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Lord Stoddart of Swindon: Amendment No. 27 asks for a report on economic and monetary union that will take into account the constitutional impact, monetary and financial impact, and the impact on economic and social progress. These are important matters. While it is true that we discussed the wide implications on a previous occasion, nevertheless, we have not discussed this particular amendment. It asks first: what is the constitutional impact? The Chancellor of the Exchequer told us that there is no constitutional bar to our joining the third stage of EMU and a single currency. He may very well be right to say that there is no constitutional bar; but, let us make no mistake about it, there are constitutional implications.

As the noble Lord, Lord Pearson, just explained, this is a political project. Indeed, if it goes forward it is almost certain that it will have taxation implications for the British people and the ability of the British Parliament to decide the levels and forms of taxation that may be applied. So there are indeed constitutional issues involved, and I believe that we should know what they are and how the Government feel about them. We are not just talking about an economic project. Indeed, the European countries--certainly Germany, France and Italy--see economic and monetary union as the biggest and, perhaps, the final step towards complete political union. We are therefore entitled to know the constitutional impacts and to have a report.

What about the monetary and financial impact? It appears that the House of Commons is today publishing a report. According to an article in the Sunday Telegraph it will make some very serious statements. Indeed, the article says:

Indeed, the article continues to say that both Tony Blair and Gordon Brown,

    "will this week restate their view that, in principle, membership of the single currency would be of benefit to Britain, and that the determining factor will be whether it is in Britain's economic interest".

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It is quite clear that the Select Committee believes that it is not in the best interests of this country to join such a union, certainly for the next five years and until we know just exactly what the effects will be. Therefore, it is very reasonable for this Chamber--and, indeed, for Parliament as a whole--to ask what the monetary and financial impacts will be.

We should certainly know what the impact will be on economic and social progress. That is vital. I say that because all attempts at monetary union in the past have ended in disaster. For example, let us think about the Werner Report, which introduced the economic and monetary system in the 1970s. What happened to it? We found that it did not serve its purpose of giving us stable money and low inflation. Moreover, during the whole period industrial growth in Europe actually fell by 5.9 per cent. Of course, that had very bad implications for unemployment and for the progress of people's standard of living. So the Werner Report and the "snake" ended in disaster. They then progressed to ERM, and we all know what happened to that. We all know that that ended not only in disaster for the country--high unemployment and a slump--but also in total disaster for the Tory Government at the last election. It is no wonder that they are a little worried about imposing the single currency too soon, or perhaps at all.

Those are very good reasons as to why we should have a report. Another reason is the manner in which things are done in Europe. I believe that I described what has happened over economic and monetary union when I last spoke. Germany, France, Italy, as well as the Belgians and the Dutch--the British Government are not of this view--want economic and monetary union at any price. Of course, the prime movers are Germany and France. They will do virtually anything and make any deal as long as they get what they want. However, France and Germany do not always agree. At the Dublin Summit, when they were agreeing the stability pact, it appears that they were at severe loggerheads about how the pact should work. Indeed, Jacques Chirac took the view that the stability pact, which the Germans feel is absolutely vital for the sake of EMU, was,

    "an invention of German technocrats".

He went on to say that he believed that that was against the national interest of France. The quarrel spilled over into the main session and at one stage, according to the BBC television programme screened last Sunday night, it appears that Chancellor Kohl and Jacques Chirac got up, went into a corner and started quarrelling and arguing between themselves. All the other delegates eventually gathered around to watch what was going on as if it were a prize fight.

It seems that that is the way that things are done in Europe. I do not want them done that way here. In this country we do things in a rather different way--at least I hope that we do. I also hope that my noble friend can assure me that we do, that we have a decent, well thought-out and considered position and that we take time to ensure that we get the right answers. I therefore make no apology for saying these things at this stage of the proceedings. I recommend to my noble friend that he writes to the BBC--and, indeed, this applies to the whole of the Cabinet--and asks for the videotapes of those three

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programmes on how the EMU programme has been formed. I am sure that the BBC will be only too pleased to send the videotapes; indeed, I believe that it will be an eye-opener. Any other Member of this Chamber who takes an interest in such matters--and, by God, they are interesting programmes--should also send for the tapes.

Therefore, I hope that my noble friend will give some replies to the matters that have been raised and that he will indeed consider accepting the amendment. It would certainly do no harm and, indeed, it might do a lot of good.

7 p.m.

