We must now move on to the main business of the day—the motion on economic and monetary union. I have to announce that Madam Speaker has selected the amendment in the name of the Leader of the Opposition. I must also announce that the 10-minutes rule will apply throughout the debate.

I beg to move,

That this House takes note of European Community Documents Nos. 7161/98 and 7188/98 consisting of reports from the European Monetary Institute and European Commission in accordance with Article 109j of the Treaty.

Tomorrow, under the United Kingdom's chairmanship, European Finance Ministers will meet to complete their recommendations on monetary union. After the introduction of monetary union, the euro area will account for about 20 per cent. of the world's output—about the same as the United States. It will be one of the world's largest importers and exporters. It will take nearly 50 per cent. of British exports, absorb more than 40 per cent. of British overseas direct investment and contribute more than 30 per cent. of foreign investment in the United Kingdom. British jobs and growth, therefore, depend on Britain and the euro countries working well together—and that, in Britain's interest, we shall seek to achieve.

This debate, on the eve of the decision-making meetings, allows me to bring the House up to date on the reports on economic and monetary union from the European Monetary Institute and from the European Commission, and on the timetable that follows. It allows me to inform the House of the decisions that member states propose to take, and of the new declaration on budget discipline, economic reform and employment that will be issued by Finance Ministers this weekend. It also gives me the opportunity to state the Government's position on all these matters.

I shall first explain the timetable that is being followed. Tomorrow night, the Economic and Finance Council will make its recommendation to Heads of Government on which member states fulfil the necessary conditions to join the single currency. On Saturday, the European Parliament will meet to consider the Council's recommendations. Heads of Government will then confirm which member states fulfil the necessary conditions—they will do so on the basis of a qualified majority vote. In the evening, a special meeting of Finance Ministers, with the central bank governors, will meet again and announce bilateral conversion rates for those currencies entering economic and monetary union.

Will the right hon. Gentleman give way?

I shall make some progress, and then let the hon. Gentleman intervene.

Those decisions will mean that, when markets open on 1 January, exchange rates between joining currencies and the euro will be fixed. I remind the House that all those procedures were agreed in the Maastricht treaty, which was negotiated by the Government of which the right hon. Member for Hitchin and Harpenden (Mr. Lilley) and his Conservative colleagues were part. Whatever the views of hon. Members on both sides of the House, as so much of our trade will be in the euro area, it is in Britain's interests—and in British business interests—that the euro countries and Britain work together in future. That is why we have sought, under Britain's presidency of the Union, to ensure that the procedures are as orderly and smooth as possible.

In a reply that the Prime Minister gave me yesterday, he clearly said that 1 should refer to the Chancellor of the Exchequer questions relating to political union that arise from EMU. Will the right hon. Gentleman explain why the Government believe that there are no constitutional implications or bar to economic and monetary union?

Every time the hon. Gentleman speaks, I have to thank him for his assistance—without his work, we would not have done so well at the general election. He should refer to the statement that I made to the House in October, when I set out both the constitutional issues and the economic arguments for joining.

No you did not.

If the hon. Gentleman would listen, he would perhaps learn something—he certainly has not been listening for the past few months. I told the House in October that, of course, the single currency raised constitutional issues and that, in any case when such decisions are made, there is a pooling of sovereignty. I also said, however, that we believed that the economic benefits of joining could outweigh those constitutional issues. I pointed out that the economic advantages of joining included the removal in the euro area of the cost of currency transactions, a reduction in speculation and a reduction, over time, in long-term interest rates as the single market worked more effectively.

The question that the Conservative party still has not answered is this: if the economic benefits of joining are proven, why do so many Conservative Members insist on our refusing to join even when joining is in the national economic interest?

As president of ECOFIN, we have now assembled the responses of member states to the two reports on EMU from the EMI and the Commission, as well as the response to the Commission's recommendations. On 27 March, the German Government stated their support for the recommendations, and last week they were supported by all the main political parties in both their Houses of Parliament. On 22 April, the French National Assembly approved by a substantial majority the French Government's position to support the Commission's recommendations on the 11. In turn, in recent weeks, Italy; the Netherlands, which had previously expressed some doubts about individual candidates; on 7 April, Ireland; then Belgium, Austria and Luxembourg, whose Parliament was unanimous, supported an EMU of the 11 recommended countries. Yesterday, the Finnish Government confirmed their support. No member state, whatever the colour of its Government, has adopted a negative attitude to the Commission's recommendations.

I am grateful to the Chancellor for giving way, as he said he would. Is he aware that the Bundesbank board is meeting today to decide whether to make public its concerns about the expansion of the single currency? It is concerned that countries such as Belgium and Italy will fudge issues because of the state of their public finances. Has the board now met, and what was its public statement on the single currency?

The Bundesbank board met on 26 March, and it said:

"As the EMI report shows, far-reaching convergence has been achieved in the European Union concerning the price criterion at a gratifyingly low level … Considerable progress has been achieve towards convergence during the past few years … Bearing in mind the progress in convergence which has been achieved in many member states, and after giving due consideration to the remaining problems and risks, entry into monetary union from 1999 appears justifiable in stability policy terms."

I confirm that that was the opinion on 26 March. I do not believe that Mr. Hans Tietmeyer has changed his opinion over the course of a month.

Will the right hon. Gentleman give way?

I will give way once more, but it appears that I am giving information to Conservative Members that they should have found out for themselves.

These are serious matters, and some fateful decisions will be made this weekend. It is important to make those decisions on the basis of correct information. Is the right hon. Gentleman aware, for example, that the statistics on Italy produced by the International Monetary Fund qualify the accounts by saying that the data include the underground economy? Were the data not to include the underground economy—fraud and criminal activity—the public debt to gross domestic product ratio would be nearer 157 per cent. than the 121 per cent. on which we are currently working.

The Conservative party said that this weekend would never happen. Then it said that no country would ever reach the borrowing requirement figures. Then it said that it expected all sorts of countries to fall by the wayside. Now it says that Italy should not go ahead because it has a black economy—as do many other countries around the world. Measures are being taken in Italy and elsewhere to deal with that.

The hon. Gentleman would never have predicted what Italy has achieved in its inflation, in lowering public borrowing, in long-term interest rates and in long-term rate stability. Instead of raising one issue—the black economy—the hon. Gentleman should acknowledge that Italy has made substantial progress over recent years.

rose—

I will give way once more, but then I must make progress.

During the past year, the right hon. Gentleman has made much of the state of Britain's public finances. As the position in Italy and Belgium is more than twice as bad as that in Britain, about which he constantly complains, how can he possibly think that Italy and Belgium will be suitable members of a single currency?

The hon. Gentleman gives me the opportunity to make an important point. When we came to power, last year's borrowing deficit was £23 billion. The Italian deficit this year is set to be 2.5 per cent. There is a legal requirement—(Interruption.] The hon. Gentleman asked about public borrowing and I am answering. In Italy, the deficit is 2.5 per cent. this year. Mr. Prodi, the Italian Prime Minister, has set a legal requirement for it to be 2 per cent. next year. On the debt:GDP ratio, the issue is not simply the level, but the direction—[Interruption.] Surely Conservative Members want accuracy on this matter. The treaty shows that it is a matter not only of the debt:GDP ratio but of the direction in which it is moving—

Is it going down?

It is going down. It is set to fall by 4 per cent. over the next year. It has fallen over the past three years. Conservative Members should admit that I have the figures that they do not have.

rose—

I will give way to the right hon. Gentleman if he will clarify the Conservative party's position on this matter. Is it still the position that the Conservative party would not join a single currency for two Parliaments or for 10 years?

I am grateful to the right hon. Gentleman for giving way; I will answer his question later.

Why not now?

Because I am asking a question. The right hon. Gentleman surely realises that I will be called to speak later, if I am fortunate enough to catch your eye, Mr. Deputy Speaker.

The right hon. Gentleman was right to say that the treaty requires the Council of Ministers to make a judgment on whether Italy and other countries are approaching at a satisfactory pace the 60 per cent. reference level for debt. I want to know the Government's view on how many years those countries should be allowed to reach that 60 per cent. reference level. What would be considered satisfactory?

The right hon. Gentleman would not answer my question. It is about time that he clarified, for the country, the Conservative party's position. It has been clearly stated that the Conservative party wants to hold back monetary union for two Parliaments or 10 years. As regards Italy, the right hon. Gentleman correctly pointed out that the treaty refers not only to the debt:GDP ratio at a particular point in time but to the sustainability of fiscal criteria and therefore the direction in which that ratio is moving. The Italian debt:GDP ratio has been falling for the past three years—contrary to what the hon. Member for Reigate (Mr. Blunt) suggested. It will fall again next year. The Italian Government have made a commitment that, over the next three years, it will fall by 12 per cent. The right hon. Member for Hitchin and Harpenden should take into account first, that Italian inflation is 1.8 per cent.; secondly, that public borrowing is 2.5 per cent.; thirdly, that Italy has met the necessary long-term interest rate criteria; fourthly, that Italy has met the exchange rate criteria; and, fifthly, that not only has Italy made a commitment significantly to reduce its debt:GDP ratio but, as I shall explain in a minute, Saturday's declaration of Ministers will lock countries into a course of fiscal rectitude that is absolutely essential for the future.

I will not take lectures from the Conservative party about fiddling the criteria. When we came to office, we found that the public spending figures had assumed a spend-to-save programme of billions of pounds of savings that did not exist. They had assumed privatisation sales that could never have happened because they had never been planned. They had assumed a trend growth rate that had not been reached over the cycle. The Conservative Government had continually changed the criteria on which they would judge themselves for fiscal rectitude—from a balanced budget to a near-to-balanced budget. We will take no lectures on fiscal rectitude from Conservative Members.

rose—

As I was saying—[HON. MEMBERS: "Give way.") I will give way to the right hon. Gentleman if he will answer my question. The country has a right to know whether it is still the Conservative party's position that it will not join a single currency for two Parliaments or 10 years. It is a very simple question requiring a very simple answer.

I am afraid that I did not quite catch the Chancellor's answer to my question. He has to make a legally important decision tomorrow night on whether or not to lift the existing excess deficit procedure from Italy. He can do that only by making a judgment on how many years Italy should be allowed to fulfil the requirement that it should return to the 60 per cent. reference level in a satisfactory time. He must tell the House how many years he would consider satisfactory.

The right hon. Gentleman presents himself as some sort of lawyer interpreting—[Interruption.]

Order. I am sorry to interrupt the Chancellor, but this is a serious debate which is not helped by barracking and shouting. It would be better conducted in a quieter mood.

