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reserves with which one tries to do that are far too small in relation to the amounts of money that are flowing around the world, are ultimately doomed to failure.

London will remain a favoured centre for finance and, notwithstanding our staying out of the exchange rate mechanism of the European monetary system, we shall prosper as a financial centre, and continue to prosper because of the inherent abilities and strengths of the London market.

I recommend that my right hon. and hon. Friends should continue with a policy which will ultimately preserve Britain's economic and financial sovereignty and political sovereignty. It is a mistake to believe that the argument ends here. As the right hon. Member for Chesterfield pointed out, this is the beginning of another chapter in the long saga of political control and integration in the EEC. I could not support a policy whereby we exported the political control of our social policies to Brussels and our financial policies to Bonn or Frankfurt. Therefore, in supporting the policy of my right hon. Friends in general, I counsel them to be even more cautious--

Mr. Deputy Speaker : Order. I am sorry, but I must interrupt the hon. Gentleman because he has overrun his time.

7.52 pm

Mr. A. J. Beith (Berwick-upon-Tweed) : With support like that, the Government hardly need opponents.

Two strange and conflicting claims have been made during the debate. One is that a consensus is emerging during the debate which demonstrates widespread support for membership and full participation in the EC. The other is that a consensus is emerging on the range of conditions which must precede any further steps in that direction. They cannot both be true and I fear that the latter rather than the former is true of those present, but that neither accurately reflects opinion in Britain.

What seems to be emerging is an ever-larger scaffolding of conditions upon which a wide variety of people can stand--the Prime Minister's conditions, which are clearly interpreted by the hon. Member for Tatton (Mr. Hamilton) on the one hand, just as the Leader of the Opposition's conditions are interpreted by the hon. Member for Great Grimsby (Mr. Mitchell), on the other hand, as making it quite clear that we shall not enter the EMS. That is the interpretation that they each place on the conditions advanced by their respective party leaders, each of which claims to be in favour of our entering the ERM. What a confusion is there here. Every time the debate continues, the scaffolding of conditions is further extended. In particular, every time the Prime Minister opens her mouth, still further conditions and variants on conditions pour forth. On the Government Benches there is also confusion on the interesting subsidiary debate which was dramatically raised by the former Chancellor, the right hon. Member for Blaby (Mr. Lawson), in his intervention on Tuesday, about the independence of the central bank. A number of Conservative Members share my interest in that idea and my belief that the lack of independence of Britain's central bank is a weakness in our tackling of inflation.

One of the merits of a European central banking system which enjoys some political independence is that it could provide an anti-inflationary mechanism which was not so

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subject to the short-term whims of politicians as elections approached. There is considerable merit in that. Nor is it a constitutional abnormality or enormity to have mechanisms which are in part for a time removed from immediate political influence. The judiciary has precisely that position. Many other aspects of the constitutions of other member countries provide some measure of temporary detachment from the political process, and for good reason.

The Government have added further to the confusion in their own ranks and elsewhere by producing the extraordinary paper that appeared in the Vote Office today, the title of which I do not disagree with at all, "An Evolutionary Approach to Economic and Monetary Union." That sounds like a fine and generous principle, but the proposal that is put forward is a recipe for the deutschmark to be the predominant and successful competing currency and for the Bundesbank to be Europe's central bank. That does not seem to make a great deal of sense if the objective is that we should be full participants in European monetary union.

I favour a European central banking system somewhat on the lines of that proposed by Delors in the belief that we will be full participants in it. Indeed, it should be based in London. That must be the most natural place for a European central bank since that is where banking expertise has been built up over the years. But it will not be if, by open competition, we allow the deutschmark to become the European currency and the Bundesbank to be, in effect, Europe's central bank.

The confusion is no less on the Labour Benches. One has but to read the comments of various Opposition Members who have spoken today, or even Members of the shadow Cabinet such as the hon. Member for Dagenham (Mr. Gould), who has made no secret of his dislike for the EMS and his much greater dislike for European monetary union of any kind.

I understand that an interesting debate on the subject is going on in the Labour party, but that it has had to be adjourned uncompleted because so many people wished to speak. It will be a long time before we find out what we did not find out today, which is whether the Labour party has any policy on European monetary union other than hostility to it. We had a repeat of the definition of Labour's current policy on the exchange rate mechanism-- not much supported by Opposition Back Benchers--but we had no clear statement of Labour's position on European monetary union.

That was the case when my party argued in this Chamber two and a half years ago that we should be working towards European monetary union. That is attended with as much hostility on the Labour Benches now as it was then, whatever may be said by the Front-Bench spokesman.

