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European Council (Madrid)

3.31 pm

The Prime Minister (Mrs. Margaret Thatcher) : With permission, Mr. Speaker, I should like to make a statement about the meeting of the European Council in Madrid on 26 and 27 June which I attended with my right hon. and learned Friend the Secretary of State for Foreign and Commonwealth Affairs.

The full conclusions of the Council have been placed in the Library of the House. Economic and monetary matters were the main item on the Council's agenda. Agreement was reached on four points.

First, the objective of progressive realisation of economic and monetary union was reaffirmed. This objective was first set in 1972 before Britain joined the Community and has subsequently been reaffirmed on numerous occasions, including in the Single European Act passed by this House, but no definition of it was agreed in Madrid.

Second, the report of the Delors committee, which sets out an approach to economic and monetary union by stages, was accepted as a basis for further work, but not the only basis. It will be possible to bring in other ideas and other approaches.

Third, the Council agreed that the measures necessary to achieve the first stage of progressive realisation of economic and monetary union will be implemented from 1 July 1990. These include completion of the single market, abolition of all foreign exchange controls, a free market in financial services and strengthening of the Community's competition policy by reducing state aids. They are all matters for which the United Kingdom has campaigned strongly and where we are well ahead of the great majority of our European partners.

No decisions were reached on what should follow this first stage, and stages 2 and 3 of the Delors report were not endorsed. Indeed, several delegations--not only the United Kingdom--made clear that they had substantial difficulties with them.

Fourth, it was agreed to carry out the preparatory work for the organisation of an eventual intergovernmental conference to lay down subsequent stages, but such a conference would meet only after implementation of the first stage has begun and when there has been full and adequate preparation. Its decisions would have to be reached by unanimity and would require ratification by this House. In short, we made as much progress as can be made at this stage while leaving longer-term issues for further discussion by Finance Ministers and central bank workers over the months and years ahead. We have ensured that there is nothing automatic about the move to subsequent stages.

Very difficult issues remain to be resolved. As my right hon. Friend the Chancellor of the Exchequer has made clear, stages 2 and 3 of the Delors report would involve a massive transfer of sovereignty which I do not believe would be acceptable to this House. They would also mean, in practice, the creation of a federal Europe. The Government support the objective of closer monetary co-operation, but will work for solutions which leave crucial economic decisions in our own hands. Although Britain's membership of the exchange rate mechanism of the European monetary system was not an

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issue at this Council, I reaffirmed our intention to join the ERM, but we must first get our inflation down. We shall look for satisfactory implementation of other aspects of the first phase of the Delors report, including free movement of capital and abolition of foreign exchange control.

The Council also discussed what is called the social dimension. On this the United Kingdom's record is very good, and I took with me to Madrid our own document setting out our substantial achievements in this field. We have also ratified the Council of Europe's social charter, unlike some of our Community colleagues. The Council's conclusions on this subject recognise that the highest priority is to create the conditions for more jobs. The Government do not believe that the Community's proposed social charter would help to achieve this aim. Indeed, we believe that imposing extra burdens on industry would make the Community less competitive. That is the main reason why my right hon. Friend the Secretary of State for Employment was unable to accept the conclusions of the June Social Affairs Council, and I confirmed that refusal in Madrid.

But the conclusions of the European Council brought out a very important point, raised by many Governments during the discussion : that national legislation and voluntary agreements have a legitimate role in achieving the Community's social dimension, and not everything has to be the subject of directives from the European Community. We shall be putting that view very strongly in the further discussions which will take place.

I shall summarise very briefly the outcome of the Council's discussions on the other main issues. The Council reaffirmed the priority task of completing the single market with the emphasis on the areas of particular importance for the United Kingdom--financial services, technical standards, transport and public purchasing. The Council's discussions demonstrated that there will not be a withholding tax on savings--a proposal which the United Kingdom has consistently opposed. The Council welcomed the progress being made in the fight against fraud in relation to the Community budget. The Council showed that there is wide acceptance of our need to keep checks at frontiers against drugs, terrorism and criminals while making free movement of ordinary, law-abiding citizens a greater reality.

