1. We have given further consideration to the following on the basis of
further information from the Government. We maintain our opinion that it raises questions of legal
and political importance, and confirm our recommendation for its further consideration on the Floor
of the House rather than by European Standing Committee B:--
H M Treasury
(17540)
10893/96
COM(96)498 |
Commission Communication on reinforced convergence procedures and a new exchange rate mechanism
in stage 3 of Economic and Monetary Union (EMU). |
Background
1.1 On 6 November[2] we reported on a Commission
Communication on reinforced convergence procedures and a new exchange rate mechanism in stage 3 of
Economic and Monetary Union. We recommended a debate on the Floor of the House.
1.2 In a letter to us dated 21 October, the Chancellor of the Exchequer (Mr Clarke)
had indicated that, although the Commission's paper on exchange rate issues had been deposited in
the House, the key document had been prepared by the European Monetary Institute (EMI) for
consideration at the European Council in December. The Chancellor said that he hoped to be able
to provide us with a copy of this document and an explanation of it as soon as possible, although,
as the document was confidential, he would not be able to deposit it.
The EMI proposals
1.3 Although the EMI report has not been deposited, the proposals are described in
a further letter from the Chancellor, dated 31 October, in which he says:
"The EMI propose a structure on the following lines
--The euro should be the anchor of the new exchange rate mechanism (ERM2). Central rates
should be defined relative to the euro, with a permissible band of fluctuation that is yet to be
agreed but which is expected to be fairly wide. However, Member States may also choose to establish
tighter fluctuation bands against specific other currencies on a bilateral basis;
--central parities should be set by agreement between the European Central Bank (ECB),
Ministers and Central Banks in non-euro Member States (NCBs). Ministers and Central Bank Governors
of countries not participating in ERM2 will have no vote in this procedure;
--intervention to defend ERM2 margins would in principle be automatic and unlimited,
although the ECB and the non-euro area NCBs would have the option of suspending intervention if this
impinged on their prime objectives of price stability. However, the circumstances under which
intervention would be abandoned should not be formally defined;
--intervention before these margins were reached would be by bilateral agreement between
the ECB and the NCB concerned. Very Short-Term Financing (VSTF) for such intervention would remain
available on broadly the same basis as at present;
--the new régime would need to remain flexible, and re-alignment of the parities in
ERM2 would remain possible;
--co-operation mechanisms should respect the independence of the ECB and the non-euro area
NCBs;
--the convergence criteria for EMU would continue to be applied equally to all non-euro
currencies;
--full specification of these operational details would have to wait the establishment of
the ECB. But the basic features should be announced well ahead of a decision on the first wave of
EMU participants."
1.4 The Chancellor says that Heads of Government are expected to reach agreement on
the key principles of the system at the forthcoming European Council in Dublin on 13-14 December
1996. Detailed proposals await further work and will be established by European Council Resolution;
as for the current exchange rate mechanism, they will be on an inter-governmental basis. He
continues:
"However, the issues are also likely to be discussed at the ECOFIN Council meeting on
2 December, so we would be grateful for your views before that date."
1.5 The Chancellor also reminds us that the UK Government has made it clear that it
has no intention that sterling should re-enter the current ERM or any new mechanism.
1.6 Although the Chancellor's letter is dated 31 October, we did not receive it, nor
did we know of its existence, until today. We are therefore reporting on it at our earliest
opportunity.
Conclusion
1.7 We report the contents of the Chancellor's letter because it will be relevant
to the debate which we have recommended on the Commission's proposals for a new ERM. Having
considered the Chancellor's letter, we confirm our recommendation for a debate on that document.
We would have wished to be able to consider and report on the EMI proposals themselves but, as the
EMI is not a Community institution, we cannot consider such a document unless it is deposited in
the House by a Minister of the Crown, when it will fall within SO No. 127(1)(iv). In this case the
Chancellor has decided not to do so because the document is confidential.
1.8 The Leader of the House has told us that, despite our strong recommendation
that this document and two others which we considered at the same time should be debated on the
Floor of the House, the debate is now to take place in European Standing Committee B. Because these
three documents contain important practical proposals for the introduction and operation of the
single currency, we find this decision most disappointing.
1.9 We are of the view, however, that the Members of European Standing Committee
B should have the fullest possible information to permit them to consider the issues relating to
stage 3 of Economic and Monetary Union which are to be considered at the Dublin European Council.
For this reason we hope that the Chancellor will consider making the EMI report available to Members
of the Standing Committee, even though it has not been deposited for scrutiny purposes.
2. (17540) 10893/96; see HC 36-ii (1996-97), paragraph 2 (6 November 1996).
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