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European Monetary System

Volume 961: debated on Monday 22 January 1979

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asked the Chancellor of the Duchy of Lancaster whether he has received any representations from people in the Duchy of Lancaster about the European monetary system.

Is my right hon. Friend aware of the widespread relief that the Government have decided not to join the European monetary system at present? Is he also aware of the widespread suspicion that certain Cabinet Ministers are still keen to drag us into a system which would enable the Common Market Commissioners to dictate our economic policy to an even greater extent than the IMF did in 1976, resulting in savage cuts in public expenditure? Will my right hon. Friend assure us here and now that he is not one of those who are giving this bad advice?

What my hon. Friend regards as suspicions others might regard as reasonable hopes. It is absolutely clear, and has been said over and over again, that the Government subscribe to the fundamental purpose of the EMS and have sought to achieve the pre-conditions which would make that system durable and effective. My right hon. and hon. Friends are united in desiring to play a full part in world monetary co-operation and in European monetary co-operation in order to secure greater monetary stability which will avoid the kind of economic crises which have the unpleasant consequences that my hon. Friend has commented upon.

What is the Government's view of the French proposal, in the context of the European monetary system, of limiting the agricultural monetary compensatory arrangements?

The Chancellor of the Exchequer made clear our view on that in the debate on 14th December. To put it in a nutshell, we regard any action in relation to MCAs that adds to food prices in this country as undesirable at this time. We could not support that action.

Have the Government decided whether to take part in the European monetary co-operation fund? If so, will they introduce legislation to authorise this?

The Chancellor of the Exchequer is having discussions at present with the Bank of England on the question of the depositing of reserves. The Government's general position is as I have stated it.

Will the right hon. Gentleman clarify an earlier answer? Is it the position of the Government that they favour a wider international monetary system, but not the European monetary system? On the question raised by my hon. Friend the Member for Oswestry (Mr. Biffen), do the conditions imposed by the French Government mean that it is unlikely to come into operation at all, or does he think it will come into operation at some future time?

On the first question, the hon. Member is raising false alternatives, namely, support for the EMS, and support for a wider worldwide monetary co-operation. Far from the development of European co-operation being inimical to the development of European-world co-operation, we believe that it is part of the development of world monetary co-operation.

On the French position on MCAs, some of these questions would be better addressed to the French Assembly than here. The French position is that they have not reopened what was agreed at the European Council. What they are really arguing about is how that decision should be implemented. The Government's reasons for agreeing to the European Council statement on WCAs were explained to the House on 14 December.

Does my right hon. Friend agree that the dangers facing Europe are money instability and inflation, and that it is in the interests of this country and Europe that Britain becomes a full member of the EMS at the first opportunity? Does he agree that, in spite of our current difficulties, it should be our long-term aim to become a member?

I readily agree with my hon. Friend that one of the central dangers for the EEC and the world trading community is the high degree of currency instability which now exists and the uniquely high levels of inflation. I believe the two have an important relationship. A constructive development that is being recognised pretty well all over the world is that we need a greater degree of international co-operation and institutions that will give effect to that co-operation for the purpose of achieving greater monetary stability.

As far as the EMS is concerned, my hon. Friend must know that the Government took part in the negotiations and played a leading role in seeking to ensure that it achieved the kind of conditions and structures required for its permanent effective durability. So far we have not been able to meet all these criteria but the Government remain firmly pledged in principle to the concept of European monetary co-operation and the appropriate development of the EMS.

Does the Chancellor of the Duchy agree that, whether the United Kingdom does or does not join the EMS, the Government should have the overriding objective of securing the most stringent control of the money supply?

I do not know what "stringent control of the money supply" means. Perhaps that can await another Question Time or another debate. Whatever our relations with the EMS, we intend to maintain the stability of sterling to the best of our ability in relation to all the countries with whom we trade.

Does my right hon. Friend recall that on Thursday the Chancellor of the Exchequer agreed that if the French request for the phasing out of MCAs was agreed to it would cause increases in food prices in Britain? Has he seen the report in the Financial Times this morning which puts that estimate at no less than £1 billion? In view of the fact that the Opposition policy is to phase out the green currencies, will not their policy cause considerable inflation to which the Government are opposed?

I am willing to join my hon. Friend in his criticism of Opposition policy. I welcome the direction of his criticism. On the phasing out of MCAs, we made clear that we would be opposed to any change at present calculated to increase food prices in this country.

Since the Government failed, through severe political weakness, to join the EMS, have not the currencies of the Common Market members remained within the parameters set by the EMS? Will the Chancellor of the Duchy say clearly whether the Government still hold open the possibility of joining the EMS, and, if so, what timescale they envisage?

Of course we are open to join the EMS. By "we" I mean the Government. The hon. Member referred to political difficulties, but they were not decisive in affecting the final outcome. I remind the House that there is more than one view on the Opposition side of the House. The Leader of the Opposition was able to voice both views within a fortnight when these discussions were taking place. When there is talk of political opposition, the House should bear in mind that this is understandably a subject upon which opinion is divided, on both sides of the House. My own opinion has been made clear on more than one occasion.