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ECOFIN

4.37 p.m.

Lord Mackay of Ardbrecknish: My Lords, with the leave of the House, I would like to repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:

"Madam Speaker, I would like to make a Statement about the Council of Finance Ministers Meeting in Brussels which I attended yesterday.

"The Council considered at some length a new lending remit for the European Investment Bank. We considered and approved a report on employment policy to be submitted jointly by ECOFIN and the Social Affairs Council to be considered by the forthcoming European Council at Dublin. We transacted a number of other items of routine business which I will report to the House in due course by Written Answer in the usual way.

"We carried forward political preparations for the anticipated discussion at Dublin of economic and monetary union. Finance Ministers have been charged by the last European Council at Florence to prepare a progress report on preparations for EMU. Progress was made but no final conclusions were reached, mainly

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because of outstanding issues which remain to be resolved on the operation of the proposed stability pact and, in particular, on the definition of an exceptional and temporary deficit for the purpose of Article 104(c).

"I made a constructive contribution to the debate in an effort to achieve the widest possible measure of political agreement in preparation for the summit meeting. I made it clear at the outset that my agreement, while in line with government policy, was subject to a parliamentary reserve and could not commit the Government until parliamentary discussions had been completed. The Irish President of the Council confirmed that my parliamentary reserve would be reported and printed on the face of any document laid before the Dublin Council.

"Only two of the texts of the draft regulations which are currently subject to parliamentary scrutiny and were the subject of my Statement last Monday featured in the discussions at ECOFIN yesterday. They were the regulations on the legal framework for the euro under Article 235 and under Article 109(1)4 of the treaty.

"There never had been any question of legislative decision on EMU being taken at yesterday's meeting. These two regulations were considered and drafts will probably be attached to the eventual report to Dublin.

"The Council is at present agreed that there will be no final agreement on the operation of EMU or the text of any regulations until all the negotiations are completed. ECOFIN and every member state are working on the basis that nothing is agreed until everything is agreed. I now anticipate that no final agreement on any binding legislation on EMU is likely before, at the earliest, the planned European Council meeting in Amsterdam in June of next year.

"The draft Article 235 regulation causes no problems to the British Government as it now stands. We would like to see it progressed as quickly as possible to give greater legal certainty to existing commercial contracts in English law denominated in ecus or in currencies which might go into the euro.

"The Article 109(1)(4) regulation might have caused concern in this country as some people might have claimed, mistakenly, that the legislation to be enacted in due course by the member states of the euro-zone might be directly applicable to all member states in a way which contradicted the British opt-out. This interpretation would have been incorrect. However, I was able to obtain agreement of the Council to amendments to Article 17 of the draft regulation and consequential changes to the recitals of the regulations which make the position clear and beyond doubt on the face of the document. The amendments make the application of the regulation subject to Protocol No. 11 of the treaty and the amendments also make clear that the protocol stipulates, among other things, that Article 109(1)4 shall not apply to the United Kingdom unless we move to the third stage.

"I have also obtained agreement to changes to any text of the report that ECOFIN may eventually submit to the Dublin Council on progress towards EMU. I have obtained clear statements that membership of the proposed ERM2 for states outside the Euro will be

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voluntary. I have obtained explicit statements that the council can only make non-binding recommendations under Article 103 to member states outside the euro and outside ERM2 when carrying out surveillance of economic policies. We have, of course, been committed to economic and monetary co-operation and convergence of economic and monetary policies which are necessary for the further development of the Community ever since we signed the Single European Act. The present treaty and practice only commit us to seek to ensure that our domestic policies are geared to price stability and sound public finances and to seek to avoid an excessive deficit. No sanctions can be applied to this country for any failure to take effective steps to achieve that unless and until we move to Stage 3.

"The report will deal with budgetary discipline in Stage 3. The draft now states that euro area member states will be obliged to submit programmes and will be subject to agreed sanctions for failure to act effectively on excessive deficits. In the surveillance procedure, other member states will be obliged to submit convergence programmes only. In the excessive deficit procedure, sanctions cannot be applied to them. I will ensure that such statements remain in any report which may eventually be submitted to the Dublin Council. They are not being challenged by any other member state or the Commission.

"The outstanding matters to be resolved relate to the circumstances in which a member state of the euro may not be subject to this excessive deficit procedure and possible sanctions if a deficit is only exceptional and temporary.

