Lord Simon of Highbury - Former Minister for Trade Promotion in Europe and Competitiveness (May 1997 - Jun 1998)

The EMU Conference

I am delighted to have been invited to address this meeting of the Future of Europe Trust. I know from the list of speakers that this conference can look forward to hearing a very wide range of views on the euro and its implications. I would like to set out the Government's position on the single currency and the important question of whether the UK should be part of it. It is particularly timely for me to do so a week after the Prime Minister launched so commitedly our Outline National Changeover Plan. I am also delighted to salute the City?s technical success in ensuring the launch of the Euro was a success. I am delighted to hear of the positive start to the first two months trading.

The launch of the euro marks a major turning point in the development of the both the European Union and the global economy. Overnight it has created on our doorstep the world's second largest single currency zone. A currency union of almost 300 million consumers, accounting for around one fifth of global trade and producing one fifth of the world's output. The eleven founding members now form a currency bloc of almost equivalent size to the United States.

The potential benefits to Britain of a successful single currency are well documented, if not universally accepted. In my view they are real. By reducing transactions costs and increasing the transparency of prices, the euro will help foster enhanced competition within the Single Market. By helping to sustain a Europe-wide zone of economic stability, based on low inflation, sound public finances and the elimination of exchange rate uncertainty, a successful single currency should reduce the harmful effects of volatility on investment and long-term growth.

These are significant benefits. In the last decades, dramatic changes in the global economic environment have sharpened the drive to increase efficiency and improve competitiveness. With the launch of the euro, Europe now has a genuine opportunity to position itself to stand up to these challenges. In the global economy, Europe can be more than the sum of its parts.

In the UK we should not lose sight of the unrivalled importance of the euro- area to our own economic well-being. Almost one half of our total trade and some forty per cent of our overseas investment is with the eleven euro countries. Forty-five per cent of UK SMEs have trading links Europe. I don?t underestimate the importance of the US economy to our own, but I am in no doubt that it is Europe as a market place that matters to us most.

The question of British participation in the single currency is the most important issue this country is likely to face for a generation. So, on coming to office, this Government made a number of important decisions :

• First, we announced our commitment in principle to economic and monetary union and our decision to make clear and unambiguous economic benefit to this country the decisive test for UK membership.
• Second, we set out our firm intention to lead a period of preparation in order to ensure a genuine option to decide to join a successful single currency early in the next Parliament.
• Third, because of the magnitude of the issue, we said that the final decision on joining should be taken by the British people at a time when it is possible to judge more accurately that the economic benefits are clear.

Ensuring this country has a real option of deciding to join a successful euro is any way the best way of promoting our national interest. This Government is committed to delivering a genuine choice to the British people. Only through a period of intensive preparation can Government, Parliament and the British people make an informed decision about where our economic interests lie.

The issues of preparation are considerable and challenging. The single currency represents a fundamental change to the European business environment. It brings with it competitive tests as well as opportunities. For business, it raises both practical and strategic questions.

Over the past eighteen months the Government has worked consistently and closely with the business community and the wider public sector to raise awareness of the issues involved. We have worked hard to ensure that this country is firstly aware and then making preparations for the impact of the euro; prepared to trade and handle the euro now that it is launched; prepared to deal with the practical aspects of possible UK entry.

We have taken numerous concrete steps: a nation-wide information campaign to raise awareness of the issues involved in preparing for the arrival of the single currency; Ministerial seminars and focus groups held throughout the country for small and medium-sized businesses; steps to facilitate the use of the euro by business, such as allowing for the payment of taxes and the filing of accounts in the new currency.

Real progress has been made. The level of awareness is rising and understanding of the issues involved is deepening. Three times as many small and medium sized businesses are now making preparations compared with a year ago.

Let me say a few words about the National Changeover Plan. The preparations I have so far mentioned are essentially about the landscape with the UK as a non-member of EMU. To deliver a genuine option to join, it is right that we make progress on the preparations needed to join. That is why, after consulting with business, the Government published its outline national changeover plan which sets out the practical steps which would need to be taken to join the euro if that is what Parliament and the people decide.

