1. Mr. John Burnett (Torridge and West Devon): What representations have been made in respect of recent changes to the stability and growth pact. 
3. Mr. Kelvin Hopkins (Luton, North): What assessment he has made of the economic implications of non-compliance by member states in the euro-zone with the stability and growth pact. 
The Chancellor of the Exchequer (Mr. Gordon Brown): I have received no recent representations on the stability and growth pact, but when I attended the ECOFIN meeting in Brussels on Tuesday it was agreed to invoke the excessive deficit procedure with respect to Portugal. Since 1997, the Government have consistently supported a prudent interpretation of the pact that takes into account the economic cycle, sustainability and the important role of public investment. We continue to discuss this with our European Union colleagues.
Mr. Burnett: Portugal, Germany and France are all in breach, or about to be in breach, of the pact's deficit limit. Does the Chancellor believe that there is an urgent need for reform of the pact and that, until that reform has been implemented and the stalled Lisbon agenda has been satisfactorily concluded, it would be reckless to recommend to the British people that we join the single currency?
Mr. Brown: I do not know whether the hon. Gentleman is speaking for his party. It is correct that the excessive deficit procedure has been started in relation to Portugal. It is possible that it may be started in relation to Germany, and probable that not an excessive deficit procedure but an early warning procedure may be adopted in relation to France.
Since 1997, we have always taken the view that the pact contains three elements that need reform. First, it should take more account of the economic cycle. I think that the hon. Gentleman would agree with that. Secondly, countries with a high level of debt should be
Mr. Hopkins: My right hon. Friend will know that, following the meeting on Tuesday, some of us were concerned about the decisions that were made. Given that Germany is teetering on the brink of dangerous deflation, would not forcing the Germans to intensify that deflation by further fiscal tightening drive them into recession, and would not that cause a crisis in the euro zone as a whole? What would the implications for Britain be; and does he agree that Romano Prodi's description of the pact as Xstupid" is something of an understatement?
Mr. Brown: Adjectives are widely used these days in a pejorative sense, be it Xstupid" or Xnasty", or any other such word. I would refrain from using such adjectives. The point of our proposed reforms is to be able to distinguish between structural and cyclical deficit. That is part of the debate about the German position: whether the deficit is structural or cyclical. There is absolutely no doubt that we face a world downturn. This is the first synchronised world downtown for 30 years, seriously affecting every continent. It is also true that we suffer from the fact that, while in the last recession world trade went down by only 1 per cent., and it grew by 13 per cent. two years ago, it has been stagnant last year and this year, creating difficult conditions for all countries.
On my hon. Friend's point about the stability and growth pact, we should be in a position to distinguish between structural and cyclical deficits, and I hope that he will agree that action is needed for a structural deficit, but that for a cyclical one we can consider the cycle and what is likely to happen over a number of years.
Mr. John Bercow (Buckingham): Given that the Chancellor has no objection in principle to ceding sovereignty over monetary policy to the European Central Bank, which we do not elect and cannot remove, and which, under the terms of the treaties, it would be illegal to seek to persuade to the view of the British Parliament, why does he think that, when he claims to believe that this country should retain control over tax and expenditure decisions, we should believe a word of what he says?
Mr. Brown: It is interesting to note that the hon. Gentleman has moved to the Back Benches to say exactly what he said on the Front Bench. I thought that he was going to take a distinct position. It is Parliament that makes decisions on taxation and spending; it is Parliament that made its decision on the Maastricht treaty. The Maastricht treaty contained all the terms under which the stability pact now operates, including the requirement to submit convergence plans and the
Denzil Davies (Llanelli): Is it not the case that not only the growth and stability pact but the whole Maastricht enterprise, and the common monetary policy established by it, are flawed? Is that not evidenced by what is happening in Germany, where a democratically elected Government have no jurisdiction over the value of the currency, no control, in effect, over public expenditure, and no jurisdiction over interest rates?
Mr. Brown: My right hon. Friend, who was a Minister in the Labour Government of the 1970s, has at least been consistent in this: he opposed the Maastricht treaty and he continues to oppose it, unlike many Conservative Members, who brought in the Maastricht treaty but now wish to oppose its provisions.
As for what my right hon. Friend says about the economy, being part of a monetary union involves a number of changes in the way we operate. That is exactly why we have submitted the proposal to the five economic tests. The tests will examine the effect on investment and employment, and the effect that arises from the flexibility of the British and the European economy to deal with problems such as those that we see at the moment, and others that can arise from time to time. They will also examine the sustainability of convergence.
I hope that my right hon. Friend will agree that this is the most detailed exercise that has been conducted by the Treasuryan exercise that was never conducted when the previous Government took this country into the exchange rate mechanism[Interruption.] I can find almost no evidence of any work having been done in the Treasury on the economic issues[Interruption.] I think, Mr. Speaker
Mr. Speaker: Order. I always worry when the Chancellor starts to lean on the Dispatch Box, because it means that his reply is getting very long.
Mr. Michael Howard (Folkestone and Hythe): Can the Chancellor tell us where in his five tests we find a reference to the difficulties caused by the stability and growth pact?
Mr. Brown: The five tests look at all those issues. They look at investment, employment and flexibilityand if the right hon. and learned Gentleman reads the submission that I made to the Treasury Select Committee, he will see that we consider specifically the issues of the stability and growth pact, and will publish a paper on the subject as part of the five tests. The question that the shadow Chancellor has to answer is why he once supported the stability and growth pact, yet now, for purely party political reasons, he opposes it.
Mr. Howard: It is for the Chancellor to answer questions, and he has not been able to point to a single reference to the stability and growth pact in the five tests. Are not the difficulties of the pact caused in large part by the inappropriateness of the Xone size fits all"
Mr. Brown: The shadow Chancellor is entirely wrong. The evidence that I put to the Treasury Select Committee says specifically[Interruption.] The shadow Chancellor is asking for this to be one of the testsin other words, he wants a sixth test. What I am saying to him is that, as part of the five tests, when we consider employment, investment, flexibility and durability, we will be examining the operation of the stability and growth pact. [Interruption.] If he has any doubt about that, I will send him this afternoon the memorandum that we sent to members of the Treasury Select CommitteeI see one member of the Select Committee nodding at that, because he knows it to be the casesaying that we would publish a paper on the stability and growth pact as part of our assessment of the five tests. There are five tests, not six, but as part of the five tests, which include employment, investment and flexibility, we shall look at the macroeconomic issues[Hon Members: XOrder!"] The idea that we have not submitted evidence to the Treasury Select Committee saying that that is part of the review is completely wrong, and the shadow Chancellor will have to withdraw his allegation.
Mr. Dennis Skinner (Bolsover): Will my right hon. Friend ignore the bleating of the Liberal Democrats, who have been Euro-fanatics from the very beginning? Will he ignore the rants of the shadow Chancellor of the Exchequer, who condemned the current Leader of the Opposition when they were uniting and dying over Maastricht? Will my right hon. Friend also keep finding excuses for not going into the euro? He has managed that for five yearsgood luck to him.
Mr. Brown: We will publish the assessment that we are making of the five economic tests. It is serious, detailed and rigorous, and the most comprehensive piece of work that the Treasury has done. It will look at all the relevant issues, as the five tests make absolutely clear, and the House of Commons will have the fullest chance to debate the issues.