Below is the text of Mr Major’s response on the European Monetary System made on 7th June 1990 in the House of Commons.
Dr. Moonie To ask the Chancellor of the Exchequer if he will make a statement on progress on the Madrid conditions for joining the exchange rate mechanism.
Mr. Wallace To ask the Chancellor of the Exchequer which of the Madrid conditions concerning the United Kingdom entry into the exchange rate mechanism of the European monetary system have yet to be fulfilled.
Mr. Bell To ask the Chancellor of the Exchequer when he expects that the conditions for the pound sterling’s participation in the exchange rate mechanism of the European monetary system will be fulfilled.
Mr. Major A good deal of progress has been made in a number of conditions for membership of the exchange rate mechanism, but they have not yet all been met.
Dr. Moonie Will the Chancellor tell us which condition is likely to be satisfied first: a satisfactory reduction in our underlying rate of inflation or the achievement of a level playing field through the abandonment of subsidies by our European competitors?
Mr. Major Significant progress has been made in recent months on a number of the external elements that we require before joining the exchange rate mechanism. We have made our position on domestic inflation perfectly clear and I stand by that.
Mr. Wallace At a recent press conference the Chancellor seemed to suggest that our underlying rate of inflation was much closer to Community averages than a proper statistical approach would reveal. Was he using that figure to try to persuade the Prime Minister that we really should be joining the exchange rate mechanism, and on those grounds should Opposition Members keep quiet about the statistical flaws in his figures?
Mr. Major It is always a distinct help to the Government if Opposition Members keep quiet, whichever part of the Opposition they may represent. In the remarks to which the hon. Gentleman referred, I was drawing attention to the fact that the British rate of inflation appears misleadingly unreasonable compared with those of our European partners simply because we contain within our inflation rate that which other countries do not, and it was in response to a question about that matter that I made the remarks to which the hon. Gentleman refers.
Mr. Bell When we enter the exchange rate mechanism, as the Chancellor of the Exchequer proposes to do in the summer, will he go in on the tight band of 2½ per cent. or on the broader band of 6 per cent? Will he share his views on that with the House?
Mr. Major I can neither confirm the date that the hon. Gentleman surreptitiously slipped into his question as an assumption, nor enlighten him on his substantive point.
Mr. Ian Stewart Will my right hon. Friend assure us that, regardless of the specific matters spelt out in the Madrid conditions, he will not contemplate the entry of sterling into the exchange rate mechanism until he regards it as fully compatible with the needs of domestic monetary policy and, in particular, that he will not do so at any time when it might mean that interest rates would have to be lowered more or more quickly than is necessary for the proper control of monetary conditions and the reduction of inflation?
Mr. Major I am acutely conscious of the point to which my right hon. Friend rightly draws attention. The aim of joining the exchange rate mechanism is to support the policy to reduce inflation, not to damage it, and from that, my right hon. Friend will be aware of our policy.
Mr. Budgen Will my right hon. Friend confirm that entry into the exchange rate mechanism is stage one of the Delors proposals? The Delors proposals are supported by all the Commission’s bureaucrats and by all the nation states of Europe, with the exception of ourselves. Paragraph 39 asserts that entry into the first stage shall be taken as acceptance of all subsequent stages.
Mr. Major My hon. Friend has made assertions about what the purpose of stage one might be and about the extent to which that falls within the Delors plan. The fact that the proposal is supported by what he calls the bureaucrats in Brussels does not in itself make it wrong. We have a series of sound economic reasons for joining the exchange rate mechanism. The Government set out the policy that they would join the exchange rate mechanism when certain conditions were met. That remains the policy and it will be in the interests of this country.
Mr. Tim Smith Now that United Kingdom membership of the exchange rate mechanism has become the fig leaf behind which the Labour party has chosen to hide the private and unpleasant parts of its economic policy, would not we be better advised to join sooner rather than later so that those inadequacies can be exposed to the public for all to see?
Mr. Major If, as my hon. Friend suggests, the exchange rate mechanism will hide the shortcomings of Labour policies, it will need to be a good deal larger than a fig leaf. It is perfectly clear that the conditions that the Labour party has set out under which it would join the exchange rate mechanism make that pledge – –
Mr. Skinner Not all of us in the Labour party.
Mr. Major The hon. Member for Bolsover (Mr. Skinner) is correct. The conditions set out by the Labour Front Bench, without the support of the Labour Back Benches, for joining the exchange rate mechanism are essentially bogus, for the conditions mean that the Labour Front Bench could not enter.
Mr. John Smith In the context of possible entry into the exchange rate mechanism, will the Chancellor tell us whether the sufficiency of any reduction in inflation will be assessed according to the retail prices index or according to the so-called “underlying” rate of inflation? May I have a direct answer, please?
Mr. Major The direct answer, as I have often said, is that the rate of inflation will be assessed on the proximate rate of inflation, which means – –
Mr. John Smith The retail prices index or the underlying rate?
Mr. Major I am coming precisely to the point. The rate of inflation will be assessed not on the RPI, but o n a comparative basis to the measure in which European nations themselves assess inflation. I have repeatedly made that point clear for a long time.
Mr. Nelson Does my right hon. Friend recall that when there were recent rumours that this country was about to become a full member of the exchange rate mechanism, the immediate effect was that the stock market rose, the exchange value of sterling became firmer and money market interest rates fell? In view of that positive response, which should have warmed my right hon. Friend’s heart towards the idea of joining the exchange rate mechanism immediately, will he bear it in mind that if he felt it necessary to take an executive decision, even while the Prime Minister is abroad, to embark on that, he would earn the recognition of a grateful nation?
Mr. Major I have had some attractive offers in my time. I am not entirely sure to what extent my hon. Friend’s offer ranks among them.
I have made it entirely clear to the House now and on previous occasions that I have reached the judgment that, when the conditions that we have set out are met, it will be right for us to join the exchange rate mechanism. We must be aware of the point to which my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart), drew attention some time ago, that the balance of advantage in due course is clearly to enter the exchange rate mechanism, and in due course that is what we shall do.