PROCEEDINGS OF THE COMMITTEE RELATING TO THE REPORT
Another Amendment proposed, in line 25, at the end,
to add the words "We accept that if joining the euro was
a serious British policy objective the monetary remit of the Bank
of England would have to be altered. We again strongly recommend
that the Government clarifies its position on how the exchange
rate criteria are to be met.".—(Mr Michael Fallon.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 4 | Noes, 6
|
| Mr Michael Fallon | Mr Nigel Beard
|
| Mr David Ruffley | Mrs Liz Blackman
|
| Sir Michael Spicer | Mr Jim Cousins
|
| Sir Teddy Taylor | Mr David Kidney
|
| Mr James Plaskitt
|
| Mr Brian Sedgemore
|
Paragraph agreed to.
A paragraph—(Mr Nigel Beard)—brought
up and read, as follows:
Now that the euro area exists and the pound
sits between three major currency blocks, exchange rate stability
over any prolonged period may be unachievable. Indeed, one of
the main incentives for Britain to join EMU may be to gain exchange
rate stability, as suggested by Professor Buiter. The stipulation
of exchange rate stability over a prolonged period as a convergence
condition will, therefore, become a "Catch-22" condition
where sterling cannot join EMU until stability is achieved but
the best way of achieving stability is to be inside EMU. For Britain
to join EMU it may be necessary to take advantage of a window
of opportunity as the pound/euro exchange rate fluctuates.
Question proposed that the paragraph be read a second
time:—Paragraph, by leave, withdrawn.
Paragraphs 35 to 37 read and agreed to.
Paragraph 38 read, as follows:
A point repeatedly made was that sustainable convergence
required more than the coming together of key UK and euro-11 economic
indicators for a short period of time. The Treasury has already
stated, in October 1997, that it might take "some years"
for it to be demonstrably concluded that any convergence that
was to occur was sustainable. Structural obstacles to sustainable
convergence, including the different trade patterns and debt structures
of the UK and euro-11 area economies, have been identified, although
some witnesses disputed the importance of these factors. Ms Barker,
for example, considered that the UK's trade patterns and debt
structure could change significantly if the UK joined Stage Three.
Professor Begg advanced this argument on a broader front, stating
that "convergence is something that happens not just before
you join a monetary union but also afterwards and as a direct
result of joining", citing as examples changes to the behaviour
of labour market institutions in Ireland and Spain as a result
of membership of the single currency. Mr Barty and Mr Bootle both
played down the importance of post-entry convergence by arguing
that close convergence was required before a decision to join
Stage Three was taken.
Amendment proposed, in line 14, at the end, to add
the words "Our witnesses agreed that sustainable convergence
is the most critical of the five tests and that it should be more
than a short-term cyclical coincidence, though, as some witnesses
argued, entry itself might bring the economies of the UK and euro-area
closer together".—(The Chairman.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 7 | Noes, 2
|
| Mr Nigel Beard | Mr Jim Cousins
|
| Mrs Liz Blackman | Sir Teddy Taylor
|
| Mr Michael Fallon |
|
| Mr David Kidney |
|
| Mr James Plaskitt |
|
| Mr David Ruffley |
|
| Mr Brian Sedgemore |
|
Another Amendment proposed, in line 14, after the
words last added, to add the words "There is no evidence
to support the view that the sustainable convergence condition
will be met in the foreseeable future".—(Sir
Michael Spicer.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 4 | Noes, 6
|
| Mr Michael Fallon | Mr Nigel Beard
|
| Mr David Ruffley | Mrs Liz Blackman
|
| Sir Michael Spicer | Mr Jim Cousins
|
| Sir Teddy Taylor | Mr David Kidney
|
| Mr James Plaskitt
|
| Mr Brian Sedgemore
|
Paragraph, as amended, agreed to.
Paragraph 39 read and agreed to.
Paragraph 40 read, as follows:
"The Chancellor's investment test referred to
"the quantity and quality of long-term investment in industry,
infrastructure and new technologies" which, as we observed
in 1998, "appear to us to be consequences of the first two
tests having been satisfied". The test has come to be interpreted
in terms of the impact staying out of Stage Three of EMU might
have on inward investment into the UK, an issue which has generated
much debate in Parliament and in the press in recent weeks. Mr
Cushnaghan, of Nissan UK, forcefully argued that "it is getting
increasingly difficult to make the cost case for mobile projects
to attract them to the United Kingdom" because of the high
value of sterling against the euro, a situation which might be
improved if the UK were to join Stage Three. Corus, the steel
group which has recently announced significant UK redundancies,
told us that "the volatility of the pound against the euro
greatly increases the risk of investment in the UK in any industry
competing with Euroland companies. As long as this volatility
persists, firms are likely to minimise risk by investing in euro
member states". Other witnesses questioned whether the UK's
decision not to join Stage Three was a major influence on the
decisions of inward investors. Business for Sterling wrote "for
sophisticated global investors, exchange rate movements are largely
irrelevant and can be easily and cheaply hedged. Far more important
are differences between regulatory systems, tax regimes, workforce
skills, telecommunications and other infrastructure. In so far
as these would be affected by joining the euro, we believe it
would make us less attractive to global investors, not more".
