House of Commons Hansard Debates for 11 Jun 1990

Mr. Wells : Does my right hon. Friend agree that the alternative, which is to leave the monetary union system entirely in the hands of the Bundesbank, as it is at present--unaccountable to anyone other than the German Parliament--would also be totally unacceptable?

Mr. Howell : It is a nice point that our monetary policy at present is not within the nation's control. We realised that when we fixed short- term interest rates. There are forces at work outside, one of which is the Bundesbank and the power of the deutschmark. Another force is international market pressure. Would monetary policy be more under our control if we were in a Eurofed of some sort? It is hard to say, but the proposition that we could stay as we are and allow the greater deutschmark zone to

Column 42

prevail is not attractive to me, and becomes less attractive if we consider the point that I was making earlier about the large size of the new greater Germany. It will be by far the greatest power within the European Community, and its currency will be even more powerful relative to that of other members than it is at present.

Change must come. I hope that my right hon. Friends will turn up at the intergovernmental conference scheduled for December with good ideas about how monetary union should be shaped. The whole House has accepted the point agreed with the Government that Delors stages two and three are not good enough. They are too like tram lines, they are unrealistic and do not reflect the needs and complexities of running monetary policy for a vast range of different economies throughout Europe. That is not on.

However, will the alternatives suggested by the Government so far--the paper on the evolution of economic and monetary policies, which contains the idea of competitive currencies--suffice? When the Committee tried out that idea on policy makers from Europe, we found polite interest but a general feeling that the idea was not good enough and that a more robust set of propositions were needed.

Mr. Dykes : Does my right hon. Friend agree that, as Mr. Delors and his colleagues on the committee were asked to produce plans, blueprints and ideas for all the stages until completion of monetary union, they can hardly be criticised for having made suggestions for stages 2 and 3? We do not have to regard those suggestions as a rigid mould. Indeed, Mr. Delors subsequently reaffirmed that all such issues can be negotiated anyway.

Mr. Howell : It is correct that the original Delors stages 1, 2 and 3 have now been replaced by more flexible and interesting ideas. This is an opportunity for my right hon. Friend the Chancellor and others to come forward with further propositions. It is valuable that we are now in a positive stance vis-a-vis monetary union. We must recall that it was not long ago that my right hon. Friends--some of them--were against monetary union on principle. They said that the whole idea, however it was defined, was bad. We have now moved to a different point, and are in favour of monetary union, but we want it achieved by sensible and practical means rather than by the instant creation of new institutions, which would not be able to do the job. If such new structures for monetary union are to come into being, in addition to setting out, from our own considerable experience, how best they might work, in relation to national monetary and budgetary policy-making which will have to continue to a considerable extent, we need to define the legal status of the new bodies. There needs to be a more constitutional approach to the construction of the new institutions proposed by the Euro-planners in Brussels, and a greater readiness to accept that such institutions can work effectively only if their legal status is established and rooted in the basic structure of the nation states that make up the European Community. That is all that I want to say now on the issue, but we shall hear more about it as my right hon. Friend the Foreign Secretary prepares for the intergovernmental conference in December. I repeat that it will be important for Britain to put forward some new ideas. We shall no doubt have an opportunity to debate them later this week.

Column 43

Our report touched on a third great issue. In the reply to our report, the Government itemised it as one of the six major issues with which the Community is now dealing. I refer to so-called political union. Here we are dealing with far vaguer terminology than when we were talking about monetary union. My right hon. Friend the Prime Minister was right to start the debate by asking what on earth people meant by political union. As soon as she asked that question it became clear that it meant different things to different people in the Community and that there were many opinions and no great agreement about how to bring about practical changes.

The Select Committee concluded that the near-obsession in some parts of the Community with the development, on a much deeper and quicker basis, towards full political union belonged to the Europe of phrases, not to the Europe of facts--to use the terminology of my right hon. Friend the Foreign Secretary. Our main concern, expressed in paragraph 51 of our report, is that if there are to be political developments, they should be detailed and practical--in that they should be addressed to the institutional weaknesses of the Community--and that they should not be governed by a sort of determination that says, "Don't bother us with details ; we're heading towards a united states of Europe and we're not too concerned about the items in between." The Committee regards it as important to resist such determinism.