Lord Bruce of Donington: Perhaps I may ask my noble friend to give serious consideration to the proposal contained in Amendment No. 27. I am sure he will agree from his own long experience of politics in many fields--as other Members of the Government will realise also--that in political action timing is everything. When considering the steps that may or may not be taken by the European Union which affect ourselves-- and in particular with regard to economic and monetary union--one has to make sure that, subject to whatever considerations may arise later, the date fixed for a specific action which has an effect on our constitutional, financial and economic and social progress, is sufficiently far ahead for us to be able to take into account the events that are likely to take place in the interim--that is to say before the proposed Union action is taken. One has to take particular account of steps that are already in the pipeline of which we may not become aware until the action takes place.

Perhaps I may give a specific example. Because the sum involved is billions of pounds, we shall have to consider the impact, for example, of the abolition of duty free. That will have considerable effects on the financial fortunes of the country. It may, therefore, have some indirect effect one way or the other in due course on our fiscal policy. One has to bear in mind also that there are proposals in the pipeline--I have seen them--which are not due to come into operation for another couple of years in regard to Commission proposals for the standardisation of VAT throughout Europe. These are important matters that we have to consider at the same time that we deliberate upon proposals emanating from the European Commission and from the Community.

If there is one thing that all of us may have learned--on the assumption that all of us can do with a bit of extra learning--it is that we are living in a state of flux. Things do not stand still for us to consider them, they progress the whole time. It has been stated very authoritatively this afternoon, and I think very temperately, that the constitution of Europe, if there is to be any kind of constitution, is a varying, developing quantity. We have to fix a point in time which enables us adequately to be able to assess the position, without wishful thinking, to make quite sure that what is to be done has definite effects on the way in which we conduct our affairs here. That is what I conceive to be underlying Amendment No. 27. There should be a straightforward appraisal in the Government's view of exactly how this will affect us, within certain fluid

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limits, obviously, because the whole thing is flexible. In that spirit, I venture to commend the amendment to the House and to the Government.

Lord Mackay of Ardbrecknish: It is particularly appropriate that we should be discussing these important matters today. After all, this weekend the Council of Ministers will have to meet under the British presidency in order to decide the states which will join the first stage of the monetary union; the rates between the currencies; and the interesting question of who should be the candidate for the president of the European Central Bank. All those questions may take a little time, and I suspect the president of the European Bank may take perhaps a little more time than just the weekend.

It is also appropriate because today the Treasury Select Committee in another place has produced an interesting report which the noble Lord, Lord Stoddart, has already mentioned. It is not often that I am ahead of the noble Lord but I have had a quick read of the report. I did not have to read the press speculation of the weekend. The noble Lord was busily engaged in the Chamber while I was happily sitting in my office reading through this most interesting report.

It starts off by simply reminding us that this weekend has a significant importance as regards the economic and monetary union. Some serious decisions will be made over this coming weekend. It is interesting that some of the decisions relate back to the last time that the noble Lord, Lord McIntosh, and I faced each other across the Dispatch Box; namely on the Bill regarding the independence of the Bank of England. I mentioned the matter in my speeches on the Bank of England Bill but the noble Lord brushed it aside. It is interesting that it is underlined in the Treasury Select Committee report from the other place. It is this. The legislation this House has just spent many happy hours passing about the Bank of England is not nearly sufficient for a single currency. Indeed, the Government will have to bring forward another Bill on the Bank of England if the Prime Minister ever gets the courage of the Chancellor's convictions and decides to join the single currency, or to apply for membership of the single currency. The Government will have to remove its powers to set an inflation target, for example. The Monetary Policy Committee will just become an advisory body rather than a decision-making body; and the Treasury will have to give up its right to override the Bank in exceptional circumstances. I recall that the noble Lord, Lord Peston, in an intervention at Report stage in the Bank of England Bill, said that he felt that the European Central Bank legislation would be deficient if it did not have some power within it to allow the politicians--the Commission, I suppose it would have to be--to override the decisions of the Bank in exceptional circumstances. So it will be interesting to see this Bill at some stage when the Government make up their minds on the subject.

Perhaps more interestingly from my point of view, the term of office of the members of the Monetary Policy Committee will have to be increased to five years. The noble Lord, Lord McIntosh, will have to eat some pretty strenuous words of his own. When I suggested that three

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years was far too short a period, he told me that I was absolutely wrong. He said that it would be wrong to contemplate five or seven years, or whatever, and that three years was the right period. So the poor noble Lord who will reply will have to eat his words if we ever start to go through another Bill on the Bank of England in order to allow us to join the single currency.