The key advantages that we must keep in our minds are surely the stable framework which can be provided for our exchange rate by membership of the ERM, the anti-inflation capacity of that mechanism, the removal of transaction costs which could be achieved by British business if we were participants in that mechanism, the role that London could have in a developing European central banking system and the need for Britain to be in the lead in a process which will take place whether we take part in it or not--let there be no doubt about that.

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It does not follow from what I have said that I have to agree with every word written in the Delors report. It would be difficult to do so, because the Delors report went beyond the objective of monetary union into other areas. As Sam Brittan rather vividly put it, they were looking in a dark room for a black cat that was not there, as they searched for other dimensions of economic policy on which union could be achieved. That is why the Delors report went wrong in areas of fiscal harmonisation which are not technically necessary to monetary union, are not of practical advantage in securing it and which are likely greatly to increase the unpopularity of any other moves that we are trying to make in Europe.

Control at European level of national budgets has no reasonable basis in the argument for monetary union. As the Chancellor effectively argued before the Treasury and Civil Service Select Committee, it is not necessary to have control of national budgets in order to operate monetary union any more than it is necessary to have federal control in the United States of the budgets of the states of the Union. Nor is it necessary to have the control of local government budgets that the British Government insist upon. I was surprised that the Chancellor used that argument, but he was right to do so because such control over the budgets of member countries is not necessary for monetary union. It is necessary only to ensure that large deficits cannot be financed by monetary means, which will not be possible once monetary union has been achieved. In the transitional stage of the EMS some limit must be placed on budgets but under European monetary union it will not be possible to finance large deficits by monetary means.

Lurking behind all this is the Prime Minister's prejudice, which is shared by other Conservative Members. Even the right hon. Member for Shropshire, North (Mr. Biffen), who has so profoundly disagreed with the Prime Minister so many times, shares her hostility to any loss of sovereignty or any loss of power to make decisions, many of which are already being made elsewhere. The sovereignty that some Conservative Members are trying to safeguard and defend--it is admitted more openly by Labour Members, because they know what they are after and are prepared to admit it--is the ability to devalue the currency and to print more money. The Prime Minister has rightly criticised previous Governments for doing that, so why is she so desperate to safeguard it?

As with other subjects, I find it difficult to understand how the Prime Minister can turn her dislike of losing power into something that is more important than the objectives about which she is supposed to believe deeply. Hon. Members who have expressed doubts and tried to introduce fresh conditions want to protect the right of the British Government to devalue our currency and print more money. We could usefully accept curtailment of those freedoms in order to achieve stable currency, defeat inflation and provide a framework in which Britain can prosper.

8.1 pm

Mr. Anthony Nelson (Chichester) : I am very much in agreement with the sentiments expressed by the hon. Member for Berwick-upon-Tweed (Mr. Beith). I congratulate the Government on arranging this debate and on producing a document that we can consider.

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The debate is thought-provoking if overdue. It is fortunate that it is on the Adjournment of the House, which is probably better than a substantive motion. It is, however, unfortunate that it did not take place before Madrid, as the Treasury and Civil Service Select Committee pointed out, but at least it is happening before further discussions take place about European monetary union post-Delors part 1.

My credentials are that I am, and have been throughout my 15 years in the House, a committed European. Many people say they are committed Europeans, and the sentiments behind the statement are understood. Both parties have been laggards in Government and have not realised the full potential of our membership over the years. As the past week has progressed, and as this debate has progressed, I have judged the tenor and content of speeches by whether hon. Members are committed to achieving the aspirations that were set out when we joined the Common Market. These were to create for our people more prosperity, more opportunity, more trade, more stability and more security for the future. On the other hand, would they prefer Britain to be a fringe member? We can all read the coded messages in these speeches, which fall into one camp or the other.

I know where I stand, and I know where I stood when I became a Member of Parliament. When the European monetary system was established, I argued that we should become a full member. In 1978, with my hon. Friend the Member for Aldershot (Mr. Critchley), I tabled an early-day motion which said :

"That this House believes that the creation of a European Monetary System could do much to increase the prosperity and political stability of Europe ; and, recalling the failure of Great Britain to join the EEC in good time, and the problems that have resulted, urges Her Majesty's Government to make every effort to work out with our EEC partners an acceptable system of monetary co-operation" That was 11 years ago, and I was encouraged to receive signatures of support from the chairman of the Conservative party, my right hon. Friend the Member for Mole Valley (Mr. Baker), the Government Chief Whip, my right hon. Friend the Member for Mid-Sussex (Mr. Renton), the Secretary of State for Energy, my right hon. Friend the Member for Colchester, South and Maldon (Mr. Wakeham), the Secretary of State for Scotland, my right hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Rifkind), my hon. Friend the Member for Croydon, South (Sir W. Clark), who is chairman of the Conservative party finance committee, many past and present Ministers and many Conservative Back Benchers. I hope that this will bolster the determination of four or more senior Cabinet Ministers to seek full membership of the EMS sooner rather than later. What was right then is even more right now. We have lost out by not being full members of the EMS in the past, and we should at the earliest opportunity become full members.

