ERM stance 'not at odds with treaty'

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The Independent Online
LEGAL OFFICERS at the European Commission said yesterday that Britain would face practical problems if it ratified the Maastricht treaty but remained outside the Exchange Rate Mechanism.

However, the legal services department of the commission said there appeared to be no legal obstacle to Britain remaining outside the ERM while proceeding with the treaty. The ruling will add to the pressure on John Major from some Cabinet members to delay indefinitely Britain's return to the ERM, while going ahead with ratifying the treaty.

The treaty would require member states to move towards greater economic convergence by 1994, including price stability and a reduction in deficits. EC officials said there would be practical difficulties for Britain to achieve that outside the ERM. 'It does not state that the member state must be a member of that system (ERM). I cannot find a legal obligation to be a member of the ERM,' one official said.

The second stage would require Britain to avoid public deficits of more than 3 per cent of gross domestic product. Inflation in Britain would not be permitted to vary by more than 3 per cent of the best three performers within the EC.

The Prime Minister, as Chancellor, said: 'Although entry to the ERM is part of our commitment to stage one of economic and monetary union and the single market, it in no sense commits us to the Delors approach for stages two or three.'

Britain has an opt-out to the third stage of economic and monetary union (EMU), involving the establishment of a single currency and a single independent European bank. The convergence under stage two is intended as a step towards EMU.

Stage two would also commit Britain, through the Treasury and Bank of England, to the creation of a European Monetary Institute for carrying out a single monetary policy in the third stage.

If Britain was unable to achieve stage two after ratifying the treaty, it would have to notify the Commission before 1994.

Leading article, page 16

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