Select Committee on European Union Eighteenth Report


21 NOVEMBER 2000

By the Select Committee appointed to consider European Union documents and other matters relating to the European Union.




1. On 1 May 1998, the decision was taken that eleven Member States would proceed to Stage 3 of Economic and Monetary Union (EMU). In this inquiry, reporting two and a half years later, we have examined the extent to which the hopes and expectations of the participating Member States have been met.

2. In June 1998, the Committee produced a Report entitled The European Central Bank: will it work? Broadly, its answer was "Yes"—largely because

At that time, the Committee identified the two principal potential economic (as opposed to political) dangers to the success of the single currency as "fiscal profligacy—excessive and unjustified budget deficits—and failure to make structural reforms"[2]. We have looked at how far those, and other dangers, have materialised.

3. The Government's position is that

    "in principle, a successful single currency within a single European market would be of benefit to Europe and to Britain … If, in the end, the single currency is successful and the economic case is clear and unambiguous, the Government believes that Britain should be part of it"[3].

This Report does not consider whether, or in what circumstances, the United Kingdom should join EMU; it is intended rather as a contribution to the debate on whether the single currency has so far been—to use the Government's word—"successful".

4. During the summer of 2000, the House of Commons Treasury Committee undertook an inquiry into Economic and Monetary Union, with very wide terms of reference[4]. This influenced our decision to concentrate in detail on the actual functioning of the euro to date, so that the two reports would be complementary.

5. Part 2 of this Report provides a summary of our conclusions, based on the evidence we received, which is presented as follows:

Part 3 looks at what was expected of the euro;

  • Part 4 considers how the euro is working from the point of view of the euro-zone as a whole and of the individual participating Member States;

  • Part 5 considers the functioning of the ECB;

  • Part 6 looks at the reasons for the fall in the value of the euro;

  • Part 7 poses some remaining questions.

6. The inquiry was carried out by Sub-Committee A. The membership of the Sub-Committee during the inquiry is listed at Appendix 1. Because we were particularly interested in the perceptions of the participating Member States as to how the euro was working, we sought written evidence from their governments, and took oral evidence from as many of their Ambassadors as time permitted, as well as from others. Our witnesses are listed at Appendix 2; we are grateful to all of them. The nature of this inquiry required considerable background research and analysis: for this we thank our Specialist Advisers, Professor John Driffill and Mr Martin Christensen, who among other things provided the comprehensive set of tables in Appendix 3. Readers may find the Glossary in Appendix 4 helpful.

1   House of Lords Paper 112; 24th Report Session 1997-98, paragraph 133. Back

2   Op cit, paragraph 131. Back

3   Chancellor of the Exchequer, Hansard, 27 November 1997, cols 583-584. Back

4   Eighth Report, 1999-2000, HC 573. The terms of reference of this inquiry were to consider "monetary conditions to date, including the value of the euro and its position as an international reserve currency, and the actions and structure of the ECB; the performance and future prospects of the euro area economy and the progression of economic convergence between Member States since the euro's launch; whether developments in the euro area economy have made any substantive difference to an assessment of whether the UK satisfies (i) the Maastricht convergence criteria and (ii) the Government's 'five economic tests'; the implications for the euro of enlargement of the EU; the National Change-over Plan and the level of preparation undertaken by (i) United Kingdom firms and (ii) the public sector for possible entry into EMU". Back

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