Much of the debate has revolved around conditionality. I have been concerned at how the goal posts seem to have been moved by my right hon. Friend the Prime Minister and others, in an apparent attempt to put off the day when Britain becomes a full member of the EMS. I may be wrong, but I believe that the hope is that, following the removal of remaining exchange controls in France and Italy, such will be the pressure on the EMS that it will break apart. They will then be able to throw up their hands

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and say, "It was an untenable system and we should not have joined it." The system would be much more resilient if we were members of it now. How much more likely it would be to continue and to remain durable after the removal of exchange controls if Britain was playing its part now. Why are we not leaders within the system? Why are we not playing our co-operative part within the exchange mechanism to bring about that stability?

The EMS is not just a political argument within this place and Europe. It has economic and financial consequences for our constituents and for the businesses in the areas that we represent. We are paying significantly more in interest rates than we need to because we are not a member of the EMS and a full member of the ERM. In my judgment, that is currently costing us at least 2.5 per cent. more in interest rates. If we were members, such would be the confidence of the international financial community in the currency of Britain that we would not alone have to support our exchange rate by massively high rates of interest.

I sometimes feel that those who criticise and oppose the system do not understand its mechanics. They do not fully appreciate that the parameters within which currencies are allowed to move against each other have behind them a co-operative effort of central banks in Europe. There is not just one central bank trying to support its own currency in the foreign exchange markets--as the Bank of England has been doing over the past week at massive cost to our foreign reserves--but the Bundesbank, the French banks and other European banks combine to stabilise currencies within the ERM. If there is a deviation, the knowledge of that intervention is such as to inspire confidence and not make the fluctuations so great. It is a self- fulfilling mechanism, and the history and experience of other members of the ERM in the past 10 years is that it has proved to work. Their interest and inflation rates are significantly lower than ours.

The Prime Minister and others may say, "We have a massive trade deficit, which is why we must have high interest rates. Our interest rate policy may be affected by immediate membership."

However, we have incurred that massive trade deficit when we have not been members of the EMS. Like my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), who made a courageous and forthright speech, I believe that we have much more to gain than to lose from subscribing to the best prudential practices of the central banks in Europe. As the hon. Member for Berwick-upon-Tweed said, why are we so suspicious of joining a system which will make the management of our monetary aggregates and the exchange rate of our currency less susceptible to political opportunism? As an election comes closer, the temptation for Government manipulation becomes more likely. For all those reasons, we have much more to gain than to lose by becoming a member, not tomorrow, not today, but if possible yesterday.

We should toss aside this conditionality and take a bold step forward. If we act immediately and have courage and conviction in our actions, we can carry people with us. If we show that we are determined to make it work, we can make it work. If we dither and wait until every condition is met, we will never join.

Is Government policy really evolution towards European monetary union, or is it a never-never approach? I have the highest regard for and faith in the

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integrity of my right hon. and hon. Friends in the Treasury. I ask them to get on with the job and to take the message, which is evident from the tenor of the debate, that it is in the interests of the people of this country to join the exchange rate mechanism sooner rather than later. We want to see political courage exercised. If the Government do that, they will be vindicated by the result at the next general election and they will have made the most decisive contribution yet to full participation in the European Community, bringing about long overdue financial rewards in terms of the standard of living for all those whom we represent.

8.10 pm

Mr. Nigel Spearing (Newham, South) : The hon. Member for Chichester (Mr. Nelson) urged us to join the exchange rate mechanism now. He also remarked, appositely, that this is a debate on an Adjournment motion. I refer to that matter as Chairman of the Select Committee on European Legislation, which recommended a debate on the Delors report as long ago as 10 May 1989 because we knew that the decisions made at Madrid would be important. As we were charged by the House to recommend debates of such importance, we thought that we would get one, but the resolution of 30 October 1980, which binds the procedures of the Committee, and the Government, referred to "any proposal" for European legislation. The Government did not believe that the Delors report fell into that category. They said, "No, it was a recommendation for future legislation, which we can debate later." I believe that that is something of a get-out and a tautology, and so did the Committee.

In paragraph 16 of our full report on the Madrid summit--HC 15-xxxiii-- which was published during the recess and which I commend to the House, we unanimously said :

"The Committee considers that the House could reasonably have expected to have had an opportunity to express its view on the principles involved before a decision of such importance was taken by the European Council. It considers that the Government's failure to meet this expectation was contrary to the spirit of the 30 October 1980 Resolution. As a result, the House will, in practice, simply be left with exercising the subsidiary role of influencing the details of the relevant implementing proposals for Stage 1 of economic and monetary union. In the light of the exchange of correspondence between the Chairman of the Committee and the Leader of the House on the timing of debates in circumstances such as arise in this case, the Committee looks to the Government to ensure both that there is no repetition of this failure in similar circumstances in the future and that, in any event, the House is given an opportunity to consider any proposals for further steps in relation to economic and monetary union well before any decisions are taken as regards their nature and timing."

