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Economic And Monetary Union

Volume 576: debated on Friday 25 October 1996

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3.44 p.m.

My Lords, with the leave of the House I should now like to repeat a Statement being made in another place by my right honourable friend the Chancellor. The Statement is as follows:

"Over the last few days, a number of highly misleading claims have been made about the draft legislation for the detailed preparation of economic and monetary union. These culminated in the misrepresentation of a series of documents in yesterday's Sunday Times.

"I am strongly in favour of full parliamentary debate and scrutiny of these important issues. That scrutiny must be properly completed before any decisions are taken which might have binding effect on this country. What the whole House must want is an informed debate at the right time rather than one based on inaccuracies and innuendo. That is why today I want to clear up the misconceptions and clarify the issues and procedures involved. My right honourable friend the Leader of the House will in due course make an announcement about the form and timing of the debate which must certainly come before the Dublin Summit. I repeat that no binding decisions will be taken in any forum until that debate has taken place.

"Last week, European Standing Committee B considered the latest relevant documents that should be subject to parliamentary scrutiny. It had all the up-to-date relevant legislative documents before it. These were commissioned at the Florence Summit in June, and cover the legal status of the Euro, the proposals for a new voluntary exchange rate mechanism of the european monetary system and the stability pact designed to provide a mechanism to help ensure that participants in Stage 3 of EMU do not run an excessive deficit.

"I have written to every Member of Parliament, setting out the facts about these texts. I have today arranged for further copies of this letter to be deposited in the Libraries of both Houses. I stand by that letter and I believe it to be accurate in every respect. I do not propose to read out the details of the letter but I would once again like to underline four key points about the draft EU legislation.

"First, the opt out from EMU that the Prime Minister negotiated at Maastricht remains entirely unaffected.

"Secondly, everything contained in the EU stability pact—including fines on 'ins'—derives from and was foreshadowed in the Maastricht Treaty.

"Thirdly, unless we join Stage 3 of the EMU, we will retain, as now, control of domestic economic policy. We would still have our existing commitment to endeavour to avoid an excessive deficit but there is no question of any fines or other sanctions being imposed on us for running an excessive deficit.

"I know that some colleagues have raised the possibility that Recital 13 of the draft regulation strengthening surveillance could be used to impose policy obligations or sanctions that can be binding on member states. This interpretation is incorrect. Article 103(5) can only be used to impose detailed rules as to procedure. Any recommendations that might be made under Article 103(4) are non-binding.

"Finally, the stability pact makes good economic sense for the UK and for Europe as a means of making sure that EMU is soundly based, whether we are in or out of a single currency. If we are in, we need to ensure that no other member of EMU falls into excessive deficit or debt crisis which might tend to drive up interest rates. If we are out, we need the Euro-zone to be stable as the British economy is more successful when the economies of our major customers are successful. That is why I am negotiating so toughly in ECOFIN in British interests to get the details right. That is why Parliament must scrutinise properly what I am doing.

"I have always accepted that these documents should be subject to the House's rules on scrutiny. Since the scrutiny procedure will not have been completed by the time the ECOFIN Council of Ministers meets on Monday, 2nd December, I shall maintain a scrutiny reserve at that meeting. There is nothing new or exceptional about that. Scrutiny reserves are often entered by Ministers at many meetings of the Council. I was quite clear in every discussion I had with honourable Members last week that I would maintain a scrutiny reserve in this case until the proper process was completed. That means that nothing of substance can be settled at next Monday's ECOFIN meeting.

"I would like now to turn to the documents referred to in yesterday's Sunday Times. The first of these is a briefing note prepared at the request of the EU Commissioners, Sir Leon Brittan and Neil Kinnock. It was designed to help them be aware of British views, at an early stage of the negotiations, before the Commission's thinking on the stability pact was finalised.