It is not a requirement of the treaty to reach a particular level within a particular time. The requirement is that, if the debt:GDP ratio is not met at a particular point in time, the direction in which it is moving must be satisfactory.

And the pace.

Yes, and the pace.

I have said that the Italian debt:GDP ratio has fallen for the last three years and it is falling now. It will fall again over the next few years. Conservative Members have tried to find some issue that might unite them on European policy. They criticise the Italians, but they should take a more sensible view and look at Italy's achievements on inflation, interest rates and the debt:GDP ratio. They should recognise that, under the Italian plan for next year, public borrowing will be far lower as a percentage of national income than was the case when we came to office in Britain and inherited a Conservative borrowing requirement of £23 billion.

We already know that, on Friday, member states intend to vote for monetary union to proceed.

rose—

I will not give way again.

It is clear that member states intend to support the Commission's recommendations. Therefore, there will be 11 members of the new currency union. I should remind the House—Conservative Members might like to bear it in mind—that the vote will be taken on a qualified majority basis. The Maastricht treaty, negotiated by the previous Government, did not allow for a veto.

I shall deal now with the Government's position on those matters—[Interruption.] Mr. Deputy Speaker, Conservative Members seem to be very exercised by these issues. They should perhaps reflect on the fact that we are debating events over the next few days that will significantly affect Europe, and that their behaviour in this debate will be commented on across Europe. Nevertheless, they cannot bring themselves to admit that—despite all they said about countries that would never meet the terms on public borrowing, inflation and interest rates—those terms have been achieved by all the applying member states.

Will the right hon. Gentleman give way?

I will not give way again.

As for the Government's position, I should say immediately that—because of the importance that we attach to discipline, stability and economic reforms as preconditions for the high levels of growth and employment that Europe needs—we will work this weekend with our colleagues towards a new declaration, to be agreed by all Finance Ministers.

First, the declaration will not only re-emphasise the importance of fiscal discipline in the stability and growth pact—with its deficit requirements, penalties and multilateral surveillance—but will reinforce it with a new declaration that will advance implementation of the stability pact in the all-important transition stages to economic and monetary union, helping to lock in the achievements of recent years and to build on them for the future.

Secondly, this weekend's declaration will also go beyond the stability and growth pact, to emphasise the need for economic reform. As a result of a British initiative at York, economic reform is now established as the next big challenge facing Europe—including product market reform through effective competition policies, and vigorous pursuit of completion of the single market; capital market reform through measures to improve the flow of investment funds to business—not least our proposals for reforming the venture capital industry; and labour market reform, including our proposals for employability and greater adaptability.

After the European Monetary Institute's report, which stated that structural policies were necessary in most countries, a new commitment to economic reform measures—to help the European economy work better, and to help economic and monetary union work more successfully—will be included in the new declaration.

Thirdly, the declaration that we will sign this weekend will reflect the importance that we attach to addressing the problem of unemployment if we are to make monetary union work more successfully. The declaration will therefore emphasise just how important it is to tackle unemployment not only by tax, social security and welfare reform but by measures for education and training, and the importance of ending social exclusion if we are to have both a successful single currency and a successful economy.

Will the right hon. Gentleman give way?

I will not give way.

With the declaration, we are satisfied that we are making new and further progress in budget discipline and debt reduction, thus locking in greater stability; in employment, and therefore in the better functioning of the economies; and in economic reform.

The new declaration will form the background to the decisions we take tomorrow and on Saturday. I hope that hon. Members on both sides of the House will welcome the fact that that is happening.

Will the right hon. Gentleman give way?

I will not give way again.

I shall deal now with the detailed reports of the European Monetary Institute and the European Commission assessing the convergence criteria not only over one year but over a period of years. The reports have been laid before the House, with a detailed explanatory memorandum.

The European Monetary Institute report—which has been signed by all the central bank governors, including the Governor of the Bank of England—states that

"The individual criteria are interpreted and applied in a strict manner" and concludes that

"major improvements in terms of convergence have been seen in the Union." The report also states that

"Overall progress in reducing fiscal deficits and debt ratios has generally accelerated",

and notes the substantial progress that has been made to reduce inflation.

In highlighting that progress, the Commission's report concludes and recommends that 11 member states have a sufficient degree of sustainable convergence to qualify them to join the single currency on 1 January 1999.

The reports have to assess the progress made by member states on two matters. The first is legal convergence: whether national legislation, including the statutes of national central banks, is compatible with the treaty's legal obligations and the statute of the European system of central banks.

As the EMI report makes it clear, all candidates for economic and monetary union have made the changes—or are in advanced stages of introducing them, and therefore will have met them by the required date of 1 July—necessary to ensure that national legislation is thus compatible with the treaty and with the statute of the European system of central banks.

The second assessment is on economic convergence—on whether applying states have achieved a high degree of sustainable convergence by reference to the treaty's four criteria, which are achievement of a high degree of price stability, exchange rate stability, convergence of long-term interest rates and sustainability of the financial position.

On inflation, all candidates for the single currency had inflation below the reference value of 2.7 per cent. The European Monetary Institute concludes that all those countries' inflation performance has been consistent with price stability—which I hope Conservative Members will welcome—reflecting reductions in inflation achieved over a number of years. Average European Union inflation has thus fallen from almost 6 per cent., in 1991, to just over 2 per cent. last year.

On exchange rates, all the candidates have achieved a high degree of exchange rate stability, which has in recent years been supported by reductions in inflation and in fiscal deficits.

On long-term interest rates, all the candidates had interest rates below the reference value for the required period.

The final treaty criterion is sustainability of public finances. As both the Commission and the EMI reports demonstrate, European countries have already made considerable progress in controlling their budget deficits. The average deficit has been reduced from a peak of more than 6 per cent. of national income, in 1993, to 2.4 per cent. last year.

On sustainability of the fiscal position, I repeat that those countries with high debt ratios have already taken substantial action in recent years to reduce deficits. Those countries have primary surpluses, which means that their debts have been and continue to be on a downward path. They have now made significant commitments to reducing deficits further, thus keeping debt on a downward trend. One purpose of this weekend's declaration, which I have described to the House, is to ensure that those trends are maintained and locked in.

The EMI report confirms that the United Kingdom is itself on course to comply with the medium-term objectives of the stability and growth pact, and notes that our fiscal position on deficits and on debt meets the Maastricht criteria.

Will the right hon. Gentleman give way?

As I have already said, I will not give way.

Taking into account the progress that has been made towards economic convergence on the basis of the treaty criteria, the framework for fiscal discipline provided by the stability and growth pact, the special commitments that have now been made by high-debt countries to reduce their debt ratios, and the new declaration to be issued this weekend—which will affirm commitments to fiscal discipline, economic reform and employment—the Government will endorse the recommendation that 11 countries should join the single currency on 1 January 1999.

rose—

I shall give way once more, to the hon. Member for Esher and Walton (Mr. Taylor).

The Opposition's concern about whether the 11 countries forming the first group have met the criteria is based largely on our desire to ensure that the single currency is a success. Given that we will not be part of the Euro X committee, and the fact that the Chancellor—although he will be president this weekend—will not subsequently have the same influence, how will we be able, in the British national interest, to maintain our influence on the operation of the currency in future, to ensure that it is successful? Its success is so important not only to the European economy but to the British economy.

I am grateful to the hon. Gentleman, who had the courage to stay with the policy pursued by the Conservatives in the previous Parliament. He resigned from the Opposition Front Bench when he realised that that policy was changing because of a leadership change. He suggested that we will have a loss of influence because we do not belong to the Euro X committee, but the United Kingdom will be present in all Euro X committee meetings dealing with matters affecting all 15 European Union countries. We secured that agreement at Luxembourg, and that agreement will be followed through. I hope that I have been able to reassure the hon. Gentleman on that point. It is vital that we make the necessary preparations outlined in our statement in October.

I want to reaffirm to the House Britain's position on economic and monetary union. The Government are committed to the principle of joining the single currency, making a proper and balanced assessment of the economic benefits of joining, judging—as our economic tests do—not just the advantages and disadvantages of being in, but the costs and benefits of staying out and making the necessary preparation to join.

It is the Government's judgment that, after a period of preparation, which should also be a period of stability without endless destabilising speculation, we should be in a position to make a decision early in the next Parliament and, if we were to recommend it, the British people would make the final decision in a referendum.

That was the position that we set out in October and we will not be diverted from it, either by those who want to join early, regardless of the economic interest, or by those who never want to join even if it proves to be in the national economic interest to do so.

We reject the Opposition's view that we should not enter a single currency for 10 years or two Parliaments. I am pleased to see that the shadow Chancellor does not feel it necessary to deny that.

In or out of the euro, preparing for its introduction is of vital importance and we shall be prepared. The Government are working closely with all business to ensure that when the euro arrives in Europe on 1 January 1999, British businesses benefit from it.

I can say today that, from 1999, businesses will be able to use the euro in the United Kingdom for a wide range of activities from filing company accounts to paying taxes and issuing shares. From 1999, the United Kingdom banking system will have the capability to process payments in Europe for local and national businesses as well as for the international financial market. The Bank of England is leading euro preparations in the City of London.

I am pleased that the Select Committee, to which I shall reply soon, supported the need for detailed and full preparations if we are to join and supported our proposal for a national changeover plan. We are committed to producing an outline of the national changeover plan in the coming year. Inside or outside the euro zone, British economic policies will continue being right for business and I am determined to ensure that Britain will be the best place in Europe from which to develop new business opportunities after 1999.

The Government's constructive approach to Europe has brought to an end years of British isolation in Europe and years of ideological division at home over Europe during which Britain lacked either a consensus on Europe or a clear national economic purpose. Our position, which is right for business and supported by business, is the best for jobs and growth. It is best for Britain now and in the future and I commend it to the House.

I beg to move, as an amendment to the motion, at end add:

'but regrets the Government's failure to deliver on the Prime Minister's pledge to the House on 4th June 1997 that "the criteria for monetary union should not be fiddled, fudged or botched in any way", and also the Government's failure during the British Presidency of the European Union to press for a strict interpretation of the Treaty requirements governing the eligibility of member states to join a single European currency, with consequential damage to British manufacturing industry through the perceived weakness of the euro and the resulting strength of sterling.'.

This weekend, European Governments will be making decisions that will have momentous consequences for the countries that may join the euro and for the United Kingdom. I shall make a case which I shall state very succinctly at the outset. First, I shall argue that

"it would clearly be in the UK's interests, even if it does not join, to ensure that the choice of participants and any compromise reached on the Presidency of the European Central Bank are credible and consistent with the treaty's requirements".

