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Mr. David Trimble (Upper Bann): I welcome the Chancellor's reference to seeking reform of the European Central Bank. I would appreciate it if he could give us a little more detail about what reforms he is seeking and what are the prospects for success. I welcome that because it points to where the attention should have been: not so much on the UK economy, which is performing well, but on the euroland economy, which is not. Many of the problems in euroland stem from the ECB and the stability and growth pact, and from the way in which the European Union operates. Is not that where change is needed? Until that change occurs, it does not matter so much what is done in terms of the adjustments that the Chancellor has mentioned today.

I also welcome the reference to globalisation and promoting or removing barriers to EU and US trade. Does not that point to the future? The institutions that we have at the moment in Europe were designed in the 1950s, and may have been appropriate for the Rhineland economies then, but are not appropriate for the 21st century. The future lies in economic globalisation, which is what we should pursue vigorously.

Mr. Brown: I am grateful to the right hon. Gentleman. First, he raised the issue of Europe's future. The European Union was the first trading block and is now one of many trading blocks. It is recognising, however, that the only way to succeed in the global economy is to have far more outward-looking trading relationships, particularly with America. Whereas American investment in Europe has been very high since 1945, a feature of many of the last 10 years was that European investment in American companies was higher than American investment in Europe. An interrelationship therefore exists between the two economies on which we should build, and the proposals we have made today would add to the strong relationships that should exist between the two continents.

On the right hon. Gentleman's point about the European Central Bank, I believe that there is a possibility of reform. In the last few weeks, he may have seen proposals that, while not removing the old two-pillars approach to monetary policy, would lead to a greater emphasis on the inflation target, and suggesting that the inflation target should be 2 per cent. on the harmonised index of consumer prices target, or less. That is a change from the position of the European Central Bank at the beginning, and we look forward to further progress on these issues. That is one of the issues on which I hope to report back next year.

Mr. Patrick Hall (Bedford): Most people will welcome my right hon. Friend's commitment to a

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balanced and fair public debate, which is long overdue on these matters. Does he therefore share my concern at the increasingly hysterical and scaremongering tone of many of those in the anti-euro camp? Does he accept that the longer that we delay the referendum, the more that hysteria will seek to fill the void, which makes it all the more important that the Government should promote that public debate, treating the British people with respect as adults who are capable of making clear and rational decisions in the interests of Britain?

Mr. Brown: I am grateful to my hon. Friend for his comments, as I am for his work in promoting the car industry and manufacturing in his constituency and right across his region. He is absolutely right that the public debate is necessary and should be informed by the documentation that is being published today, which is most comprehensive on British economic policy and covers a range of issues from exchange rates to fiscal policy and monetary policy. Therefore, a degree of information is now available to the public that has not been available in the past. Equally, he would agree about the importance of convincing the British people that the five tests that we have set must be met. I was looking earlier at a speech that he made in the House saying that we must be clear that the five tests are met, which the measures that I have proposed today would help us achieve.

Mr. Ian Taylor (Esher and Walton): The Chancellor's enthusiasm for the euro today was positively infectious, and I congratulate him on the change: no longer are the five tests mere obstacles but benchmarks against which he can make a judgment that we should join as soon as possible. Therefore, would he accept that to those Conservative Members who believe that it is in the national interest to join the euro his reforms are welcome and positive? What evaluation has he made of the costs of our not yet having made the decision? He may be delaying it for only a year, but those costs are tangible in terms of investment, uncertainty and often on the effect of influencing changes in the European Central Bank and the stability and growth pact, which will not await our joining.

Mr. Brown: As the hon. Gentleman knows, I have always been positive about the principle of the single currency, and I have said that the five tests that we set down are an important guarantee of stability. We have looked at what might have happened if we had joined in 1999. I repeat what I said to the Liberal Democrats a few minutes ago: we looked at both the costs of not joining and the benefits of joining, and we found that to have joined in 1999 at the interest and exchange rates that existed would not have been in the national economic interest and would have led to a recurrence of the stop-go problems that we had in the past.

I hope that the hon. Gentleman will agree that, although it is right and necessary for this debate to take place in the country and we can join together in supporting the principle of the single currency, it is also important that we are absolutely sure that convergence and flexibility are at the right levels so that the five tests can be met.

Mr. Martin O'Neill (Ochil): While I welcome my right hon. Friend's commitment to the achievement of the

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convergence and flexibility objectives, will he share with us how he proposes to secure changes in the growth and stability pact and the European Central Bank? The example that he gave about the change in the ECB is both fairly modest and one in which we cannot participate because we are not part of the eurozone. Is that not a major obstacle to our securing the changes in the ECB that he achieved with such style and élan in the Bank of England?

Mr. Brown: I am grateful to my hon. Friend. His work as Chairman of the Select Committee on Trade and Industry has led him to look at the issues in some detail, and I appreciate what he is saying. As for the European Central Bank, I would not underestimate the importance of what is being considered. From a monetary policy that has essentially been about the examination of monetary aggregates, we now have a far greater interest than ever before in inflation targeting, and it is a debate that will continue.

As for the stability and growth pact, just as on the issue of tax harmonisation where we are now winning the intellectual argument that tax competition and not tax harmonisation is the way forward, I believe that we are winning the argument about debt, investment, the economic cycle and the stability and growth pact. People now see that some of the elements that we have been putting forward should be built into the pact. The lessons from British monetary and fiscal policy are lessons that we will continue to put forward, and I believe that there is a great deal of interest in Europe in the British experience.

Sir Peter Tapsell (Louth and Horncastle): As the Chancellor is so fond of raising the bogey of the exchange rate mechanism, may I remind him that, in total contrast to him and to the Labour Front-Bench spokesmen of the day, I argued strongly against joining the exchange rate mechanism? After we had joined it, on the Floor of the House I urged the then Chancellor to leave the exchange rate mechanism well before Black Wednesday. In that context, may I ask the Chancellor whether he has seen the famously macabre French play, set in a lunatic asylum, in which some of the cast try to slash their throats in the first act and then spend the rest of the play discussing whether to mount a further suicide bid before the final curtain? Is it really necessary for him to ask the British people, even in principle, to slash their throats a second time?

Mr. Brown: I thought that the hon. Gentleman was describing events at a Conservative party conference.

As far as the exchange rate mechanism is concerned, this has all become a bit much: a Conservative Government took Britain into the exchange rate mechanism. They took the country in at the wrong—[Interruption.] One or two Conservative Members want to disown the process. They took us in at the wrong rate and the wrong time, and their only defence is now to try to blame the Labour party for decisions of a Conservative Government. We will make the right decisions for Britain in the national economic interest, and I believe that our record over the past six years in

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achieving stability contrasts entirely with the record of a Conservative Government who gave us two recessions and boom and bust.

Mr. George Howarth (Knowsley, North and Sefton, East): Does my right hon. Friend accept that although manufacturing businesses in my constituency and elsewhere, especially those that are heavily dependent on trade in Europe, will be disappointed by today's announcement at first glance, when they think about it, they will realise that he has taken a balanced approach? As he considers these matters further in the coming months, will he ponder on whether it might be sensible for future assessments to include the Bank of England Monetary Policy Committee fairly prominently?

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