"The note was requested and sent to both of them in confidence. This is because European Commissioners are constitutionally independent, although I am quite sure that other Commissioners regularly receive briefings from other governments. Since someone—I believe the honourable Member for Dunfermline—has seen fit to break that confidence, and put the document in the public domain, I have today decided to release it. I am happy to do so, since it confirms that throughout the negotiations I have shown proper regard for the interests and procedures of Parliament, and a desire to achieve a sensible and acceptable outcome on the stability pact. In fact, I particularly rely on it. This was a document which I never expected Parliament to see. It shows that in private, as well as public, I was particularly anxious to preserve the freedom of nation states to control their own economic policies and particularly anxious to protect the position of this House and its parliamentary procedures. I hope that releasing it does not weaken my negotiating position in the council because it contains nothing that other finance ministers do not now know about the positions I am holding.

"The paper states that 'the current proposals will not be acceptable to Parliament'. This was correct at the time. The whole point of the document was that it was sent before the Commission had tabled its proposals. The paper makes it quite clear that I was concerned about certain proposals that we feared the German and French Governments might be making to the Commission. It transpired that we were largely mistaken about the French position. In fact, the German position has in negotiation been much more reasonable than we then feared.

"When the Commission later tabled its proposal in the form of the papers European Standing Committee B had before it last week, it reflected British thinking to a much greater extent than before. In particular, it preserved the key principle of political judgment by Ministers being applied before any fines would be imposed on any member state that had joined EMU. The Commission proposal in itself will and can settle nothing. It provides a basis for further negotiation and eventual settlement at European Council, perhaps, but not certainly, in Dublin. I would welcome the views of this House about the position we should take in those negotiations.

"The second document is from the European Monetary Institute, which comprises all the central bank governors of the member states and is sometimes regarded as a precursor of the European Central Bank. It is not a Commission document, nor a council document, nor does it have any legal effect. It is advice on policy sent to the Council of Ministers in confidence. I was not able to communicate this document officially. However, in order to ensure that the House was well informed on its substance, I wrote to the honourable Member for Clydesdale, the Chairman of the Select Committee on EU legislation, on 31st October describing the main points. This paper has now been widely quoted in the press and I have decided to release it today. Honourable Members can see for themselves that my summary of 31st October was an accurate one.

"The document gives opinions and advice on how, in the opinion of central bank governors, a so-called Mark 2 ERM for member states outside an EMU might operate in practice and how the monetary stability of the whole Union might be safeguarded in future. It makes it quite clear that membership and even co-operation on exchange rate matters will remain voluntary. The conclusions of the Florence Council, repeated by the EMI, stated of any ERM, 'membership would be voluntary'. The EMI document also states, 'such closer co-operation would be concluded on a voluntary basis at the initiative of the individual non-Euro area member state.' Article 109m of the Maastricht Treaty already states that exchange rate policy is a matter of common interest, which is of course sensible as wild exchange rate fluctuations would be disruptive to trade in the single market. That provision goes back to the Treaty of Rome.

"At Monday's meeting of ECOFIN, I do not expect and I never have expected any items of EMU legislation to come up for formal adoption. We will, however, seek in good faith to reach a broad measure of political agreement—as we were mandated to do by the Florence Summit. I will maintain the scrutiny reserve to any political agreement. And the results of discussion at ECOFIN will be available to inform the European debate in this House before the Dublin Summit. That meeting at Dublin is the earliest occasion at which any binding decision could be requested.

"Madam Speaker, there are two possible futures for this country. First, at some stage in the future we might move to the third stage of EMU and adopt a single currency. As this Government have always made clear, there could be advantages in such a move. But the associated legislation on the details of EMU must be sensible and effective and suit British interests. That is why it is so important to maintain our ability to participate and contribute to the negotiations now.

"They would represent part of the legislative base on which any future British government might enter EMU. They are part of the detail to be settled before we form our views on the way we should exercise our option. We must never repeat the mistake of abdicating from negotiation so that the structures are designed to meet only the interests of other member states.

"Secondly, we might always remain outside a single currency. Under those circumstances, we will ensure that we retain as now complete control of domestic economic policy and we are not made subject to any new binding legal obligations that go beyond non-binding recommendations of the kind we have already been subject to under the treaty and in practice for the past four years.

"Whether we are in or out, my concern is and will remain to respect the position and traditions of this Parliament and our independent nation state."

My Lords, that concludes the Statement.

3.56 p.m.

My Lords, I am grateful to the Minister for repeating the Statement made by his right honourable friend in another place. We on these Benches are particularly pleased that protests from all sides have made at least one small breach in the Prime Minister's attempts to suppress democratic debate on this vital matter.