"The preparatory work in ECOFIN is therefore proceeding precisely on the legal and political basis which I and my honourable friend the Exchequer Secretary and others have frequently described to this House."

My Lords, that completes the Statement.

4.43 p.m.

Lord Peston: My Lords, I thank the Minister for repeating the Statement of his right honourable friend the Chancellor of the Exchequer. This is a particularly difficult Statement to deal with. One obvious reason is that your Lordships will be debating all these matters tomorrow under a Motion submitted by my noble friend. I believe that it would be trying the patience of the House too much if I were to make the same speech again within 24 hours.

Lord Graham of Edmonton: Go on!

Lord Peston: My Lords, perhaps within 48 hours, yes, but 24 hours is too soon. I hope therefore that noble Lords will allow me to concentrate on a few of the points in the Statement and elaborate further tomorrow.

There is also a more delicate matter. As I understand from this Statement, the views of the right honourable gentleman the Chancellor of the Exchequer and mine are very similar: his inclination is towards monetary union in principle, subject to all sorts of conditions being met. That is the way he leans and that is certainly the way I lean, but

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I gather that one or two of his right honourable friends do not quite see the matter that way. Since I wish to see this matter proceed rationally, I shall not make mischief on the subject today or for that matter tomorrow.

As regards the report, perhaps I may say how much I welcome the second paragraph. I look forward very much to seeing the report on employment policy. I take it that the Minister will confirm in a few minutes that, when the report on employment policy is submitted by the Council of Economic and Finance Ministers and the Social Affairs Council to the forthcoming European Council at Dublin, your Lordships and Members of the other place will be able to see it, because what happens in the employment field is enormously important.

The material dealing with economic and monetary union raises the most obvious question. Some progress has been made but no final conclusions have been reached according to the Statement. But has as much progress been made as was anticipated? My impression--I was not there, so I am relying on the Statement--is that things are going more slowly than we expected. In particular--this is a matter that I shall deal with tomorrow concerning the definition of an exceptional and temporary deficit--can the Minister tell us whether Ministers at the meeting ran into the technical problems that those of us who study this subject are well aware of but which we have as yet been unable to solve? In other words, did Ministers hope to make progress, but they have not done so? As I said, I shall enlarge on that tomorrow.

Although my views on the opt-out are different from those of the Government, I believe that the Chancellor of the Exchequer was entirely right in that the Statement makes it clear beyond peradventure--which I assume is more for his honourable friends than for the rest of us--that the opt-out is genuine. That is essentially my way of summarising the various aspects. The Chancellor of the Exchequer has asked for various statements to be included in any documents, and he was right to do so. It is not that I agree with the substance of the matter, but having made an agreement, I agree that it should be made clear. I do not criticise the Government for that in any way whatsoever.

The questions that I have already asked lead to another question, which is this. Can we now expect anything serious in this area to occur at the Dublin Summit? From reading the Statement, and in particular that binding legislation will arise at the earliest at the European Council meeting in Amsterdam next June, it is by no means obvious that anything of use will happen at the Dublin Summit. I cannot imagine that the Heads of State would dream of cancelling the Summit, even though that might save their time and a certain amount of taxpayers' money. But one wonders what they can do to occupy themselves at that time if full progress has not yet been made on EMU.

The Statement also contains remarks on ERM2 quite separate from the evidence given to my noble friend's sub-committee. In terms, the Government have made it clear, not that they are open-minded on ERM or ERM2, but that they have no intention of joining ERM2. I have asked this question several times and have been unhappy with the answers. Since the Maastricht Treaty--which is a solemn treaty ratified in all proper ways--says that for

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a country to join EMU it must have been in ERM for two years within the relevant bands, can the Minister say whether it is still the Government's view that that commitment is somehow solemn but not binding? It puzzles me enormously--I am not an expert on matters concerned with law or treaties--that the Government persist in the view that they have not decided whether to join EMU but they have decided never to join an exchange rate mechanism and that somehow they find that compatible. In particular, I should like to ask the Minister--this is relevant to the Statement--whether the Government have received legal advice that their position stands up. I understand that people in other countries say that it could not possibly be legally correct.

I have been as brief as I possibly can, not because the subject is unimportant and not because I wish in any way to be disrespectful to your Lordships, but because we shall have an opportunity to look at other matters in much more detail tomorrow. Therefore, I hope that the Minister will bear with me if I do not pursue those other matters today.

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