Euro-zone Economy

Part of the debate – in the House of Lords at 1:50 pm on 12 October 2006.

Alert me about debates like this

Photo of Lord Harrison Lord Harrison Labour 1:50, 12 October 2006

My Lords, I very much welcome the debate introduced by the noble Lord, Lord Dykes, and I thank him for that. I also thank him for the 50 Moldovan lei that he leant me last week to buy a drink on a parliamentary visit to Moldova. Unfortunately, I did not have any euros with me so I had to borrow some from him, but I will repay that debt with five euros after the debate.

It is a timely debate. The euro-zone is prospering, and I note with interest that the recent oil price hike did not disrupt the euro, as has often been predicted by those who are opposed to it. I am not ecstatic about it now, as I was not despondent when the growth rate was flat, because the essential point of the euro is to service the single market. Prosperity comes from other reforms; labour market reforms, financial and product market reforms and of course the completion of the single market. On that point, the easy way to present the single currency to the British people is to remind them that the four countries making up the United Kingdom already operate as a single currency. Mind you, two countries of our Union are not able to use their notes here in England; but never mind.

Everyone agrees with a single currency operating a single market; the question is which one. The euro has been an outstanding success in its creation, its launch and the progress despite the gainsayers such as the former Prime Minister John Major, who likened those who advocated the euro to those dancing a rain dance in terms of the hope they had of success. Recently in the Daily Telegraph Ambrose Evans-Pritchard said gaily:

"The disintegration of the euro may well be drawing nearer".

The fact is that it is secure and it will be secure for the future.

Nevertheless, there are issues about the future and the governance of the euro which need to draw our attention. I very much support Trichet as the ECB governor, and he must be supported in defending the independence of the ECB as opposed to some political moves by Juncker and others to interfere with that independence. Nevertheless, Monsieur Trichet should be reminded—as his predecessor Duisenberg possibly was not—that part of the statute of the euro was that once price inflation had been conquered and sustained there was the ability to do something about the exchange rate to stimulate job creation.

I possibly share the concern of others that the Commission used unaccountable inflexibility recently to bar Lithuania, which in every other respect has fulfilled the criteria to join, simply on the count that the inflation rate was 0.07 per cent above the requirement. Britain is outside the euro, but potential problems are being veiled by the outstanding success of Gordon Brown at the Treasury. Nevertheless, there are causes for concern. Take the yo-yoing pound against the dollar; $1.40 some months ago and now $1.85, but it could well be on the climb to $2 to the pound. That may be very good for British tourists going to New York to do their Christmas shopping, but it is not healthy for British manufacturing; neither the rate nor the uncertainty that is introduced by not being part and parcel of a bigger single currency area such as the euro. The pound sterling now lies uncomfortably on the fault line of the moving tectonic plates of the dollar and the euro. To avoid earthquakes and floods in the future, we need to be inside the euro. Gordon Brown's success means that currently the euro is off the political agenda, which I regret. I am worried about this phoney war, and I am worried that all is too quiet on the western front for Britain bordering the euro-zone.

I conclude with a series of questions for my noble friend. First, we are not inside the euro-zone, but we have to adhere to the broad economic guidelines. Will my noble friend report how successfully we are doing that, and perhaps incorporate an update of the situation with respect to our budget and debt criteria? Secondly, when will the next assessment be made by the Treasury of the five economic tests? Has the Treasury undertaken any kind of assessment of the cost of the United Kingdom remaining outside the euro? That work should be done profitably. Has there been an update of the 2003 national changeover plan? When you think of the changes that have happened in the way that the euro has established itself, it surely must be the case that there will have been changes to be reflected in that changeover plan that take account of what has happened in the interim.

I shall consider some other sectors. What about local authorities, for instance? I understand that on 21 September there was meant to be a meeting of the people who are managing the preparation plan and local authorities. Did that meeting take place? What was the result? I would be interested to know what was discussed. They will play a crucial role if the euro comes into play here in the United Kingdom. Why is there no separate budget for the Euro Preparation Unit under the Treasury budget as a whole? Is it not important? Why have its personnel been cut year on year from 17 full time equivalents in 2002, whittled down to nine? I regard that as unfortunate.

Have the 18 EMU studies been updated, developed and expanded? Why are there no analyses of certain sectoral areas? For instance, I have in mind the small business sector. Have we considered its worries and concerns, or those of the tourism industry? I do not just mean by that preparation for joining the euro. What has been the good or bad effect of staying outside the euro-zone? Apropos of that last question, does my noble friend agree that Britain's banks are failing British business with the lack of a competitive euro banking service? That is alluded to in the euro preparation Managed Transition Plan under information on existing retail banking services.

I conclude with one example of where one business, namely Cash Bases Group Ltd, of Newhaven in East Sussex, employing some 230 people, is successfully negotiating being outside the euro. It seems to me from what it reports that it has difficulties to overcome, which would not be the case of a business in the euro-zone. I quote:

"With our capability to price and invoice in euro now well established, we are using our considerable euro income stream to buy raw materials in France. This matching operation between sales and purchases allows us to 'hedge' the exchange differentials".

Good luck to it if it is able to do that; not everyone is able to do that. Here is an advantage:

"We have also used the euro to service the mortgage on part of our company's base here in Sussex and we plan to take out further loans in the currency. This move is to take advantage of currently lower mortgage rates in euro compared with those quoted in sterling".

It is my strong desire that the Government conduct a campaign to explain the advantages of being in the euro. It is good that British business is accommodating itself, but nevertheless it faces problems that incapacitate it in driving itself forward within the single market.

The time is coming soon that when Europe as well as America sneeze, Britain catches a cold.