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Lord Mackay of Ardbrecknish: My noble friend illustrates the point I am trying to make. They will get under the wire on a one-off basis. I think that the Commission and the European Central Bank will find it extremely hard to keep the stability pact in order. I have some confidence that the Bundesbank will at least try to keep it in order but I think it will have some difficulty in doing so. As I said, we can pay tribute to all the member states of the European Community for having met the deficit reference value. However, as regards the average debt level, the story is slightly different. According to the Treasury Select Committee, 11 of the 15 potential EMU members currently have debt levels over 60 per cent. of GDP. The Netherlands at 70 per cent.--10 percentage points above that figure--is not doing too badly. Sweden has a figure of 74.1, but it does not want to join EMU and so I suppose we can set it aside. Italy has a figure of 118.1 per cent., which is 58.1 percentage points out. I am told that the Italians are reducing that figure. They are indeed doing so. However, I saw some figures the other day which suggest that two years ago the figure was about 122, and about 120 to 121 the year before last. Now it is 118.1. I hope my memory has served me correctly as regards those figures, but if it has not I am sure that someone can correct me. That is not exactly a Christopher Chataway sprint--perhaps that shows my age!--towards 60 per cent. Speaking as a simple mathematician rather than an economist I would not consider that to be a fast rate of approach towards 60 per cent. The figure for Belgium is 118.1 per cent. despite the fact that vast amounts of European money are spent in that country to support the people who run the European Community. Its rate of approach to the 60 per cent. level would not fill me with much fear if I were running away from it, if the Committee understands what I mean.

We have an interesting situation where suddenly the rules can be fudged for those two countries and indeed for the others as regards the 60 per cent. of GDP rule. The Treasury Select Committee points out that the European Monetary Institute commented that,

It is interesting to note that by the time the report that is called for in this amendment and in the Treasury Select Committee's report is published, we shall know whether continuing progress has been made to achieve these targets. I have my doubts, because of the undeniable pressures that will build up when the single currency comes into being and, with it, a single interest rate. That is extremely important. I might say in passing that, thanks to the sensible economic policies of the previous government, interestingly enough the UK satisfies the debt, the deficit and the long-term interest rate and inflation criteria. So this country fulfils all the criteria. But of course, thanks to the opt-out negotiated by my right honourable friend John Major at Maastricht,

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we are able to decide for ourselves whether or not to enter. I cannot remember that opt-out being cheered by the Opposition--but then, the world changes; not only do they cheer it in retrospect, but they are prepared to take advantage of it.

The Treasury Select Committee goes on to state an important matter that would have to be included in any report; namely,

    "The sustainability of the EMU project depends not only on debt ratios and deficits but on high levels of employment, employability and social cohesion".

I recall, again when I was speaking from the Treasury Bench, that the then Opposition kept telling me that those other criteria, in addition to the three laid down at Maastricht, were every bit as important and we ought to be demanding that they be met. Is it the Government's intention to address the high level of employability, employment and social cohesion? After all, despite the fact that we have unemployment problems in this country, they are nothing as compared to those of many of our colleagues in the European Union. It is interesting that, after having denied that the Conservative Government's labour market policies were having an impact on employment, the party opposite is lecturing other countries in Europe to take up the same kind of employment policies that this party pursued and they opposed. I just hope that European politicians do not have a long memory. Otherwise, they might have fun at the expense of whichever government Minister will try to persuade them that the policies pursued by the United Kingdom are the right ones, when just over a year ago in opposition they were saying that those policies were wrong.

As I said, the economic and social progress report will include the five criteria laid down by the Chancellor in his interesting document. The Select Committee draws attention to a comment by Christopher Johnson, who is UK adviser to the Association for the Monetary Union of Europe. Writing in a personal capacity, he said:

    "The Chancellor's tests are so loosely defined that anyone will be able to say that they have been either passed or failed according to the dictates of political expediency".

That is a exactly the position that we face in relation to the tests. We need more rigorous tests than those applied by the Chancellor. We need not only the three tests that I have already mentioned; we need tests in relation to employment. I am amazed that the Labour Party is prepared merely to brush aside such important matters.

For example, paragraph 32 states that the Governor of the Bank of England argued that,

    "wide divergences in unemployment rates pose a real question as to the sustainability of that situation in the absence of much more flexibility in labour markets in Europe"--

"that situation" being the rising unemployment on the Continent in contrast to falling unemployment here. He referred to:

    "high unemployment persisting in some parts of the area with potentially inflationary pressure persisting in others".

That is one of the matters that the report will have to address in whatever number of years to come. Having one interest rate for the 11 member countries which, it appears, will join the currency will cause very

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considerable pressures in two directions. The first will be that of the "over-heaters"--Spain, Portugal, the Netherlands, Ireland, and eventually Italy. In economic terms the conditions in those counties will be too loose. They will have high growth but, with it, the danger of inflation returning to haunt them. On the other hand, because of the single interest rate, Germany and France are likely to be the stagnators. Their monetary policy will be too tight, and they will see GDP growth accelerate only modestly. As a result, it will be doubtful whether they are able to do much, if anything, in relation to their high unemployment rate.