In political co-operation, the Heads of State and Government expressed their utter condemnation of what has happened in China and agreed a series of measures which match those that the United Kingdom is already taking. The Council also expressed its understanding of the anxiety which has been caused in Hong Kong by the atrocious happenings in China.

I would like to congratulate the Spanish Government on their presidency of the EC over the past six months, and in particular on the progress made on the single market, with over 60 directives agreed. I also congratulate the Spanish Prime Minister, Sen or Gonzales on bringing a difficult European Council to a successful conclusion.

The main outcome of the Council--agreement to implement a first phase of economic and monetary union--is very much in the interests of British industry and the City of London, while fully protecting the powers of this House. Far from being isolated, as some have claimed, the United Kingdom was able to play an important role in bringing the Council to these sensible and practical conclusions. It is in the same spirit of determination to

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strengthen co-operation with other members of the European Community, while arguing always for cutting constraints on enterprise and free competition and leaving to member states those decisions which properly belong to them, that we shall approach the undoubtedly difficult discussions of the Community's future which lie ahead.

Mr. Neil Kinnock (Islwyn) : I am grateful to the Prime Minister for her statement.

On the important question of British participation in the exchange rate mechanism of the European monetary system, first, do the main conditions for entry into the exchange rate mechanism set down by the Prime Minister mean that she now accepts that exchange rate management must be the essential basis of monetary policy, as her Chancellor of the Exchequer believes?

Secondly, does she concur with her Chancellor's publicly stated view that he is

"certain that participation in the Exchange Rate Mechanism would strengthen both the stability of the pound and efforts to bring down inflation?"

If she does, would not membership of the ERM assist with efforts to bring down the present rate of inflation to European averages? Thirdly, does the Prime Minister agree with the view of some of her right hon. Friends that participation in the exchange rate mechanism and the exercise of constructive influence in any development of stages 2 and 3 of the Delors report are essential if London is to remain a major financial centre? Does she accept that Britain would be in a better position to modify or remove less acceptable features of stages 2 and 3 if the pound were put into the ERM at an early date?

Fourthly, are not the conditions that the Prime Minister has laid down for participation in the exchange rate mechanism, most notably the condition that British inflation must be at the European average, just her way of saying that under her policies the pound will never join the exchange rate mechanism?

On the social charter, will the Prime Minister tell us why she is the only one of all the Community's Conservative leaders who rejects completely the proposals of the social charter? Does not the support for the charter by so many Governments right across the political spectrum in the Community reveal the Prime Minister's position as being isolationist, backward and disadvantageous to the British people?

Does the Prime Minister recall that after the NATO summit a month ago she said of the communique :

"wriggle as some people may, that is what they have signed up to"? As at Madrid she was forced to accept a process that she had set out to stop, will she make an exception to her own rule and, just for once, try not to wriggle out of the commitments she has made?

The Prime Minister : On the exchange rate mechanism, our promise has been that we would go in when the time was right. I put conditions on that and made it much clearer that when those conditions were met we should be able to go in. One condition depends on us, which is that we get inflation well down, but some of the other conditions depend on the other members of the Community. Some of them belong to the exchange rate mechanism, but still protect their currencies by not having freedom of capital movements and by keeping foreign exchange control. It is quite different to stay in an

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exchange rate mechanism when one has foreign exchange control from when has abolished that foreign exchange control.

We shall see how the exchange rate mechanism holds up. I hope that it holds up reasonably well. The bands are very different for the particular currencies, but the abolition of foreign exchange controls will be a major event for the exchange rate mechanism.

On stages 2 and 3, many other people share our view that the--

Mr. Tony Banks (Newham, North-West) : Name them.

The Prime Minister : Other people share our view that the stages set out in the Delors report are not the right stages.

I will name a person. I gladly respond to the hon. Gentleman's shouting. Karl Otto Poehl, the governor of the Bundesbank, in a speech on 22 June, said :

"I myself doubt whether the time has come for such a comprehensive renunciation of sovereignty, namely the transfer of monetary powers to supranational institutions. I can only repeat what I said a little while ago. Neither a single currency nor a European central bank is necessary for an economic and monetary union to function. What is more important is that the member states pursue a consistent policy."

That is a very effective demonstration.