As the hon. Member for Chichester said, today's debate is not on a substantive motion. It is good sometimes to have an all-round debate on a matter such as this, but I hope as a parliamentarian that at some stage there is a substantive motion and that the opinion of the House is somehow defined, even if on a Division. If that does not happen, all our talk about scrutiny and the input of the House of Commons will be as naught. The debate should have been held before Madrid. The Treasury and Civil Service Select Committee said so, too. The Government said no. We look forward to future debates of this type.

I turn to some more personal views. It seems to me--this has been echoed in the debate--that the function of the ERM can be twofold. It may be a bridge towards

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advance to EMU. If it gets that far, can European parliamentary union be far behind? They are twin concepts which cannot be separated. It may be being used as a moat to prevent the ERM from advancing beyond that stage. I suspect that many of the conditions that the Government have laid down are to that end. I have no objection to these safeguards which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) outlined and to which my hon. Friend the Member for Great Grimsby (Mr. Mitchell) referred. I disagree with what the Chancellor said. I do not think that there is a universal commitment in the House to the objective of economic and monetary union. However, as the Select Committee was told when meeting the Minister of State, the hon. Member for Warwickshire, North (Mr. Maude), in legal terms we were probably committed from 1972 and the White Paper.

I was sorry that the right hon. Member for Plymouth, Devonport (Dr. Owen) did not give way to me, especially as his remarks were made before 7 o'clock and he had the time to do so. He said that movement towards a united states of Europe was not possible and referred by analogy to the United States of America. The House had better come to terms with one major and important matter : the European Community is a unique constitutional creation. The evidence shows it to be federal in the taking of its powers but unitary in exercising them. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) has pointed out, the states of the United States have their own important and unique financial powers, whereas I do not think that the European Community--because of its constitution and the institutions that form its core--would allow member states to exercise such powers. Economic union, as distinct from monetary union, means unity of legislation, monetary policy and taxes. That is why Delors referred to it. It means that there is a unitary system of economic policy. The United States does not have that, nor does any federal system where the states have their own money-raising powers and are not significantly controlled centrally. Unless people, including senior spokesmen such as the right hon. Member for Devonport, come to grips with that, we will be misleading ourselves. Some people say, "I do not believe that the treaty of Rome leads in that direction," and of course they are right. It leads in the direction of a unitary state with unitary institutions.

The path to those unitary institutions is full of peril for the House. It is perilous in terms of what my hon. Friends wish to do for our nation. Clearly it is splitting the Conservative party. The idea has also diminished debate in this place. If the proposals from Madrid were clearer and did not pose that threat, we would have debated them before Madrid and before today.

8.18 pm

Mr. Ray Whitney (Wycombe) : The hon. Member for Newham, South (Mr. Spearing) said that he was speaking in a personal capacity, but the negative, even hostile, attitude to the European Community, which he displayed with admirable consistency, is closer to the centre of gravity of most members of the Labour party than the views that we heard from the right hon. and learned Member for Monklands, East (Mr. Smith). If the hon. Gentleman will forgive me, I will not pursue that negative role but will turn to the broader issues.

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As the right hon. Member for Plymouth, Devonport (Dr. Owen) said in a noteworthy contribution, this is a very important debate. It will be as important as any we have this side of the next general election. The debate is not only about the technicalities of exchange rate policy or even the broader issue of economic management. During the past seven days, debate has arisen about the attitudes of the Government and the Conservative party towards the European Community. The events of the past seven days and, in particular, the speech of my right hon. Friend the Member for Blaby (Mr. Lawson) in the debate on Tuesday have put the issue of Europe firmly on the public and parliamentary agendas, and it is right that that should be so. Our attitude towards Europe is of overwhelming importance to the future of the country and of the people whom we represent.

It is strange that the Conservative party should be debating its attitude towards Europe. We have known for years that the Labour party is at sixes and sevens in its attitude, but, apart from a small, well-versed and effective minority of my colleagues, who seem to be having their dinner at the moment, the majority of the Conservative party has been convinced that we must belong to the European Community 100 per cent. so that it develops into a liberal, market-oriented society of nation states. For many years there was never any doubt about that, but doubts have been sown during the past 12 months, starting with the Prime Minister's Bruges speech. It is a sad irony that the five principles enunciated by the Prime Minister in that speech were completely unexceptionable and absolutely right. They included active co-operation between independent sovereign states, the need for a practical Community which encourages enterprise but does not adopt protectionist policies and the need to maintain defence through the mechanism of NATO. Sadly, the Bruges speech sparked off again arguments against our membership among people--some in my party--who have never been convinced that it was right and saw an opportunity to reopen the debate. That is deeply regrettable, but it is the problem that we now face.