As the Minister never wearies of telling us, the Government are keeping their options open and will decide to join if they believe that joining is in the best interests of Britain at the time, given the options available at the time when a decision must be made. However, the Minister cannot evade the fact that the British Government are this very day involved in the negotiations which are shaping exactly what EMU will look like.

At the ECOFIN meeting in Dublin next week, and at the Council meeting in December, the Government will be receiving advice on the future regulation of monetary union from a committee in which British officials are participating today. The Government are therefore taking part today in forming the options that Britain will face, whether or not we decide to join. The framework for the operation of monetary union is being decided now. The Chancellor of the Exchequer has said that Britain is bound by nothing, but that is simply not true. The boundaries of Britain's choices are being determined by negotiations taking place today.

The Statement that we have just heard recognises that the associated legislation on the details of EMU must be sensible and effective and suit British interests. That is why it is so important to maintain our ability to participate and to contribute to negotiations now, and why the House is entitled to know the Government's approach to those negotiations—negotiations which are vital to the economic future of this country, whether we are in or out.

The Financial Times reported this morning that:
"it emerged yesterday that EU member countries are edging towards agreement on a stability pact".
On Thursday, the Minister told us that the Government were in favour of a stability pact. He was reluctant to tell us how the Government believe the stability pact should be enforced. Do the Government support the proposition that deficit countries should be fined? If so, at what levels of deficit do the Government believe fines should be levied? Is the political judgment referred to in the Statement to be reinforced by numerical limits on deficits or numerical limits on declines in GDP, which will define when fines should or should not be levied? If deficit countries are not to be fined, what is the Government's position as to what other disciplinary measures would be appropriate?

In considering the treatment of the countries which stay out of the monetary union, we must always remember that the Government have not yet decided whether Britain will be in or out. So far as the Government are concerned, we may as well be one of the "ins" concerned about the actions of the "outs" as one of the "outs" concerned about the actions of the "ins". Given the relationship between "outs" and "ins" referred to in the closing paragraphs of the Chancellor's Statement, does the Minister agree that there should be any rules at all limiting the monetary and fiscal policies of the "outs"? More precisely, if Britain is in, does the Minister believe that the "outs" should be free within the single market to use devaluation to acquire as much competitive advantage over the British economy as they wish? If he believes that there should be rules, what proposals are the British Government advancing for the control of behaviour of the "outs"? If Britain is out, does not the statement that the stability pact makes good sense for the UK and for Europe as a means of making sure that EMU is soundly based contain the inference that we are intimately concerned with what the actual structure of the regulations for the "ins" will be?

It has been clear over the past few days that the Government are reluctant to allow Parliament to debate these decisions—decisions which are being formulated now. That does a grave disservice to the House and, most importantly, to the future of this country. It is vital that this House and another place should have an opportunity to examine proposals as they emerge to alert the Government to those proposals which might be damaging to British interests and to proffer the advice derived from the enormous experience of Members of this House. Will the Minister give an undertaking that the House will be given the opportunity to consider these matters regularly as they emerge over the next few weeks and months, and will the Conservative Party abandon its grotesque attempts to suppress democratic debate on this matter?

My Lords, I too would like to thank the noble Lord for having read out this important Statement. In the light of its contents it is indeed regrettable that the Statement was not made earlier in order to prevent the misconceptions to which the Statement itself refers, and in particular what was contained in the Sunday Times yesterday. The Statement itself contains in my opinion a clear view of UK policy objectives in this very complex matter. The broad thrust is that, while we retain our position as not being committed to making a decision on whether or not we move into Stage 3, we would wish to ensure by active participation that the rules which were established were such that if we should decide to join at a later date they would be acceptable, and if we did not, that it would contribute to the stability of the European Union. I hope I have got that right.

That being said, the matter remains a very complex one and in particular I would like to ask the noble Lord if he could explain precisely where we stand in relation to the stability pact. Those who are going to participate will of course be called upon to submit detailed information about their financial affairs and in particular about their possible deficits. The UK already, under Stage 2, submits information of that kind. Will that be continued, will it be extended, will we participate in that part of the operation of the stability pact? Secondly, in relation to the stability pact, will we be positively and actively involved as Council Members in formulating that pact even though we might not eventually exercise our Stage 3 decision in a positive manner?