On the social charter, as I have said, some of the people round that table had not yet ratified the Council of Europe social charter, which we have signed and ratified, and which is here. They also pointed out that if they were to have anything like as good social services as we have they would require large subsidies of money from the bigger nations in the European Community. They again pointed out that the history of social services and membership of trade unions was totally different in many different countries. Therefore, the principle of what was called subsidiarity should come into play--the central Commission should not take unto itself powers that could quite well be carried out at national level--and that was included in the communique . We were instrumental in creating that communique and we shall be instrumental in carrying it out.

Mr. Julian Amery (Brighton, Pavilion) : Does my right hon. Friend agree that one of the most important decisions taken at Madrid was that, in the preparations for the eventual intergovernmental conference, the Delors report, valuable though it is, would not be the only document considered?

Will my right hon. Friend instruct the Treasury and the Bank of England to carry out a detailed review of the operation of the sterling area between 1931 and the 1960s? Sterling was never a single currency ; it was a reserve currency. The Bank of England was its heart, but it was never its central bank. The Governments of other countries that were part of the sterling area continued to retain their own central banks and, of course, their own control of budgetary and fiscal policy. Is it not important that the Government should put forward proposals that reflect the British vision of a united Europe?

The Prime Minister : My right hon. Friend is absolutely right. The Delors report will not be the only document taken into account in considering how to come to closer monetary and economic union. We shall be able to put up alternative schemes. It is clear that the governor of the Bundesbank thought that there were alternative schemes.

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Our way is to co-operate through voluntary action, which we believe will achieve the same objective. We will, of course, look at the sterling area, in which this country has unique experience, because it could be valuable in the next stage of the Community's deliberations. I am grateful to my right hon. Friend.

Mr. Paddy Ashdown (Yeovil) : The right hon. Lady would be amazed if the rest of us were so naive as to believe her description of events. Anyone who listened to it would be bound to take it with, to coin a phrase, a large "sackful of salt". When will the Prime Minister realise that Britain's long-term best interests will be served by Britain helping to shape and being part of European integration rather than always being seen to be a block and barrier to it? Is it not odd that the line on economic and monetary integration which she defended in Madrid is almost exactly the same little Englander line that was put forward in the Labour party's European manifesto?

The Prime Minister : I should have thought that the right hon. Gentleman could do better than that. Twelve nations signed the communique . The right hon. Gentleman seems to despise them all--nearly the whole of Europe.

Stage 1 of the Delors report is agreed. That is a quantum leap. It includes many other aspects of work that we must do in the Community, for example, on the internal market--which will be a quantum leap when it has been completed by 1992--the freedom of capital movement, abolition of foreign exchange controls and reduction of subsidies, so that there is much freer competition throughout the Community. That is a major step forward. I should have thought that the right hon. Gentleman could at least welcome it.

Sir Bernard Braine (Castle Point) : Will my right hon. Friend accept the warm congratulations of Conservative Members and, I suspect, many people elsewhere on her remarkable achievement in Madrid, especially on rallying the support of some member states which, like us, are not enamoured of the idea of a bureaucratically controlled Community which would reduce national Parliaments to rubber-stamping machines? Does not Britain now have an opportunity to shape the future economic and social patterns of the Community in accordance with the wishes of all the people?

The Prime Minister : My right hon. Friend is absolutely right. Several members of the Community are deeply disturbed by the transfer of sovereignty in stages 2 and 3, especially those whose Parliaments are central to their democratic processes. Parliaments have a varying significance to several nations of the Community. Many expressed doubts similar to those that we expressed ; others do not want to be under the domination of a German-French axis, and therefore wish to develop different mechanisms. We shall do exactly what my right hon. Friend said--develop a system that is right for all members of the Community so that they can go forward on a voluntary and fully agreed basis which we can bring before the House for approval.

Dr. David Owen (Plymouth, Devonport) : Is the Prime Minister against any system of European central banks, especially a system that has the same anti-inflationary

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pressures as witnessed by the Bundesbank? Does she rule out even parallel currencies? If she is as anxious as many hon. Members about a creeping movement towards a federal Europe--[ Hon. Members-- : "Oh."] Yes, against a federal Europe. The central principle is to preserve the right of the House to fix rates of direct taxation and of the House and the Government to fix their own borrowing requirements.

