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The Prime Minister: A strange element comes out in the remarks of Members of the European Parliament, of certain people at the Bundesbank and of the hon. Gentleman. It should be made absolutely clear that the decision on the appointment of the head of the central bank and the board is a political one. It is a political appointment. With the greatest respect to Europe's central bankers, it is not their appointment, it is ours, the politicians. Once the appointment has been made, it is a matter for the central bank, and it will have independence. I therefore find odd some of the European Parliament's criticism and questioning of why a political deal is being done. It is a political deal, as that is its very purpose. Power to nominate the members of the central bank has been given to politicians, not to bankers, because it is a
political deal. I had always thought that people sharing the hon. Gentleman's political perspective argued that that was the right thing, not the wrong thing, to do.
It is important that we say to Europe's central bankers: "You have your place in this system--once nominated, you will serve, and serve independently--but you do not take the decisions on nomination. We take the decisions."
Mr. Rhodri Morgan (Cardiff, West):
Does the Prime Minister agree that this weekend's events were effectively a search for Europe's equivalent of Alan Greenspan, chairman of the Federal Reserve, and for someone who is as committed to fighting inflation as to ensuring full employment? To use the old American phrase: we want sound money, and plenty of it. Will the Prime Minister explain how the weekend's events have moved us forward in finding Europe's Alan Greenspan?
The Prime Minister:
The short answer to that question is that it depends on the credibility of the two people who will be running the bank, effectively for 12 years or more. I do not think that anyone doubts that both Mr. Duisenberg and Mr. Trichet are eminently credible people. Therefore, as I said, once we blow away the froth and speculation about the matter, we get down to the fact that, for 12 years, we shall have credible and strongly disciplinarian central bankers.
It is odd that, on various parts of the political spectrum, people are saying that Mr. Duisenberg should have been forced to stay on for the full eight years, as if that would somehow assist the situation. Surely the best situation is one in which the person who has been overseeing the euro's preparations carries through those preparations to their reality, and then--as he has already said that he wishes to do--steps aside for another highly respected central banker, who will perform exactly the type of role performed in the Federal Reserve, as described by my hon. Friend. The euro's credibility will rest on those people's credibility.
Mr. John Swinney (North Tayside):
The Prime Minister, in confirming the Government's stance on economic and monetary union, has effectively confirmed conditions that are likely to lead to the pound remaining strong for some considerable time. What consideration do the Government plan to give to the position of manufacturers and exporters--who will have to cope not only with those trading conditions in the next two to three years, but with the difficulties of convergence with the euro at some time in the future? What action will the Government take to ease the burden faced by manufacturers and exporters, to provide realistic and fair trading conditions for important United Kingdom companies?
The Prime Minister:
The euro is not the only reason for a strong pound. As events of the past few days have shown, much more than the euro issue is behind the strong pound. It is important that we do not think that a lower pound is the answer to all manufacturers' problems. If the pound becomes unnaturally high at certain points--about which people can argue--it will, of course, cause difficulties. Ultimately, however, the single most important thing is that action is taken on investment and productivity to raise the standard and quality of British industry. As I said, we still have a way to go on that matter.
The best thing that we can do is not to try to intervene and artificially to devalue the pound--which is the policy currently being advocated by the Conservative party--but to ensure that we do not return to the boom-and-bust instability that resulted, at the end of the 1980s and in the early 1990s, in interest rates of 15 per cent., in the deepest recession that the United Kingdom has had, in record borrowing and in record bankruptcies. That is not a way in which to run the economy.
Mr. David Winnick (Walsall, North):
Does my right hon. Friend accept that there will be little interest or excitement in the United Kingdom about who heads the central bank, and that that is not the dominant issue in people's minds? The dominant issue is largely whether a single currency will help or hinder jobs, prosperity and growth. Does he accept that that is the really substantial issue, and that--although certainly not at this moment--the British public will have to be persuaded that a single currency would be in the overall economic interests of our country?
The Prime Minister:
My hon. Friend is right. The issue, whether Britain is in or out, is whether a single currency is good for British jobs, investment and industry. It is in our interests to have a strong euro, which is why the decisions made at the weekend are right. I doubt whether people are discussing the relative merits of Mr. Duisenberg and Mr. Trichet in the country's clubs and pubs, but they understand that it is important that the euro is strong, and the decisions made at the weekend will strengthen it.
Sir Peter Emery (East Devon):
The right hon. Gentleman said that it is essential for Europe that the euro is a success. If that is the case, ought not the Government to be doing everything possible to make it a success? If that is so, two questions arise. First, would not that success be more quickly achieved if Britain entered sooner--as soon as possible? Secondly, as many European countries have had to impose stringent financial and monetary disciplines to qualify for entry, what specific cost does the Prime Minister think would arise from the changes to Government policy on financial and monetary structures that would be necessary for Britain to enter?
The Prime Minister:
I agree with the right hon. Gentleman that we have to try to do everything possible to make the euro a success. That is why I thought that, however messy the process, it was extremely important on Saturday to sort out the ECB and decide on credible people. We can promote economic reform in Europe and place the emphasis on education and skills rather than on over-regulation as the best way in which to produce a competitive market.
The disciplines that Britain would be required to follow are those that we should be following in any event. It is important that we run essentially stable and prudent monetary and fiscal policy. That is why we gave the Bank of England independence over setting interest rates. Interest rates have had to go up--rightly--to squeeze inflation out of the system. It is interesting that long-term interest rates are now below the levels that we inherited
on 1 May 1997. That is because there is greater credibility in the system. By being financially prudent, we have almost eliminated the country's structural debt. Those are the actions that we would need to take if we wanted to join the euro; my point is that it is worth taking them in any event.
Dr. Lynne Jones (Birmingham, Selly Oak):
I listened in the previous Parliament to prime ministerial statements after a European Union summit. It is clear that my right hon. Friend's predecessor would have been very pleased to have made this statement announcing decisions that have been greeted in the markets with such calm. Surely everyone agrees that it is vital that the euro is seen as a strong currency. Would not there have been greater confidence in the common currency if Britain had joined in the first wave? How can it be said that the economies of Italy and Belgium are more convergent than that of the United Kingdom with those of Germany, France and the Netherlands?
The Prime Minister:
On my hon. Friend's second point, we must make decisions in our national economic interest. The problem with our economy at present is that we are at a different stage of the economic cycle from France and Germany. We have been at the peak of the cycle and they have not, which is precisely why interest rates are far lower in France and Germany than in Britain. We are not convergent in the way we need to be.
Cliffhangers such as those in the negotiations at the weekend happen all the time in Europe. The issue is whether we get the right result in the end. My hon. Friend is right to say that the result is better for Britain and for Europe.
Sir Peter Tapsell (Louth and Horncastle):
Is the Prime Minister not being disingenuous in pretending that he cannot understand the simple legal and political fact that article 109a of the Maastricht treaty invalidates the appointment of anyone to be president of the European Central Bank who is not intending and hoping to serve an eight-year term?
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