Those are the words of the Select Committee, and I whole-heartedly endorse them.

Secondly, I shall argue that

"it is our duty, as President of the European Union, to ensure that the criteria are properly obeyed".

As the right hon. Gentleman is making statements of principle, will he clarify the position of the Conservative party on the single currency? Is it that it will not join for two Parliaments or 10 years? Will he rescind the statement that he made yesterday to Mr. Naughtie on the "Today" programme that that has never been the Conservative party's position?

The words that I just uttered were those of the Prime Minister, which is perhaps why the Chancellor wanted to avoid them. I agree with the Prime Minister that, during Britain's presidency, the Government should use their influence to ensure that the criteria are properly obeyed.

Will the right hon. Gentleman answer the question?

I shall answer the Chancellor's question in a moment.

Thirdly, I shall argue that the Bundesbank is right to say that

"additional firm and substantive commitments"

are needed to ensure that Italy and Belgium achieve sustainable convergence and that the Government should argue, negotiate and, if need be, vote to achieve that end.

The Chancellor wants to know our position on Europe. It is very clear. We believe that we should keep the pound in the next Parliament, because the structure and cycle of the British economy differ from those on the continent. Unless and until we have American-style labour mobility, wage flexibility and transfer of resources between states, a one-interest-rate-fits-all monetary policy would be damaging to Britain.

Will the right hon. Gentleman give way?

No. I am still answering the Chancellor's point.

The Treasury Select Committee concluded that, even if the circumstances were to change, it would take at least five years and probably a whole business cycle to determine that. Therefore, it would be absurd to try to pretend that the criteria laid down by the Chancellor could be met, and could be seen to have been met, before the end of the next Parliament. That is why we believe that it is right to keep the pound and that is the logic of the Chancellor's position.

Does the right hon. Gentleman accept that the logic of the position that he has just explained is that, in the next 10 years, there are no circumstances or developments in the relationship between the euro and Britain under which the people of Britain might have the chance to express their judgment and assessment of the issues and weigh up the debate? He has said that there will be no circumstances in which the British people will be able to decide.

If that is the hon. Gentleman's view of the logic of my position, he is, in effect, saying that it is the logic of the Treasury Select Committee and the Chancellor.

May we have a straight answer?

The Chancellor has had a straight answer. He refused to give me a straight answer to my question.

Will the right hon. Gentleman confirm that the position of the Conservative party is not as he set out yesterday on the "Today" programme, when he said to Mr. Jim Naughtie:

"10 years is a number picked from the air by you"?

Will he confirm that the real position is the one that he stated on 5 October and referred to two Parliaments or 10 years? Will he confirm that that is the true position of the Conservative party and will he apologise for getting it wrong yesterday?

The two Parliaments, or essentially the next Parliament, is the commitment that we have made, for the reasons that I spelled out. That is a sensible policy. The right hon. Gentleman's own policy is incompatible—

Will the right hon. Gentleman give way?

No. I must get on and address the issues involved in the debate.

There are very good reasons for countries that are not in the European currency to be concerned about the decisions that are being taken this weekend. Decisions about the terms on which members join the euro, who joins and who runs the European central bank are important for Europe and for Britain.

Will the right hon. Gentleman give way on that point?

No. I have not yet completed my point, so the hon. Gentleman does not know yet what it is.

A soft euro would push the pound even higher, hitting exporters even harder and driving manufacturing into recession. In the long run, an unstable euro—or worse still, a failed euro, would not just be a disaster for member countries; Britain too would be hit by the wash. There are very good reasons for being concerned about the euro even though Britain remains outside, as it will have indirect effects on us.

The Chancellor wants to bounce us into a single currency soon after the next election, if he gets the opportunity. A weak and unstable euro would then affect us directly, so he should be even more concerned than we are by the failure to apply the convergence criteria strictly. If he is serious about British entry into economic and monetary union, he is being quite extraordinarily irresponsible in taking such a relaxed view about the application of the criteria.

Will the right hon. Gentleman give way?

No. I should like to make some further progress.

Launching the euro is a bold and perilous venture. Virtually everyone has agreed that the less strictly the Maastricht convergence criteria are applied, the greater the risk that the venture will fail. Those criteria were included in the Maastricht treaty precisely to ensure that the euro would be strong and stable. The Government have repeatedly stated that they too believe that the criteria should be rigorously applied.

Last July, the Chancellor told the Royal Institute of International Affairs:

"there should be no fudging of the Maastricht treaty conditions."

On that, at least, the Chancellor and the Prime Minister see eye to eye. The Prime Minister told the House:

"the criteria for monetary union should not be fiddled, fudged or botched in any way. If they are, the answer is not to delay—the answer is not to proceed."—[Official Report, 4 June 1997; Vol. 295, c. 386.]

Even the Foreign Secretary has taken time off from winning friends and influencing people around the world to weigh in against fudging. He said:

"we have no intention of signing up if our final conclusion is that the criteria have been fudged."—[Official Report, 9 June 1997; Vol. 295, c. 803.]

We have a right to expect that the Government mean what they say, but we now know that those words were for home consumption. Words may be cheap for the Chancellor, but he is playing fast and loose with British jobs and businesses. Hard-working people are paying the price of his broken pledges. On this most important issue he has let down the British people.

While the right hon. Gentleman is talking about cheap words, I remind him of his own words of 8 May 1997, when he said that he thought there was

"no point in making theological decisions about subsequent Parliaments".

Does he recall those words and, almost a year to the day later, has he suddenly converted to a different way of theological thinking?

The hon. Gentleman should get his quotations first hand, not from Walworth road. He would then realise that I was asked about the Parliament after next. Of course it is sensible for us to have a view about the next general election; we will have to have such a view in our next manifesto. However, I did not think that it was worth while committing myself, theologically or otherwise, to a view about the election after next.

Will the right hon. Gentleman give way?

No, I will not. The hon. Gentleman has already had one go.

Britain holds the presidency of the European Union. It is the Government's duty to ensure that the criteria are properly obeyed, yet they are doing nothing and have done nothing during the past four months. They have not uttered a single word of criticism about the Commission's recommendations that all 11 applicants now meet all the criteria.

The Commission and the European Monetary Institute reports show that only four of the 15 members of the European Community have passed all the tests and met the strict reference levels in the treaty. Two of those four are Denmark and Britain, which are not even applying to join the single currency. The report shows also that two member states—Belgium and Italy—had levels of debt twice as high as those permitted by the Maastricht treaty.

It shows that two countries, including Italy, have not been members of the exchange rate mechanism for the full two years required by the treaty.

The report shows also that some countries have needed temporary and spurious devices to get their deficits below the ceiling. The Bundesbank spelled out in its parallel report that

"the deficit ratio of many member states in 1997 was influenced by measures with a temporary effect. These measures were on such a scale in Italy, for example, at 1 per cent. of GDP that they were instrumental in enabling it to meet the reference value of 3 per cent. of GDP."

It would be interesting to hear from the Chancellor whether he thinks that a strict application of the rules would allow Italy to get away with raising a euro-tax and promising to give back 70 per cent. of the proceeds in subsequent years without taking account of that in the figures that it presented to the Commission. We might all like taxes that would end after a few years, but that does not seem to me to be a very strict application of the rules.

The Government and the Chancellor have put forward a range of excuses for abandoning their pledge to insist on strict application of the criteria. Their first response was to deny that any real fudging is going on. The Chancellor claimed today that even countries such as Italy and Belgium come within the letter of the rules. There is a get-out clause for countries whose debt exceeds 60 per cent. of gross domestic product if, in the words of the treaty, the ratio is

"approaching the reference value at a satisfactory pace."

Every country signed up to the 60 per cent. target in 1991—seven years ago. Since then, Italy's debt has not decreased; it has increased from 101 per cent. in 1991 to 122 per cent. In the three recent years, to which the Chancellor referred, in which it has declined from its peak, it has done so at an average rate of only 1 per cent. a year. At that rate, it will take six decades to reach the reference level. Is the Chancellor saying that approaching the reference level at a satisfactory pace means allowing Italy 60 years to do so?

The good news is that the Italian Government have promised the Commission that they will reduce the ratio in future at a rate of 3 per cent. a year. They will need to achieve that rate year in, year out, without fail, for the next 20 years to reach the 60 per cent. reference level. Does the Chancellor consider that Italy is approaching the reference level at a satisfactory pace?

Having said that Britain should not join monetary union, the shadow Chancellor now wants no other country to join. He is trying to construct a case for monetary union not to go ahead among 11 countries based on the debt to GDP ratio in Italy. I have pointed out to him—[Horn. MEMBERS: "What about Italy?"] Conservative Members should listen to these facts. First, inflation in Italy is 1.8 per cent., so it has met the criteria that many Conservative Members said that it would never meet. Secondly, long-term interest rates in Italy are now 5.2 per cent., so they have substantially decreased. Thirdly, the public sector borrowing requirement—the Government's financial position—is 2.5 per cent., and the Italian Prime Minister has promised me that it will fall to 2 per cent. Fourthly, the Maastricht criterion was not that debt should be 60 per cent. of GDP, but that it should be 60 per cent. or satisfactorily diminishing.

On a point of order, Mr. Deputy Speaker. As a new Member of the House, may I ask whether the Chancellor's remarks constitute an intervention?

I advise the hon. Gentleman, as a new Member of the House, that that is not a point of order.

The right hon. Member for Hitchin and Harpenden (Mr. Lilley) should realise that, because the primary surplus in Italy is 6 per cent., there is a current account surplus and the savings ratio is 15 per cent., debt will not be accumulated over the next few years; it is falling by 3 per cent. a year. The Italian Prime Minister has said that debt will fall by 12 per cent. over the next three years.

Conservative Members should consider another point: the European Parliament today voted on the Commission's recommendations and the British Conservative group refused to support the shadow Chancellor's view.

It is my understanding that the British Conservatives abstained. One always knows when the Chancellor is in trouble because he goes into auto-rant mode for so long that he hopes that people will have forgotten the issue that he was supposed to be addressing. He has revealed that he still does not have a view on how much time Italy should be allowed to return to the 60 per cent. level. I do not mind what his view is, but he is a member of the Government and he will have to make a decision on that matter tomorrow evening. He should tell the House his position. Twenty years seems a long time for Italy to fulfil that criterion. I know that the Chancellor claims to be a long-termist, but that is carrying long-termism to extremes.

Does my right hon. Friend agree that what distinguishes debt from inflation and the PSBR is that inflation and PSBR figures can change substantially from one year to the next, but it takes a long time to deal with a huge public sector debt?

My hon. Friend is absolutely right and much more to the point than the Chancellor could ever be.