The Prime Minister : Under stages 2 and 3 of the Delors report, we should lose some of the rights to which the right hon. Gentleman refers. That just would not be acceptable to the House, for which such rights are central to the control of Parliament over the Executive.

With regard to the other points which the right hon. Gentleman made, we look for a way forward by voluntary agreement and co-operation to which we can gladly give our support steadily to work together more closely. That is the way forward.

Mr. Teddy Taylor (Southend, East) : Is the Prime Minister aware that people of all opinions about the EEC greatly admire her courage in trying to make the Common Market more workable and sensible and less bureaucratic? Does she think that it is a tragedy for our democracy that a party that at one time claimed to represent working people, who gave their lives and guts to fight for democracy and for people to be able to control decisions, is now prepared to pass that to bureaucrats? That party is led by someone who is little more than a Jacques Delors stooge.

The Prime Minister : One of the most worrying features of following stages 2 and 3 of the Delors report would be that the Council of Twelve, or the central bank governors, would have the deciding say in the guidelines to which the rest of us would have to agree. Those central bank governors would not be democratically accountable in any way.

Mr. Frank Dobson (Holborn and St. Pancras) : But the right hon. Lady just quoted the boss of the Bundesbank with approval.

The Prime Minister : Certainly they would not. They would be much less democratically accountable than the Bundesbank is under the exchange rate mechanism as it currently operates. It is usual for the Government to be practical in their approach to Europe and to sort things out. That was our approach to the common agricultural policy--where surpluses are now right down--to the European budget, which is now on a reasonable basis, and to the internal market, with which we are steadily going ahead. Although it was right in the treaty of Rome at the beginning, it has not yet been achieved. It will be achieved by 1992 largely because we sought to make it one of our top priorities.

Mr. Nigel Spearing (Newham, South) : Will the Prime Minister confirm that successive Conservative Prime Ministers signed the treaty of accession to the European Community and the Single European Act without an electoral mandate or the prior permission of the House? Is it not also true that initially the Government opposed the Single European Act? What is to prevent a similar reversal on a treaty to bring in economic and monetary union? Is it not clear that the acts and aspirations of the Prime Minister and of the right hon. Members for Old Bexley

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and Sidcup (Mr. Heath) and for Henley (Mr. Heseltine) have stripped the powers of this House and therefore have denied the British people the right to determine their own legislation, their own taxation and--under economic and monetary union--their own effective Government?

The Prime Minister : The hon. Gentleman is quite correct in that successive Labour and Conservative Governments have gone ahead and negotiated with Europe and have signed communique s with Europe and that is part of the duty of Governments in negotiating with other Governments within the European Community. I refer the hon. Gentleman to the conclusions of The Hague European Council meeting held in November 1976-- which he will recognise took place during the time of a Labour Government :

"The achievement of economic and monetary union is basic to the consolidation of Community solidarity and the establishment of European union."

There were similar references at European Councils in December 1974, July 1978 and December 1978. Yes, we have both been carrying out the duties of Government in negotiating with other Governments. Usually we have included in our manifesto the kind of Europe that we wish to see, and the hon. Gentleman is aware of the Europe that we wish to see. I had thought that we could get to a proper Common Market without a Single European Act. The hon. Gentleman is aware that the Single European Act, for the purposes of achieving a single market, made more of the directives subject to majority voting, but kept certain of the essential features, such as taxation, subject to unanimous voting, and I think that that was absolutely vital.

Mr. Cranley Onslow (Woking) : Is my right hon. Friend aware that there will be as warm a welcome in the country as there has been in this House for her reaffirmation that any transfer of sovereignty to implement Delors stages 2 and 3 would be totally unacceptable? There will also be a welcome for what she said about progress in Europe not depending on EEC directives alone. May I congratulate my right hon. Friend on one particular achievement out of many in Madrid, and that is her skill in succeeding in getting the French Government to commit themselves unequivocally and unconditionally to the objectives for 1990 which we have supported for so long.

The Prime Minister : The communique makes it quite clear that stage 1 of the Delors report must begin to be implemented by July 1990. We have already done many of those things, and when we are arguing in Europe one of our great strengths is that in practical terms we are way ahead of many of our European partners in what we have actually done as distinct from what we say. We keep our promises. We have freedom of capital movement and we have abolished exchange controls. We actually deal in the ecu and we have issued securities in the ecu. We are quite prepared to have--and indeed have--various European currencies in our reserve. That is way ahead of many countries.