Some of us warned persistently of the dangers after Bruges. In the debate in December and the run-up to the European elections in June, we warned that the Conservative attitude to Europe has been laid open to question, although I have no doubts that the Cabinet and the Prime Minister are committed to Europe. My party ran an unsuccessful campaign for the elections to the European assembly which reached its nadir with the notorious advertisement paid for by our generous supporters :

"Stay at home on June 15th, and you'll live on a diet of Brussels."

That completely misread the views of the British people who, I believe, understand that for the foreseeable future--for the rest of this century, possibly the next 10, 20 or 50 years--there will be three centres of power in the world : north America, Japan and the Pacific developing countries, and western Europe. It is in our gift to adopt such a negative attitude and to be left behind in western Europe. I understand that some people regard that prospect with equanimity, but I do not, and nor do the British people.

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The debate about our Europe has continued for decades. Most of our constituents would be bored stiff with the ins and outs of the ERM and the other technicalities that we are trying to grasp tonight, but they understand in their guts that Britain's future is in Europe. It is our duty to deliver that, but it is beginning to look as though we may fail. My party must recognise that that is what is at stake. Some hon. Members have talked scathlingly about the business community. The business community on which we depend, virtually to a man and a woman, is clear about our commitment to Europe and the ERM. It has become confused during the past year. The Department of Trade and Industry ran an effective campaign about 1992 and the single market. At the same time, perhaps inadvertently, the Government created negative vibes about their attitude to Europe.

My right hon. Friend the Member for Shropshire, North (Mr. Biffen) asked what would happen in Germany. He seemed to imply that, because of changes in central Europe and the possibility of change in the two Germanies, we should lift up our skirts and move away from western Europe or join some extraordinary own-goal concept of a union from the Atlantic to the Urals. That is nonsense. All our European colleagues want Britain firmly in Europe to help them avoid the position to which my right hon. Friend alluded in his typically fey way. We must avoid such a position by playing our part in Europe. The weakness in the way in which we conduct our affairs, which is as much a matter of style as of substance, is demonstrated by the social charter which, rightly, has been attacked several times during the debate. The sad fact is that many members of the European Community have misgivings about the social charter, including the Germans, the Irish, the Spanish and the Portuguese. If we allow ourselves to be marginalised we cannot take advantage of that or use our influence where it is so badly needed. That is the tragedy of the Government's style.

As for the substance, as my hon. Friend the Member for Chichester (Mr. Nelson) said so effectively, we must take a positive step towards the exchange rate mechanism. Tuesday's debate made that case incontrovertibly, as anyone with a balanced view would agree. As my right hon. Friend the Member for Blaby said, we must join sooner rather than later. We should not set down conditions and invent new ones, but should join as soon as is practicable. We all understand that there are differences in exchange rates, but it is in our national, political and economic interest, and for the sake of the exchange rate and inflation to cease shilly-shallying. We must enter stage 1 of the ERM and make our voice heard. The debate must continue about whether we should enter stages 2 and 3. The paper provided by my right hon. Friend the Chancellor of the Exchequer has contributed to the debate. I am uneasy about the competitive currency system that he has offered, as it would not stand close examination.

In conclusion, I draw the attention of the House to my right hon. Friend the Prime Minister's call for unity in the European Community in August 1984 in a memorandum on the future of Europe to her colleagues in Europe. She began by declaring the need to

"heighten the consciousness among our citizens of what unites us."

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That is what the Government must do. They must emphasise in Europe what unites us and not concentrate on what divides us.

8.29 pm

Mr. Tony Worthington (Clydebank and Milngavie) : I have listened carefully to the debate and I have found it one of the most enjoyable experiences in the short time I have been here. The debate has been wide- ranging, and some of the finest minds in the House have addressed themselves to it.

I have sometimes asked myself what I can contribute to this debate. I have tried to take the argument back from the wider political, historical and economic issues raised by other speakers to what the subject means to my constituents. I link this with what the former Chancellor, the right hon. Member for Blaby (Mr. Lawson), said this week when he admitted that we are once again on the downswing and that a "dull 1989" will be followed by a "difficult 1990". "Difficult" means that we are heading for a home-inspired recession. It also means the collapse of investment, very high interest rates for a long time to come and, in my area at least, mounting unemployment.

