Mr Major’s Parliamentary Answer on Monetary Integration – 5 July 1990

Below is the text of Mr Major’s response on Monetary Integration made on 5th July 1990 in the House of Commons.

Mr. Spearing To ask the Chancellor of the Exchequer when, and in what year, he placed his proposals for further monetary integration within the European Community before its Council of Ministers.

Mr. Major I have not yet done so, but I expect to discuss it later this month.

Mr. Spearing I thank the Chancellor of the Exchequer for that reply, especially as the question should have been “in what form”, not “in what year”. Does the Chancellor agree that in an authority that was charged with the responsibility of supervising a common currency, there would be some responsibility for the economy of the area over which that currency was dominant? If that supervising authority is to be accountable, should it be answering questions only to a person or body who must lump it or like it, or should it be accountable to a body that can do something about it? Will the right hon. Gentleman’s paper address the distinction between the two types of accountability and which form do the Government prefer?

Mr. Major I certainly concur with the hon. Gentleman’s view that the question of precisely what accountability means and to whom will be critical in future debates in the intergovernmental conference and elsewhere on economic and monetary union – whatever sort may emerge in the European Community. As the hon. Gentleman knows, the Government do not believe that the Delors prescription for stage 3, with its single central bank, its single monetary policy and its present lack of accountability, is a concept acceptable to the House of Commons. I will carry that view to all my fellow Finance Ministers.

Mr. John Townend Does my right hon. Friend agree that his proposal that the hard ecu should be accompanied by a European monetary fund which could require central banks to repurchase their own currencies with the ecu or equivalent hard currencies would be a powerful sanction against lax monetary policy and, as such, could be the beginning of an embryonic European federal bank?

Mr. Major I agree that the hard ecu would be the most effective counter-inflation currency yet devised and, for that reason, may commend itself to people in future years. The essence of my scheme for a hard ecu is that it is optional, evolutionary and gradualist. That is an immense improvement on what is presently on offer in the Delors report.

Mr. Bell In relation to monetary integration, does the Chancellor of the Exchequer recall the remark of Sir Alan Walters that by joining the exchange rate mechanism, currency speculators could force a realignment of the pound – and thus a devaluation – and take us back to the stop-go policies of the 1960s? In anticipation of our joining the exchange rate mechanism, has not the pound increased in value? How does the Chancellor reconcile the views of Sir Alan Walters with the pound’s stability now?

Mr. Major I see no particular reason why I should. My view about the exchange rate mechanism is entirely clear – I believe it to be in the interests of the country to join, and in due course, when the conditions that we have set out are met, we will most certainly join.

Mr. Dykes As the independent central bank has been so spectacularly successful in Germany, and as a similar mechanism is now proposed for the European Community, why are the Government, who are anxious to counter inflation, so timid about the suggestion?

Mr. Major I certainly do not accept that we are timid about countering inflation or that there is a necessary parallel between the activities of the Bundesbank and the German national legislature, and the position of the Bank of England and our legislature. It is my clear view – I regret that my hon. Friend does not share it – that the man or woman responsible for monetary policy should be available to the House of Commons to answer for his or her policies.