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Economic and Finance Council

3. Mr. Hugh Bayley (City of York): If he will make a statement about the outcome of the ECOFIN meeting in York. [38243]

The Chancellor of the Exchequer (Mr. Gordon Brown): As president of ECOFIN, I hosted the informal meeting of European Finance Ministers and central bank governors in York from 20 to 22 March. I am grateful to the city of York, which my hon. Friend represents, for the hospitality that was provided and the marvellous reception that delegates received. The agenda for the meeting covered critical issues facing the European Union--its enlargement, economic reform and the implications of the financial and economic situation in Asia.

Mr. Bayley: I thank my right hon. Friend for his kind remarks about my constituency. Does he agree that Britain's influence in the European Union is growing because of the constructive role that the Government have

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played in the United Kingdom presidency? Did he think that the ECOFIN meeting in York was more successful because the Government's policies contrasted with the policies of isolation and drift of the Conservative Government before the election? Finally, did he and his fellow Ministers enjoy their time in York?

Mr. Brown: Indeed we did. Some delegates reminded me what happened when, under the Conservative Government, they arrived in Bath for an informal meeting and some things went wrong.

Britain is leading the agenda for European economic reform. We proposed the Luxembourg conference on employability, which led to significant advances, including employment action plans from each country, and we are now proposing the same reforms for product and capital markets. I believe that we are making considerable advances in the agenda for economic reform, which is vital for the future of Europe, and I am grateful to York for providing the facilities in which many of these decisions were considered.

Sir Michael Spicer (West Worcestershire): At the ECOFIN conference in York, did the Government not completely cave in on the Maastricht criteria for entry into the single currency? Is that not scandalous? What is the point of the criteria, if no one believes in them or complies with them? Does that not call into question the Government's tests for economic credibility on sterling's entry into the currency?

Mr. Brown: No. The convergence criteria of the Maastricht treaty were not discussed at York.

Mr. Denis MacShane (Rotherham): Is my right hon. Friend aware that, at the next ECOFIN meeting in Austria, he will find many prices--for books, beer and wine--posted in euros as well as in Austrian schillings? The Conservative party is terrified of the fact that all other European parties of the right now back the euro. In the interests of stability, will he join me in welcoming British Steel's decision to pay its bills in euros and the fact that the Vauxhall workers have today voted to accept a pay deal that will link their pay to the stability that is offered by the euro? Is that not the right way for British business to go?

Mr. Brown: Yes. The difficulty that we faced when we came to power was that, because of the divisions in the Conservative Government, so few preparations had been made for the introduction of the euro. The Government are encouraging the legal changes that make it possible to trade in euros--when I met the Confederation of British Industry last night, I was told that that was one of the measures in our first 11 months that has encouraged it.

Mr. Michael Fallon (Sevenoaks): Why is it that, four months into the right hon. Gentleman's six-month chairmanship, there is still no agreement on the presidency of the European central bank? Is that another hard choice that is being fudged along with the rest of the Maastricht criteria, or is he waiting for the Prime Minister to sort out the stalemate that has arisen because of his flawed chairmanship?

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Mr. Brown: I am glad that, from the Opposition Front Bench, we now have a positive and constructive interest in matters European and in who is appointed president of the European central bank. As I reported after Monday's meeting, the decision must be made by July, which is when the central bank comes into being--I expect the decision to be made in May.

Mr. Gordon Prentice (Pendle): Was the proposed abolition of duty-free sales within the European Union in July 1999 raised in York? If not, will my right hon. Friend undertake to raise the matter at the next ECOFIN meeting on 19 May, bearing in mind the fact that the European Parliament has unanimously called--there were no dissenters--for an urgent study before September of the implications of the abolition of duty-free sales on jobs and on economies throughout the Union?

Mr. Brown: The issue of duty-free could be reopened only if there was unanimity in favour of doing so. That is the European Union position. There is not such unanimity, and we are dealing with the implementation of a decision that was agreed by the previous Conservative Government.

Belgium (Government Debt)

4. Mr. Graham Brady (Altrincham and Sale, West): What assessment he has made of Belgium's compliance with the Maastricht convergence criterion on Government debt as a proportion of gross domestic product. [38244]

The Chancellor of the Exchequer (Mr. Gordon Brown): The European Monetary Institute and Commission convergence reports provide a comprehensive assessment of the degree of convergence of member states against the treaty criteria and of the importance of economic reform. Those and all factors will be taken into account, and Finance Ministers will also make a statement on fiscal stability and economic reform.