A crucial aspect of the debate is to consider whether we should have found ourselves in this position if we were in the exchange rate mechanism. I was interested to hear the hon. Member for Chichester (Mr. Nelson) making a point that corresponds with my view that we would not have the high interest rates that are currently plaguing us if we had been in the ERM. People are not investing in us at present ; They are speculating in us. In all the talk about sovereignty, I ask myself what sovereignty we have with the interest rates we currently face.

Our economic affairs seem to be conducted in the frenetic atmosphere of the City, dominated by City interests. The former Chancellor has a high reputation as a poker player and it seems to be those skills that are dominating the conduct of our economy. I hope that membership of the ERM-- and I take a pragmatic approach--would allow us to concentrate on the real economy to a far greater extent. It is interesting that over the past few weeks, the term "real economy", which previously only the Opposition used-- and were scoffed at for using--has started cropping up among Conservative Members as they realise that there is a difference between what occurs in the City and what happens in the country as a whole.

I want to concentrate on three areas in which I hope to illustrate how membership of ERM would have helped us. It may seem quite a jump from ERM to housing, but my first point concerns the basic need for housing. I remember meeting, to my surprise, Sir Nicholas Goodison, the former chairman of the stock exchange. He said that it is only when we stop investing so much in housing and invest more in industry that we shall start to get ourselves out of our present problems. Over the past 10 years and especially in the frenzy of the past three or four years, increasingly more of the country's assets have been invested in housing. The former Chancellor has said that the British public has lost the habit of saving, but that is not true. The money has increasingly gone into people's houses.

I am grateful to the Library for working out how much people would be paying on a £100,000 mortgage, which is not exceptional in this part of the world, over 25 years at

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14.5 per cent. For a mortgage of £100,000, they would pay £351,000. That is an incredible sum to go into a house that has been bought several times over, and the assets are usually realised only in the case of death. Is it sensible for so much of our money to go into houses? The Government's policy of high interest rates would have been moderated in the ERM and fewer of our resources would have had to go into sustaining our houses. If fewer resources had been used in that way, we might have had more money going into industry. The second area, the workings of the financial markets, is my benchmark for testing ERM. The financial markets have a peculiarly frantic atmosphere which seems to be at the root of our problems of under-investment. Years ago, when I was innocent, I used to believe the claims of the stock exchange film about what the stock exchange did, such as investing in British industry. I expect that most hon. Members have seen the film, in which the stock exchange claimed that its word was its bond and that people went to their stockbrokers to put their money into British industry. How naive can one be ! All that happens in the stock exchange is concerned with the generation of profit rather than investment. One enters a world of fantasy. The firm of Amstrad, for example, is now one quarter of its value of a year ago. It must be a strange market that can value companies so accurately.

Do our competitors work in such a frantic atmosphere? Are the West German and Japanese markets as fevered as ours? Much of our money goes into the housing market and the stock morket, but it is not invested in British industry. I am especially concerned about the operation of institutions such as the pension funds, which control vast sums of our--not their-- money. The money does not seem to go into supporting British industry ; it goes into causing growth in dividends, rather than a growth in wealth.

Will the ERM take some of the frantic, frenetic atmosphere out of our present obsession with the markets? It is strange that, whenever we have a crisis, the BBC and ITV park their television cameras in the City and ask what is happening there. It is assumed that what happens there has a connection with the people who work in my constituency. We must find mechanisms--the ERM may be one--that allow us to think in terms of investing in the long term, rather than finding, as happens at present, that every decent industrialist despises the City and sees the City not as a friend, but as the means by which the decent industrialist who is investing long term will be the leverage for takeovers. We must aim for long-term interests to overpower short-term interests.

The third area is regional policy. Under this Government we have had a collapse of regional policy. In so far as there has been such a policy, it has led to a choking up of the south-east and to consistent damage in the area I represent. If we were in the ERM, the Scottish economy would not have to close down when it has reached ice-coldness because of overheating in the south of England. Having considered housing, the business of investment and regional policy, I believe pragmatically that we should be better off within the exchange rate mechanism rather than outside it.

8.39 pm

Mr. Patrick Thompson (Norwich, North) : I am grateful for this opportunity to speak, because I believe that this has been one of the most interesting debates that I have

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had the opportunity to attend since I first entered Parliament in 1983. I agree with the hon. Member for Clydebank and Milngavie (Mr. Worthington) that the discusson is very worth while and I congratulate him on the thoughtful way in which he approached the topic.

Time and again, hon. Members have transcended the usual party political divide and different views have been expressed even by hon. Members within the same political groupings. I agree with the right hon. Member for Chesterfield (Mr. Benn) and with my hon. Friend the Member for Wycombe (Mr. Whitney) that this is a very important and interesting debate. Although I rarely agree with the right hon. Member for Chesterfield, I agree with him that this debate is about vision and about the future of this country rather than simply about the technicalities of the exchange rate mechanism which, frankly, I do not think that I will ever really understand.