The Chancellor's next line of defence is to pretend that all the reports that have been published, including that of the European Monetary Institute—on Thursday, the Chancellor even claimed the same of the Bundesbank report—entirely endorse, without qualification, the entry into the euro of all 11 countries. That is not so. The EMI document is fundamentally factual and does not have to express a detailed affirmation of each country's overall standing.

I did not say that the report endorsed entry of all 11 countries.

The Chancellor is backing off; he is saying that he did not say such a thing.

rose—

Order. Both right hon. Gentlemen must sit down if I am on my feet. If the Chancellor is to make sedentary comments, he cannot necessarily count on them not being challenged by the right hon. Member for Hitchin and Harpenden (Mr. Lilley). Is the shadow Chancellor giving way?

No, I am not, for the simple reason that the Chancellor spoke for the equivalent of four interventions in his last one.

The European Monetary Institute expresses views on the sustainability of the debt position of each member state. This is what it says of Greece, which has been prevented from joining because it fails, among other things, the debt criteria. It has debt of 108 per cent. of its GDP. The report says:

"Notwithstanding the efforts and the substantial progress made towards improving the current fiscal situation, there must be an ongoing concern as to whether the ratio of Government debt to GDP will"—

then it quotes the treaty—

"'be sufficiently diminishing and approaching the reference value at a satisfactory pace,' and whether sustainability of the fiscal position has been achieved."

That is fair enough; that is a clear rejection of the Greek position. The report uses exactly the same words for Italy; exactly the same words describe the Italian situation. The Chancellor cannot claim that the report endorses the countries that he wishes to enter without further change and fail to acknowledge that the report condemns them in the terms that it condemns Greece.

The next line of defence to which the Government resort is to acknowledge that some of the criteria may have been fudged but to claim, as the Prime Minister did at the Dispatch Box the other day, that there is "a range of criteria", with the implication that it is all right to fail one or two as long as all the others are met. The European Monetary Institute does not accept that view. Its report says:

"the convergence criteria constitute a coherent and integrated package and they must all be satisfied; the treaty lists the criteria on an equal footing and does not suggest a hierarchy".

Will the right hon. Gentleman give way?

No, I will not.

The criteria are being loosely applied, particularly to Belgium and Italy. That will weaken the euro. The Chancellor can argue until he is blue in the face that that is not so, but the foreign exchange markets give him the lie. They do not agree with him. They believe that a fudged euro will be a soft euro, and the euro will be fudged. That is why they have devalued all 11 currencies that are set to join the euro against those that are staying outside it. If the Chancellor does not believe that that is the reason for the moves on the foreign exchange markets, he should explain to the House what is.

Will the right hon. Gentleman give way?

I am afraid that I do not have time to give way to the hon. Gentleman in view of Madam Speaker's request that we try not to go on too long.

The Government's final line of defence is to admit that there might be fudging but to say, "Well, we shouldn't do anything about it because we wouldn't achieve very much and we would make ourselves unpopular." That is what the Prime Minister said at the Dispatch Box on 1 April. That is an abnegation of leadership; it is an admission that the Government have no influence.

Others in Europe have not been so spineless. The French Interior Minister, Jean-Pierre Chevenement, recently warned that a fudged euro would be like the Titanic

"sailing full steam ahead towards the pack ice. By the time we see the iceberg, perhaps it will be too late."

That is from a member of a Government who are applying to join the institution.

The Bundesbank qualified its reluctant agreement to German membership with a warning that Belgium and Italy need to do more to meet the criteria. It said:

"with regard to the requirement of a sustainable financial position, however, serious concern exists in the case of Belgium and Italy. This could be eliminated if additional, firm, substantive commitments are given."

Mr. Waigel, the German Finance Minister, has recently been touring European capitals, trying to persuade member states to sign up to a declaration committing themselves to accelerated debt reduction. The Chancellor revealed that that has finally come to fruition—although he has not put the matter before the House or respected the House by telling us what document he is to sign. Will he confirm that the document has been watered down in three successive drafts, no longer includes any timetable for Italy and Belgium to reduce their debt ratios and is not nearly as strong as the author himself would have liked?

The British Government hold the presidency. The British Government should be taking the lead in these matters, not leaving it to France and Germany. The British Government should have been seeking additional, firm, substantive commitments to a timetable of debt reduction. After all, this is the Government who told us that they would take the lead in Europe. This is the Government who told us that they had won influence by signing up to the social chapter and committing Britain to the euro in principle. The sad truth is that they have got nothing in return for those concessions.

As this week's edition of The Economist says:

"Ecofin, the council of Finance Ministers, that the Chancellor chairs, has lately been the EU's most influential body. But Mr. Brown himself is one of its least influential members."

The Government have won no influence for their concessions. Apparently, according again to The Economist, the only concession that the Chancellor has got out of his French opposite number is a free ticket to the World cup.

Our Prime Minister claims that he is still taking the lead in Europe, but he does not tell his friends in Europe what he told the British people in his party's manifesto which was issued for the general election.

On that very point, will the right hon. Gentleman give way?

I shall remind the hon. Gentleman that, in the manifesto on which the Prime Minister and he were elected, the Labour party said:

"What is essential for the success of EMU is genuine convergence among the economies that take part, without any fudging of the rules."

Why is the Prime Minister not prepared to say the same thing to our partners in Europe? Apparently, despite his well-known linguistic skills, translating those words into French seems to have been beyond him. He yields to the views of his partners; he has found that he can only pretend to lead if he agrees to follow. His idea of leadership is the same as the Duke of Plaza Toro, who led his army from behind because he found it so much safer. In the end, Britain will gain influence in Europe only if we have the courage of our convictions, if we put forward a clear, coherent and consistent view. That may make us unpopular in the short term, but it will win us respect in the longer run.

Almost as important as the convergence criteria is the decision on who should be president of the European central bank. It was rather extraordinary that the Chancellor did not address that today. Unlike our Prime Minister, the French leader has no qualms about being isolated in Europe. The French do not mind being awkward and making themselves unpopular in the pursuit of French objectives. Although all the other member states agreed that Mr. Duisenberg should be president of the European central bank, the French have insisted on reopening the question. They have dug their heels in and demanded that their candidate, Mr. Trichet, should at least share the eight-year term with Mr. Duisenberg. But the Maastricht treaty is quite unambiguous; the chairman's term is set at eight years. That is to give him the necessary independence. To split the term in two would betray the intentions of that treaty.

To follow a political fudge on membership criteria with another political fudge on how the bank is run would further undermine confidence in the euro. As president of the EU, the British Government should have ensured that the issue was resolved before now. Above all, they must now prevent a damaging compromise from occurring which betrays the treaty.

The Government's failure to take a firm stand on these issues has done great damage. It has undermined confidence in the 11 countries set to join the euro, devaluing their currencies against the pound—which has contributed to the artificial over-valuation of the pound, which has undermined our exports and pushed manufacturing further into recession. The Government may deny that this is happening, but I was in the midlands yesterday, speaking to business men. They had no doubts that manufacturing is already in recession. That may not concern the Government, who do not care a fig about business and jobs, but manufacturers know that the high pound is a key factor. The bottom line is that more and more jobs will be lost in manufacturing as the months go by.

Those business men and their employees will want to know why the Government are doing nothing to tackle the problem. What is at stake is not just the economic damage in the short term, or even the dangers of an unstable euro in the long run; it is the integrity of the treaty. It is crucial that treaties, once signed, are adhered to—that member states adhere to the spirit, as well as to the letter, of the law. This country will rue the day it ever allows political expediency to override clear treaty commitments.

At the end of the day, it was probably never realistic to expect the Government to take a stand against fudging. After all, the Government are based on fudge. They try to be all things to all people. They pretend that they can stick to our spending limits, yet still spend more on everything. They promise not to raise taxes, and then sneak them in by stealth. They said that they were in favour of joining the euro in principle, but then ruled it out for this Parliament in practice. Above all, they cannot oppose fudging the Maastricht test because they want to fudge their own tests later. That is why I ask the House to support our amendment.

Before I call the next speaker, I remind the House that the 10-minutes rule will now apply, and that constraint within that will be for the consideration of other hon. Members.

I shall be speaking primarily as the Chairman of the Treasury Select Committee, which published a report "The UK and Preparations for Stage Three of Economic and Monetary Union", but I have my own views as chairman of another group, the European Movement. The Select Committee has differing views represented on it, from supporters of early entry, such as myself, to those in implacable opposition such as the hon. Member for Rochford and Southend, East (Sir T. Taylor).

On the Select Committee, there is a substantial majority in favour of British membership of EMU but there is a significant minority against. Therefore, in the report there is no discussion of the pros and cons of entry; otherwise, we would have merely produced a majority-minority report. There is no discussion of timing; contrary to the speculative accounts which appeared before the report was published, and contrary to what the right hon. Member for Hitchin and Harpenden (Mr. Lilley) has just said. I advise the right hon. Gentleman to actually read the report.

The context of our report is that a big decision will be made this weekend on participation, as my right hon. Friend the Chancellor said. Bilateral conversion rates will be decided and the president of the European central bank selected, which makes it the virtual start of the third stage of the single currency—although it formally begins on 1 January. I agree with my right hon. Friend that substantial progress has been made in achieving the Maastricht criteria by all those who want to participate, as the Governor of the Bank of England told us. That confounds what the pundits said 15 months ago.

The figures are now very good. Average inflation across the EU is 1.6 per cent. Average long-term rates are 6.1 per cent. The average budget deficit is 2.4 per cent. This is enormous progress, about which we heard nothing from the right hon. Member for Hitchin and Harpenden. Of course there are weaknesses also, such as debt.

What about unemployment?

The hon. Gentleman will have to make his own speech.

The deficit improvement will have to be sustained. Even so, overall progress has been so impressive that it is not surprising that the Commission will be recommending that the 11 members go ahead with the third stage. This weekend, the Heads of Government will almost certainly agree unanimously—in my view, they are right—that the 11 members should go ahead. The United Kingdom should support that decision—we are, after all, in the role of chair. As a non-participating member, it is inconceivable that we should stop a unanimous view by all other member states. Only non-serious politicians in opposition would suggest otherwise.

Whether in or out, the euro will have a significant impact on our economy, and we note that. In the report, the best section is the part on preparation. There is strong support for the Government's policy on preparing the UK to deal with the coming of the euro, even while we are staying out. There is likely to be widespread use of the euro, not just in the City and the wholesale financial markets but in business as a whole—especially in the trading sector.

