Economic Convergence

Oral Answers to Questions — National Finance – in the House of Commons am 12:00 am ar 17 Hydref 1991.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Mr Simon Coombs Mr Simon Coombs , Swindon 12:00, 17 Hydref 1991

To ask the Chancellor of the Exchequer how he proposes to measure convergence between the economies of European Community member states.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

This is being discussed in the intergovernmental conference on economic and monetary union. The criteria should include measures of price stability, the sustainability of public finances and monetary stability.

Photo of Mr Simon Coombs Mr Simon Coombs , Swindon

Does my hon. Friend agree that there is a degree of inconsistency in the way in which the various member states of the European Community measure economic developments of one kind or another? Does he therefore believe that there is a case for harmonisation in the way in which economic trends are measured so that countries cannot claim to have converging economies when they are diverging?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

Inevitably, there are different measures of economic convergence. I have mentioned just some of them, and those are the ones that we believe are of particular importance for the purposes of economic and monetary union being discussed at the intergovernmental conference. There are accepted common measures of convergence which are applied for the purposes of comparison between various member states.

Photo of Ms Joyce Quin Ms Joyce Quin , Gateshead East

Does the Minister agree that whatever rules are adopted to measure convergence, notice must be taken of money available in Brussels for regional development? Will the Government therefore now honour the commitment that they entered into to supply money to the coal mining regions of Britain under the RECHAR scheme? Those regions rightly regard that scheme as extremely important. After all, such money is not part of a budget rebate to Britain—it is part of a scheme intended to provide additional and direct benefits to the regions concerned.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

I am well aware of the issue, as my constituency is one of those which should be in line for some of the money from the scheme. I hope that the hon. Lady will use her contacts with European Commissioner Millan, whose decision it is to withold those funds from Britain. My constituents—and, I suspect, the hon. Lady's constituents—have a pretty strong grievance against that Commissioner for his refusal to give that money which is due to Britain.

Photo of Mr Ian Stewart Mr Ian Stewart , Hertfordshire North

Does my hon. Friend agree that, whatever measures of convergence between the economies of European states are used, they are still such a long way from a degree of convergence that could support any form of economic or monetary union as to make it dangerous to talk about practical steps in that direction in the near future? Will he ensure that that reality is reflected in the British position in the negotiations?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

I assure my right hon. Friend of that. From the inception of those discussions it has been our view that any monetary union that was not founded on real and sustainable convergence would be doomed to failure and disaster from the outset. As we have argued that case quietly, firmly and persuasively, we have won others to the cause. There is now a growing consensus among the 12 member states of the Community that strict convergence is of paramount importance before any moves to full monetary union take place.

Photo of Mr Chris Smith Mr Chris Smith , Islington South and Finsbury

Does not real convergence depend not only on the headline rate of inflation and interest rates but, crucially, on levels of growth, unemployment, investment and output? On all those fronts do not we lag miles behind our European partners? Will not this country continue to lag behind unless and until we have a proper industrial strategy for manufacturing industry?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

That is one of the most fanciful outbursts that I have heard for a long time. Our rate of unemployment has been consistently below those of most of our major competitors in the European Community. In any event, it is not essential as a precondition for monetary union that there should be comparable levels of growth or output. Within any country or confederation that is an economic union there are wide disparities in all those measures. The measures in which it is essential that there should be convergence are those that I mentioned: interest rates, inflation rates and—I should have thought this was of some importance to the Labour party—the state of public finances. Any country that did not get a grip on its public finances and get its public deficits under control would have serious problems. On all those measures our record is exceptionally good. The hon. Gentleman mentioned rates of growth, but he may have failed to notice that, during the 1980s, our rates of growth outstripped those of every other member state of the European Community.

Photo of Ian Taylor Ian Taylor , Esher

Does my hon. Friend agree that the discipline of exchange rates in the exchange rate mechanism is one way to ensure that there will be ultimate convergence within the Community? However, that also provides the possibility for competitive instincts on taxation and fiscal policy. Has not the Government's record of keeping taxation low for direct taxes and the corporate sector led to an inflow of inward investment from outside the Community? Forty per cent. of non-Community investment has flowed into this country, forcing other countries to adopt lower taxation, too.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

It is certainly correct that the very favourable environment for business that we have created in this country has led to the lion's share of inward investment into the Community coming to Britain which we warmly welcome. I am sorry that, at its conference, the TUC chose to describe Japanese inward investment as being alien. When a Labour spokesman climbs to his feet he may wish to say whether the Labour party associates itself with those offensive remarks, which are completely against the national interest.