As regards fines, it is clear that if we were not to join at Stage 3 we would not be subject to any fines, but I understand that it has been proposed by the Commission that the proceeds from the fines should go into the general Community budget. That being so, I presume that we would share in the benefit of those fines whether we were in or out. Is this a proposition which is seriously being proposed? Obviously we should not object to it. I presume that the Chancellor would strongly support it. The way in which the fines will be levied and their level will, as I understand it, be a matter for Council decision, so even though some "outs" (possibly ourselves) may not eventually join, we would be positively involved in determining the level of the fines and the way in which they were collected. Is that a correct interpretation of what is going to happen?

Finally, I would say that the Chancellor's very firm statement that whatever happens we must go for fiscal rectitude within the European Union (whether or not countries went through to Stage 3) is something to be strongly commended and I hope very much that we shall do everything within our power to make sure that comes about.

4.5 p.m.

My Lords, I should like to thank both noble Lords for welcoming the Statement. Perhaps I may also thank the noble Lord, Lord Ezra, for his opinion that the Statement represents a clear view of policy on this matter, an opinion with which I agree. It is a complex issue, but I think that what the Chancellor has had to say in the other place very clearly puts the Government's policy on the record in such a way that I do not believe anyone, even the noble Lord, Lord Eatwell, could be confused over it.

Perhaps I can say to the noble Lord, Lord Ezra, that we are of course currently involved in formulating the stability pact. That is what the current discussions are all about. As I said on Thursday, it is important that that stability pact is in place before anyone joins a single currency, otherwise what is the point of countries striving to obey certain rules in order to join the currency if, the moment they join, they then break all the rules? That would appear to be very destabilising, and the last thing that any of us would want, whether we wished to be in or out, is a destabilised economy in Europe. Clearly it is in everyone's interest that the stability pact is in place and ready for those who will join the common currency when and if it comes about.

The noble Lord also asked me about what will happen in the case of the "outs" and will we continue to report on the situation regarding our own convergence, our own deficits and so on. Of course we are prepared to formalise the satisfactory process we have been forming for some years because, following parliamentary approval each year, the noble Lord, Lord Eatwell— I cannot remember whether it is the noble Lord, Lord Ezra—and I usually debate one evening (in the absence of many other noble Lords in the House, it has to be said) what we are going to send, and we submit to the Council a convergence programme which consists of the economic policies set out in the Budget Red Book. Your Lordships will of course get this year's version tomorrow. Those were the points that the noble Lord made to me and I hope that I have answered them.

I turn to the noble Lord, Lord Eatwell. He complained about my wanting to keep our options open. I am not sure why he complained because I have a quote here from a CBI conference speech in Birmingham by Mr. Tony Blair, who said that Britain must generally keep its options open on monetary union. I really could not understand the beginning of his speech when he was complaining about me keeping my options open. I have made it perfectly clear that we have always intended to keep our options open. Then he seemed to be complaining about our being involved in the negotiations without having decided whether we are going to stay in or go out. As I understand his party's new position, in addition to having a referendum, they wish to make a decision at the appropriate time. Does he suggest that the Government should not take part in these negotiations? I shall answer the question which he keeps on asking me: of course we shall take part in the negotiations. We shall continue to take part in the negotiations.

As regards the other question about deficit countries being fined, may I suggest that he reads 104c of the Maastricht Treaty because he will see that there are very many steps before we get to a position where a member state might be fined. I do not think that we should concentrate too much on the fines position. We should concentrate instead on the important position of making sure that no country in the system runs an excessive deficit. Equally, neither should any country outside the system run an excessive deficit because we do not believe that excessive deficits are good things, whether a country be in or out.

The noble Lord concluded by asking if we would return to this issue. I think your Lordships will agree that my regular appearances at the Dispatch Box probably do not suggest that we are lacking debate or discussion on these matters in this House. Of course, whether we have a debate on the Floor of the House later, perhaps when the sub-committee reports, is not a matter for me but for the usual channels.