Like the right hon. Member for Chesterfield, I took part in the referendum campaign on Europe, but on the opposite side. In a way, we are re-running that debate because we are debating our attitudes and vision towards Europe. It is interesting to look back to the debate on the European monetary system which took place on 29 November 1978. My hon. Friend the Member for Chichester (Mr. Nelson) and the hon. Member for Newham, South (Mr. Spearing) both referred to that debate, in which they both spoke. Their views have been completely consistent throughout, and they repeated today the attitudes that they took then.

The right hon. and learned Member for Monklands, East (Mr. Smith), who spoke from the Opposition Front Bench, showed the divided and even schizophrenic approach to the subject that the Labour Front Bench showed in 1978. It was not clear whether the right hon. and learned Gentleman wanted to move towards the ERM faster than the Government, more slowly than the Government, with more enthusiasm than the Government or with less. The confusion on the Opposition Front Bench seems to be total.

It has been good to listen to this debate for another reason. So often we debate the European Community and European matters very late at night. It is only 8.42 pm and it is much better to be speaking now than at 1 am or 2 am. Anyone watching those late night debates would have the impression that a group of sincere Members were totally opposed to the European Community and were somehow fighting a continuing rearguard action against an unending series of complex legislation which appears fleetingly before the House only to disappear into statute, never to be seen or understood again. Even if time permits me to say no more, I must state that we need more debates of this kind on the future of Europe in prime parliamentary time. Let us do this more often. After all, this is an important subject and the contributions this evening have only emphasised the truth of that.

Events are moving very fast in Europe. Business leaders and others in my constituency have told me that the direction that we take in Europe over the next few years is the most important political issue that we face. I agree with them. During my study of the voluminous papers before us for this debate, I came across some graphs showing inflation rates and other statistics for the various members

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of the European Community. No more than a cursory, inexpert glance at the graphs is needed to show how closely bound is our financial well-being with our partners in the European Community. That is all too plain from a simple glance at the diagrams and graphs. As my right hon. Friend the Chancellor of the Exchequer said today, we are debating means, not ends. It is right that many of my right hon. and hon. Friends have welcomed the Treasury paper on the evolutionary approach to economic and monetary union. I do not have time to debate the details of that, but I welcome its initiative and the opportunity to debate it further. In debating the means, we must not lose sight of the spirit which lay behind the signing of the Treaty of Rome in 1957.

There has been a strong feeling in this debate against the Delors report-- or at least against stages 2 and 3. It seems obvious to me, even though I am not an expert, that stages 2 and 3 of the Delors report are probably wrong. If that is so, as I suspect, it is vital that we seek in a positive and pro-European way to persuade our Community partners of the superiority of our view. That point has been made by hon. Members on both sides of the House today. We should not let events run out of control.

I take a particular interest in the engineering industry. Throughout Europe --not just in this country--there are continuing problems despite the economic successes and improvements by this Government, of low productivity and, perhaps even more importantly, of poor innovation. There is also the appalling threat of industrial action in that industry.

Those problems can and must be solved on a European scale. That means co- operation. Even those opposed to the whole idea of the Community must at least be in favour of European co-operation. The European Community countries spend as much on research as Japan, but because those efforts are duplicated and there is not adequte co-operation, we still fall behind Japan with regard to the results of that research and innovation.

The wider European political background far outweighs some of the finer technical points that we have been learning about tonight. Peace and reconciliation were the prime motivations of the creators of the Community. I have not forgotten reading a biography of Konrad Adenauer in my teens and being impressed by the historical background to the European Community. That has had a great effect on my attitudes in politics.

We must be sure that our true motive in putting forward alternative approaches to the Community or the European monetary union, in addition to the protection of our national sovereignty, is also a much needed enthusiasm for European civilisation and European culture and a desire for prosperity, stability, peace and a desire to influence the exciting events that will occur in western and eastern Europe in coming years.

8.48 pm

Mr. Ron Leighton (Newham, North-East) : I very much agree with the hon. Member for Norwich, North (Mr. Thompson) that this has been a fascinating debate. I have heard most of it, and it has been one of the best on European matters. There has been a great deal of agreement across the Floor of the House that the House does not want to buy the Delors package. That has been the view from both the Government and Opposition Front

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Benches, and it was echoed by the right hon. Members for Shropshire, North (Mr. Biffen) and for Plymouth, Devonport (Dr. Owen). That is a wide cross-section in the House.

The hon. Member for Norwich, North said that the debate was to an extent a re-run, of some of our debates on the Common Market. There are always echoes, but I believe that this debate has been different. It is moving the discussion on to new areas. It is not quite a re-run, because the Delors package was not part of the prospectus on which the British people voted in the referendum. The manifesto issued by the Government during the referendum stated clearly that there would be no loss of sovereignty. It said that no decision would be taken in Brussels without the agreement of a British Minister answerable to the House of Commons. The Delors package is completely different. All that went with the Single European Act, which introduced majority voting for the single market.