We should reject talk of a political union that implies that we are building a new, gigantic, pyramidical structure, with vast central institutions that will be in the senior category, with national parliaments and national institutions in the junior category, and that we are recreating, on the model of the United States of America--which may have been marvellous in the 18th and 19th centuries--a united states of Europe that is equally centralised, with both the weaknesses and the strengths, but particularly the weaknesses, of the USA system. Wise people, concerned with the 21st century, will try to resist such a political union of Europe. I hope that the Select Committee's report was able to suggest some reasons why they should resist it.

If we are to change the political institutions of Europe, we should think here, too, in constitutional, not bureaucratic terms. The accountability route--running from the European institutions back to the individual--is clear. As my right hon. Friend the Home Secretary and the right hon. Member for Gorton said, that is through national Parliaments working in partnership with the European Parliament. In that way the Community will be made more democratic and flexible and yet will maintain its openness and its ability in due course to embrace new countries, including Austria and the countries of eastern Europe as they bring their economies into the right shape and their price structures into a form that allows them to join a free market structure and the free market philosophy of the treaty of Rome. Those are the three issues, out of many, to which I wanted to refer and that were raised in the Select Committee's report. Big moments of history are lying immediately ahead as we begin to cope with the new, gigantic, united Germany, right in the centre of Europe, and as we work out with it how it is to express its wish to

Column 44

support western values--as it constantly says it does--and to be part of the free market system by means of the European Community as well, I hope, to be part of the free world defence system, through the North Atlantic Treaty Alliance. That is what we want to see, and that is what we must work for.

My right hon. Friend has guided us through many shoals. He described with the greatest skill the many meetings that he has attended, and is about to attend. He will need all the support and good wishes of the House to see us through if we are to preserve our free institutions and make them adaptable to the totally new conditions of the larger Europe that lies ahead.

5.15 pm

Mr. Peter Shore (Bethnal Green and Stepney) : I agree in particular with the closing remarks of the right hon. Member for Guildford (Mr. Howell) and with what he said about the desirability of further enlargement of the Community and the importance of retaining, sustaining and reinforcing national parliamentry control. In a debate of this kind, the temptation to cover almost every aspect is almost irresistible, but it is a temptation that I intend to resist. I shall concentrate on what I believe is the most important issue at present--economic and monetary union. I claim special attention for it because of its central position in current European Community discussions and for four additional reasons. First, economic and monetary union marks a genuine new stage--a qualitative leap-- in the European Community's development. Whereas it was just possible to consider European Community developments up to EMU as consistent with a Europe of independent sovereign states co-operating together--a Europe des patries, to use that old phrase--EMU clearly takes the process into the new realm of a supranational European union. As the report of the Select Committee on Foreign Affairs on 14 March 1990 said :

"The thrust towards European union is active and potent and is a major factor in all the proposals for the future development of the Community."

The concluding paragraph of the report states :

"It is clear to us that the Community now developing is very different from the Community that the UK joined in the 1970s." That is the first reason why we should concentrate on the implications and the meaning of economic and monetary union. My second reason is that EMU is, more than any other issue, splitting the United Kingdom from the rest of the European Community. It poses the most formidable problems for United Kingdom diplomacy and national policy, as I intend to develop later.

The third reason why we should concentrate on EMU is that the implementation of full economic and monetary union will bring about a further imbalance of power within the existing European Community, where present West German economic leadership will be followed by the economic dominance of a united Germany.

Fourthly, economic and monetary union will create a major new barrier between the European Community of the Twelve and European Free Trade Association and eastern European countries that could otherwise be brought into a wider European Community, which I believe is the wish of many hon. Members in all parts of the House. Both the House and the country should be clear about what is at stake in economic and monetary union.

Column 45

First, the exchange rate for member states would be irrevocably fixed. National currencies would be replaced by a common European currency such as the ecu. It would no longer be possible to depreciate or devalue a currency, which is the only effective short-term remedy for restoring competitiveness with other stronger economies, for getting rid of an unacceptable trade balance and for maintaining employment.

Secondly, the Eurofed central bank would be set up to decide monetary polices, including interest rate and mortgage rate policies for the entire Community. The Bank of England would cease to be responsible to United Kingdom Ministers in the House ; it would simply become the London branch of the Eurofed.

Thirdly, central control would be imposed upon the budget totals of member states ; they would not be allowed to reflate or expand their economies by operating a budget deficit beyond the limits laid down by the Eurobankers and the Commission, nor would they be allowed to borrow through internal short-term financing or from other Community countries.