My Lords, before the noble Lord sits down, will he acknowledge that I at no time said that Britain should not have an option of deciding whether to join and that he has misrepresented me in his remarks?

My Lords, I had occasion to read over what I said just before the noble Lord intervened last Thursday. I believe that anybody reading what the noble Lord said today could reasonably assume that he was complaining about the Government and I keeping our options open.

My Lords, I wonder if I could press my noble friend on two passages which he has mentioned. The first is a quotation from the Minister himself last Thursday, the 2Ist, when he replied to the noble Lord, Lord Bruce of Donington, who asked for an unequivocal assurance that the United Kingdom, if it decides not to participate in EMU, will not be subject to any penalties whatever under Article 104c of the treaty. The answer my noble friend gave is still something which intrigues me. He said:

"The position as I understand it"
and indeed, he has referred to it again now
"is that there will be a procedure for those who remain out; they will be required to submit convergence programmes".— [Official Report, 21/11/96; col. 1344.]
I appreciate that my noble friend has touched on this; but I want to know how we will be required to submit convergence programmes. What is the penalty for us if we do not?

The second part of the question is related. My noble friend mentioned Article 109m of the treaty; but he gave, if I may say so, a rather selective quotation from that article, which reads as follows, and I quote from Article 109m, paragraph 1:
"Until the beginning of the third stage, each Member State shall treat its exchange-rate policy as a matter of common interest".
That is the sentence in which my noble friend acquiesced. But Article 109m goes on:
"In so doing, Member States shall take account of the experience acquired in cooperation within the framework of the European Monetary System … and in developing the Ecu, and shall respect existing powers in this field".
Finally, and most importantly, my question seeks an explanation of this extremely devious piece of wording in Article 109m, paragraph 2, which states:
"From the beginning of the third stage and for as long as a Member State has a derogation, paragraph I shall apply by analogy to the exchange-rate policy of that Member State".
We have seen how boggy is the wording of the Treaty of Rome; we have seen how the Luxembourg Court of so-called Justice twists it to the ever-closer union of the peoples of Europe. I ask my noble friend whether he can give the House an assurance on Article 109m.

My Lords, no one, with the probable exception, I fear, of my noble friend, disputes the fact that the rules for the "ins" will not apply if we are not in. That seems logical and sensible. I give my noble friend that assurance again.

As regards the stability pact, unless the UK joins EMU Stage 3, it is under no obligation to avoid an excessive deficit and could not be subject to any penalties if its deficit were shown to be excessive under Article 104. Therefore, in or out of EMU Stage 3, we believe that we should avoid excessive deficits by the use of proper financial discipline. The fact is that currently—and, indeed, I mentioned this in answer to the noble Lord, Lord Ezra—even if EMU comes about and we are not in it, we see no reason why we should not continue to respond as we do at the moment to the annual demand for a report on the convergence criteria and on deficits.

My Lords, at the outset, I agree with the Chancellor's remarks today when he said that he agrees with the stability pact whether we are in or out. Perhaps the Minister should tell his noble friend that the plain fact is that whether we are in or out, we cannot live in isolation. We cannot run our economies in isolation whether we are inside or outside the European Union altogether but certainly outside EMU.

Will he confirm also his understanding and agreement of the fact that in practice whether we join EMU—as the Government, and, indeed, the Opposition, are intending to keep their options open as regards whether to join EMU—it is important that we should seek to have some influence on how a stability pact would work now and that we should seek to influence it now rather than wait for that to be done by the "ins" alone when we should have no influence at all?

Will the Minister make clear also that as another place is to have an opportunity for a full debate, we too in your Lordships' House, before the Council meeting, will have an opportunity for a full day's debate, and that that will not be at the fag end of the day?

My Lords, as I mentioned earlier to the noble Lord, Lord Eatwell, questions of debate are matters for the usual channels. When they reach a decision, I suspect that I shall have to come here for another debate on this subject.

I am grateful to the noble Lord for his approval of the Chancellor's Statement and for the clear terms in which it was made. The noble Lord is right that we must be fully and totally involved in all the discussions taking place currently so that when we make the decision whether to join, we shall have played a major part in building the structure which we shall then be asked to join. That must be common sense from wherever one starts whether one is sceptical about the advantages or keen to join. It must be in everybody's interest that there is a sound structure on the day when we decide whether to join.