We do not have to gaze into a crystal ball. We have only to look back at 1992 and compare Italy with France. As noble Lords will remember, that was rather a traumatic year. The noble Lord, Lord Stoddart, referred to it. There is an element of truth in the idea that the ERM and the problems of our exit from it caused the Conservative Government's troubles which haunted us all the way to the general election.

To compare Italy and France, the interesting point is that Italy also left the ERM in 1992. Thereafter, monetary conditions in Italy were considerably loosened in comparison with those in France. The net result was that Italy's exports overtook those of France in terms of percentage growth year on year. The Italian position has improved greatly, as I acknowledged earlier, and as almost everyone who studies these matters knows.

The question is this. Had the Italians not been able to leave the ERM and devalue their currency, what would the picture be for Italy? It would certainly not be the picture that allows even a generous interpretation of the Maastricht criteria. The Italians would have been in a very sorry economic state had they not been able to do that and had their interest rates been fixed by some central organisation.

I make no secret of the fact, and noble Lords who heard me speak before Easter will know, that I understand and appreciate the arguments that can be made in favour of a single currency. However, I believe that the dangers of a single currency can equally be argued. The dangers have always been that the imposition of a single interest rate over economies at different stages in economic cycles could be such as to blow the whole European experiment apart. As a supporter of the European Union as it is at present, I should certainly not welcome that.

Some noble Lords will recall listening to one or two interesting speeches from the noble Lord, Lord Dahrendorf, from the Liberal Democrat Benches. The noble Lord is not in his place today. In a much more knowledgeable way than I could, the noble Lord underlined that point. I hope that he has not changed his view; I see no reason why he should have done. The noble Lord's view is simply that his idea of Europe--which is the Europe that we see now--could be hugely damaged by a single currency that failed to work.

It is therefore important that we examine very seriously all the issues outlined in this amendment. It is important that there should be a report. I do not know what the Government intend in relation to the Treasury Select

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Committee report. Clearly, if they reject this amendment, they will have to reject the proposal of the Treasury Select Committee; namely, that a final report should be produced. In conclusion, I underline this point. The Select Committee believes that it will take at least five years before this country can be in any position to decide whether or not the single currency experiment has worked and whether or not it is in our interest to enter into the currency. That makes a lot of sense; it is the policy of my party as expounded by Mr. Hague that it will be at least well into the next Parliament, and even the Parliament after that, that we can arrive at a conclusion on behalf of the United Kingdom.

7.30 p.m.

Lord McIntosh of Haringey: It falls to my lot as Deputy Chief Whip to address the induction courses which this House holds for new Peers. I tell them, as I have to, that particularly in legislation we have no time limits; particularly in Committee we have no restriction on the number of times that Members of this House may speak. Because we have no Speaker, there is no control over the relevance or length of the speeches in this House. Those who come to the induction courses hear me with incredulity and disbelief, especially those who come from the House of Commons, where they are used to somewhat more disciplined procedures.

There is another induction course next Tuesday. I shall cut short my speech and just say: "Please read Hansard for 28th April. Please read the debate on Amendment No. 27 and pay attention not only to what was said but also to where the speakers came from". It is noticeable that those speakers who were Members of the House of Commons feel their freedom most keenly and use it most liberally.

I remind the Committee of the status of the amendment. On 12th March we had a four-and-a-half hour debate on economic and monetary union. After four hours, when I had finished my wind up speech from the Government Front Bench, my noble friend Lord Stoddart--as is his right--asked whether it was possible to decouple Amendment No. 27 from Amendment No. 2, which had been the subject of debate for four hours. After another half hour--because my noble friend Lord Shore of Stepney took half an hour to wind up, as is his right--my noble friend Lord Bruce of Donington said, "But I wanted to speak to Amendment No. 27." So in acknowledgement of the undoubted right of my noble friend Lord Stoddart to ungroup Amendment No. 27, I said: "We haven't reached it yet". That was pretty foolish of me.

We had four-and-a-half hours' debate, in which we covered all aspects of European and monetary union except perhaps the question which is raised by Amendment No. 27--that is, whether there should be a report containing details and an assessment of:

    "(a) the constitutional impact,

    "(b) the monetary and financial impact,

    "(c) the impact on economic and social progress",

of decisions taken by the Union,

    "pursuant to the objective set out ... of establishing economic and monetary union".

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I am grateful to both noble Lords who paid some marginal lip service to the wording of the amendment and the subject under debate. Other noble Lords did not even try. I shall answer the debate about the amendment. I shall respond as best I can and then make such observations as are possible. Given that I had no notice whatever of the wide range of irrelevant matters which were raised, I shall make such response as I can to the other parts of the debate.

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