Examination of witnesses (Questions 560
- 579)
TUESDAY 25 JULY 2000
THE RT
HON GORDON
BROWN, MR
GUS O'DONNELL,
MR JOHN
GIEVE, MR
ADAM SHARPLES
and MR ED
BALLS
560. Can I just finish my question, Chancellor?
You say you are in favour in principle of the UK joining the single
currency. You set the five tests by which you are going to then
judge whether we should. Then you set economic policy completely
not related to the five tests. Is that not a little bit odd?
(Mr Brown) Let us look at the five tests and then
tell me whether I am setting economic policy unrelated to the
five tests.
561. You have agreed with your Economic Secretary
that you are not setting the economic policy in relation to the
tests at all.
(Mr Brown) No, I did not say that at all. I think
you are misconstruing what was said by the Economic Secretary.
562. Can I just remind you what she said and
ask you whether you agree with her or not. She said "We are
not trying not to meet them or to meet them". Therefore,
she is saying economic policy is not set in relation to the five
economic tests.
(Mr Brown) Hold on. What some people suggest is that
you should make economic policy as if it is not in the interests
of the country. You have to make economic policy in the interests
of the country. Some people, for example, suggest we should have
an exchange rate target, which is presumably your position as
well. I have said already that I think that would be the wrong
decision to have both an inflation target and an exchange rate
target and that is not what our position is. That is exactly what
the Economic Secretary is saying, that we will set the right economic
policy for our country. That policy is, first of all, to have
the stability that is necessary as a foundation for growth and
then it is to take a whole series of measures that actually are
not irrelevant to the tests at all, they are quite relevant to
the tests. What are the economic tests? First of all—
563. Can I just stop you because I do know the
economic tests. We have gone through this. What I am trying to
work out—
(Mr Brown) Chairman, I should be allowed to finish
my answer here.
564. Chancellor, what I want to work out is
whether economic policy is going to be guided by these tests at
all. If it is not, as it seems to be the case, are we ever going
to meet these tests? It seems to me that if economic policy is
not directed to meeting the tests then the only chance of us meeting
the tests is surely accidental, it just happened by chance that
we happened to meet the tests.
(Mr Brown) I think you are misunderstanding this completely.
Are you proposing, for example, an exchange rate target?
565. I am asking the questions, Chancellor.
(Mr Brown) Right. Let me then explain the tests and
why they are relevant to both the conduct of economic policy in
Britain and to a future decision about membership of the euro.
The tests are firstly employment, secondly investment, thirdly
the effect on individual sectors of the economy, fourthly the
flexibility of the economy, its ability to withstand shocks, for
example, and fifthly the durability of convergence.
Mr Davey: So your economic policy —
Chairman
566. Let the Chancellor finish.
(Mr Brown) I do put it to the Committee—because
you are undertaking what I gather is a serious investigation,
although you do not expect to reach consensus on the matter and
I can understand having listened to this conversation why it is
difficult to reach consensus from people of completely different
views on the principle of the euro—that these are serious
economic tests. You will not wish to recommend joining the euro
unless you are satisfied that these economic tests are met. I
believe it is incumbent upon us to make the decision on the euro
in the national economic interest and the national economic interest
includes being sure that the euro is good for employment, investment,
it is good for the different sectors of the economy, it is good
where there is the potential for shocks because there is flexibility
to withstand them and it is good because we do not just have momentary
convergence but we have durable convergence. I would have thought
that even though Members of the Committee disagree on the constitutional
issue related to the euro, you would at least agree that a sensible
decision on the euro could not be made as happened under the ERM
under the last Government. It has to be made in a serious assessment
of what are the economic consequences and possibilities as a result
of joining.
Mr Davey
567. Let me just try one more way. Do you expect
and hope these tests to be met?
(Mr Brown) We expect to make an assessment early in
the next Parliament as to whether they are being met. We made
an assessment in 1997. We said we would make a further assessment
early in the next Parliament. We are committed to the principle
of the euro but, of course, these conditions must be met. If these
conditions, ie the tests, are met we would make a recommendation
positively to the country. That recommendation would have to be
passed not just by the Government, it would have to be passed
by the United Kingdom Parliament and then we have recommended
that there should be a referendum on the matter.
568. When you make these assessments in the
first year or two of the next Parliament would you hope or expect
that assessment to be in favour of joining the single currency
or against joining the single currency?
(Mr Brown) I am not going to prejudge that assessment.
569. No, I am not asking you to prejudge it,
I am asking you what you would like those tests to tell you.
(Mr Brown) The point of having an assessment is that
having decided that on principle this has benefits for the United
Kingdom economy we have to decide in detail as to whether the
tests we have set are being met. That is the right position for
us to be in when we make this economic assessment. We can therefore
make a rational judgment on whether the tests have been met and
then put the question to the people. We should not presume that
judgment on the basis of either ignoring the tests or prejudging
them.
570. To summarise, Chancellor, your position
on the five economic tests is this: the economic policy is not
set to meet them or not to meet them and you cannot even tell
us whether you hope or expect to meet them, is that right?
(Mr Brown) No. Our economic policy is set in the national
economic interests of this country. That economic policy requires
us to create stability and build upon that stability with higher
productivity, employment opportunity for all and good public services.
