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Lord Mackay of Ardbrecknish: I believe my noble friend's idea was to have a structured debate. I must tell the noble Lord, Lord Peston, that in my experience, if the word "Europe" comes into it, some of my noble friends, and some of his, have quite enough imagination to introduce almost any subject they wish.

This debate in particular allows us to talk about the single currency--although, as I understand it, the single currency does not play much of a part in any of the new texts in the Amsterdam Treaty, as the Minister will no doubt say. However, I cannot gainsay the fact that the single currency is a very important issue at this time. In a debate on Europe, even though it relates to the Amsterdam Treaty, it is probably fair that we should spend some time examining the issue of the single currency.

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There are undoubtedly advantages in a single currency. Save for those who are entirely blinkered, most people see advantages. There are obvious advantages for those who travel about Europe and for business and commerce in Europe--there will be considerable savings in currency costs. I am not entirely sure why the banks should be in favour of a single currency. It seems to me that they will lose quite a lot of money. But there it is. I should not weep too much over the banks losing money.

We should be guarded about over-selling the business point. As noble Lords have pointed out, a fair amount of this country's business is not done in Europe. The ratio is roughly 50:50. It can be argued to be within a few points either way, but, roughly, 50 per cent. is with Europe and the other 50 per cent. is with other parts of the world. Currency transactions will continue to have to be done.

The problems which have been drawn to our attention fall into a number of categories. The first is the entrance criteria. There was considerable disagreement about whether some of the countries of Europe had fudged the entrance criteria. I have little doubt about this. Like other noble Lords, the noble Lord, Lord Taverne, pointed out in his usual heroic way that the countries had all done terribly well because they had grinned and borne all the difficulties and got there. I suspect it was a little of both. They have done quite well, but they have also fudged a bit and that seems to be the way in which they will all get into the single currency. As I have said on a number of occasions, undoubtedly the convergence criteria would be followed by any sensible government, whether or not the euro was there.

In the last parliament, speaking for the Treasury and the Government, I made clear that we would follow the convergence criteria. It had nothing to do with the euro but was because we believed it was a sensible economic policy. We have certainly done that.

Of course, as the noble Lord, Lord Grantley, said, the directors of the Bundesbank have pointed out their concern over some of the fudging going on and whether or not countries, including their own, have genuinely met the criteria.

The criteria are an important issue because, if a country is badly out of convergence, it will find it difficult to stay within what I would call the "corset" of the single currency. Once we move from the entrance criteria, we get into the territory of the stability pact. That pact is essential if the single currency is to work. Let there be no doubt in anyone's mind that if it is to work, there must be a stability pact to ensure that countries, having got into convergence, do not simply decide to ignore staying in convergence and blow the thing apart. It is important that the stability pact is not fudged and that people continue to meet the criteria which have been set down for entry into the euro.

I mentioned that one of the advantages of the euro would be that we would trade inside Europe on one currency. That would be a considerable saving. But there are two other aspects to the problem of the euro that cause me concern. First, the question of the rate at which we would go in and, secondly, what effect it would have. I know we are not going in right now, but one has to work

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on some kind of basis in these discussions. If we were to go in now at the present value of sterling, it would be extremely damaging to our manufacturing industry.

The noble Lords, Lord Peston and Lord McIntosh and I are spending a few happy hours on the Bank of England Bill. One of the issues we are discussing is the level of the currency. Perhaps I can tempt the Minister--I doubt whether I can because I tried on the Bank of England Bill and failed miserably, but it is worth a try--to suggest, within parameters, the value of sterling the Government would like to see in order to keep it at that stable rate for six months, two years or whatever, prior to them entering in the next parliament. That is what I understand their policy to be.

The noble Lord, Lord Taverne, seemed to want the value of the pound to be reduced. I was not sure how he would achieve the reduction that he wanted but perhaps when he returns he can tell us. That is one problem--the rate at which we think our currency ought to be pitched if we join the Community.

The second problem is to do with interest rates. Interest rates are a difficult issue and again they are part of the debate we are having on the Bank of England Bill. The Government are setting up a monetary policy committee in order to remove from the Chancellor of the Exchequer control over monetary affairs--a subject which my noble friend Lord Boardman mentioned earlier in the debate.

I worry about an interest rate policy which will try to fix the same interest rate for the whole European Union, or that part of it which is inside the euro. There could be real difficulties about it. Inside this country, over my political lifetime, there have been difficulties in fixing an interest rate which is required to deal with the south east of England when, at the same time, the Scottish economy is not in the same overheated position as the south-east's economy. The Scottish economy may perhaps be beginning to experience a stuttering recovery; then all of a sudden interest rates have been increased in order to deal with the problem of overheating, largely in the south east of England. It has been said for many years that when the south east of England sneezes, Scotland catches a cold. I am happy to say that under the sensible economic policies of the last government, the position changed. The Scottish economy came out of the last recession much quicker and better than the economy of other parts of the UK. For a little while, our unemployment rate was below the UK average. It is not any more; it is marginally above it. But the position has not been as bad in the last decade as it was in the three or four previous decades. I worry about single interest rates. I draw the Government's attention to the experience we have had in this country on single interest rates.

