rate or interest rates--have to be absorbed in other ways, one has to be clear that they can be absorbed in a way that does not cause excessive strain.

In the end, countries that go into a single currency will find that the main pressure on them is rapidly to make themselves more competitive with one another, and it will step up the overall pressure on all of them to make themselves more competitive. That will help them to develop their own economies and help them in their competitiveness with the outside world.

Mr. Ieuan Wyn Jones (Ynys Mon): Can the Chancellor clarify the reply that he gave to his predecessor, the right hon. Member for Kingston upon Thames (Mr. Lamont), about whether it will be necessary to rejoin the ERM? If the Government were ever to recommend to the House that the United Kingdom should join the final stage of EMU, is it his policy that we would not of necessity have to join the ERM first?

Mr. Clarke: I am one who asserts and believes that it is not necessary first to join the ERM. That matter will be resolved, with every other application for membership, if they occur, if in 1998, or whenever, somebody applies for membership of economic and monetary union and has not joined the ERM. The whole matter will then have to be resolved by the European Council or by the Council of the Heads of Government, which will have to see whether the country satisfies the conditions in totality, set out in the treaty.

Mr. Graham Riddick (Colne Valley): Surely the Maastricht treaty says that countries that wish to participate in the single currency will have to have been within the ERM for two years before joining. If that is so and, as my right hon. and learned Friend said today and also in his letter of 22 November, this country will not rejoin the ERM, surely it means that no Conservative Government can take this country into a single currency. [Hon. Members: "Hear, hear."] If that is indeed the case, let us say so.

Mr. Clarke: I do not think that it is the case. My hon. Friend has got near to the treaty, but he has not

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used the precise words, which, off the cuff, I cannot guarantee to get precisely right myself. He quotes from the test of exchange rate stability, and one of the tests is about being within the normal range of movement of the exchange rate mechanism. At the time that it was drafted, it referred to the narrow bands, which collapsed at least three years ago, so it is extremely arguable whether it is any longer remotely relevant as a test to decide whether sufficient exchange rate stability has been developed by a member state.

All those matters, and many more, still have to emerge if and when we reach a process whereby member states contemplate going into EMU and this country has to decide whether to exercise its opt-out or opt in. That is some way ahead, and I think that an awful lot of things will happen between now and then to make the position much clearer and to make the position of many other countries much clearer, as well as our own. At the moment, we do not even know which countries might be joining and when, and there are equally important details beyond that to be resolved before we can take a judgment.

Mr. Nigel Spearing (Newham, South): The Chancellor referred to the procedures of the House. Is it not a fact that, between now and Friday week, he must table a motion on these topics, which, together with any selected amendments, will be taken and voted on forthwith? As there is to be a debate next week on the motion for the Adjournment--presumably for about six hours before 10 o'clock--would it not make good sense to take the forthwith motions and any amendments immediately afterwards? Can the Chancellor persuade his right hon. Friend the Leader of the House to take that step, for the Chancellor's own reputation, for the Government's reputation and for the reputation of the House and its procedures?

Mr. Clarke: As the hon. Gentleman knows, the tabling of business and the procedures of the House are matters for my right hon. Friend the Leader of the House to deal with on the Government's behalf, and are not matters for me. At an appropriate time, we shall table whatever scrutiny motions are necessary. We shall require a parliamentary scrutiny reserve until such time as we have completed the proper processes.

Precisely what is forthcoming at Dublin remains to be seen. I have already made it clear that any definitive legislative action is unlikely to take place before June next year at the earliest. The documents, about which hon. Members were very concerned 10 days ago, are likely to go through further negotiation. The revised form in which they emerge could be liable to further scrutiny. I hope that the hon. Gentleman will allow me to leave such matters to the expertise of my right hon. Friend the Leader of House, who will clarify the position in due course.

Mr. William Cash (Stafford): Unless my right hon. and learned Friend has found that the textual amendments to which he referred were burnt in the Treasury fire this morning, would he be good enough to allow the House to see them before the debate?

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Will he answer the question that he did not answer last Monday, and that the Prime Minister did not answer the following day? I asked for an absolute guarantee that the regulations would be amended to ensure that, on the assumption that we were out of a single currency, and that countries would be fined for having cheated their way into the system or having failed because of incompetence, United Kingdom taxpayers would not, as net contributors, have to pay one way or another for the default of others.

Mr. Clarke: I referred to an amendment to the regulation in paragraph 17 of article 109(l)(4). Because of a variety of circumstances, the only copy that I had to hand this morning was the one that I was carrying in my pocket. The document will eventually be published by the Irish presidency. The draft regulation will then be laid before the House, so that we can all see it.

I also referred to the emerging text of the report that may be put before the Dublin summit if it is agreed by then. At the moment, it is still an emerging report, the text of which has not been finished. I said that I would ensure that my points were included, and I think that I can give that undertaking, because nobody resisted them yesterday. I do not know whether we shall finish the report in time for Dublin. It is for the Irish presidency to decide when the document will come into the public domain.

There is a mountain of paper, and what is published is rapidly overtaken. There is no attempt to hold anything back from the House; it is a matter of keeping pace with events, and with the sometimes vast quantities of paper that the House is given to scrutinise as much as it wishes.

I do not agree with my hon. Friend's description of the penalties procedure. Penalties arise if a country goes into economic and monetary union, incurs an excessive fiscal deficit contrary to its obligations, and then fails to take any effective steps to reduce it. In my opinion, the purpose of the penalties is to act as a deterrent, and to ensure that Governments do not get themselves into that position. That is why we negotiated to have those penalties in the Maastricht treaty.

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