It would be difficult to overstate the importance of these proposals. The power over exchange rates, interest rates and the budget balance between expenditure, taxation and borrowing, all of which would be totally lost or severely circumscribed under the Delors plans for EMU, would deliver Britain bound hand and foot to the Euro decision makers. It would be handing over to the European Community the key decisions affecting the economic destiny of Britain and at the same time we should be stripping the Westminster Parliament of effective powers. Of equal if not greater importance, we should be accepting what would be an economic disaster for the British people. I shall develop that point in a moment.

Sir Russell Johnston : The right hon. Gentleman is quite accurate, but if Britain is being bound hand and foot, so equally are France, Italy, Spain and Germany. Are we not entering a common enterprise?

Mr. Shore : The hon. Gentleman is making a serious mistake. There is no question of Germany being delivered bound hand and foot, because Germany would be the principal beneficiary of what is proposed.

The heart of the matter is that there are major differences in the economic performance of member states. Like Japan, Germany has persistently out- performed other nations in productivity and efficiency, leading to a markedly higher growth rate and a markedly lower rate of inflation.

To remain competitive with Germany, all states have had to depreciate or devalue their currencies against the deutschmark, to a greater or lesser extent, not only in recent years but throughout the post-war period. As recently as 1985, the pound would buy DM3.9. Today, five years later, the pound will buy DM2.79. Through that depreciation, British exports to Germany are more than 25 per cent. cheaper than they were five years ago, while German exports to Britain are correspondingly dearer. If that exchange rate adjustment had not or could not have been made, British goods would be even more seriously priced out of the German market than they are today. Our trade deficit would be larger and unemployment in the United Kingdom would grow.

No one should have any doubt about the destructive effect of an uncompetitive exchange rate. In 1980 and

Column 46

1981, when North sea oil came on stream and the world considered the pound to be a petro-currency, the Government allowed--or could not prevent--the exchange rate to rise by some 40 per cent. That was the principal cause of the disaster that then overtook British industry--the elimination of more than 20 per cent. of our manufacturing capacity and the horrific rise of unemployment to well over 3 million.

Permanently fixed exchange rates in the EMU would deprive member states of that necessary adjustment mechanism. Germany will continue to be relatively more efficient. German productivity, irrespective of relative wage claims in Britain and Germany, will continue to outstrip that of the United Kingdom for many years ahead. That is the fruit of the vast industrial investment, managerial skills and training that German industry has accumulated over many decades. Other countries, if locked into the permanently fixed exchange rate mechanism, will be progressively weakened. Unemployment will grow as industries are forced to close, and we shall witness an ever-growing migration of unemployed people seeking work in Germany in the years ahead.

In our most recent debate on economic and monetary union on 2 November 1989, the Chancellor of the Exchequer told the House : "Our position on stage 1 is clear and constructive, and we are committed to it, but we part company with the Delors recipe on the next steps."

He went on specifically to reject the proposals for binding rules on national budgetary policy, quoting with approval the report of the Select Committee on the Treasury and Civil Service which stated : "The power of the House of Commons over the centuries has depended fundamentally on the control of money, both taxation and expenditure. This would be jeopardised by the form of monetary union proposed by the Delors report which would involve central undemocratic direction from within Europe of domestic budgetary policies."

The Chancellor went on to state this further objection : "The Delors report's proposals on monetary union are unacceptable, for monetary policy is at the very heart of macroeconomic policy and the proposals in the report make no provision for accountability for monetary policy to national Governments or national Parliaments. Yet the electorate would still hold Governments and national authorities responsible for their economic well- being and rightly so."--[ Official Report, 2 November 1989 ; Vol. 159, c. 490.]

On 1 May, in her statement to the House following the one-day Dublin summit, the Prime Minister said :

"There will be fierce debate about economic and monetary union. Those debates will be fierce because from what we have seen of Delors stages 2 and 3, which have been rather general, we do not like or accept the idea of going to a single currency or locked currencies or the idea of a central bank, which would take powers away from this House, as was described in the Delors report."--[ Official Report, 1 May 1990 ; Vol. 171, c. 914.]