Pilkington told us that it was converting its systems to use the euro because it will help eliminate differences in production costs. ICI told us that euro-liquidity will spread throughout the economy. Siemens told us that the euro would come through the back door. Siemens and British Steel said that they were anxious for UK suppliers to use the euro. Sainsbury and Marks and Spencer will accept euros from 2002. Substantial change will come about, and we ought to realise that. In the report, we backed the idea of a national changeover plan from sterling to euros so that we can proceed more quickly and efficiently once the decision is taken for the UK to join. It would be a guide for businesses now if they knew what was likely to happen later.

I move now to the Chancellor's five economic tests. We have qualified already on all the main Maastricht convergence criteria; except the one on the exchange rate, because we have not joined the exchange rate. In his historic statement last October, the Chancellor announced some useful additional criteria for judging if and when Britain should join. He mentioned, in particular, sustainable convergence and flexibility, which the Committee agreed were very important. We should take them into account if Britain is to derive maximum benefit from membership. However, tests are only guides. When we decide to enter, a broader assessment will be required. In particular, we will need a comparative analysis of the costs and benefits not only of participation, but of staying out. That includes political, as well as economic, costs and benefits.

The UK's decision will be made on the basis of a political and economic assessment of the balance of national advantage, which will include the Chancellor's five important tests. However, it will be broader than that. One sentence of the report has been wrenched out of context. We said that it will not be possible

"to judge clearly and unambiguously either the success of EMU or answers to all of the Chancellor's five tests for at least five years. It will remain the case that the UK's decision will have to be made on political and economic assessment of the balance of national advantage."

It is always better to read the sentence after the one that has been quoted.

In a sense, we are stating the obvious. In hindsight, it might have been more helpful if we had used the words "for some time" rather than the words "five years", although five years from this weekend, which is virtually the start of a single currency, is compatible with the Government's intention to be in a position to join early in the next Parliament. We did not make a judgment about the time of entry; we specifically decided not to take in the issues of principle, otherwise most of us would have said, "We want to join early," and the hon. Member for Rochford and Southend, East would have written a minority report saying that he would never want to join. We did not say that, but we are saying that there are no scientific certainties, either about the success of EMU or about the Chancellor's five tests.

Our position will have to be taken on a broad judgment about political and economic advantage for this country. It is my view and the view of many members of the Committee that we shall have to go in sooner rather than later, perhaps sooner than under the Government's current timetable. I predict that, from this weekend, events will move much faster than most people think, and certainly faster than the right hon. Member for Hitchin and Harpenden thinks.

Pressures for us to join will build up, especially from business and particularly from those involved in finance and trade, which will increasingly deal in euros. There will be a big incentive to go the whole hog. Exchange rate instability for the pound may arise from the euro, which will be a handicap for British business and for the economy, and British business may miss the opportunities of a single market backed by a single currency.

Last but not least are the political consequences of exclusion from EMU and the Euro X problem. The Labour Government have made a good start on their European policy and I agree with their ambition to play a leadership role in Europe, but that will be more difficult if we exclude ourselves, at least for the time being, from Europe's most important project, which will inevitably develop. I agree with my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore), who described economic and monetary union as the most positive political and economic development this century.

There will be a broad national and economic interest for us to join as soon as we possibly can. The Government should speed up preparations to join, including informing the British public about EMU and the advantages of joining sooner rather than later. The British people will decide on this momentous question, but we as politicians would fail in our duty if, by putting off the decision for too long, we disadvantaged our citizens and our country.

Mr. Taylor.

rose—

Order. I called Mr. Ian Taylor.

My hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) and I are almost identical, not only in our surnames. Therefore, there was a natural misunderstanding.

This is a brief, but crucial debate. I shall make a few remarks, and I hope that I do not repeat those made by the hon. Member for North Durham (Mr. Radice), the Chairman of the Treasury Committee, with which I broadly agree.

I can endorse the amendment tabled by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), the shadow Chancellor, because, going into this weekend, it is vital that we understand the tensions for those countries that have not absolutely met the Maastricht convergence criteria, which are extremely sound Conservative economic principles that were rightly written into the Maastricht treaty. It is important to understand why such countries might not have conformed absolutely with the criteria, not to frustrate the whole exercise—I am sure that Conservative Members do not want to do that—but to ensure that the venture is a success.

I agree with my right hon. Friend the Member for Hitchin and Harpenden, who said recently on the "Today" programme that it is not in the British national interest for the euro to fail. I would go further, and say that it is in the British national interest for it to succeed. If it were to succeed, it is logically in the British national interest that we join. If it is the British national interest that we join, we should join—the sooner the better.

The Chancellor could and should make the situation clearer from the British point of view. If he had clarified the timetable and made more precise the plan which would have enabled this country to meet not only the absolute convergence criteria, but the running together of economic cycles, his Budget statement would have given a signal to the Bank of England Monetary Policy Committee, which would probably have taken off the pound some of the pressure that it has been under since he sat down at the end of his Budget statement. Such clarification would also have suggested that Government policy during the rest of this Parliament, at least on the evidence that he has given, is not to join the euro, but to prepare to join. That would have had consequences for the running of the economy in terms of a fiscal balance and a monetary policy that would lead to a further reduction in our long-term interest rates to approximately those on the continent.

Our long-term interest rates have fallen to about 6 per cent., but they have further to fall if we are to be ready to join the euro. That is a problem for the manufacturing community. We have a strong pound because it is thought that we are not going to join within a clear timetable. That is a criticism of the Chancellor, and I should welcome early clarification of how the economy is to be run to prepare for what he described in his speech as the probability of our entering monetary union in the early part of the next decade. I want him to be much more precise. That precision is essential in respect of our influence within the monetary union during the period that we are not a member. Our influence would grow if there were a feeling that we would definitely join.

Concern has been expressed about what might happen in Italy or in other countries that are still coming to terms with the Maastricht convergence criteria. Other issues, such as liberal markets, the movement of people from one country or from one job market to another and the incidence of fiscal transfers within the stability pact and the European budget, will be crucial to whether the euro succeeds. Theoretically, it is not yet an optimal currency area. It therefore has politically to be made into that, and that will require brave decisions by the leaders of member countries. It is vital that we are part of that decision-making process: we firmly believe that we can contribute to the debate, so we should try to influence it in the direction in which we want it to go.

The Chancellor missed the point about Euro X, which is not that it will meet comfortably with those who are not members, but that, by being outside it, we shall not be at the heart of decisions or share the management of the economies of member countries with the management of ours. That issue is about not only national interest, but understanding how the national interest can be improved by working with other countries that are part of the currency zone.

There will be a huge impact on this country, which too many hon. Members turn their backs on: 80 per cent. of our home market will have a single currency, virtually from this weekend. To compete with 80 per cent. of our home market, we shall take a currency risk while those countries will not. Many companies will take a consequential decision about where their investments should be if they suspect that our stay outside currency union will be extended beyond a certain period.

I want precision in the timetable so that, as Sir Richard Sykes said in his evidence to the Treasury Committee, investment decisions are not affected because people think that our period outside will be prolonged. Many companies that are active in this country are beginning to change their investment decisions, certainly at the margin.

I welcome the Chancellor's clarification today—he only touched on the matter briefly, but I think that it was clarification—that the euro will be acceptable in transactions in Britain. I welcome it largely because that is what will happen anyway and it is better that we understand that.

Again, I put pressure on the Chancellor. What is his clear policy for preparing Britain's public services to utilise the euro? It is not possible just to say that companies can prepare and file their returns in euros. What transactions will the public services be prepared to do in euros and what preparation has the Inland Revenue made to match the demands of industry during the period when we are out? Those are crucial questions which will face Britain in the near future.

The big part of the debate is the public view, which I accept is negative to the euro at the moment, but negative because it now believes that all the costs in relation to the euro would occur if we went in. Yet, in a short time, it will be clearly seen that the political and economic costs of being out are substantial. No Chancellor will ignore the calculation of those costs. They are political costs, not least in the fact that, for example, if we were in a single currency zone, our sensitivity to volatility of currencies would be reduced from the high level at which it is at the moment to a low level, bearing it in mind that 50 per cent. of our trade in goods and services is with the rest of the euro zone.

A single currency would obviously benefit British industry. The cost to it of being out will be considerable. It would have a severe effect on our influence on global trade, which is vital if Britain is to continue its high propensity to import and export. It may well be that it will reduce our impact within the now Group of Seven, but it may well, de facto, be the group of three in the not-too-distant future. In addition, we shall have no influence on what will rapidly become the second reserve currency in the world. There are problems in being a reserve currency, but that will be the fact, largely because of the propensity to import and export of the existing euro zone and the fact that debts will be converted into the euro. Those are huge issues. They are not issues which can be debated in the House in less than two hours; they are issues that will be debated in the country.

I urge all hon. Members to recognise that we cannot reduce the issue to the simple chant of sovereignty, because there are sovereignty issues which are related to the degree of influence of the British Government, Labour or Conservative. Those are the issues where, ultimately, our influence leads to the improvement in well-being of the British people.

The decision that will be taken by 11 countries in Brussels this weekend will be a momentous one—momentous for them and momentous for the future of Europe. There are fundamental objections to the single currency, on grounds of democracy and economics. The creation of a single currency, the abolition of national currencies, the setting up of the European central bank, and the entrenching in treaty of the ridiculously called stability and growth pact mark a substantial transfer of power from democratic Governments and Parliaments to undemocratic, bureaucratic and largely unaccountable institutions.

Some will agree and some will disagree, but a single currency is another step in the march towards a centralised European state. That state already has a flag, an anthem, citizens, a Supreme Court, an Executive, a Parliament and, after this weekend or by 1 January, it will have a single currency and a central bank. Before long, who knows, the centralised state will seek to levy taxation centrally and in its own right.

The Chancellor did not mention the choice that will be made this weekend of the presidency of the new European central bank. The shadow Chancellor did. Much of the talk will not be about sovereignty or the transfer of democratic power; much of the talk at the tables, in the margins, at the dinners, will be about who will be the new president of the European central bank. Who will be the high priest, the Caiaphas, of this new monetary temple? Meetings are already taking place, faxes and telephone calls are going around, communiqués are being drafted and redrafted by some of the finest minds in Europe, and, no doubt, there will be a showdown or two before Monday when the final decision is taken. All that will be to decide whether the new Caiaphas should either be Herr Duisenberg, the candidate of the Germanic Pharisees, or Monsieur Trichet, the candidate of the Frankish Sadducees. Like the Pharisees and the Sadducees, we are assured that they are both strict, but in different ways.

