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Lord Ezra: My Lords, I too would like to thank the noble Lord for having read out this important Statement. In the light of its contents it is indeed regrettable that the Statement was not made earlier in order to prevent the misconceptions to which the Statement itself refers, and in particular what was contained in the Sunday Times yesterday. The Statement itself contains in my opinion a clear view of UK policy objectives in this very complex matter. The broad thrust is that, while we retain our position as not being committed to making a decision on whether or not we move into Stage 3, we would wish to ensure by active participation that the rules which were established were such that if we should decide to join at a later date they would be acceptable, and if we did not, that it would contribute to the stability of the European Union. I hope I have got that right.

That being said, the matter remains a very complex one and in particular I would like to ask the noble Lord if he could explain precisely where we stand in relation to the stability pact. Those who are going to participate will of course be called upon to submit detailed information about their financial affairs and in particular about their possible deficits. The UK already, under Stage 2, submits information of that kind. Will that be continued, will it be extended, will we participate in that part of the operation of the stability pact? Secondly, in relation to the stability pact, will we be positively and actively involved as Council Members in formulating that pact even though we might not eventually exercise our Stage 3 decision in a positive manner?

As regards fines, it is clear that if we were not to join at Stage 3 we would not be subject to any fines, but I understand that it has been proposed by the Commission that the proceeds from the fines should go into the general Community budget. That being so, I presume that we would share in the benefit of those fines whether we were in or out. Is this a proposition which is seriously being proposed? Obviously we should not object to it. I presume that the Chancellor would strongly support it. The way in which the fines

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will be levied and their level will, as I understand it, be a matter for Council decision, so even though some "outs" (possibly ourselves) may not eventually join, we would be positively involved in determining the level of the fines and the way in which they were collected. Is that a correct interpretation of what is going to happen?

Finally, I would say that the Chancellor's very firm statement that whatever happens we must go for fiscal rectitude within the European Union (whether or not countries went through to Stage 3) is something to be strongly commended and I hope very much that we shall do everything within our power to make sure that comes about.

4.5 p.m.

Lord Mackay of Ardbrecknish: My Lords, I should like to thank both noble Lords for welcoming the Statement. Perhaps I may also thank the noble Lord, Lord Ezra, for his opinion that the Statement represents a clear view of policy on this matter, an opinion with which I agree. It is a complex issue, but I think that what the Chancellor has had to say in the other place very clearly puts the Government's policy on the record in such a way that I do not believe anyone, even the noble Lord, Lord Eatwell, could be confused over it.

Perhaps I can say to the noble Lord, Lord Ezra, that we are of course currently involved in formulating the stability pact. That is what the current discussions are all about. As I said on Thursday, it is important that that stability pact is in place before anyone joins a single currency, otherwise what is the point of countries striving to obey certain rules in order to join the currency if, the moment they join, they then break all the rules? That would appear to be very destabilising, and the last thing that any of us would want, whether we wished to be in or out, is a destabilised economy in Europe. Clearly it is in everyone's interest that the stability pact is in place and ready for those who will join the common currency when and if it comes about.

The noble Lord also asked me about what will happen in the case of the "outs" and will we continue to report on the situation regarding our own convergence, our own deficits and so on. Of course we are prepared to formalise the satisfactory process we have been forming for some years because, following parliamentary approval each year, the noble Lord, Lord Eatwell--I cannot remember whether it is the noble Lord, Lord Ezra--and I usually debate one evening (in the absence of many other noble Lords in the House, it has to be said) what we are going to send, and we submit to the Council a convergence programme which consists of the economic policies set out in the Budget Red Book. Your Lordships will of course get this year's version tomorrow. Those were the points that the noble Lord made to me and I hope that I have answered them.

I turn to the noble Lord, Lord Eatwell. He complained about my wanting to keep our options open. I am not sure why he complained because I have a quote here from a CBI conference speech in Birmingham by Mr. Tony Blair, who said that Britain must generally keep its options open on monetary union. I really could not understand the beginning of his speech when he was

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complaining about me keeping my options open. I have made it perfectly clear that we have always intended to keep our options open. Then he seemed to be complaining about our being involved in the negotiations without having decided whether we are going to stay in or go out. As I understand his party's new position, in addition to having a referendum, they wish to make a decision at the appropriate time. Does he suggest that the Government should not take part in these negotiations? I shall answer the question which he keeps on asking me: of course we shall take part in the negotiations. We shall continue to take part in the negotiations.

As regards the other question about deficit countries being fined, may I suggest that he reads 104c of the Maastricht Treaty because he will see that there are very many steps before we get to a position where a member state might be fined. I do not think that we should concentrate too much on the fines position. We should concentrate instead on the important position of making sure that no country in the system runs an excessive deficit. Equally, neither should any country outside the system run an excessive deficit because we do not believe that excessive deficits are good things, whether a country be in or out.

The noble Lord concluded by asking if we would return to this issue. I think your Lordships will agree that my regular appearances at the Dispatch Box probably do not suggest that we are lacking debate or discussion on these matters in this House. Of course, whether we have a debate on the Floor of the House later, perhaps when the sub-committee reports, is not a matter for me but for the usual channels.

Lord Eatwell: My Lords, before the noble Lord sits down, will he acknowledge that I at no time said that Britain should not have an option of deciding whether to join and that he has misrepresented me in his remarks?

Lord Mackay of Ardbrecknish: My Lords, I had occasion to read over what I said just before the noble Lord intervened last Thursday. I believe that anybody reading what the noble Lord said today could reasonably assume that he was complaining about the Government and I keeping our options open.

Lord Pearson of Rannoch: My Lords, I wonder if I could press my noble friend on two passages which he has mentioned. The first is a quotation from the Minister himself last Thursday, the 21st, when he replied to the noble Lord, Lord Bruce of Donington, who asked for an unequivocal assurance that the United Kingdom, if it decides not to participate in EMU, will not be subject to any penalties whatever under Article 104c of the treaty. The answer my noble friend gave is still something which intrigues me. He said:

"The position as I understand it"--

and indeed, he has referred to it again now--

"is that there will be a procedure for those who remain out; they will be required to submit convergence programmes".--[Official Report, 21/11/96; col. 1344.]

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I appreciate that my noble friend has touched on this; but I want to know how we will be required to submit convergence programmes. What is the penalty for us if we do not?

The second part of the question is related. My noble friend mentioned Article 109m of the treaty; but he gave, if I may say so, a rather selective quotation from that article, which reads as follows, and I quote from Article 109m, paragraph 1:

"Until the beginning of the third stage, each Member State shall treat its exchange-rate policy as a matter of common interest".

That is the sentence in which my noble friend acquiesced. But Article 109m goes on:

"In so doing, Member States shall take account of the experience acquired in cooperation within the framework of the European Monetary System ... and in developing the Ecu, and shall respect existing powers in this field".

Finally, and most importantly, my question seeks an explanation of this extremely devious piece of wording in Article 109m, paragraph 2, which states:

"From the beginning of the third stage and for as long as a Member State has a derogation, paragraph 1 shall apply by analogy to the exchange-rate policy of that Member State".

We have seen how boggy is the wording of the Treaty of Rome; we have seen how the Luxembourg Court of so-called Justice twists it to the ever-closer union of the peoples of Europe. I ask my noble friend whether he can give the House an assurance on Article 109m.

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