When the right hon. Member for Guildford said, as he was perfectly entitled to, that he believed that the Government were committed in principle to economic and monetary union, I found that difficult to reconcile with the words that I have just read. I believe that the Government are, rightly, committed to stage 1 of the Delors report and that they are trying desperately to find some way of appearing to be in favour of closer economic and monetary co-operation. Incidentally, the word "co-operation" was used in the Queen's Speech only a few months ago. They cannot and will not go ahead with the

Column 47

proposals for economic and monetary union which are at the heart of the Delors report and at the heart of any proposals for genuine monetary union. We cannot have monetary union without a fixed exchange rate. The Prime Minister has rejected it, and we all have to confront that, however difficult the confrontation may be. Since last December's Strasbourg European Council meeting, there have been further meetings of Finance Ministers to discuss two Commission papers on economic and monetary union. Discussions there have centred on the degree of central control over member states' budget deficits and on the independence of the proposed Eurofed central bank. Those issues have yet to be decided, and on them the United Kingdom is not completely isolated. However, on the basic issues of permanently fixed exchange rates and the creation of the Eurofed central bank, the United Kingdom is entirely on its own. There must be no weakening of the United Kingdom's stand on those issues. The House would like to hear from the Minister of State when he replies to the debate a further unequivocal reassurance that the Prime Minister's words, uttered as recently as 1 May, on permanently fixed exchange rates and a European central bank remain at the centre of Government policy. I hope that there will be no ambiguity or evasion, but a clear statement later today on those basic issues. It would be of some help if an equal assurance were given by the Opposition Front-Bench team. I am aware of the reservations expressed by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), the shadow Chancellor, in the debate on 2 November. He said that he was not prepared to accept binding rules of budgetary or fiscal policy and that he was opposed to

"any system of central banks which would be independent of political control." [Official Report, 2 November 1989 ; Vol. 159, c. 502.]

But, no doubt because of pressure of time, he did not spell out his position on permanently fixed exchange rates or a Eurofed central bank under political control. I hope that those omissions can be put right before the end of the debate. I look forward to the reply from the Opposition Front Bench spokesman tonight.

Assuming that we are given clear assurances from both Front-Bench teams on these vital matters, which I have fairly raised and put to them both this afternoon, I ask them to consider the implication on their resolve to join the exchange rate mechanism. We should be joining not only a fixed and adjustable exchange rate system, like the old International Monetary Fund, but a system that differs from the IMF in at least two crucial respects.

First, exchange rate depreciation would no longer be a national and unilateral decision but one that would be taken only with the agreement and approval of the other member states. That is a profound difference. Secondly, and most importantly, the ERM is universally regarded throughout the European Community as only the first step towards economic and monetary union. Therefore, those who advocate membership of the ERM should be prepared to place their total and public reserve on further commitments towards economic and monetary union.

Of course, it is true that the intergovernmental conference which is due to begin in December to

Column 48

implement the treaty changes necessary for the implementation of economic and monetary union, will need British agreement. But, as the Select Committee report rightly observed :

"The possibility has to be faced that the other 11 might establish procedures outside the EEC Treaties, albeit with considerable difficulties and some regret, which would enable them to go ahead with Stages II and III."

They might establish procedures to enable them to go ahead without the participation of the United Kingdom. That prospect, however unwelcome, must be squarely faced. It is an issue on which we cannot afford to compromise.

I was encouraged and interested to read the speech on 5 June of the Secretary of State for Trade and Industry. He said, after a thoughtful survey in particular of the possibility that the European Community would be enlarged by the entry of east European countries :

"How far individual Member States wish to travel along the road of economic and monetary union would be for them to decide. Could there not be regional groupings within the overall Union, as we already have with Benelux or Schengen Group.

France and Germany could form a closer alliance still if they wished. There could be currency agreements, either of the ERM type or full currency union as envisaged in current plans for economic and monetary union. Those who wish could form joint central banks and manage their currencies. But there should be no compulsion on others to join such arrangements".

That was the major message that the Secretary of State conveyed. We should continue to seek to persuade our colleagues in the European Communities-- the Eleven--to abandon this ill advised and thoroughly dangerous project of economic and monetary union.

Mr. Dykes : Will the hon. Gentleman give way?

Mr. Shore : No, I am coming to the end of my speech.

What the Secretary of State for Trade and Industry said offers us a common sense and worthwhile alternative which I recommend not only to the Government but to the Opposition Front-Bench team.

5.34 pm

Mr. Ray Whitney (Wycombe) : With respect to the right hon. Member for Bethnal Green and Stepney (Mr. Shore), the picture that he painted of economic and monetary union and co-operation is both unnecessarily and unjustifiably pessimistic. First, it is unclear exactly what will be the result of the deliberations on European monetary union. The right hon. Gentleman set up what we might call Jacques Delors mark 1 and used it as his target. However, the windmill at which he was tilting may not be there as the deliberations proceed.