The plan is the product of extensive discussion and consultation with business and the wider public sector including the Bank of England, BBA, CBI, TUC, Chambers of Commerce, Small Business Federation and the British Retail Consortium. It gives advice on how to take forward preparations and examines the real issues that face different sectors of the economy. It gives a broad indication of the time needed to complete the changeover, from the point of any Government decision, through a referendum, and right up to the withdrawal of sterling.

It is also a report on progress which sets out the next steps for preparations by business and the public sector. It is the product of consultation and will provide the basis for continued discussion of the many key issues at stake. The plan shows that Government is putting its policy of prepare and decide into practice. Because of the leadership this Government is showing, preparations are going well. Now preparations are moving up a gear.

I have said the essential decision is economic. The Government's central economic objective is to achieve high and stable levels of growth and employment. Britain's interests in the single currency need to be judged against this objective and to do this we have set out our five economic tests. We stand by the tests as the basis for a rounded and pragmatic assessment of the economic case for membership.

Make no mistake, our tests are challenging. But we are making progress towards meeting them. Monetary and fiscal policy have been put on a stable, long-term footing which will help to put to an end to the instability which has plagued the UK economy in the past. Greater economic stability will minimise differences between our economic cycle and that of the euro-zone. And we have also taken numerous steps to improve the degree of flexibility in our economy through New Deals for the young and long-term unemployed and reforms to the tax and benefit system.

Already we are seeing tangible benefits: lower inflation and importantly low expectations of inflation; the elimination of the structural budget deficit; significant falls in our long-term interest rates which are now some 50 basis points above those in the euro-area. Our economy is now stronger as a result of the policies this Government has introduced. But we cannot say that our economic tests are met yet. We need to be able to judge that convergence is capable of being sustained.

Finally I want to say a few words about EMU in the context of the economic reform agenda in Europe. It is vital that EMU succeeds. That success matters whether or not the UK joins and it is this Government's policy to play a real part in delivering that success. This means continuing to engage with our European partners so that we can influence and shape the arguments.

Europe has already come a long way and we have a sound platform on which to build. The European Union has for some time had a shared view of the direction for macro-economic policy: low inflation and sound public finances as the foundation of sustained growth. The euro will lock in that framework of stability.

But a successful euro depends on much more than macro-economic management. If it is to deliver real economic strength and rising prosperity, then the euro must be underpinned by markets which function well. Economic reform is crucial to the success of the euro. And more progress is needed, building on the foundations of the Single Market, to improve the functioning of Europe's product, labour and capital markets.

This is a considerable challenge for which there are no quick fixes. The launch of the euro provides a boost to this process by sharpening the pressure on participating countries to build flexibility into their economies. And in the Employment Action Plans agreed at Luxembourg and the annual reports on product and capital markets established at Cardiff, we have set in place solid foundations on which to build. Only last week at the Internal Market Council, we agreed, under extremely positive German Presidency, a programme of further action.

But we need to ensure this process does not end here. Europe needs to maintain the momentum of reform so that it has necessary strength and adaptability to take full benefit from the disciplines of sharing a common currency. Monetary union needs to be accompanied by economic reform to make job creation easier and growth more dynamic.

In or out of EMU, the UK has a clear interest in the success of the euro. And this Government is committed to working within Europe to deliver that success. It is the Government's view that membership of a successful single currency would bring benefits to Britain in terms of jobs, investment and trade.

Provided our economic conditions are met, we believe Britain should be part of it. The British people will decide. But we need to ensure that we are in a position to exercise genuine choice. This Government is committed to delivering that choice early in the next Parliament by leading a period of intensive preparation in our national economic interest.

Other speeches by Lord Simon of Highbury - Former Minister for Trade Promotion in Europe and Competitiveness (May 1997 - Jun 1998)

(the following are available from the archive)
• The Franco-British Council (03/03/99)
• The First Partnership Sourcing Lecture, Partnership Sourcing Ltd (25/11/98)