Who cares who wins that contest? It will make no difference. The new champion, once he, or perhaps she—I am told that a Finnish lady is coming up pretty fast on the inside; I do not know, but I expect that it will be a man—slips into the back seat of that long Mercedes carrying a copy of the wretched treaty of Maastricht, will make no difference at all. The president of the central bank will be bound by the words, paragraphs, protocols, clauses and preambles of that wretched Maastricht treaty. The priority will be price stability, price stability, price stability.

The poor president of the central bank will have to find that magical rate of interest which, apparently, will apply to 11 different countries, some with different economies, some with different cultures, some whose economies are converging and some whose economies are diverging. He will have to find one magical rate of interest to cover all those countries. I am told that Eddie George does not want to be a candidate. Considering the difficulty that poor Eddie has in fixing a rate of interest for poor little Britain, I can well understand his reluctance to be drafted for that particular job.

However, one group of people may not care who will be president. It might be the group of young German youths who, in Saxony last Sunday, voted for a nasty and evil neo-Nazi party. The real surprise to me was not that they voted for that nasty neo-Nazi party, but that they voted at all. It seems that perhaps there was a vestige, somewhere among these young people, of a belief that a vote counts. Perhaps in the Germany of before 1 January 1999, even in the inclusive politics of Germany, a vote counts. Certainly after 1 January 1999, a vote will count for a lot less. Inclusive politics will then have been entrenched in treaty and the young men who voted in Saxony will be outside the tent.

There will be no hope of change from the central bank. The poor old president will be studying his pie charts and graphs trying to find that magical rate of interest. Price stability does not guarantee low unemployment. The Germans know that, because they have price stability and high unemployment. The Japanese are rapidly learning that, and they have an excess of price stability and increasing unemployment. Therefore, the central bank will not assist those poor youngsters from Saxony. There is no hope from the European budget, because that is only 2 per cent. of GDP at the moment. A far greater European budget is needed to compensate for the loss of economic sovereignty for the different countries of the EU.

Will my right hon. Friend give way?

I am sorry, but I do not have time.

There is not much hope either from the German national Government. Once the core of stability and growth of my right hon. Friend the Chancellor, and all the strictness and orthodoxy of the high priests have been visited on the German Government, they will have no money to spend in east Germany, Saxony or anywhere else.

Those young people have no hope of doing what their American counterparts might do—simply getting on a Greyhound bus and travelling from Chicago to Atlanta, or from Detroit to Denver, to find a job. There is no hope of that for the poor, misguided youngsters from Saxony who voted for the Nazi party. Sadly, the problem is not confined to Saxony, or to east Germany, but exists in most of the member countries that are seeking to sign up to the euro.

It seems that the European Union still lives in its own inflexible and undemocratic world of treaties, lawyers, bureaucrats and high contracting parties. In the 1950s and 1960s, it was the Schuman plan and the extremely authoritarian European Coal and Steel Community. Now we have the Delors plan and the extremely authoritarian European central bank. Nothing much changes in the European Union—except, occasionally, the words.

However, the world has changed since the 1950s and 1960s, because the world outside is now a global economy, and I do not believe that the inflexibility and rigidities of what will be decided over the weekend fit into that world. I believe that, just as business must be flexible, Governments and constitutions need flexibility, because that is the only way that they can meet the storms that will be created by the global economy in which we live.

My right hon. Friends the Prime Minister and the Chancellor of the Exchequer will give the euro a miss this weekend. I commend them for their wisdom. I hope that their wisdom lasts a long time.

It is not usually my habit to question the Chair, but I am surprised that the Chair has decided that it is necessary for the House to hear the voice of the two Conservative parties and the two Labour parties, on this issue of all issues, before they hear the single voice of the Liberal Democrats. If that is to be the pattern of future debates, I wonder whether the seating arrangements should be reorganised, and the Standing Orders of the House rewritten, to account for the fact that there are two Conservative parties, two Labour parties and one united Liberal Democrat party.

The debate is about something that many hon. Members on both sides of the House said would not happen. The single currency is going to happen; and, in Britain, on an issue dominated to date by philosophical and theoretical arguments, it is about to become a very practical issue at last. Yet the Government have allocated just a couple of hours for the House of Commons to consider economic and monetary union—the biggest issue of economic policy that this country will face in the 20th century—and, in spite of their protests, the Conservative Opposition agreed to it because, as is obvious, the longer they have to speak, the more divisions will be exposed to public view. That is also true of the Government.

Instead of deciding and preparing, Britain is sleepwalking into its economic future. For the time being, the Government are happy to hide behind their magnificently contrived fudge of "five economic tests"—measures of Britain's readiness to join the single currency which are so elastic that they could stretch to the planet Vulcan and back.

Preparing for EMU should mean more than simply sending out a few thousand leaflets to businesses every six months. It means taking a decision, securing popular support, preparing the economy to make EMU a success and then shaping monetary union in Britain's interests.

Yes.

No, unfortunately not—according to the Government's game plan.

Let us start with the decision itself, and let us be honest about the balance of the argument. No one is suggesting that, on day two of the single currency, we shall all be cleaning our teeth in champagne. There will be up-front costs of introducing the new currency.

Not many people spend their time travelling through the 15 countries of the EU, changing their money back and forth into different currencies until bank charges gobble up 50 per cent. of their cash, and that is not the core issue. However, in the view of the Liberal Democrat party, the long-term gains of joining the single currency will be far greater than the short-term costs.

A single currency will help our firms to trade, by reducing risks and instability, and membership of the single currency will almost certainly mean lower interest rates in Britain—probably, between 1 and 2 per cent. lower than would otherwise be the case. That is worth, very practically, between £300 and £600 a year to the average mortgage payer; thousands—if not millions—of pounds a year to businesses; and billions of pounds to taxpayers as a result of lower debt charges. The single currency is also likely to bring gains from greater price competition, lower transaction costs and higher inward investment.

What action should we be taking now to prepare Britain for the single currency? The first move should be an early referendum, in this Parliament, because a change of such magnitude should be made only with the explicit approval of the people, and because, without a clear decision—this is fundamental—no proper planning can be done by business or Government. People will not spend hundreds of billions of pounds to prepare for something that they are not sure will happen, or—if it does—when it will happen.

Once a referendum has been fought and won, the Government need to promote a series of "docking proposals" to ensure that the single currency can be introduced successfully. The Government's first step must be to comply with the conditions for joining the single currency. Some of those are essentially technical, such as longer terms of appointment for Bank of England officials. However, the most fundamental point is that a period of exchange rate stability is likely to be necessary before an irrevocable locking of exchange rates.

However, I contend that, once the decision to join is taken, that task would become far easier than it would be now. Markets would immediately bring down United Kingdom interest rates, and sterling would converge towards a likely monetary union joining level. We have had evidence of that in the markets.

Therefore, given the political commitment to join, and wide bands of acceptable fluctuation, there is no reason why Britain should have any difficulty in stabilising the pound at an acceptable level before entry.

Fiscal policy would have to operate in relation to monetary policy in order to converge UK and euro interest rates, so that, at the moment of docking, they were at broadly the same level. That is the convergence which we need to secure. To facilitate that process, the Government should now provide for half-yearly convergence reports, which I suggest should be jointly presented to the Treasury Select Committee by the Treasury and the Bank of England.

What about our economy within the single currency? Is there enough flexibility within the single currency area to make EMU work effectively? I believe that the fears have been much exaggerated by the critics, who draw attention—I heard one of them shout from the Back Benches—to disparities in unemployment within Europe, and decry the loss of national monetary flexibility. In Britain, however, unemployment rates range from some 0.9 per cent.—in the Wokingham constituency, interestingly—to more than 18 per cent. in inner Birmingham.

Presumably, the logic of the red-blooded, Euro-sceptic, right hon. Member for Wokingham (Mr. Redwood) would lead to different currencies and monetary policies within the United Kingdom. Perhaps the right hon. Gentleman has moved on from his fantasies about becoming the 51st state of the USA, which seems to be his ambition, and will be pushing for a central bank of Berkshire, which could set an interest rate perfectly attuned to the local economy. That, I fear, is the logic of his position.

There are actions that we could take to introduce greater flexibility. First, we could make our economy slightly less sensitive to interest rate changes by encouraging a move to fixed-rate mortgages of, let us say, 10 to 15-year duration. Secondly, we need to consider a larger role for fiscal policy as an economic stabiliser—something that has fallen out of fashion as a result of some poor recent economic management and the political fixation about lower taxation. What if we could frame a better fiscal stabiliser, not by taxing people more but by, let us say, varying contribution rates to a compulsory pension scheme, or varying tax reliefs on existing pension schemes?

Thirdly, we could facilitate labour mobility through pension portability and the mutual recognition of qualifications. Finally, we should be doing more to shape monetary union in our own interests. We should be arguing for more fiscal flexibility for countries with responsible amounts of public debt, such as the UK. We should also press for a European central bank that is more accountable to the people of Europe through the European Parliament.

While others design and build, as they are doing this weekend, Britain dithers on the touchline. While we delay, we are being left out of key economic decisions that will be taken by the Euro X committee, and ultimately by the central bank. Those decisions will directly affect our domestic rates of interest and exchange rates, but no British representative will have any influence on them.

If the Government are, in principle, in favour of joining monetary union, are they not aware of the enormous risk of delaying entry and leaving its timetable so vague and imprecise? I suspect that the Chancellor's attempt to build stability at home and win economic influence abroad is undermined by a Prime Minister with his eyes too much on the latest opinion polls and too little on the main chance for Britain. Being a populist Prime Minister certainly makes him popular, but it may also make him duck the leadership decisions that are necessary to bring about the right results for the United Kingdom.

If the Chancellor wants to secure the economic stability to which he says he is committed, he should knock on his Downing street neighbour's door and insist on reopening the Government's single currency policy immediately.

The sad fact is that the Government have got themselves into this position by accident. We all know that the Chancellor's preferred position was to take an early decision on entry; but that was unfortunately leaked to the Financial Times, with consequential effects on the markets which clearly demonstrated what the benefits would be. As a result, an embarrassed Government sent Charlie Whelan round to the Red Lion pub with his mobile phone, to have a pint of beer and to spin the argument in the opposite direction. The Chancellor then came to the House and gave us his economic tests—and his decision that we would not decide on entry within the lifetime of this Parliament.

Once monetary union is established, it will become more apparent as each day goes by that Britain's interests demand a decision in this Parliament. A Government who fail to take that decision will have failed the British people and the British national interest.

