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Viscount Cranborne: My Lords, it was about cash reserve ratios. I am sure that the Minister is aware that all clearing banks in this country must keep a proportion of their cash reserves with the Bank of England and that those reserves are a smaller proportion than is common with continental banks. A smaller proportion of the total number of banks in this country have to keep those reserves than is the case on the Continent, which gives considerable competitive advantage to the British banking system.
In the light of that, will the noble Lord accept that what we saw in Brussels last weekend was not only a blow to the Prime Minister's reputation and therefore to the reputation of this country, but confirmation that as regards the euro sound money has been sacrificed to short-term political expediency for a purely political project? Will the noble Lord explain how that will help his aspirations, which we all share, for a strong currency, aspirations which the markets clearly discounted in view of their reaction in the past 24 hours?
Lord Rodgers of Quarry Bank: My Lords, I join the noble Viscount in thanking the Lord Privy Seal for repeating in this House a Statement made in the other place by the Prime Minister. I share his view, although I would not use his words, that the appointment of the first president of the European central bank was uncomfortable, undignified and clumsy. Indeed, it was a somewhat messy deal and it is not unreasonable to examine why that happened.
If it was badly handled and if it can be ridiculed there is a point at which to stop. By next weekend it will be a minor part of the development of the European Union. I regret that the noble Viscount, Lord Cranborne, commented too much about matters which are insignificant compared with the large issues relating to the development of the Community. I also believe that we should not be too holier than thou in our approach. We are all aware of the need to "politically fix" from time to time--it is not as though it never happens here--and we know that the circumstances of the European Union often need compromises of a kind which we might not otherwise like.
However, I say with regret that the view murmured by my noble friend Lord Harris of Greenwich that the remarks of the noble Viscount were trivial seem to be near the mark. The fact is that the bank is launched; the fact is that it was launched on time; the fact is that it has a highly experienced board; and the fact is that the markets have been little disturbed by the course of events, which greatly disappointed some people.
My main concern is different from that expressed by the noble Viscount. It is with the United Kingdom's position and the Chancellor's Statement on 27th October. From the foundation of the Coal and Steel Community, through the conference at Messina, through the signing of the Treaty of Rome and at every major development in European union, United Kingdom Governments have said, "It will not happen". When it did happen, they said, "It will not work"--but it did. My anxiety is that once again we have missed the opportunity. We have been far too cautious. We have had many opportunities to lead in Europe, but we have turned them all down. The EMU will work and I greatly regret that Britain is not taking a lead but again is on the sidelines watching sceptically, perhaps on this occasion hoping for success but not prepared to take the necessary step and to show the necessary courage to play its full part.
I am prepared to concede that this Government are marginally better and more positive than most over the past half century. However, it must be said--it is a wider comment on Britain's position in the world--that this Prime Minister and his Ministers are happier in Washington than in Paris, Bonn or Brussels because they find it easier to do business there. The time must come when Prime Ministers and their governments believe that paying attention to and bothering with the detail of their partners in Europe is at least as important, even though it is harder work, than lunching with President Clinton and his successors in the White House.
I have a single question for the Lord Privy Seal. It is simple to ask but perhaps more difficult to answer. It is at the heart of Britain's position. While remaining on the outside, how do the Government propose to help the European Union to make the most of the decisions reached this weekend? How will they help to make EMU a success?
Lord Richard: My Lords, I listened with great interest, as I always do, to the noble Viscount's response to what I have to say. He thanked me for repeating the Statement made by the Prime Minister in another place. I reciprocate by thanking him for repeating the comments made by Mr. Hague in another place with regard to my right honourable friend's Statement.
As the Prime Minister referred to them and categorised them in the House of Commons, they were somewhat facile debating points. I shall try to answer some of them. The noble Viscount referred to a technical matter. He asked whether we should be able to retain our freedom on clearing bank cash reserve ratios. I am informed that no decision has yet been taken by the European central bank on the level of reserve ratios applying in participating member states. But it is quite clear that such requirements will not apply to banks located in the United Kingdom unless and until we join the single currency. I hope that that clarifies the position for the noble Viscount.