Secondly, the right hon. Gentleman does an injustice to other member states of the Community. As the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston), suggested, other member states have a similar interest to ours in seeking the right balance in what is undoubtedly the extremely daunting economic power of Germany. I have no reason to believe that the French, Italian or Spanish Governments are in any danger of falling into the traps that the right hon. Gentleman envisaged, any more than we are.

Thirdly, there was an underlying suggestion in the right hon. Gentleman's speech that the way out for a weak economy--not that ours is weak, but it could be if certain

Column 49

election results which the right hon. Gentleman desires were achieved--is constantly and forever devaluing its currency. The way out for an economy that is not competitive cannot be endless and constant devaluations, which seemed to be the underlying theme of the right hon. Gentleman's approach. Indeed, the experience of Germany shows that a strong economy makes a currency appreciate. That gives the lie to the right hon. Gentleman's proposition.

It is perfectly clear that this important debate takes place at a crucial time for Europe as a whole, as all hon. Members who have spoken so far have suggested. It could not be a more exciting and more challenging time. My contribution is to suggest to my right hon. Friends on the Front Bench that we must avoid some of the mistakes that we made in our dealings with Europe during the 18-month period which started with the speech of my right hon. Friend the Prime Minister at Bruges in September 1988.

As I have said on more than one occasion in this Chamber, the five principles enunciated in the Bruges speech were right,

unexceptionable and unchallengeable. However, damage was done, in that forces were rekindled within my party, throughout the country and overseas which created an entirely negative perception of what the Government have achieved and continually seek to achieve in their relations with the European Community. It is important that those mistakes in presentation and attitude are not repeated, because they fundamentally damaged British interests.

We all know the difficulty of negotiating in a group, be it a group of 12 nations or 12 people on a parish council. There must be give and take, and gains and losses occur. We saw that only last week in the negotiations about BSE. As my right hon. Friend the Foreign Secretary said, those negotiations were an extremely good example of the benefits of the existence of the European Community to Britain. We must be constantly aware of our presentation and emphasise our positive assets. We must not lose the political ground which the Conservative party undoubtedly lost, for example, in the European election campaign. The results were there for all to see. It has been galling for Tory Members who have consistently, although not universally, supported British membership of the European Community to find that some Labour Members now adopt the cloak and mantle of Europeanism. The right hon. Member for Bethnal Green and Stepney, who always speaks with complete sincerity and consistency, in contrast to the leadership of his party, represents the fundamental centre of gravity of the Labour party on European issues, rather than the right hon. Member for Manchester, Gorton (Mr. Kaufman).

In the past six months, I have been delighted to observe that the Government have begun to recover from what I would describe as mistaken tactics rather than a mistaken fundamental strategy, and to be seen to make a much more positive contribution, yet again, to the development of this extraordinary adventure--it is, indeed, a unique adventure--of the European Community.

We are faced with the problems of Germany. I say problems, much as I delight, as I am sure all right hon. and hon. Members do, in East Germany moving towards a democratic regime and combining with the Federal Republic into a united and whole Germany. My right hon. Friend the Member for Guildford (Mr. Howell) rightly

Column 50

examined the economic problems and pressures that that will create not only for the Federal Republic but for all in the European Community.

I am an optimist. Such is the challenge of the task and such the vitality and buoyancy of the Federal Republic's economy, whatever the figures, that it will cope in a way and at a speed which will surprise all of us, and perhaps even the Germans themselves. This massive state with huge economic power and great political potential challenges, creates problems for the other 11 member states, but we must and want to, live with it. I have no fears of a revival of Nazism or militarism or of challenges to the peace of Europe. Inevitably there is a challenge, but it provides us with a great opportunity.

I have had many opportunities to talk to French, Spanish and Italian colleagues regularly, and I have noted their recognition of the challenge and a change in attitude towards the United Kingdom. Without any concept of ganging up on the Germans, we should recognise that this kaleidoscope, having been shaken up, gives Britain an important role. France, in particular, looks to the British Government to play an extremely positive and constructive role in the new balance and I hope that we shall do so. I urge the Government not to be swept away by the personification of some issues. We grew keen on sticking pins into the effigy of Mr. Jacques Delors. I know from speaking to many Frenchmen that they would cheerfully stick even more pins into him. It is important to keep such matters in balance. We face great challenges of political union. Who knows what that will mean? My right hon. Friend the Prime Minister was right to challenge that concept. I hope that she and the Government are encouraged that her challenge of the concept was picked up by our Community partners. They too are questioning and questing. There will be movement. Political co- operation has been developing for many years and is better recognised by those outside the Community than by those of us within it. We should rejoice in that. Further developments will flow from political co- operation. I do not know what they will be. I certainly would not look to a federalist solution ; nor would any Frenchman, Spaniard or Italian. We are bound together increasingly, not only by economic forces but, more importantly, by communications and by social and cultural pressures. That is as most of us want it to be.

