Select Committee on Treasury Eighth Report



1. In Spring 1998 the Committee undertook an inquiry into aspects of the launch of Stage Three of Economic and Monetary Union (EMU), including the planned launch of the new single currency, the euro, which was then still some months away.[2] The inquiry focussed on the validity of the Chancellor's five economic tests, which he announced in October 1997 would be used to "define whether a clear and unambiguous case can be made" for UK entry to Stage Three of EMU;[3] the economic consequences of staying outside Stage Three for longer than the few years envisaged by the Chancellor; the degree of readiness in the UK for the advent of the single currency, while the UK remained, at least initially, outside; preparedness for the possibility of UK entry at a later date; and the handling of both euro and sterling exchange rate policy in Stage Three.

2. Stage Three of EMU commenced on 1 January 1999 with eleven European Union (EU) Member States, although not the UK, participating (see paragraph 5). In March 2000 we announced an inquiry to examine the operation of the first few months of Stage Three, following up our Report of April 1998. The terms of reference were to consider:

    —  monetary conditions to date, including the value of the euro and its position as an international reserve currency, and the actions and structure of the European Central Bank

    —  the performance and the future prospects of the euro area economy and the progression of economic convergence between Member States since the euro's launch

    —  whether developments in the euro area economy and the UK economy have made any substantive difference to an assessment of whether the UK satisfies (i) the Maastricht convergence criteria and (ii) the Government's "five economic tests"

    —  the implications for the euro of enlargement of the EU

    —  the National Changeover Plan and the level of preparation undertaken by (i) UK firms and (ii) the public sector for possible entry into Stage Three of EMU.

3. One issue we have again chosen not to consider is whether or not the UK should join Stage Three. We reiterate our comments of 1998: "Members of the Committee have differing views as to the intrinsic merits of EMU and we have therefore decided that it would be unproductive to attempt to reach a view as to whether the UK should or should not participate in Stage Three."[4] We have also chosen not to look in detail at the costs which might be incurred by businesses and others as a result of a decision to join Stage Three, an issue which is currently being considered by the Trade and Industry Committee.[5]

4. We heard oral evidence on six occasions in the course of this inquiry: from Mr James Barty, Chief European Equities Economist, Deutsche Bank, Professor Iain Begg, Joint Director, European Institute, South Bank University, Mr Roger Bootle, Specialist Adviser to this Committee on Monetary Policy, Professor Willem Buiter, former member of the Bank of England Monetary Policy Committee and now Chief Economist of the European Bank for Reconstruction and Development, and Dr Daniel Gros, Director, Centre for European Policy Studies (CEPS), on 13 June; from Commissioner Pedro Solbes Mira, the European Commissioner responsible for Economic and Monetary Affairs, and Commission officials, on 15 June; from Mr John Cushnaghan, Managing Director, Nissan Motor Manufacturing UK Ltd, Mr Andrew Thomas, Managing Director, The Nature Store plc, Mr Hugh Morgan Williams, Chairman, Canford Group plc, and Mr Simon Wolfson, Managing Director, Next plc, on 20 June; from the British Bankers' Association (BBA), the Confederation of British Industry (CBI), the Institute of Directors, and the Trades Union Congress (TUC), on 27 June; from Dawn Primarolo MP, Paymaster General, Miss Melanie Johnson MP, Economic Secretary, and officials, HM Treasury, on 11 July;[6] and from Rt Hon Gordon Brown MP, Chancellor of the Exchequer, on 25 July.[7] We visited Frankfurt and Berlin on 6-8 June in connection with this inquiry and a list of the briefings we received is annexed to this Report. We are grateful to all those who gave oral evidence or assisted with our briefings, and for the written evidence, much of it of an extremely high quality, which we have received.

2   Treasury Committee, 1997-98, Fifth Report, The UK and Preparations for Stage Three of Economic and Monetary Union, HC503-I (hereafter EMU98); also see 1998-99, Minutes of Evidence, The National Changeover Plan, HC290-i Back

3   HC Deb, 27 Oct 97, c584 Back

4   EMU98, paragraph 6 Back

5   And see Qq175-6; App 17 paragraphs 1.10-1.13, sections 2 and 3 Back

6   This evidence session also included questions on the latest ECOFIN Ministerial meeting Back

7   This evidence session also included questions on the 2000 Spending Review (not printed with this Report) Back

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Prepared 28 July 2000