Mr. Brady: Had the Chancellor given a straight answer, he would of course have said that both Belgium and Italy have debt at more than twice the level that is acceptable under the convergence criteria. Does he accept that allowing the euro to go ahead without proper convergence of the 11 currencies is one of the reasons why it will be a soft currency, and that the value of sterling will be forced up still further? Does he share my concern that the prediction of the north-west chambers of commerce, that manufacturing in the region will go into recession this year, will come true because of his policies on the matter?

Mr. Brown: I do not think that what is happening to manufacturing industry this year has to do with what the hon. Gentleman says about Belgian debt. The Government, as chairman of ECOFIN, will listen to all member states. We are studying the reports of the European Monetary Institute and the Commission, and I hope that my right hon. Friend the Leader of the House will announce later today an opportunity for hon. Members to debate those matters either on the Floor of the House or in Committee before 1 May.

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Mr. Bill Rammell (Harlow): The Belgian Government deficit and debt ratio have declined significantly since 1993, showing a clear downward path, in accordance with the convergence criteria. Does my right hon. Friend agree that the Conservatives' misrepresentation of what is happening in other European economies is a clear attempt to undermine the single currency and make it fail, regardless of the consequences for Europe in general and our economy in particular?

Mr. Brown: I am grateful to my hon. Friend, who rightly points out the change that has taken place in the diminished Conservative party since the general election. Before 1997, Conservative Members were opposed to Britain joining a monetary union; now they seem to be opposed to anybody else joining it. They are not fit for government. They are not fit for opposition.

Mr. Edward Davey (Kingston and Surbiton): When making a similar assessment for the United Kingdom to the one that he has made for Belgium, how does the Chancellor intend to assess sterling's record on stability and the appropriate level for it to enter a single currency? When the exchange rate mechanism is effectively disbanded on 1 January 1999, will he consider any type of exchange rate policy for the pound with respect to the euro?

Mr. Brown: As I said before, we have no intention of rejoining the exchange rate mechanism. I set out the economic tests that we will apply to membership of European monetary union, and they include the five tests that I announced in my statement in October.

Mr. David Winnick (Walsall, North): With 17 million unemployed in the Community countries, what sense is there in those countries being actively encouraged to pursue acute deflationary policies that can only further increase unemployment? I for one am not an enthusiast for the Maastricht criteria, which were negotiated and warmly endorsed by the previous Government.

Mr. Brown: There is no evidence that high inflation and unsustainable budget deficits have produced higher employment. We have to consider what action countries throughout Europe can take to deal with unemployment. I find it encouraging that countries in Europe are following Britain's example in having a welfare-to-work programme and tackling the problems of youth and long-term unemployment. I look forward to progress in reducing the unacceptably high unemployment right across Europe.

Mr. David Heathcoat-Amory (Wells): Has the Chancellor read the Bundesbank report to the German Government, which--[Hon. Members: "Yes."] Well, he should have, because it records not only that Belgium and Italy have more than twice the permitted level of debt for joining the single currency but that, on their published plans, they have no chance whatever of getting down to the permitted level within the next 10 years. Why does the Chancellor not produce his own authoritative report on the fudging and fiddling that are going on? Why is he simply waving the whole project through in a weak and indecisive way, despite the damage to our currency and the excessively high value of the pound, about which he seems not to care?

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Mr. Brown: The right hon. Gentleman makes a point about the Bundesbank report as if it has come out against those countries' membership of the single currency. It has done no such thing. On his policy on the entry of Italy, Belgium or any other country, it is interesting to note that the Conservative party now seems to be against anyone joining economic and monetary union.

Mr. Geraint Davies (Croydon, Central): Does my right hon. Friend agree that news of a prospective recession due to a soft euro does not fit with the facts that the exchange rate is moving down, that the Financial Times reports today the prospect of interest rates peaking and moving down and that we have the lowest level of benefit claimants for 17 years? That is hardly a recession.

Mr. Brown: I agree with my hon. Friend. The progress that we can make in reducing unemployment and getting into work people who have been either registered as unemployed or who were never registered as unemployed in the Conservative years should be welcomed by everyone.

On the movement of exchange rate and interest rates, the Bank of England makes it clear in its inflation report that action had to be taken to deal with incipient inflation in the economy. It has taken that action and will meet next month to review the position.

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