The United States was mentioned, particularly by my noble friend Lord Howell. He rightly pointed out that there are two factors which do not apply in Europe. They have not applied to date and I do not see them applying, despite the example given by a noble Lord who said that Switzerland managed it, as well as another country which I cannot recall, in quite different places, with little or no labour mobility. The United States has labour mobility in a way that we do not in Europe. We have a little labour mobility in the United Kingdom, perhaps more now than

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20 or 30 years ago because of the last government's successful sale of council housing. Council houses were one of the things that kept people immobile in this country, but the situation has changed and is better now. However, unlike in the United States, there is not much movement of the working population between one European country and another.

The second difference is that in the United States there are huge automatic transfers of money by the federal government from a more prosperous state to a less prosperous state. Those two points show that the United States is not a proper comparison with what the euro would be inside the European Community. We must be careful about looking at the United States as an example of a single currency which works well.

I am not an economist but I found the speech of the noble Lord, Lord Peston, very interesting, as I always do. It was not a lecture, it was an interesting speech about these matters; but it is a pretty uncertain science, if I may say so. I was intrigued to notice, when I read the Minutes of Monetary Policy Committee Meeting on 4th and 5th February, that Members of the Committee tied on the vote about whether or not to raise interest rates again or to keep them where they were. The Governor gave his casting vote in favour of keeping them where they were. There is a nice sentence which sums up my difficulties with listening to professors of economics:

    "Uncertainty was a normal state of affairs in economic policy making and there was no particular reason to believe that uncertainty would be any less in a few months' time".

I do not think that I can look to the economists for certain guidance, when I read that interesting sentence.

Lord Peston: I do not wish to interrupt as we are desperate to have dinner, but there is no more important proposition in economics than the one which the noble Lord has just read out.

7.30 p.m.

Lord Mackay of Ardbrecknish: Clearly I am learning at the feet of the noble Lord some of the principles of economics. I thank him for that.

I shall not go on too long because I should not like to keep the noble Lord, Lord Peston, from his dinner. But perhaps I can shift to another aspect of a European single currency which worries me. I do not want to go on for too long about examples, but there are two essential common policies at the moment--there may be some minor ones, but there are two major ones. We have a common agricultural policy and a common fisheries policy. This evening we are discussing a third common policy--a common currency policy, if I can call it that.

I do not believe that many people will rush forward to dispute with me when I say that the common agricultural policy and the common fisheries policy leave a lot to be desired. Both contain some pretty mad aspects. For example, the common agricultural policy subsidises tobacco farmers for growing tobacco, whereas the rest of the European Union bans the advertising of the product that they are all being paid, heavily subsidised, to grow. That is one of a number of silly propositions. Storing vast

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amounts of food beyond their sell-by date is another silly proposition, and actually taking into storage the best of the product makes it even sillier.

I do not want to go too much into the common fisheries policy, but that is not a great success. It is not just a European policy. Many fisheries' policies around the world are based on some of the same principles and are equally failing in their objectives. But the common fisheries policy contains some silly aspects and there seems little chance of reform. I believe it was last July that "Dear Jacques" and "Dear Tony" letters on quota-hopping were exchanged and here we are in March, no further forward. Some letters have been exchanged; papers have gone to Brussels and we await, months later, some return. I give notice that I made a note in my diary to try to initiate a debate on the anniversary of "Dear Jacques" and "Dear Tony" if we still have not had a conclusion to that interesting exchange of correspondence.

My point is that those are two major common policies in the Community and here we are being asked to go into a third and--dare I say?--an even more important one than the other two; that is, the single currency. If it does not work or works in the same "iffy" manner as the CAP and the CFP, then all the economies of Europe could be in difficulty.

The interesting aspect of some of the debates we have had in this Chamber--unfortunately not today--is that we had the pleasure of hearing the noble Lord, Lord Dahrendorf. The first time I heard him I felt that he encapsulated better than I could exactly what I fear. It is simply this. As I said at the beginning of my contribution, I believe in Britain's membership of the European Union. I believe that the European Union has been a force for good for all the countries in Europe, including our own. My concern is that, if this common policy of having a single currency does not work or does not work well, then all the advantages that we have gained from our membership of the EU may begin to unravel, not just for us, but for all the people of Europe.

I hate the word, but in some ways I suppose I may be classified as a "Euro-enthusiast", though I am not a Euro-enthusiast in the way that most Members are on the Liberal Democrat Benches. I am certainly not a Euro-enthusiast when it comes to currency. My party has still to be persuaded that it is sensible for us to join. We took the view that we should judge joining when we felt that it was in the interests of the United Kingdom to do so. The Government have come round to agreeing with us that in this Parliament it is not in the interests of the United Kingdom to join. We doubt that it will be in the interests of the United Kingdom to join in the next Parliament because, frankly, we will still not know, well into the next Parliament, whether the project is working.

I do not know whether it is a Scottish phrase or a British one but I recall the words, "Suck it and see". I would prefer that "they" sucked it and "we" saw, and then we would be in a position to make a sensible judgment on behalf of the people of this country whether it is wise to join the single currency in the interests of this country and in the interests of Europe. As I said, my greatest fear is that we join it--or we do not join it; it does

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not matter whether we are in or out--and, if it does not work, the results for all the people of Europe will be dramatic and catastrophic.

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