Mr. Peter Shore (Bethnal Green and Stepney) : There is uncertainty and anxiety about what precisely the Prime Minister agreed to in Madrid. Will she confirm that her conditional acceptance of stage 1 in no way commits us to acceptance of stage 2 or stage 3? Will she also pledge herself to oppose strenuously any proposal for economic

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or monetary union, as the Delors plan envisages, which would transfer from Britain and its Parliament powers that are essential to economic self-government?

The Prime Minister : I thought that I had made it clear in my statement, although it is a complicated statement because we were dealing with a very complicated subject, that we have accepted stage 1 of the Delors report, which will not surprise the right hon. Gentleman. He knows that we accept the completion of the single market in any event. We accept abolition of foreign exchange controls--indeed, we have already done it-- and we have been the first in seeking to get subsidies reduced across Europe. We have accepted all of those and are starting to implement them. That is stage 1. We have not accepted stage 2 or stage 3. I was the only one really to refer to paragraph 39 in the Delors report--the hon. Gentleman will realise the significance of that--because I said that we did not accept that. Paragraph 39 attempted to say that, if one accepts any part of the report, one must be taken as accepting the whole. We totally and utterly rejected that, and so did the final communique . It was just an attempt to coerce us, and we would have nothing of it.

I hope that I also indicated that major derogations of national sovereignty of the kind in the Delors report, in which we give up fundamental functions with regard to monetary, fiscal economic policy to a group of central bank governors who are not democratically accountable, would not be acceptable to this House or to me in any way. I hope, therefore, that we can get further by co-operation. What matters is following consistent policies and not handing over responsibility to other bodies.

Mr. David Curry (Skipton and Ripon) : Will my right hon. Friend accept Conservative Members' congratulations on demoting the status of holy writ that was attached to the Delors report and on making it clear that economic and monetary union are not the same things? Does she agree that, until there are further documents on the table, discussion is bound to centre on the Delors report? Therefore, will it not be in the interests of the United Kingdom for my right hon. Friend to put on the table her own proposals on how to enhance monetary co-operation so that countries that are deeply disturbed by the Delors report and people such as the president of the Bundesbank have an alternative paper on which discussions can be focused? That practice worked successfully in the case of fiscal harmonisation.

The Prime Minister : My hon. Friend is absolutely right. We shall be working out alternative proposals, and I hope that other people will do so, too, so that they are on the table to be considered during this interim stage. Other economists will be working upon it. It is very different from the approach of the Delors report, which seems to start from federation and then work backwards and pass major rights of national sovereignty to a kind of federated body. We will follow my hon. Friend's advice.

Dr. Dafydd Elis Thomas (Meirionnydd Nant Conwy) : When she reports back to the House on European Council meetings, why does the Prime Minister refer to discussions of social policy in terms of what is called the social dimension? Will she now confirm or deny whether she believes that the social dimension of Community policy exists as a linguistic and socio- economic reality? Does she

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now accept that, for all other members of the Community, the social dimension is as much a part of European reality as the economic drive to the single market?

The Prime Minister : Yes. The most important aspect of the social dimension--the hon. Gentleman will find it in the communique --is development and job creation. This country has outshone any other in the European Community in the number of jobs that we have created in the past three years. It has been absolutely at the top of the scale on social dimension.

With regard to the social charter, many other countries would wish that they had social policies, social security policies, national health services and housing benefits as good as ours, and they openly admit that they could not possibly afford them without massive subventions from the rest of us. As we have already paid £2 billion this year to the Community, I do not think that we can undertake any more.

Mr. Terence L. Higgins (Worthing) : In the further difficult negotiations that lie ahead, will my right hon. Friend stress that, over the centuries, the power of this House has rested on the control of money, both taxation and public expenditure, and that, contrary to the suggestion in the Delors report, the mass of expert evidence published by the Treasury Committee makes it clear that monetary union would not require countries to abdicate control over fiscal policy? Will my right hon. Friend make sure that that point is made clear in the forthcoming document as an alternative to the Delors report, which she has just promised?