It requires us to run an economy which is creating jobs. It requires
us to run an economy which has high levels of investment. It requires
us to run an economy which has sufficient flexibility to withstand
shocks. It requires us to run an economy where if there is convergence
then that convergence is sustainable.
571. Do you expect the logic of your position
to survive any further analysis over the next year or two? The
position does not appear to be terribly logical.
(Mr Brown) It seems to me, Mr Davey, you are approaching
this question from having already made up your mind what we should
do. I am approaching this question from having decided that there
is merit in the principle but wanting to be absolutely sure that
the tests we have set are going to be met. That is how we will
approach this issue. Personally I believe that is what the British
people would expect us to do. They would expect us to put an assessment
before them. They would expect to look at that assessment in detail
and they would want to be convinced that joining the single currency
was not only good in principle but you could show it was going
to benefit employment, investment, the different sectors of the
economy and that what convergence was achieved was going to be
a durable convergence. In other words, it was not like the membership
of the ERM where it was clear that the convergence that was achieved
to get into the ERM was not sustainable.
Mr Beard
572. Invest UK has recently announced record
figures for inward investment in the United Kingdom. How much
do you think those figures will be affected by (a) us joining
the single currency or (b) ruling it out?
(Mr Brown) I think to rule out a single currency for
ever, as some people would do, would indeed not be helpful at
all. I think many people invest in Britain because they are investing
in Britain as part of Europe. I think they do realise that we
are going to maintain our membership of the European Union. Now
they would expect us, as industrialists and businessmen and women,
to make a decision on the single currency on the basis of what
is the economic interest of the country. They would expect us
to put before them, as we put before the British people, a reasoned
assessment of the benefits and other advantages or disadvantages
of joining. Ruling out the single currency would in my view be
a mistake and I think people would see it as being done not for
economic reasons but being done for dogmatic or ideological reasons.
That is why I have said, and the Government has said, that the
principle of the single currency we support. We would not rule
it out for dogmatic reasons. In other words, if it was in the
interest of the economy to join then we would not refuse to join
because of some dogma or ideology. As far as the decision itself,
I again come back to this point, I think the inward investors
would like us to make a decision on the basis of economics.
Mr Plaskitt
573. Chancellor, in your statement to the House
of Commons on 27 October 1997 you said—and I quote—"We
believe that, in principle, British membership of a successful
single currency would be beneficial to Britain and to Europe".
Can you tell us what the definition of "successful"
is?
(Mr Brown) We have set these tests. I would say that
the creation of a single currency was technically successful.
A lot of people said at the time, at the beginning of 1999, that
the single currency would not be introduced smoothly, it would
not be introduced in stable conditions. I think you have to look
back at that time, despite what everybody said about there being
market uncertainties as a result of the creation of a single currency,
technically it was a very smooth exercise. I think the second
thing you have to say is that the growth that we have wanted to
see in Europe is now happening. France is growing above three
per cent, Germany is growing at three per cent, Europe as a whole
is growing around three per cent, there are one or two countries
which are a bit less than that and one or two countries, like
Ireland, that are growing faster than that, some degree faster.
Generally economic growth in Europe has recovered, unemployment
is coming down, investment is rising, consumer expenditure is
rising and, therefore, the European economy is growing. As far
as the weakness, however, of the euro currency, that has been
a difficulty for Britain as we have all, I know, recognised. That
obviously, over a period of time, is something that will in my
view be rectified as a result of decisions being made based on
economic fundamentals. As far as there being growth in Europe
and as far as there being a technical success in introducing the
euro without there being massive disruption in the market and
everything else, I think you can point to something that has already
been achieved in getting the euro under way.
574. You have settled on what would constitute
success for the euro. It is to do with technical operations, European
growth levels and its external value.
(Mr Brown) No, because basically the issue for us
is the economic tests as far as they affect the United Kingdom.
Therefore, we have got to look at the performance of the euro
in relation to the tests that we have set for ourselves. We must
show, for example, that membership of the euro will lead to greater
employment in Britain. We must show that it will be good for investment.
These are the real tests. Obviously you would not want to join
an unsuccessful single currency.
575. Of course not. What would constitute an
unsuccessful single currency?
(Mr Brown) An unsuccessful single currency would be
one that was not working. Of course the tests for us are these
five things that I have set down, these would be the decisive
tests. There is no sixth test, if you are implying there is a
sixth test.
576. No, I am not.
(Mr Brown) There is not a sixth test.
577. I had understood the five tests applying
to testing the proposition of whether the UK should join. They
are tests we apply to ourselves in that sense.
(Mr Brown) Yes.
578. The point I was asking, you refer to joining
a successful single currency which raises the possibility that
it may or may not be a success as a single currency as already
constituted.
(Mr Brown) Is it not true that when we make our assessment
we will have to look in every case at these five tests as to whether
the euro is able to meet our ambitions? If we decide that the
euro is unsuccessful or the euro is not working to help us meet
our objectives for employment or for other means then we would
draw appropriate conclusions. I would say that the test of the
success of the euro is implicit in the five domestic tests that
we are applying.
579. The five domestic tests also apply in a
sense to the euro as presently constituted?
(Mr Brown) I think it would be wrong to put the issue
other than that there are five tests that we have set down—employment,
investment, and so on and so forth—these are testing whether
we would be better off inside the euro or outside the euro and
that depends on whether the euro is successful.
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