We are on the eve of a watershed in post-war European affairs, and there can be no more fitting commemoration of the stunning Labour victory of a year ago than that a Labour Prime Minister should preside over a meeting of the European Heads of State, which will decide which countries will participate in the euro. Those Heads of State will know that our Prime Minister is committed to making the euro a success. There can be no more important decision in Europe today than the decision on which countries will take part in the third stage of monetary union. That decision will be made tomorrow at a meeting presided over, in good faith, by a Labour British Prime Minister.

The meeting is crucial to the future of Europe because the third stage of monetary union will represent a massive deepening of European integration in advance of a widening of Europe to the east. It is vital to the future of Europe that European monetary union be a success. Monetary union is also important to safeguard the gains from European integration made in the past. The previous Administration were strong advocates of the single market. Surely Conservatives recognise, as we do, that the single currency will underpin the economic gains of the single market.

Yet by tabling their amendment, the Conservatives seek to scupper the successful launch of the euro. That is why it is important to state in this debate the positive case for the euro and further monetary integration. The countries that want to sign up to EMU are not doing so just because they have passed the convergence test, important though that is. They are doing so because they can see the positive economic gains that will flow from membership of the single currency. If a common market is good for Europe, let us have a common market that is as complete as possible. In that common market we have a common measure of length, the metre, a common measure of weight, the kilo; and we will soon have a common measure of economic value as well. The justification for the euro is as strong as it was for the single market itself. The removal of transaction costs—changing from one European currency to another—will be a major boost to consumers and to the European economy.

The justification for monetary integration and the euro goes far beyond the narrow though important aim of completing the single market. Since 1969, European leaders have striven to find a system that could bring back some of the stability that was once provided by the Bretton Woods system of exchange rate parities. When that system broke down at the time of the Vietnam war, because it was abandoned by the Americans who had created it and whose dollar was its cornerstone, European leaders looked around for an alternative. That was when the plan for a European currency—the Werner plan—was launched: ironically, at The Hague summit of 1969.

Over the past 30 years, the search for the stability necessary to make that project a reality has proved elusive. As a result, we have lived through a generation, from the oil crisis onwards, of high inflation, persistently high unemployment and high and rising Government debt. Throughout this period the national economies of Europe have proved themselves incapable of managing major international shocks of this kind on their own. A single monetary policy and currency will help them to do so, and we should wish them well.

The euro is the essential element in preparing Europe for the rigours, the pressures and the challenges of global competition. Just as my party has had to, the Conservative party should face up to that challenge. The euro represents a unique opportunity to integrate Europe in the global economy, perhaps as the most powerful economic player on the world stage. At a stroke, the establishment of the euro will see off the currency speculators. At a stroke, the euro will challenge the dollar as the international reserve currency. And at a stroke, we shall have shifted the balance of world economic power in favour of Europe. That is why the euro can and must succeed.

Although economic arguments will be to the fore in tomorrow's discussions, I should emphasise that the implementation of the euro will require political commitment too. It is economically justified, but it will need political commitment to succeed. That commitment has so far been shown to the greatest extent by Germany, which stands ready to give up the independence of the Bundesbank; which action, if carried out, will be the greatest contribution that that country has made to post-war Europe. It will secure Germany's European credentials once and for all. Italy and France may also be able to make such a commitment, and Britain should show the rest of Europe our political commitment to making the euro work, too.

By creating a single currency, we are not creating a single language, identity, culture, or any of the other spectres feared by some Conservative Members. Indeed, Europe has distinguished itself by its diversity, which will continue. But we will be creating a strong base for continued co-operation in Europe, for lasting peace, and for macro-economic stability. Those may secure for Europe a leading position in the world economy, on which basis I commend the reports to the House.

It would be nice to join in the ebb and flow of the debate, but given the scandalous shortage of time that we have for it, I shall confine myself to probing the Government on their exact position on entry to European monetary union. Apparently, the position as restated today is that they want to go in, subject to the economic tests, and subject, presumably, to the Maastricht criteria. However, their position looks increasingly incredible in both respects, and especially so after this debate.

Let me deal first with the Maastricht criteria by giving the House a flavour of what was said about them when the Chancellor of the Exchequer was questioned by the Select Committee on the Treasury. I shall—perhaps at random—pick out the questions that I asked the Chancellor. I asked:

"When the question comes up at the Council of Ministers on 2 and 3 May as to who should be the members of the first wave of the single currency, will the British Government be taking a strict view or not of the Maastricht criteria on compliance?"

The Chancellor replied:

"I think it is important that the Maastricht convergence criteria are looked at very carefully … As I say, I am not going to get in a position of prejudging individual countries or prejudging what might be decided."

The discussion goes on for a column or so, and then I ask:

"If they do not meet the criteria, will it be the position of the British Government … that there should be a veto on their accession?"

The Chancellor replied:

"It is very important that we look very carefully at these convergence criteria and the reports."

I continued:

"I think it is extraordinary that you cannot give us a yes or no."

He replied:

"Let us wait and see the figures."

And so it goes on for another column or so in this rather frustrating way.

The figures are now available, and we have heard a great deal about them during this debate. They show that Italy and Belgium are missing the criteria by 100 per cent. Contrary to what has been said, there are signs that Italy's deficit is rising rather than falling. Much has been said about falling within the criteria, but that deficit looks as if it is going the other way. The Maastricht criteria do not seem to matter much, at least to the Government.

Will the hon. Gentleman give way?

No, I cannot possibly give way at this stage.

The Maastricht criteria appear not to matter, as we shall see over the weekend. However, I want to put one specific question about the criteria to the Government. It is the same question put by the Treasury Committee in its report: must we go back into the exchange rate mechanism for two years before we decide on whether to apply properly for the single currency?

Let me now turn to the economic tests which the Government have set themselves for entry to EMU. The principal test is the convergence test. Let me again give the House a flavour of what was asked on that by—again at random—me. I asked the Chancellor:

"How many cycles do you think we have to wait for before we know whether we are in sync?"

He replied:

"I think it could be earlier than that",

to which I asked:

"Earlier than what?"

He said:

"You were suggesting that somehow we have to wait 20, 30 or 40 years."

I replied that I had not, saying:

"I was asking a question … This is a very easy question. If you are trying to get your cycle in sync with somebody else, you must go through at least one cycle to make sure whether you are in sync, surely?"

He said:

"I do not accept that."

So, the Government do not accept that we have to be in sync over a cycle to meet the convergence criteria, but in its report the Treasury Committee was quite tough on the point, saying that it wanted not only convergence criteria but more detail of what could be involved, including mortgages, pension funds and all the factors that make different cycles. The truth is that the gaps in the cycles are widening, which makes one question whether the Government are serious about their economic tests.

So serious is the question that the Treasury Committee—the hon. Member for North Durham (Mr. Radice) may not like this, but it is a Labour-controlled Committee and some of its members are loyalist members of his party—included the five-year test.

indicated dissent.

He said today that he did not like that. I shall check it in Hansard tomorrow, but he said that he thought in retrospect that he should not have included the five-year test. However, that is what is in the report.

The Committee has stated that there should be at least a five-year period to assess the convergence test. The irony is that just as the Government are apparently backsliding on the economic test, the business community is beginning to wake up to the fact that it could be rather important and that entry to EMU—certainly premature entry—could be very serious indeed for business.

The European Research Group will publish a paper in several weeks' time, which will be signed by more than 100 chairmen and chief executives of public companies, stating that from an economic point of view, and taking into account the tests, they do not think it is appropriate to join. The main thrust of their arguments is that it will be bad for interest rates, and that because we are not converging as economies, the cycles that we would face would be dominated by the cycle of the German economy, which is the size of those of Britain and France put together. German interest rates would effectively determine our own, and that would not be appropriate to our country.

Secondly, exchange rates will be inappropriate because exchange rates are properly determined by market conditions, and that is the one thing that will not happen under a single currency.

Above all, EMU will be bad for taxation in this country. I remind hon. Members who have not had a chance to read our report of the evidence of the Governor of the Bank of England. It said:

"if structural differences persisted 'you could have difficulty in getting a single monetary policy which is appropriate for the area' … if there was not the pressure to generate flexibility, which would often resolve these tensions, that would give rise to pressure for fiscal transfers, there would be that great political debate … The tensions could take the form of 'pressure for some countries experiencing long-term unemployment and stagnation to have fiscal redistribution on a larger scale and there will be great resistance to that.'"

That means, in simple language, which the Governor was too polite to use, a massive central taxation system.

Will the hon. Gentleman give way?

I cannot; I am sorry.

He did not say that.

The hon. Gentleman, who is an assiduous member of the Committee, obviously has not read the report. The Governor used the words that I have just quoted. The Chairman of the Committee said that political factors matter as well as economic ones. The point is that the economic tests are a condition that have to be met. They are not a sufficient condition as it is, of course, true that political factors will have to be taken into account, but the Government cannot have it both ways: if they set economic tests, they must abide by them, but the inference that must be drawn from what they are doing is that they will not do so. The whole process is a sham and we should oppose it at every points.

May I express a minority view, although perhaps not as much of a minority view as people imagine? We should go in, even at this, the 11 th hour and 59th minute, at the first stage. If one knows that one is going to catch a train, is it not wise to catch it at the point of departure rather than run along the line and try to catch up with it once it is in motion?

I believe it is a historic mistake not to go in at the first opportunity and I end by asking this question: will the Minister give us some inkling about what the price is of not joining?

It is always a pleasure to follow the hon. Member for Linlithgow (Mr. Dalyell).

On a point of order, Mr. Deputy Speaker.

This is a very short debate.

rose—

The hon. Gentleman must sit down when I am speaking. It had better be a point of order, because I shall be very cross if it is not.

I need to raise this point of order, Mr. Deputy Speaker. Some parties whose members wish to contribute have not been represented in the debate—

Order. The hon. Gentleman will please be seated. That is not a matter for the Chair.

The hon. Member for Linlithgow had clearly intended to make a fuller speech: the brevity of his remarks illustrates the fact that this debate is too short. Many of my hon. Friends also wanted to contribute to potentially one of the most important debates that will take place during this Parliament.

The hon. Member for Linlithgow used the usual metaphor of trains leaving stations. The Opposition always like to know where the train is going before we board it. It has been clear throughout the debate, and throughout our contemplation of this subject, that although the Government are committed in principle to relinquishing the national currency, they have no clear idea why they are doing so or on what terms they should do it.

It is clear beyond doubt that, this weekend, the European Union will embark irrevocably on economic and monetary union, which is an event that, in some ways, is more far-reaching than the founding of the Common Market. It is without historical precedent: it is unknown for monetary union to go ahead before the achievement of political union. Consequently, huge risks are involved. At least in the early years, there will not be the centralised organs of a European Government—a federal budget and so on—that are needed to run a currency. Therefore, it has always been recognised that, at the very least, participating member states must first achieve a high degree of economic convergence, including a harmonised level of Government debt and deficit.

