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Mr. Redwood: The official Opposition think that the 18 studies are very good and contain some very sound
advice that points to the obvious conclusion that we have not converged, that we are not going to converge and that is a waste of time and money playing around the pretence that we might.
Mr. Plaskitt: I do not think that the right hon. Gentleman has read the studies carefully enough. If he revisits them, he will find that there is considerable analysis of the degree to which there is increasing convergence—that is very clearly spelt out—while other parts of the studies clearly indicate where convergence has not happened and what might need to be done to encourage it to happen. In fact, they are very balanced studies. That is why his intervention suggests that he may not have read them carefully enough.
Mr. Wayne David (Caerphilly): Does my hon. Friend agree that one of the crucial comments in the studies is that on EMU and trade? It says very clearly:
- "The emerging research consensus therefore . . . signals substantial gains to trade through membership of a currency union".
Mr. Plaskitt: My hon. Friend is exactly right and reinforces my point about the importance of the studies and the depth of the analysis in them.
Mr. Wilkinson: Why should we wish to converge with the economies of the eurozone? Would it not be better for our people to become richer than them, with higher employment and a better quality of life in this country? Is that not what our electors want?
Mr. Plaskitt: The hon. Gentleman assumes that he knows what will happen decades into the future. As the Chancellor said, we now have to assess such things in the global context. We have to consider the United Kingdom economy in relation to the global economy and the deepening single market in the EU. If we take any risk or chance over engaging properly with that, the only price that we will pay is sacrificing this country's future prosperity, not enhancing it, as the hon. Gentleman seems to think.
I was talking about the opportunity significantly to shape the emerging institutions of economic and monetary union. Those institutions are in their infancy, and they will be subject to change, despite the language of rigidity that we sometimes hear from politicians and Governments currently in the eurozone. The reality is that the institutions will steadily solidify. Over time, they will become less subject to change and reform. Having adopted our current position as a country that is outside the eurozone, we need to ask how much influence we have in shaping its architecture, for how long we will have that influence and at what rate will it wane the longer we stay outside the zone. Clearly, there is an opportunity cost of not being in the eurozone, or being close to joining it.
Mr. Andrew Tyrie (Chichester): Will the hon. Gentleman give an example of how those rules and institutions might solidify against Britain's interests?
Mr. Plaskitt: I am grateful to the hon. Gentleman for asking that question: I am coming to precisely that point
in my speech. First, let me answer in respect of the European Central Bank. It currently has its own definition of price stability, which it sets at between 0 and 2 per cent. That is a non-symmetrical target, and the Committee took a fair amount of evidence on that during our deliberations that led to the publication of the report. We found a lot of evidence to suggest that a non-symmetrical target has a tendency to be too tight and runs a risk of encouraging deflation. I was pleased to note that the Government acknowledge in their response to our report, which they published today, the strength of the point that our Committee made in respect of the ECB's inflation target.
Mr. Hopkins: Is not my hon. Friend understating the point about the ECB's policy being too tight? In fact, the eurozone is on the brink of deflation and a serious depression and would learn a lot from following our Chancellor's view that the asymmetrical inflation target should be rather higher.
Mr. Plaskitt: I thank my hon. Friend, and I think that he reinforces my point. The United Kingdom has an important opportunity to influence the emerging architecture of economic and monetary union. We can be encouraged by a comparison of our architecture with that inside the ECB, and I suspect that many inside the eurozone look at the way that we do things in this country and are anxious to learn from it. My point is about whether we have the opportunity to influence that evolution the longer we remain outside the system.
The European Central Bank has a monetary growth pillar, which is becoming increasingly discredited and which it is likely to abandon. Other problems inside the ECB include the non-publication of votes, for which there is a credible argument: the bank is reluctant to have member states' voting positions revealed, as it is trying to act in the interests of the zone as a whole and not identify itself with country positions. At the same time, however, that creates a lack of transparency, and in contrast with the system that we use, it is a distinct negative for the current arrangements inside the ECB.
Reform of the ECB's governing council is a very important issue. At the moment, a scheme has been adopted that anticipates rotating voting rights, but it is a cumbersome, complex scheme that is yet to be agreed by member states. It creates the position, however, whereby the five largest members in the eurozone will vote on only 80 per cent. of interest rate decisions, which will present something of a hurdle in terms of convincing sceptics in this country about democratic accountability inside the zone. We made that point with some force in our report. I feel that the ECB's current scheme is not altogether credible and sustainable, and I believe that it will have to be subject to further reform. I would like to see the UK Government play a leading part in the continuing evolution of that mechanism.
Secondly, we clearly saw the need for the stability and growth pact. It deals with the potential problem of freeloading inside the zone and provides an essential fiscal framework, which must be aligned with monetary union. The evidence that we gathered in our inquiry, however, suggested that there was more emphasis on stability than on growth, on which there was not enough, which may account for some of the problems that we are now seeing inside the eurozone economies.
We should be cautious before being too critical of the pact. Pre-entry steps, which were necessary, were not taken by some of the large countries now inside the zone. There was insufficient incentive for them to take measures in their economy before joining, but there is no lack of sanction impelling them to do so now that they are inside. In that sense, the first tests through which the pact is going are likely to be the toughest. Once it is through its initial difficulties, it might work more effectively.
We want to see reform, however, and I welcome the Chancellor's comments today and on previous occasions about the Government pushing for reforms to some of the rules of the pact. It is clear that the pact should allow for debt to be measured across the economic cycle, and it should be more flexible in allowing for borrowing for investment as opposed to supporting consumption. In addition, it needs to allow for short-term borrowing to be geared against the overall level of a country's debt. All those changes are consistent with the underlying rules of the pact but are not yet adopted within the model.
Our position is that staying out of the euro—which is a logical and sensible position at which to have arrived at the moment—but continuing to prepare for entry is not a cost-free option. We have much to offer the eurozone in terms of monetary and financial architecture. My concern, however, is that as an "out" we will probably punch below our weight until we are inside the eurozone.
The system will evolve accordingly and it will gradually solidify, but it will be much harder to negotiate changes or assert British influence in the formation of this architecture in, let us say, five years' time when we might be considering joining.
On the evidence, I believe that the position that the Government have adopted in relation to the five tests is the right one. However, given that we have adopted that position, I urge them to work hard to keep up our weight and influence inside the European Union in the best interests of securing a successful monetary union and ultimately, therefore, in the best interests of our country.
ROYAL ASSENT
Mr. Deputy Speaker (Sir Alan Haselhurst): I have to notify the House, in accordance with the Royal Assent Act 1967, that Her Majesty has signified her Royal Assent to the following Acts and measure:
Co-operatives and Community Benefit Societies Act 2003
Sunday Working (Scotland) Act 2003
Railways and Transport Safety Act 2003
Nottingham City Council Act 2003
Clergy Discipline Measure 2003
Economic and Monetary Union
Question again proposed, That this House do now adjourn.
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