Amendment proposed, in line 18, at the end, to add
the words "However, such views are not reflected in the public
statements of those faced with making major investment decisions
in Britain".—(Mr Nigel Beard.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 4 | Noes, 5
|
| Mr Nigel Beard | Mr Michael Fallon
|
| Mrs Liz Blackman | Mr David Kidney
|
| Mr Jim Cousins | Mr David Ruffley
|
| Mr James Plaskitt | Sir Michael Spicer
|
| Sir Teddy Taylor
|
Paragraph agreed to.
Paragraph 41 read, as follows:
Both sides of the debate have used recent inward
investment statistics to back up their arguments. The Invest in
Britain Bureau announced on 5 July that inward investment for
the year ending 31 March 2000 had totalled £252.4 billion,
an increase of 23 per cent on the previous year. Mr Anthony Nelson,
of Schroder Salmon Smith Barney, writing in a personal capacity,
drew attention to the declining proportion of foreign direct investment
into Europe flowing into the UK, however, stating that "recent
studies suggest that France, Spain and Germany are catching up
rapidly with Britain as a favoured location for internationally
mobile inward investment projects". Mr Cushnaghan expressed
the view that, for a major manufacturing inward investment project,
at least two years typically elapses between the decision to undertake
an investment project and the major expenditure on it taking place.
He concluded that the effects of the UK's decision not to participate
in the launch of Stage Three of EMU would not be felt on expenditure
on inward investment projects until "at the earliest ...
2002-03-04". It is therefore too early to be certain whether
foreign firms are being deterred from undertaking new investment
projects in the UK as a result of the UK's decision not to participate
in the launch of Stage Three of EMU, although it would be wrong
to be complacent.
Amendment proposed, in line 15, to leave out the
words "although it would be wrong to be complacent"
and add the words "indeed any evidence which exists suggests
the conclusion that foreign investment is encouraged by the flexibility
and the low costs currently enjoyed by Britain outside the euro".—(Sir
Michael Spicer.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 4 | Noes, 6
|
| Mr Michael Fallon | Mr Nigel Beard
|
| Mr David Ruffley | Mrs Liz Blackman
|
| Sir Michael Spicer | Mr Jim Cousins
|
| Sir Teddy Taylor | Mr David Kidney
|
| Mr James Plaskitt
|
| Mr Brian Sedgemore
|
Another Amendment proposed, in line 15, at the end,
to add the words "There is a potential threat to investment
if Britain remains outside the EMU for more than a year or two,
though it may be too soon to assess the extent of the danger.".—(Mr
Nigel Beard.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 2 | Noes, 8
|
| Mr Nigel Beard | Mrs Liz Blackman
|
| Mr Brian Sedgemore | Mr Jim Cousins
|
| Mr Michael Fallon
|
| Mr David Kidney
|
| Mr James Plaskitt
|
| Mr David Ruffley
|
| Sir Michael Spicer
|
| Sir Teddy Taylor
|
Paragraph agreed to.
Paragraph 42 read, as follows:
The Treasury has stated that "given the importance
of the financial sector to the UK, it is vital that the decision
on whether to join the single currency does not damage its competitiveness.
The dynamic nature of the sector means that there is no room for
complacency". Witnesses from the financial services sector
were united in the opinion that they, and, in particular, the
City of London as a global financial centre, has not yet been
adversely affected by the UK's decision not to participate in
Stage Three of EMU from the outset. British Invisibles supplied
us with a breakdown of trading volumes and recent developments
in a broad range of City markets, drawing on a poll of seven major
investment banks, and concluded that "the launch of the euro
has not had any significant impact on London's status as an international
centre". Credit Lyonnais UK wrote that "the introduction
of the euro has had much less overall impact than either the bank
restructuring and rationalisation that is currently taking place,
or the shift to electronic trading. We are of the view that the
success of the City will not be much affected if the UK joins
the EMU or chooses to stay outside. Rather the City's performance
depends on a range of other factors such as the infrastructure,
the skills base of the labour force, and the regulatory and fiscal
environment". Mr Christopher Johnson, however, thought that
"some elements in the City have been complacent about the
euro", and cited as evidence the recent agreement to merge
the London Stock Exchange and Deutsche Börse. Mr Sweeney,
of the British Bankers' Association, said in oral evidence that
"it was our view before that [UK membership of Stage Three
of EMU] was largely irrelevant to the health of the City whether
we were in or out, and that is largely borne out in practice.
There are no areas of business which have manifestly suffered,
and there are some which have manifestly grown since the euro
was launched". He went on to argue, however, that market
rules and conventions could develop in such a way as to encourage
cross-border business within the euro-zone, but not with countries
outside the zone, and that such development, or even merely an
apprehension that they might happen, might disadvantage the UK
financial services sector if the UK remained out of Stage Three.
Amendment proposed, in line 5, to leave out the word
"yet".—(Mr Michael Fallon.)
Question put, That the Amendment be made.
The Committee divided.
| Ayes, 4 | Noes, 6
|
| Mr Michael Fallon | Mr Nigel Beard
|
| Mr David Ruffley | Mrs Liz Blackman
|
| Sir Michael Spicer | Mr Jim Cousins
|
| Sir Teddy Taylor | Mr David Kidney
|
| Mr James Plaskitt
|
| Mr Brian Sedgemore
|
|