Mr. Dykes : Does my hon. Friend agree that the Italians are the exception? While I accept that no one has proposed federalism or a single Government entity in Brussels, the Italians, in their referendum last June which was connected to the European elections, voted overwhelm-ingly for European political union, leading to a united states of Europe.

Mr. Whitney : I am grateful to my hon. Friend for that correction. Perhaps what was presented to the Italians in the referendum was questionable, and when they get down to the small print during negotiations at the intergovernmental conference, something else will emerge. Whatever happens, it will happen stage by stage and it must be accepted by all Parliaments and all peoples. The same goes for European monetary union, which I dealt with earlier.

The evolution of the European Community is part of the great sweep of history. It has been given a surprising and a much stronger impetus than any of us could have expected by what is happening in eastern Europe. Well

Column 51

disposed as we are to the development of democracy and the establishment of constitutional government in eastern Europe, that cannot be used as a pretext for delaying what we in western Europe have set in hand. We must move on, because that is the nature of things.

The world is now divided basically into three huge groups ; Japan and the Pacific rim, which is the first and most challenging, the Americas and western Europe. That will be the shape of the world for the next decade and the first half of the next century. It has nothing to do with eastern Europe or the Soviet Union. If we are to be part of that world, we must play an active, positive part in the European Community.

The vast majority of the British people recognise that instinctively. They do not make calculations about European monetary union and the exchange rate mechanism. Instinctively, they know that our destiny lies in making a positive contribution to Europe. It is up to this House to ensure that mechanisms are created so that we can put the will of our people into practice and exercise political and democratic control as the European Community expands.

5.48 pm

Sir Russell Johnston (Inverness, Nairn and Lochaber) : I shall come to federalism in a wee minute. I wish that people would stop talking about the German problem. It depends on what sort of German--socialist, Christian Democrat or Liberal--we are talking about. They have different answers and attitudes to the questions of Europe. In the end, it is a political rather than a nationalist answer that will carry the day, and thank goodness for that.

I agree entirely with the right hon. Member for Guildford (Mr. Howell) about the potential for increasing democratic involvement, if a relationship develops between the proposed Eurofed and the European Parliament. That would create a beneficial, almost novel situation for the United Kingdom. The idea that the House of Commons has control over the monetary system and policy and control over the budget is illusory. The Chancellor's claim in March that the European Community strictures on national budgetary policy would be an unacceptable loss of our sovereignty is poppycock. Governments have a certain control but we are not used to Parliaments exercising such control.

I am a federalist--I say that unabashedly--and the Liberal Democrats are federalists. That is a phrase and a fact.

Mr. Spearing rose --

Sir Russell Johnston : I shall give way in a wee minute after I have said something about federalism and before the hon. Gentleman attacks what I say.

On Thursday and Friday the ELDR, the federal representative body of all Liberal parties in the European Community, met for its 13th congress in Shannon in the Republic of Ireland. It passed a long resolution on the consequences for the European Community of democratic development in central and eastern Europe. The sentiments expressed in that resolution are shared by the party of Hans Dietrich Genscher, by the party of Ellemann- Jensen of Denmark, the Italians and so on. Among other things, the resolution calls for

Column 52

"a Political Union, that will enable the Community and its Institutions to respond efficiently to the demands of the new situation, and assuring unity and coherence in the Community's international actions"

It speaks of reinforcing the executive capacity of the European institutions and calls for

"the powers of the European Parliament to be increased the deepening and acceleration of European and Monetary union a truly proportional system of representative democracy".

Please note. It also speaks of a bill of rights and says : "the development of a social market economy is part of political freedom a unified Germany in a united Federal Europe offers the surest way towards the goal of democracy and security".