My Lords, I begin by expressing my sympathy to the Chancellor for having to divert his mind on this day and having to make a Statement of this degree of complication, which I personally find satisfactory.

However, is it not the case that the report of your Lordships' Select Committee presided over by the noble Lord, Lord Barnett, agreed unanimously—even including the noble Lord, Lord Bruce of Donington—that sterling could live with a single European currency provided that outside it followed the same disciplines that it would have to follow if it were inside?

Is it not also the case that people who believe that we should behave totally irresponsibly from an exchange rate point of view and continue to be members of the single market are living in a fool's paradise? Therefore the logic of people like the noble Lord sitting on the Back-Benches there—the noble Lord, Lord Rannoch?

I have got your name now. You may sit down.

The noble Lord, Lord Pearson of Rannoch, behaves as though we could pursue a totally irresponsible exchange rate policy. The logic of that is that we should be out of the single market and, indeed, out of the Community as a whole.

My Lords, I am grateful on behalf of the Chancellor for the noble Lord's words. I am not entirely sure whether my noble friend Lord Pearson of Rannoch thinks that we should carry out an irresponsible exchange rate strategy. As I believe I have mentioned from the Dispatch Box not long since, the history of those countries with strong currencies has been that they have had strong economies. I do not see any great merit in devaluation just for the sake of a year or two's competitive advantage. Therefore, I believe that exchange rate stability is important and whether in or out of EMU, that must be the correct policy for Britain to pursue.

My Lords, what are the current arguments for and against joining EMU?

My Lords, it would take me most of the rest of the afternoon to explain that. Essentially, the argument in favour is that currency fluctuations and, indeed, the cost of currency exchange in some way diminishes the single market idea and that it would be easier to run a single market with a single currency. Therefore, that is a broad outline of the plus side. On the other side, there is the problem for the United Kingdom that we play in more than just the European market. We are major players in the world market and therefore it is important to us that we look to both those markets—the important European market and the important market in other parts of the world. We must consider how the Euro would influence that particular part of our important manufacturing and commercial work.

My Lords, as this arose primarily as a parliamentary matter, will my noble friend confirm that it is totally clear from the Statement that the Government have consulted—and have every intention of continuing to consult—Parliament before any substantial decisions are made? Will he further confirm from the Statement that the British Government will continue firmly but fairly to support British interests in all these negotiations?

My Lords, I am happy to confirm to my noble friend that we will indeed work in all these negotiations in the interests of the United Kingdom, as we have always maintained. I can also assure him—as my right honourable friend the Chancellor has done in his Statement—that until Parliament lifts its scrutiny reserve he will put a reserve on any agreements or discussions in next week's ECOFIN.

My Lords, one of my difficulties in listening to the noble Lord is his repeated statement that we have to negotiate and continue to negotiate. Negotiations always imply that in addition to taking certain things one has also an obligation to give way on certain things. The unease in another place, and also in this place, has been about the extent to which we are prepared to give. There is an endeavour to ensure that we do not surrender—at this stage at any rate—any of our rights to conduct our own affairs in the economic sense of the term, in the monetary sense, in terms of taxation and so on.

If the noble Lord in replying to my question earlier last week, had been able to give the firm assurance that under no circumstances would the Government envisage acting in the sense that I then suggested that they would, much of this trouble could have been eliminated. Have the Government taken into account the existence of Article 103 of the treaty, which obligates this country to play a constructive part and to conduct its economic and fiscal policies in the interests of Europe as a whole? This country has a very good reputation for honouring its obligations under the Treaty. I would have thought the community could have relied on our strict adherence to Article 103 of the Treaty rather than facing a battle over the whole series of regulations that tie us in.

The noble Lord will be aware that the British opt out did not extend to Article 104c, with the exception of paragraph 14. Will he therefore, without any doubt or equivocation, cause to be written into the regulation that these circumstances, as outlined in the regulation, shall have no application to the United Kingdom should we decide to remain outside the European currency? That would then simplify the matter.

