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Volume 706: debated on Monday 8 December 2008


Asked By

To ask Her Majesty’s Government what assessment they have made of how conditions for United Kingdom membership of the euro may alter in coming months.

My Lords, the Chancellor announced in the 2008 Budget that,

“the Government does not propose a euro assessment to be initiated at the time of this Budget”.

The Treasury will again review the situation at Budget time next year, as required by the Chancellor’s June 2003 Statement.

My Lords, is that not a disappointing reply? Does the Minister not agree that our excessive non-sterling debt liability is only one of many factors pointing in this eventual direction? If successful economies, such as those of Germany, France, Italy and Spain, can benefit so much from euro membership, why cannot Britain?

My Lords, I do not regard it as a disappointing Answer. It is rooted in a very clearly stated policy from October 1997 that in principle this Government believe that it is appropriate for us to join the single currency but only on satisfaction of critical conditions, as set out in the five tests and three supporting principles. That continues to be our view, and the Chancellor of the Exchequer will no doubt advise the other place should that change.

My Lords, further to the supplementary question of the noble Lord, Lord Dykes, have Her Majesty’s Government studied the recent analysis from the Conseil d’Analyse Economique—perhaps the leading French economic think tank, which reports direct to the French Prime Minister—which concluded that neither the euro nor the single currency has had any positive effect on the French or any other European economy since inception?

My Lords, I am afraid that I have not read the report but I am sure that the people in the Treasury have. I remind noble Lords that in terms of drawing on academic and independent research this Government’s response in 2003 was probably the most thorough, complete and independently supported conclusion that we have seen on euro membership. We concluded that that was not the appropriate time to join the single currency, particularly because there was clearly not economic convergence or sufficient flexibility within the European and British economies. We are seeing that convergence and flexibility continue to move forward within Europe but they are still not being fully achieved. We will watch those developments with interest.

My Lords, last week the EU President offered the view, gratuitously, that the UK would have been better off in the current turmoil if it had already been part of the euro. Does the Minister agree that, had we been foolish enough to join, our economic position would have been very much worse?

My Lords, I was not privy to the conversations that Mr Barroso had. He said that he was speaking to people in the know who were responsible and respected. I was not one of those, but I believe that the views he expressed were his. I do not think that the conversations he had were linked to anybody in particular. Accordingly I have nothing further to say in response to the noble Baroness, Lady Noakes, on that matter.

My Lords, does the Minister feel that we are nearing the moment when one of the countries involved could drop out of the eurozone? The difference in the interest rate being paid in Greece and in Germany, for instance, has now reached 123 points. Is it not only a matter of time before one of the countries gives up the euro entirely and returns to its own currency?

My Lords, one reason why the Government have been so cautious is our recognition that the decision to join the euro is irrevocable and according to a fixed rate of interest prevailing at a particular time. From that point on, one is bound to that exchange rate and the interest rates consequent upon it. That is why we proceed with great care. I would imagine that the countries that joined the euro proceeded with similar careful consideration and concluded that it is an irrevocable and lifetime commitment.

My Lords, are we not, with respect, dancing on a pinhead here? The point is not whether the conditions are right but, as the Minister just said, that adopting the euro is an irrevocable act and the success or failure of the nation’s economy for years ahead will be defined by the rate at which we join. I have in mind particularly the rate at which Germany came in and the rate at which France came in. Is any work being done on the tolerance in negotiation regarding the rate of entry, should certain Members of your Lordships’ House ever have their way?

My Lords, the rate is the absolutely critical issue at the point of entry. However, a fixed rate that does not take account of the fact that different economies are at fundamentally different points in their cycles will rapidly prove to be the incorrect rate. The tests around convergence, flexibility, capacity to attract investment, support for the large financial services sector which we have in our economy and the overall contribution to stability, growth and employment are therefore critical. Those are all partly pulled together in the rate but it would be overly simplistic to see the rate as the starting point for the decision; rather it is the point at which we get alignment. At that point we crystallise and at that point entry would be a viable option. Until we are at that point it would be wrong to speculate on the rate. However, within the Treasury there are people constantly reviewing the progress of the European economies vis-à-vis our economy and those elsewhere in the world.

My Lords, is it not clear that France, Germany, Italy and Spain have, since they joined, done extremely well out of the resulting combination? Given the way in which the pound has fallen over the past few months, is it not clear that we need to look again at whether we should be joining?

My Lords, my noble friend Lord Sheldon is perhaps missing the point that, in six of the past seven years, the UK has been the second fastest-growing economy in the G7. Our not being in the euro seems to have been no impediment to our achieving high rates of growth, low rates of inflation and low rates of unemployment.

My Lords, as the Minister will be aware, Europe is increasingly co-ordinating its economic policy through meetings of the eurozone Finance Ministers, of which we are not a member. How do the Government intend to make sure that their influence is fully felt across EU decision-making in economic policy when they are not sitting at the table?

My Lords, there is no reason to believe that the views of the Prime Minster and the Chancellor of the Exchequer are not well heard in Europe.

My Lords, does my noble friend agree—third time lucky—that it would be a serious mistake to rule out entry into the euro for all time, as the shadow Chancellor of the Exchequer in the House of Commons appears to have done? Does he also recognise that the British situation is rather different from that of a number of other European countries, not least because our economic cycle tends to track that of the United States rather than that of Europe? That makes his point about the level at which we enter a particularly important and sensitive one for the UK economy.

My Lords, the Government’s position remains that in principle we are in favour of joining the single currency. I am glad that I do not have to defend the views of Mr George Osborne, as I think that I would find myself spinning to the point of complete dizziness.

My Lords, does my noble friend accept that even though the five tests never made any sense in 1997 and do not now, the chance of the Government going for a referendum on the issue is so remote that it would be as well for him to say that we have no intention of joining?

My Lords, my noble friend may well be right in his comments about the tests in 1997, because they were not actually published until 2003. They were published in June 2003 for the benefit of the noble Baroness, Lady Noakes—who looks somewhat perplexed—in terms of our assessment of our progress against them. That is what gave the tests body and form. Our position continues to be that in principle we are in favour of joining the single currency.

My Lords, we have slipped from being the fourth richest economy in the world to being the sixth. Has that anything to do with our absence from the euro?