The Prime Minister : I agree with my right hon. Friend. One of the problems of the Delors report was that, instead of defining several different ways of having European monetary and economic union, it set out on just one particular formula, and then set out the stages to that. Normally, if one commissions a report, one expects several options to be given, and the benefits and disadvantages of each to be weighed. That is what we must achieve.

Ms. Joyce Quin (Gateshead, East) : The communique states that social aspects should clearly be given the same importance as economic aspects in the creation of a single market. Given that statement, which of the social methods that the Prime Minister has hitherto blocked is she now prepared to agree to so that some progress many be made?

The Prime Minister : Yes, that is in the communique . If the hon. Lady looks at it she will also find that the most important issue in the social aspect is job creation and development, without which we would not have the wealth to create the rest of the social services. That is more or less understood by the people round the table. In the communique they also said that they thought that both voluntary agreement and national legislation had a great part to play in the social aspect of the Community, and should not be centralised through the Commission.

Mr. John Marshall (Hendon, South) : Does my right hon. Friend agree that it ill behoves the Socialist President of France to lecture this country on progress towards European monetary union when he imposes restrictions on the ability of his fellow citizens to move their money across Europe? What would be the impact of the Madrid

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agreement if attempts were made to reintroduce exchange controls into this country, as recommended by the Labour party?

The Prime Minister : The whole future of the internal market, free market, free movement of capital and one of the central parts of the European Community would go. It is designed for freer movement of money, goods and people, and that cannot be achieved unless we abolish foreign exchange control in all its forms. That has yet to be done by France and Italy, which are members of the European exchange rate mechanism. I hope that when they abolish their exchange controls, the European exchange rate mechanism will hold. It will be a considerable step forward.

Mr. Jack Ashley (Stoke-on-Trent, South) : Is the Prime Minister aware that her attitude towards the Community's proposed social charter is a logical extension of her attitude in Britain towards workers, wages, conditions and trade union rights, and that that is reflected in the hard line being adopted by many public service employers is Britain? There can be no doubt where responsibility lies for the wave of strikes and industrial unrest. It lies in No. 10 Downing street.

The Prime Minister : Nonsense. Perhaps the right hon. Gentleman did not hear me earlier when I said that I had taken full accounts of our social policies, and handed them out. Far from there being any criticism of our social policy, there was a good deal of acclamation for the work that we had undertaken, and a good deal of agreement that social policy is right for the national Parliament to legislate upon and not right for the Commission to have major directives upon. There was also a good deal of agreement that the membership of people in trade unions varied enormously across the Community--from about 15 per cent. in one country to more than 50 per cent. in others--the history and legal systems were different and it was not a right and proper matter for the Community to legislate on. There was no criticism whatever of Britain's position, nor should there be because we are already operating many things in the charter to a far higher level than are some other countries.

Mr. David Howell (Guildford) : Bearing in mind what my right hon. Friend says about Britain being well ahead in many of these matters, did she have a chance to raise with Chancellor Kohl in Madrid the issue of the inward looking and anti-competitive structure of German industrial ownership, particularly in financial services? Is not that a matter in which majority voting, which has served this country well on many matters, could be used to crack open this cartelised criss-cross of holdings which works directly against the emergence of a single free market in Europe, which we want?

The Prime Minister : I agree with my right hon. Friend. The German insurance and investment industries, for example, are very much more protected than ours ; ours are much more open. Considerable restrictions are placed on investment of German insurance and pension funds. Again, we tend to be much more open.

I did not mention the matter to Herr Kohl on this occasion, but it is well known, and it is one of the reasons for our difficulties in getting some of the financial services directives approved. I know that my right hon. Friend will be very pleased that the second banking directive has now

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been approved, and we have made financial services one of the top priorities for going ahead with the next six months of directives.

Mr. Brian Sedgemore (Hackney, South and Shoreditch) : Why is the Prime Minister so reluctant to allow the British people to benefit from Europe's renaissance and play a part in the next European revolution? Does she not understand that the 20th-century notion of a nation state is becoming as irrelevant, tired and tiresome as she is?

The Prime Minister : It took us a long time to get rid of the effects of the French revolution 200 years ago, and we do not want another.