That was written into the treaty during the Maastricht negotiations in 1991. The provisions are binding on all member states, and treaty law ranks ahead of national law. Therefore, it is common ground in all member states, in all institutions of the European Union, and, I think, in the House, that this hugely ambitious project can work only if the treaty provisions are applied strictly, literally and completely. If they are not, damage will be done not just to countries in the euro zone but to neighbouring countries such as Britain. Presumably, that is why, on 5 January this year, the Prime Minister said:

"We have got to apply the rules absolutely scrupulously".

We agree. My hon. Friends the Members for Esher and Walton (Mr. Taylor) and for West Worcestershire (Sir M. Spicer) and all parties in the House agree with that. Our question is: why is the Chancellor of the Exchequer colluding in a fudged and fiddled treatment of those entry criteria? The answer is that EMU is viewed elsewhere as being primarily a political project. The economic facts have been made to fit the political case, so questions of deficits and interest rates are somehow secondary. The European Commission, which should be the guardian of the treaty, is a committed party to monetary union. It is an advocate of monetary union; it is not neutral. Therefore, the presidency of the European Union—which is Britain for this half-year—must enforce the rules "scrupulously", to use the Prime Minister's phrase. If we do not, damage will result not just in the European Union generally but in this country specifically.

Will the right hon. Gentleman give way?

No, I am sorry, but there is too little time.

How can the rules be applied scrupulously when two countries have more than twice the permitted level of debt? How can the Italian debt level of 122 per cent.

be judged to be "sufficiently diminishing"—to use the language in the treaty—when it has increased since the 1991 Maastricht terms were agreed? How can it be sufficiently diminishing when, according to the Italian Government's own highly optimistic forecasts, it will take another 20 years to reach the permitted level? The Chancellor did not answer when we asked him about that. Perhaps he genuinely has not worked out the terms of his fudge: perhaps he does not know how he will square the circle on that one this weekend.

Hon. Members have described many other one-off accounting fixes that were specifically ruled out in the treaty. At the Dublin summit in December 1996, the supreme decision-making body of the European Union said:

"It is equally important that … government financial positions in particular are sustainable and not affected by measures of temporary effect."

Yet France just squeaked in to the 3 per cent. permitted deficit level via a one-off accounting fiddle whereby it took 37 billion francs from France Telecom last year. That is outlawed under the terms of the Dublin summit, but France has done it and there is not a squeak of criticism from the chairman of the committee that is to make the momentous decisions.

This Government have failed politically—and it is not just the European Union that will suffer. Member states collectively, but particularly the committee presidency, must ensure that the treaty language is applied strictly. The German Government have desperately sought additional commitments from member states. At last week's ECOFIN, Mr. Waigel, the German Finance Minister, desperately launched a new draft declaration on budgetary consolidation. It is a last-minute fix, but at least the Germans are trying. What is the Chancellor doing to help? Why must it be left to the Germans to try to salvage something from the wreckage of the treaty provisions?

The Chancellor has five tests that he will apply to the United Kingdom to help him decide whether we should join monetary union in due course. The Treasury Committee criticised those tests as being unclear and subjective. It asked why the Chancellor applied those tests to this country as a reason for keeping us out, when they are a reason for letting everyone else in. The Chancellor is breaking his own entry criteria tests as well as the treaty rules. The muddle and incompetence are made worse by the Government's failure to resolve the dispute about who should be president of the European central bank. That issue has been drifting on for months and it is doing great damage to the perception of the euro in world markets, because no one knows what the bank's future monetary policy will be.

The Treasury Committee observed that damage would be caused to this country by an unstable and weak euro. That is already happening. Sterling is a currency of refuge. Markets do not like what is happening on the continent—they do not like the fudging and the fiddling—so they are buying sterling. The strength of sterling is already causing unnecessary damage to manufacturing industry, farming and the exporting industries, as revealed by the yawning trade gap. The Government are responsible because they will chair the crucial meetings this weekend. Instead of serving the interests of member states, they are betraying them by colluding in a policy that puts political expediency before economic facts. Europe and the British economy will pay a heavy price for that.

This has been an interesting debate. It started with a degree of manic passion across the House, which quickly became manic depression when the right hon. Member for Hitchin and Harpenden (Mr. Lilley) rose to speak. We had a lesson in leadership from the Liberal Democrats, which was amusing in itself. The hon. Member for West Worcestershire (Sir M. Spicer) then read out his speech to the Treasury Committee, which gives a new meaning to the phrase "vanity publishing". We should be grateful that at least he did not try to mimic the voices of those present at the time.

We are on the eve of a significant moment for Europe. This weekend, the Prime Minister and the Chancellor will chair key meetings to decide which countries should join the single currency on 1 January 1999. This year—one year on from the general election—a Labour Chancellor of the Exchequer and a Labour Prime Minister are respected and admired, as distinct from their Conservative predecessors, by our partners in Europe. We all remember the shame that this country experienced because of the Conservative Government's performance.

Let me reiterate that the UK Government believe that a successful single currency would be in the interests of Europe and of Great Britain.

Will the hon. Lady give way?

I have no intention of giving way. The right hon. Member for Wells (Mr. Heathcoat-Amory) did not give way to my hon. Friends, and a number of points were made in the debate which I wish to answer.

The Government believe that a successful single currency will lock in monetary and fiscal stability, and provide a competitive boost to European business. The rest of Europe now knows that the UK Government share the objective of a successful single currency. We are the first United Kingdom Government to declare themselves in favour of the principle of a single currency. We look to the future because we do not have to keep looking over our shoulders to see what is happening on the divided Benches behind us.

May I take up some of the points made in the course of this debate? The hon. Member for Gordon (Mr. Bruce) eventually made a rather petulant speech. I must point out to him that we shall not join in the first wave because our economy has neither the necessary convergence with the rest of Europe nor the necessary flexibility for it to be in our economic interest to do so. We want the single currency to succeed. For the British Government to enter a single currency when we believe that it would not be in our interests would damage the single currency. We shall take decisions based on the best interests of the UK economy.

The official Opposition have already made it perfectly clear that, even if it were in Britain's national economic interest, they would not join a single currency. Would that be for five, 10 or 60 years? Their ideological or theological differences matter more to Conservative Members than Britain's national economic interests.

We heard a considerable amount about Italy, although we did not hear quite as much about what Opposition Members think about Britain's position in relation to a single currency. I want to look specifically at the position of Italy. The treaty is clearly not hard and fast. Conservative Members should be well aware of that, as it was they who signed it. The treaty makes it clear that the debt level, which is part of the excessive deficit position, is open to interpretation, and it has been rightly interpreted in the past. When the Conservatives were in government in 1994, ECOFIN, which included the right hon. and learned Member for Rushcliffe (Mr. Clarke), decided that Ireland did not have an excessive deficit when its debt stood at 96 per cent. In 1996, the Council reached the same conclusion about Denmark when its deficit stood at 72 per cent., so some consistency from Conservative Members would have been appreciated.

I reiterate the point in relation to Italy: the deficit over the past four years has been much smaller, at only three points, as my right hon. Friend the Chancellor pointed out. The Italian Government's draft budget was announced earlier this month and is currently being debated before the Italian Parliament. It makes it clear that the Italians are aiming to bring the debt ratio down by 3 per cent. a year over the next four years. Those figures must be put into context. Italy has been running a primary surplus since the early 1990s and its overall deficit is forecast to remain on a declining trend, below 3 per cent., with a current account surplus.

I wish to make an extremely important point: we must make clear the significance of sustaining debt reduction for all EU member states, but especially those with high debts. That fits in very much with UK domestic policy, which is why my right hon. Friend the Chancellor has made it clear that we are working with other member states towards a declaration that re-commits European countries to continued fiscal discipline through the stability and growth pacts.

As well as the criteria that we shall discuss this weekend, it is of critical importance to the success of the single currency that there is structural reform. EMU will require economic reform, and this Labour Government have led the debate in Europe on that. Attention to the supply side will determine the employment and productive capacity of Europe's economies. It is only by undertaking reform that we can ensure that EMU works and is in our national interest.

The hon. Member for West Worcestershire asked about the exchange rate mechanism. My right hon. Friend the Chancellor has made it clear that we have no intention of rejoining the exchange rate mechanism.

You have to.

It is perfectly clear from the European Monetary Institute reports published in relation to EMU that we do not have to. Finland and Italy are two cases in point. The exchange rate conditions can be interpreted flexibly. I must point out to the hon. Gentleman, because I know of his interest in these matters, that ERM will become a different beast after the establishment of a single currency zone. I repeat what my right hon. Friend the Chancellor has said time and again: we do not intend to rejoin the ERM.

Will the hon. Lady confirm that she disagrees with the Treasury Committee report, which says:

"the Commission and EMI reports indicated that Sweden was not considered to have met the criterion because it had not participated in the ERM at all."?

If Sweden is excluded on that ground—otherwise it would have been forced by law to join—why would we be allowed to join, as we did not voluntarily join the ERM?

I regret having given way to the right hon. Gentleman. I did so because of his position in the House. He should read the EMI report, because he has quoted selectively. The decision on Sweden relates to the position of its central bank.

May I return to the substantive points that hon. Members made in the debate? My hon. Friend the Member for Linlithgow (Mr. Dalyell) asked about the cost of not joining a single currency. That question goes to the heart of this debate. The cost of not joining is being out of sync with the rest of Europe, and cutting ourselves off from the global opportunities that will be available to us, from the removal of transaction costs and from an opportunity to work in concert with our European partners. That is why the Government have said that if it is in Britain's economic interests to join a single currency, we see no barrier to our doing so.

However, it would not be right to join in the lifetime of this Parliament, to a large extent because of the position that we inherited from the previous Government. Conservative Members try hard to pretend that the events of last year did not happen, but one of the most illuminating factors that the Government experienced on 2, 3 and 4 May was to see the fudges of the previous Government and the extent to which they were prepared to play politics rather than take into account the nation's interests.

The British Government have an opportunity tomorrow, as we have had over the past year, to enable member states to maximise their potential for the benefit of every European citizen. We have won the respect of the other member states, which is particularly important given the shameful behaviour of the previous Government. I am proud that tomorrow and on Saturday I shall see these momentous decisions being taken. I am also proud to be part of a Government who are enabling this country to prepare for entry into EMU and who will decide when it is in Britain's national economic interest to join.

I urge the House to support the motion and to wish the Chancellor and the Prime Minister well at the summit over the weekend.