He asked me a number of questions about Mr. Duisenberg. Perhaps I may read an extract from an interview with Mr. Duisenberg in November 1996, long before Mr. Trichet ever appeared on the scene. Mr. Duisenberg said:
As my right honourable friend said in his Statement, which I repeated to the House, Mr. Duisenberg met the Council in Brussels when this was being considered so that the Council would have the benefit of his own words in regard to his position. He said:
As the noble Viscount was criticising the Government on the position of Mr. Duisenberg, I asked myself whether the Opposition would have vetoed the appointment of Mr. Duisenberg because I cannot imagine anything that would have been more destructive to the creation of the euro which the noble Viscount is so insistent should be launched strongly. Would the party opposite have prevented the appointment of Mr. Duisenberg, the man who at present is the president of the EMI and is obviously the best person to do the job? Of course they would not have vetoed him nor should we have been prepared to do so, which is what I presume the Opposition are now urging that the Government should have done.
What is the Italian position? Italy passes four of the five criteria with no problem. They are: inflation, interest rates, exchange rates, the requirement for legal convergence. The only issue where there is any question mark is the sustainability of the fiscal position. In 1997, the deficit was 2.7 per cent. and forecast to fall further to 2 per cent. in 1999. In the latest draft outline budget, debt is forecast to fall by at least 3 per cent. per year. Italy is running a substantial primary surplus of 6.8 per cent. of GDP in 1997. That draft outline budget has broad political support inside Italy with approval of the budget committees of both houses of the Italian Parliament last Thursday.
In addition, it is also extremely important--and the noble Viscount did not mention this--that the new declaration by ECOFIN on Friday re-emphasises the importance of fiscal discipline within EMU and it brought forward implementation of certain aspects of the stability and growth pacts to ensure its effectiveness in the important early years of EMU. Taking those factors into account, the Government endorsed the recommendation that Italy should join the single currency on 1st January 1999.
The noble Viscount referred to this as being a weak currency and a bad launch. The markets do not seem to think so. On Friday and Saturday Conservative spokesmen were going round the country saying that the pound was going to go through the roof. It has not. On the contrary, the markets seem to have recognised the fact that the euro is launched, is launched properly and with a suitable person at its head. Therefore, the noble Viscount will forgive me if I do not take particularly seriously a great deal of the criticism which he has thrown at us this afternoon.
I was very pleased with much of what the noble Lord, Lord Rodgers, said. He concluded by asking me a single question which he said is easy to ask and difficult to answer. It is difficult to answer. He wants to know how, while remaining outside, the Government will help the euro to function properly. On many occasions we have said that we wish the euro to succeed. On the occasions when we have an opportunity to put that into practice, as last weekend, that will be the principle that we shall adopt. In other words, we want it to succeed and we shall do whatever we can, as a Government, to make sure that it does.
Lord Marsh: My Lords, will the noble Lord confirm that he really does believe that this is not a terribly serious issue? Is he really telling the House that this all arose and was public knowledge suddenly over the weekend? That is disputed in many quarters, the suggestion being that Duisenberg changed his mind after the original decision and that, in fact, there was 18 months' notice of that problem. Is he aware that Mr. Leon Brittan was saying on the radio yesterday that he thought it was a great pity that it turned out like this? He had 18 months to get used to it and convince people.
These arrangements, and specifically the term of office, were designed with one objective and one objective alone: to protect the central bank from political interference by national governments. As I understand the noble Lord's argument, it is that it was not really a question of pressure from national governments, it was just that this chap Duisenberg would not do it that way. May I ask the noble Lord whether he is really saying that this extraordinary arrangement, this crisis over the weekend, was not due in any way to totally, clearly improper political pressure by the French Government but instead was due simply to the insistence of Mr. Willem Duisenberg who, for the past 18 months, has said that all the national governments must surrender to his personal convenience? Will he tell us that?
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