I return to the important decisions to be made this week and to the amendment before us which asks for a report. It is interesting to note that the Treasury Select Committee's report published today states clearly one of its serious conclusions on the whole survey. The Treasury Select Committee of the other place is composed of members of all parties: the Conservative Party, the governing party, and even the Liberal Democrat party. They all seem to have managed to agree on these conclusions. Perhaps I may read out paragraph 40 because it underlines the need for a report containing details of the monetary and financial impact, and the impact on economic and social progress. Paragraph 40 states:

    "We agree that if the Government decides to recommend that the UK should join it is imperative that a 'final report' be produced. We recommend that it should also contain a comparative assessment of the consequences of entry and of staying out in the long term. For the reasons we have outlined, it would not be desirable for the final report from the Government before any referendum simply to contain an updated assessment of the five tests".

Those are the five tests that the Chancellor has drawn up. I shall say a few words about them later. The report continues,

    "However, we conclude that it will not be possible to judge 'clearly and unambiguously' either the 'success' of EMU or the answers to all of the Chancellor's five tests for at least five years".

According to anyone's calculations, that means a date well into the next parliament. The report continues,

    "It will remain the case that the UK's decision will have to be made on a political and economic assessment of the balance of national advantage".

If I may say so, that paragraph sounds extraordinarily similar to my party's policy on these matters, which was from time to time derided by the governing party. I am delighted to note that the noble Lord, Lord Barnett, is present as he also took part in the debate on the Bank of England Bill. He will no doubt wish to take part in the next Bank of England Bill when these provisions will have to be changed.

What will the report that we are discussing have to contain? The report is called for not only by the noble Lords, Lord Shore of Stepney, Lord Stoddart of Swindon and Lord Pearson of Rannoch, but is now also quite clearly called for by the Treasury Select Committee in another place. The report will have to contain a number of measures. But before we reach that stage, the all-important weekend will take place when the tests will be discussed. I believe that ECOFIN has already stated that 11 out of the 15 members have passed. I speak as a former schoolteacher when I say that if I was told that some of them had passed, I would think that arithmetic had been stood on its head because by no stretch of the imagination can it be said that all 11 countries have passed the Maastricht criteria which were established some years ago.

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As I said last Thursday evening in this Chamber, the European countries have made strenuous efforts to meet the criteria and they have done extremely well. However, they have not all succeeded in meeting the criteria and, more importantly, some of them have attempted to meet the criteria in ways which cast doubt on whether they can meet the stability pact subsequent to meeting the criteria. When I spoke on these matters from the Treasury Bench I used to tell the Chamber that it is not just a case of getting under the wire of meeting the criteria that is important, but rather it is important to meet the criteria in the long run. That is where the stability pact is hugely important.

It is because the markets do not believe that the euro will be a hard currency and that the convergence criteria will lead to a rigorously obeyed stability pact, that we have the problem of sterling being set at such a high value. Manufacturing industry is suffering considerably as a result. Some people point to the high interest rates imposed by the Monetary Policy Committee because it has only one weapon in its armoury and one objective and, naturally, it must use that one weapon to achieve that one objective. I believe that the members of the Monetary Policy Committee have increased interest rates in this country five times since the general election in May of last year. That, of course, attracts money into this country but it is not the whole reason for the increase in the value of sterling. Part of that increase in the value of sterling is due to the fact that the markets do not believe from what they see and read that the euro will be a strong currency. On the contrary they believe that it will be weak.

Deficit levels have fallen. As I used to say, the convergence criteria are worth following regardless of the euro because they make for sensible economic policies. We followed those sensible economic policies. That is why we have left this Government with a golden economic legacy which, frankly, they are frittering away. As regards the convergence criteria, 14 out of 15 potential members now have deficits below the 3 per cent. reference value. It must be recalled that some of them have taken one-off measures to get below the deficit level. I hear someone say, "Of course they have", as if that is fine. But how do they keep below that level and obey the stability pact that arises later if their measures are only one-off measures?

The Italians have done extraordinarily well, and one has to admire them. They have achieved that reduction partly through the sale of state owned agencies. It is interesting to note that the Government now approve of the sale of state owned agencies, but that is another story. The Italians have also achieved that reduction by means of a one-off tax. But how will they manage to keep below these reference values next year when they no longer have the one-off tax? That is not a question for me to answer; that is a question for--

7.15 p.m.

Lord Pearson of Rannoch: I am anxious that my noble friend should not miss the best part of the story about the Italians' one-off tax which is, of course, that the Italian Prime Minister, Sig. Prodi, has just appeared

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on Italian television to assure the Italian people that once they have got under this hoop he will give the money back.

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