The Delors package contains three stages. Some hon. Members say that they are not too fussed about stage 1, and they can live with it. However, even the right hon. Member for Blaby (Mr. Lawson) made it clear that he was totally opposed to stages 2 and 3 on political grounds because it would mean establishing a central bank that was not answerable to anyone. I have read the evidence that he gave to the Select Committee and which it has done a good job to publish. Nowhere in the Delors report is there any mention of democracy or democratic accountability. The right hon. Member for Blaby was opposed to that because he said it would eventually mean a centralised, supranational super-state with a directly elected European Parliament and a pan-European Government, and virtually every hon. Member in the House is opposed to that.

I must inject a note of caution into the debate. We cannot rubbish the Delors report and say that it does not matter. It was not just Jacques Delors, the politician who put his name to it. He was the chairman, but the rest of the people on the Committee were primarily governors of the central banks, including the Governor of the Bank of England who put his signature to it. He said that the heads of state told the committee what they wanted and he assumed that the heads of state who agreed on economic and monetary union meant what they were saying. He said that the committee was instructed to recommend how it could be achieved. The Treasury document entitled "An Evolutionary Approach to Economic and Monetary Union" does not carry credibility. In typical British fashion it says that we shall have an evolutionary approach. This is a type of joke document. It complains about the Delors report and says that there are two approaches--that of the United Kingdom and that of Delors. The report will not be a runner: I think everybody agrees on that.

The Delors package is the real option. We must not kid ourselves about the Treasury document. The British whinge, complain, sometimes stamp their feet and wave their handbags, but then they give way and go in, talking about safeguards, but the ratchets get ratcheted up and we get led into something we do not want.

If we do not want Delors stages 2 and 3, I suggest that we do not have Delors stage 1. The Treasury and Civil Service Committee report makes that clear when it quotes Delors :

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"the decision to enter upon the first stage should be a decision to embark on the entire process".

The Governor of the Bank of England says that stage 1 is irrelevant and meaningless and that one would not accept stage 1 if one did not want stages 2 and 3. I say that, because I do not want stages 2 and 3, I do not want stage 1 either.

Some hon. Members talked about the advantages of the exchange rate mechanism. It seems that some people take the view that, because of the economic crisis and because the pound is in trouble, we ought to wave a wand. We should have a panacea and put the pound into a safe haven, a casualty ward where all the central bankers would look after it, feed it every day and make sure that it is OK. That does not make a lot of sense.

If countries have different rates of inflation and of economic productivity, the value of their currencies will differ. That is an economic fact of life. If a country such as Britain, with a higher rate of inflation, links its currency to that of a country with a lower rate of inflation, for example, Germany, after a time that will lead to a de facto devaluation of the mark and an upwards revaluation of the pound. That would make German goods cheaper than British goods and enable them to build up a surplus. That is what the Germans have been doing.

The European monetary system has not led to balanced trade, but the opposite. In the past, the strain has been taken by the exchange rate. What will happen if one cannot do that? The Treasury Select Committee asked that question, and the Treasury gave a clear answer :

"when exchange rate adjustment is no longer possible other ways of adjusting to disturbances that affect the relative position of different countries would have to be employed. The best mechanism would be a market adjustment such as wage flexibility and labour mobility."

What that means in plain English is that workers' wages are lowered in deficit countries. Mobility of labour means that they will have to get up and move--to get on their bikes.

My hon. Friend the Member for Clydebank and Milngavie (Mr. Worthington) is not here now. Workers in his constituency might have to move to the south of England or to the golden triangle. Regional policy could theoretically be the answer to the problem. The budgets of nation states are often around 40 per cent. of gross domestic product, but the EC budget is only around 1 per cent. and that is tiny. Most of the budget goes on agriculture and very little to the structural funds. The United Kingdom, in net terms, does not get a penny, but subsidises richer countries to the tune of nearly £1.9 billion this year. We subsidise them, rather than receiving any money for regional policies in Britain.

The regional fund would have to be on a heroic scale to have an effect. I cannot imagine people in Germany paying huge sums of money to Clydebank. In any case, they would be at the end of the queue. The Mediterranean countries would head the queue.

Some hon. Members have said that the social charter will compensate us. The Select Committee on Employment invited Mrs. Papandreou, the EEC Commissioner, to talk about the charter. It became clear that it is a political gesture to the trade union movement to keep it sweet and on board. The social charter will not happen. The Government need not get too worried or upset about it, and Labour Members should not get excited, thinking it is the solution to the problem. As the Commissioner explained to us, the charter is not legally binding.

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