Those bits and pieces fit together, but that is not the approach of the Government as seen in the bland, blue document, "Developments in the European Community", which is so full of self-congratulation. I shall not say too much about economic and monetary union, but it is important to refer to the Foreign Secretary's foreword to the White Paper, to which he referred again today, when he said : "The government's opposition to Stages 2 and 3 of the Delors report was endorsed by all shades of opinion in the House of Commons." That is not the case, although it may be founded on the fact that during the debate on economic and monetary union in the House my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) said : "It does not follow from what I have said that I have to agree with every word written in the Delors report."

He said that absolute fiscal harmonisation would not be a necessary condition of EMU any more than it is in the United States. He also said that he favoured a European central banking system on the lines proposed by Delors. He concluded :

"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"--

that is what the right hon. Member for Bethnal Green and Stepney (Mr. Shore) wants--

"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.""--[ Official Report, 2 November 1989 ; Vol. 159, c. 542.]

To say that everyone agrees with the Government is not true. The Government have approached these matters in a negative way and they have no enthusiasm for a central bank, even if it was cited in London. They are also outright opposed to a common currency. I am not an economist, but I do not understand why the United Kingdom alone of all the Twelve--not all of them are economically stronger than us--wants to oppose the central bank and a fixed exchange rate. I cannot accept that there is some intrinsic weakness in our country that makes it necessary for us to be different. I accept that the right hon. Member for Bethnal Green and Stepney has held his views for a long time, but I believe that they stem much more from his views on national sovereignty than from his views on economic theory.

Mr. Spearing : Does the hon. Gentleman recall the Rooker-Wise amendments? Even if the House does not have the powers over Government finance that he or others want, does not he remember the introduction of those amendments? Can he tell the House whether he favours any Government of this country, or any party aspiring to government, voluntarily handing over powers that the Government still retain through unanimity of the

Column 53

Council of Ministers by transferring to qualified majority voting? Is the hon. Gentleman's party in favour of expanding qualified majority voting, and if so, in what areas of national policy?

Sir Russell Johnston : I shall not try to tackle those questions in detail now. One swallow, rook or otherwise does not make a summer. Qualified majority voting will have to be extended slowly--there is no doubt about that.

On 24 May I attended a conference organised by the Federal Trust. The Financial Secretary to the Treasury also attended and gave a speech that I did not hear. However I read his speech and it was rather extraordinary. He gave his reasons for not wishing to proceed apace with a common currency. He said that we should keep our own currency because it was a symbol of our authority. He also said that it was necessary to retain our currency

"to have the ability to issue money in order to act as lender of last resort to the banking system which requires government regulation to maintain its stability".

British regulation must be better than any other regulation. He went on to say :

"For these reasons states have found the benefits of having their own currency exceed any possible disadvantages their citizens may face through not being able to do business in the same currency when they trade or travel abroad."

The Financial Secretary advanced an extraordinary set of arguments. I should have thought that the common citizen who must change his money endlessly from pounds to deutschmarks, Belgian francs and guilders would take a different view.

We have delayed on ERM. Sir Leon Brittan was also present at the conference and I read the good speech that he made. I could quote much of it, as it is good stuff. Of France he said :

"Since joining the EMS French inflation has fallen to an average of 2.9 per cent. over the last five years compared with 10.5 per cent. in the five years up to 1980 This was not done by magic but by a combination of the correct domestic policies combined with the credibility of adherence to the narrow bands of the EMS Ireland is a further interesting example because until the start of the EMS in 1979 ... Irish inflation was always exactly the same as that in the United Kingdom. It is now 3 per cent. Irish growth this year will be 4.6 per cent."

One should remember that Sir Leon speaks with the authority of a Commissioner in charge of such matters and his good reputation on economic and financial matters in the House. He said of Ireland : "These results were achieved through acceptance of the disciplines of the EMS When should the United Kingdom join the EMS exchange rate mechanism? Many of us would answer that question by saying : Some time ago!' "

Sir Leon's view is different from that adopted by the Government. Their negative attitude covers this matter and imbues their approach to anything supranational. I wish that the Government could articulate their views more frankly as it would then be easier to get a grip of them. Sadly, their views are often cocooned in humbug. Let me give an example of that. Page 31 of our report states : "The United Kingdom has been in the lead in encouraging better cooperation on cross-frontier issues among member states," One may think what one likes about the Schengen agreement, but one cannot say that if those countries are introducing such an agreement that allows free passage, we, who are not allowing free passage, are "in the lead in encouraging better cooperation on cross-frontier issues".

Next Section

Home Page