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Baroness Williams of Crosby: My Lords, perhaps I may make it absolutely plain. I strongly favour a referendum. My concern is simply that a great many people who will take part in it have so far received very little information about what is going on.
Lord Mackay of Ardbrecknish: My Lords, that will be up to those of us who join in the debate, from whatever side, and the way in which we put the case across. However, I have more faith in the electorate than that. It can make decisions on matters of considerable
I return to the decision that we have to take some time in the next two or three years. There are a number of facts which are unclear. As my noble friend Lord Sheppard said, we cannot decide until we know more of the facts. It is an important decision and we need to get it right. If we were to jump one way or the other now--the "pros" would have us jump in now or the "antis" say that right now we shall not join--that would be a mistake.
It is difficult to know who will meet the convergence criteria. It is an important part of our decision-making. Until we see that clearly, I do not believe that it would be right for us to make a commitment now to join if we met the criteria. Now we continue to play a full part with our European partners in the preparations that are necessary for the single currency. It is essential that our voice is heard. I believe that the noble Lord, Lord Ashburton, underlined that. He said how important it was because EMU will affect us hugely whether we are in or out. Involvement in those preparatory discussions has no bearing whatsoever on the UK opt-out. My noble friend Lord Harding of Petherton underlined that. The Prime Minister himself said on 18th December:
The Select Committee chose to focus in its report on the relationship between the "ins" and the "outs". These are vitally important issues. It is clear that not all countries will join EMU in 1999. Not a single noble Lord who spoke even suggested that that might be so. The noble Lord, Lord Dahrendorf, took us beyond the existing 15 members and what they might do to other players in the European scene and what they might do.
It is important that we work hard on the question of the relationship between the "ins" and "outs". That relationship will be important to Europe on whichever side of that divide we fall, whether we are in or out. In particular, the noble Lord, Lord Dahrendorf, mentioned the divisiveness of the "ins" and "outs". In the Chancellor's letter to the then President of ECOFIN in January 1996 he said that these questions were important for all countries whether in or out. EMU would affect everyone and we must plan for difficulties that might arise so that Europe's achievements were not undermined. He said to your Lordships' Select Committee that it could not be in the interests of anyone inside the European Union to allow friction between the "ins" and "outs" to start to develop. I hope that that is a sufficient response to those who feel that there may be bitterness with regard to the "ins" and "outs". My right honourable friend the Chancellor made that absolutely clear. This is an important point. The work that goes on is of vital importance.
My noble friend Lady O'Cathain referred to the interesting question of the millennium problems in relation to IT. I am responsible for making sure that the computers in the Department of Social Security do not have a problem in the year 2000. To date, I am reasonably satisfied that somebody a few years ago foresaw that the year 2000 would arrive and took precautions so that the machinery would work when the changeover occurred. My noble friend is quite right. There are many other points to be addressed and worked upon by us in this country, and in partnership with our friends, if the transition to a single currency by some or all members of the European Union is to work successfully.
It is a matter of priority that any move to a single currency does not jeopardise the single market. The single market has been a great success story, as the noble Lord, Lord St. John of Bletso, has said. It is important that the gains which are generated are protected. It is imperative that they are not compromised by a single currency. It would be unfortunate if a single currency introduced to reinforce the single market was the force which led to its demise by creating tensions between the single market trading partners.
The noble Lord, Lord Grenfell, appeared to believe that the convergence criteria should be flexible and we could rub them away in order to allow people to join. My noble friend Lord Boardman called that a glorious fudge.
Lord Grenfell: My Lords, I said that flexibility was written into the treaty. It is not a question of the Government, Commission or anyone else deciding that they would like to expand it beyond what had been agreed.
Lord Mackay of Ardbrecknish: My Lords, I am interested that the noble Lord desires to reinforce that point. I did not take notes of his speech along those lines. I took it he was suggesting that a bit of fudging
I agree with the noble Lord, Lord St. John of Bletso, that it is important that the criteria are adhered to faithfully otherwise people will not have confidence in the system. The very pressures that most people believe the convergence criteria are necessary to prevent will then emerge. It will be as my right honourable friend the Chancellor said--if it went ahead on an ill-conceived basis he would probably be one of those who would argue that we should not join but should stay outside and seek maximum stability through our own efforts. Because if the criteria are not met, that could easily introduce into the system the kind of instability that none of us wants to see.
The best way to avoid those stresses and strains is for member states to continue to pursue sound economic policies. All countries need to bear down on inflation. All countries need to control their fiscal debts. That ensures stable economic conditions where business and individuals can plan on a long-term basis.
Some people have suggested that joining an ERM would help us to achieve that stability, and that ran through some of the debate. As noble Lords know, ERM 2, as it is called, is on the drawing board, or wherever it is, but membership of it is voluntary. I think I can say that our experience last time tells us that we should not return to any kind of rigid, old style ERM. Our experience shows that that does not work. It does not guarantee stability. The best way to guarantee stability, and lasting exchange rate stability, is to get the fundamentals of an economy right. I have already mentioned some of them: low inflation, sound public finances, and the like.
That allows me to move on to another point which came up on a number of occasions. It is the question of devaluation. My noble friend Lord Cockfield suggested that the French worry about devaluation was that the Italians would do it for reasons connected with the CAP. The noble Lord, Lord Haskel, mentioned what is called competitive devaluation. My right honourable friend the Chancellor gave considerable evidence to the committee about that. On page 278 he made it clear that:
The implications for the EU budget were raised. In his usual refreshing way, the noble Lord, Lord Desai, said that the only way that that would work would be if there were a federal budget of 4 per cent. I am not an economist, as I have told your Lordships before, but I understood the picture he was painting. It was in contradiction to the picture painted by the noble Lord, Lord Monson, who warned us against a united states of Europe a little like the United States of America. I do not believe that the countries of Europe were ever going to go that far. If an attempt were made to go that far the worst predictions of the noble Lord, Lord Dahrendorf, would rapidly come true. I want your Lordships to be clear that we see no reason for the EMU requiring increased amounts of money in the European budget. My right honourable friend the Lord Chancellor said to the inquiry:
On that point, perhaps because of my interest in social security and pensions, I must say to my noble friend Lady O'Cathain, who mentioned the issue of unfunded pension liabilities, that the treaty is clear that member states are not liable for others' commitments. There is no bale-out clause set out in Article 104B. Certainly that is a point which we, given the position that we are in with a private pension provision of £600 billion--as I told your Lordships some hours ago--must watch that matter most carefully indeed.
Perhaps I may turn to the impact of a single currency on industry and the City. I welcome the comments in the report about the strengths and flexibility of the City. They show the excellent position that the City is in to prosper further, whether or not we participate in EMU. It is of course important that the City is ready and able to participate in the new Euro market, whether or not we are in or out. A number of noble Lords mentioned that matter. The Bank of England has established a regular briefing
It is up to the private sector to take its own view on the work that needs to be done. Businesses will need different work to be done, depending on where their markets and interests lie. I do not believe that it would be appropriate for the Government to co-ordinate preparatory work until a decision has been taken on whether the UK will participate. I know that a number of noble Lords have had to leave, partly because we have gone on a little long--
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