Sir Peter Tapsell (East Lindsey) : Was not the clear indication of the recent remarks of the governor of the Bundesbank about the exchange rate mechansim--quoted by my right hon. Friend--that he feared that, contrary to widespread popular belief, it might turn out to be an instrument for inflation rather than deflation? Does not that bear out the unwisdom of treating technical and practical matters as though they had some theological significance?

The Prime Minister : My hon. Friend is absolutely right. The exchange rate mechanism is, of course, anchored to the deutschmark. For historic reasons, the German people's greatest fear is and always has been inflation, just as for years ours was unemployment. Inflation has led them to have an independent Bundesbank and to keep inflation right down, and others are therefore geared to that as well. If we were to proceed to Delors stages 2 and 3, that would be determined not by a nation whose policies are so anchored in nil inflation but by a number of nations that might find it easier to have higher inflation. I think, therefore, that the Bundesbank governor is right to be a bit fearful of the consequences.

Mr. Win Griffiths (Bridgend) : Can the Prime Minister confirm that anyone who read the full text of the declaration of economic and monetary union and the conclusions of the presidency will find that, along with the 11 other Heads of Government, she agreed that the Delors report was a good basis for further work on economic and monetary union, that it fulfilled the obligations laid down at Hanover, that it agreed that stage 1 should be launched on 1 July 1990 and that there would subsequently be an intergovernmental agreement to carry on with the second and third stages? Can the Prime Minister rebut the press reports of her comments that she would vote against such a conference and that the move to the second and third stages was not automatic?

The Prime Minister : As I said in my statement, the Delors report is one basis for further work, but not the only basis. That was recognised, and that is why it was put into the communique in such a way. We fully agree that stage 1 should start on 1 July 1990. As the hon. Gentleman knows, we are already well ahead and already operating a good deal of the Delors report.

The preamble of the Single European Act refers to the original "objective of the progressive realization of Economic and Monetary Union,"

which goes right back to the conference in Paris on 19 to 21 October 1972. We are not talking just about economic

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and monetary union ; we are talking about its progressive realisation, which allows a much more measured time so that we get each stage right before we go on the next.

Later in the Single European Act--passed by this House--there is a heading :

"Co-operation in Economic and Monetary policy (Economic and Monetary Union)".

That seems to indicate that economic and monetary union consists of co- operation in economic and monetary policy, which suggest that there will be ways of achieving it other than the one in the Delors report.

Mr. Nicholas Budgen (Wolverhampton, South-West) : Will my right hon. Friend confirm that when, in 1979, foreign exchange controls were abolished in this country it was in anticipation that the pound would freely float for the foreseeable future? Will she further anticipate that the French and other countries in the EEC may be somewhat reluctant to abolish their foreign exchange controls in a fixed rate mechanism and that therefore, sadly, our pound may not go into the exchange rate mechanism as early as some of our friends in the EEC had hoped?

The Prime Minister : I accept that the abolition of foreign exchange controls will be a very important event for those big currencies in the exchange rate mechanism which still rely on foreign exchange controls to keep within the relevant bands to which they have agreed. I also agree with my hon. Friend that if one goes to an absolutely fixed rate, which is proposed by the Delors report, without any latitude, I think that many of my other colleagues in the European Community would not like that and would feel that it put in a rigid rate which could create distortions elsewhere.

As often happens in the Community, we get such reports and generally people say, "We will consider them further." When they come to look at the detail, they too realise that they could not carry them out in some of the particular details that are mentioned in that report. I think that the fixed exchange rate is one that would come under considerable criticism and people could not do it ; they prefer much wider bands, similar to those available at present.

Mr. Ron Leighton (Newham, North-East) : Does the Prime Minister ever read the small print of what she agrees to? She agreed to the Single European Act. We did not. She agreed at Hanover to the setting up of the Delors committee to work out the details of economic and monetary union. Why does she always bluff and bluster before conferences, and then give way when it comes to the crunch? If there is to be a central bank, to whom will it be responsible and accountable? What is the point of electing Members of Parliament to this place if economic policy is to be decided somewhere else? Is not the truth that, although the right hon. Lady is kicking and screaming, she is nevertheless being dragged along?

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