My Lords, when the noble Lord, Lord Bruce of Donington, asks me to simplify a matter I am always particularly guarded about what I then say. I find that sometimes his questions do not simplify the matter—at least for me if not for the rest of your Lordships' House.

In so far as there is any link between Article 103 and Article 104c, the treaty already makes it clear that the UK, if it does not join EMU Stage 3, is not bound by the obligations of other states to avoid excessive Government deficits—Article 104c—and the UK protocol on EMU, paragraph 5. We would simply, as now, need to endeavour to avoid excessive Government deficits. So the situation of having to meet the convergence criteria if we are out does not actually apply—although, as I have repeatedly stated, we believe that avoiding excessive deficits is sensible, whether in or out. I hope—although without too much expectation of it coming about—that I have answered the noble Lord's question.

My Lords, will my noble friend the Minister resolve a matter of puzzlement that arose between the speech of the noble Lord, Lord Eatwell, and his subsequent intervention? Was it not the gravamen of the noble Lord, Lord Eatwell's complaint that we were taking part in the formulation of the framework? If that is so, and if Mr. Blair now has substantially the same policy as we appear to have—that we go in if it is in our interests—is there not an inconsistency between that and the first speech of the noble Lord, Lord Eatwell?

My Lords, that is what I thought when I listened to the noble Lord, Lord Eatwell's intervention, but I am sure that he did not mean that. I am sure that he agrees with his party's policy—which is now alongside the policy that we have had for some time—that we should make a decision about joining EMU at the right time, when that has to be done, and in the interests of the United Kingdom. Meanwhile we should play a full part in the negotiations, in all the detailed work leading up to the creation of EMU and that decision. We can then make the decision on the basis of full knowledge of what is on offer and in the knowledge that we have played our part in building, if I may describe it as such, the house in which EMU is going to live.

My Lords, it may be of assistance if I say a word on the scrutiny situation in your Lordships' House. Not everybody will be aware that Sub-Committee A of the Select Committee under the chairmanship of the noble Lord, Lord Barnett, has recently been reviewing this matter for some weeks on the basis of letters sent by the Chancellor, which have been referred to—I hasten to add that they are not the actual confidential documents, but a précis taken from those confidential documents. That scrutiny process has been completed so far as concerns the subcommittee and it will proceed to the Select Committee tomorrow. I hope that we can then pass it to the House. That being so, there should be a document available to your Lordships within a reasonably short period which could be the subject of a debate at the earliest possible moment.

My Lords, I am grateful to the noble Lord, as I am sure the whole House is, for that explanation of the position of the Select Committee of your Lordships' House as regards scrutiny. As I said earlier, the question of a debate is for the usual channels.

My Lords, is there not a point worth making about excess deficits? The countries which run excess deficits pay a fine to the market in the form of extra interest rates. Therefore the only difference that a stability pact would make is that that money would go to the European Union rather than to the market as a whole.

My Lords, the noble Lord, Lord Desai, makes an important point. At the moment a country pays a "fine" to the markets if it runs excessive deficits. But in the EMU the market would be an all-European one, so any penalty that the market imposed would be on us all. That is why, as far as concerns being in the EMU, it is important to avoid excessive deficits.

My Lords, the Minister's right honourable friend the Chancellor of the Exchequer is right to maintain that what happens on the Continent affects us whether we are in or out of EMU. But if in a few years' time some of our nearest continental neighbours should run into severe financial or economic difficulties—possibly as a consequence of their well-known underfunded pension liabilities—and are not allowed either to devalue or borrow, they will have either to raise taxes sharply or cut benefits sharply. Would not the consequent civil unrest in countries like France and Italy make the present French lorry drivers' blockade look like the proverbial Sunday school picnic? Will not turmoil of this nature affect us almost as severely as the non-existence of a stability pact?

My Lords, it is a pity that the noble Lord was not present in the Chamber last Wednesday when we had an interesting debate on the very subject of pension provision in Europe and what effect the EMU and the Maastricht Treaty had on it. However, I believe that the noble Lord underlines the importance of having a stability pact. It will simply mean that countries will not have the option of running excessive deficits: they will either have to increase taxation or they will have to reduce the benefits of expenditure. In this Government we believe that that is a thoroughly worthy thing for any government to do. Indeed, it is an important part of any stability pact.