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Lord Mackay of Ardbrecknish: My Lords, no one, with the probable exception, I fear, of my noble friend, disputes the fact that the rules for the "ins" will not apply if we are not in. That seems logical and sensible. I give my noble friend that assurance again.

As regards the stability pact, unless the UK joins EMU Stage 3, it is under no obligation to avoid an excessive deficit and could not be subject to any penalties if its deficit were shown to be excessive under Article 104. Therefore, in or out of EMU Stage 3, we believe that we should avoid excessive deficits by the use of proper financial discipline. The fact is that currently--and, indeed, I mentioned this in answer to the noble Lord, Lord Ezra--even if EMU comes about and we are not in it, we see no reason why we should not continue to respond as we do at the moment to the annual demand for a report on the convergence criteria and on deficits.

Lord Barnett: My Lords, at the outset, I agree with the Chancellor's remarks today when he said that he agrees with the stability pact whether we are in or out. Perhaps the Minister should tell his noble friend that the plain fact is that whether we are in or out, we cannot live in isolation. We cannot run our economies in isolation whether we are inside or outside the European Union altogether but certainly outside EMU.

Will he confirm also his understanding and agreement of the fact that in practice whether we join EMU--as the Government, and, indeed, the Opposition, are intending to keep their options open as regards whether to join EMU--it is important that we should seek to have some influence on how a stability pact would work

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now and that we should seek to influence it now rather than wait for that to be done by the "ins" alone when we should have no influence at all?

Will the Minister make clear also that as another place is to have an opportunity for a full debate, we too in your Lordships' House, before the Council meeting, will have an opportunity for a full day's debate, and that that will not be at the fag end of the day?

Lord Mackay of Ardbrecknish: My Lords, as I mentioned earlier to the noble Lord, Lord Eatwell, questions of debate are matters for the usual channels. When they reach a decision, I suspect that I shall have to come here for another debate on this subject.

I am grateful to the noble Lord for his approval of the Chancellor's Statement and for the clear terms in which it was made. The noble Lord is right that we must be fully and totally involved in all the discussions taking place currently so that when we make the decision whether to join, we shall have played a major part in building the structure which we shall then be asked to join. That must be common sense from wherever one starts whether one is sceptical about the advantages or keen to join. It must be in everybody's interest that there is a sound structure on the day when we decide whether to join.

Lord Jenkins of Hillhead: My Lords, I begin by expressing my sympathy to the Chancellor for having to divert his mind on this day and having to make a Statement of this degree of complication, which I personally find satisfactory.

However, is it not the case that the report of your Lordships' Select Committee presided over by the noble Lord, Lord Barnett, agreed unanimously--even including the noble Lord, Lord Bruce of Donington--that sterling could live with a single European currency provided that outside it followed the same disciplines that it would have to follow if it were inside?

Is it not also the case that people who believe that we should behave totally irresponsibly from an exchange rate point of view and continue to be members of the single market are living in a fool's paradise? Therefore the logic of people like the noble Lord sitting on the Back-Benches there--the noble Lord, Lord Rannoch?

Noble Lords: Lord Pearson of Rannoch!

Lord Jenkins of Hillhead: Lord Pearson of Rannoch. I am so sorry to the noble Lord--

Lord Pearson of Rannoch: My Lords--

Lord Jenkins of Hillhead: I have got your name now. You may sit down.

The noble Lord, Lord Pearson of Rannoch, behaves as though we could pursue a totally irresponsible exchange rate policy. The logic of that is that we should be out of the single market and, indeed, out of the Community as a whole.

Lord Mackay of Ardbrecknish: My Lords, I am grateful on behalf of the Chancellor for the noble Lord's

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words. I am not entirely sure whether my noble friend Lord Pearson of Rannoch thinks that we should carry out an irresponsible exchange rate strategy. As I believe I have mentioned from the Dispatch Box not long since, the history of those countries with strong currencies has been that they have had strong economies. I do not see any great merit in devaluation just for the sake of a year or two's competitive advantage. Therefore, I believe that exchange rate stability is important and whether in or out of EMU, that must be the correct policy for Britain to pursue.

Viscount Waverley: My Lords, what are the current arguments for and against joining EMU?

Lord Mackay of Ardbrecknish: My Lords, it would take me most of the rest of the afternoon to explain that. Essentially, the argument in favour is that currency fluctuations and, indeed, the cost of currency exchange in some way diminishes the single market idea and that it would be easier to run a single market with a single currency. Therefore, that is a broad outline of the plus side. On the other side, there is the problem for the United Kingdom that we play in more than just the European market. We are major players in the world market and therefore it is important to us that we look to both those markets--the important European market and the important market in other parts of the world. We must consider how the Euro would influence that particular part of our important manufacturing and commercial work.

Lord Dean of Harptree: My Lords, as this arose primarily as a parliamentary matter, will my noble friend confirm that it is totally clear from the Statement that the Government have consulted--and have every intention of continuing to consult--Parliament before any substantial decisions are made? Will he further confirm from the Statement that the British Government will continue firmly but fairly to support British interests in all these negotiations?

Lord Mackay of Ardbrecknish: My Lords, I am happy to confirm to my noble friend that we will indeed work in all these negotiations in the interests of the United Kingdom, as we have always maintained. I can also assure him--as my right honourable friend the Chancellor has done in his Statement--that until Parliament lifts its scrutiny reserve he will put a reserve on any agreements or discussions in next week's ECOFIN.

Lord Bruce of Donington: My Lords, one of my difficulties in listening to the noble Lord is his repeated statement that we have to negotiate and continue to negotiate. Negotiations always imply that in addition to taking certain things one has also an obligation to give way on certain things. The unease in another place, and also in this place, has been about the extent to which we are prepared to give. There is an endeavour to ensure that we do not surrender--at this stage at any rate--any of our rights to conduct our own affairs in the economic sense of the term, in the monetary sense, in terms of taxation and so on.

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If the noble Lord in replying to my question earlier last week, had been able to give the firm assurance that under no circumstances would the Government envisage acting in the sense that I then suggested that they would, much of this trouble could have been eliminated. Have the Government taken into account the existence of Article 103 of the treaty, which obligates this country to play a constructive part and to conduct its economic and fiscal policies in the interests of Europe as a whole? This country has a very good reputation for honouring its obligations under the Treaty. I would have thought the community could have relied on our strict adherence to Article 103 of the Treaty rather than facing a battle over the whole series of regulations that tie us in.

The noble Lord will be aware that the British opt out did not extend to Article 104c, with the exception of paragraph 14. Will he therefore, without any doubt or equivocation, cause to be written into the regulation that these circumstances, as outlined in the regulation, shall have no application to the United Kingdom should we decide to remain outside the European currency? That would then simplify the matter.

Lord Mackay of Ardbrecknish: My Lords, when the noble Lord, Lord Bruce of Donington, asks me to simplify a matter I am always particularly guarded about what I then say. I find that sometimes his questions do not simplify the matter--at least for me if not for the rest of your Lordships' House.

In so far as there is any link between Article 103 and Article 104c, the treaty already makes it clear that the UK, if it does not join EMU Stage 3, is not bound by the obligations of other states to avoid excessive Government deficits--Article 104c--and the UK protocol on EMU, paragraph 5. We would simply, as now, need to endeavour to avoid excessive Government deficits. So the situation of having to meet the convergence criteria if we are out does not actually apply--although, as I have repeatedly stated, we believe that avoiding excessive deficits is sensible, whether in or out. I hope--although without too much expectation of it coming about--that I have answered the noble Lord's question.

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