House of Commons Hansard Debates for 24 Jan 1991

Mr. MacGregor : There are many opportunities to raise issues of that sort. Indeed, one such issue was raised this afternoon. I do not think that there is a case for a specific statement next week.

Mr. Tony Banks (Newham, North-West) : May we have next week a debate on the conduct of the press? I hope that the Leader of the House has had an opportunity to read the Official Report of last night's Adjournment debate, in which my hon. Friend the Member for Birmingham, Ladywood (Ms. Short) raised the question of the obscene campaign against her by the News of the World and, in the past, by The Sun . Those of us who, whilst dedicating ourselves to the welfare of British troops in the Gulf, have called for peace initiatives have been branded by one of the gutter newspapers as "treacherous swine". May we have an early debate so that it may be made quite clear to newspaper editors, especially at this time, that in a democracy those who take a contrary stand do not deserve to have their private lives crawled over by nasty journalists or to be branded as traitors when they stand as squarely as anybody else in support of our troops in the Gulf?

Mr. MacGregor : As the hon. Gentleman has said, there was a debate last night on certain aspects of this matter. As for his second point, although I totally disagree with his general views on the Gulf, I happily reaffirm that it is essential to our parliamentary democracy that hon. Members are able to express their views freely.

Mr. Max Madden (Bradford, West) : May we have next week a statement about procurement policy in relation to British forces serving in the Gulf? I put this question on behalf of a constituent of mine who has two sons serving there with the British Army. He was greatly distressed when he received from one of his sons a letter saying : "The boots we have been issued with are useless. They are too short, and the sand gets in the top of them, giving us foot problems. Could you buy me a pair and send them over?"

At the weekend that father spent £60 on boots to send to his two sons.

I have been in contact with the Ministry of Defence and have spoken to a senior Minister twice this week. The Minister confirmed that there is a problem. Proper desert boots are now being sent to the Gulf. This House and those who are related to people serving in the Gulf have a right to ask why is it that desert boots were not available

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from day one. Why is it necessary for our boys in the Gulf to buy proper boots privately? Are all those who need proper desert boots now in possession of them?

Mr. MacGregor : Obviously I cannot comment on the individual issue to which the hon. Gentleman has referred, as I do not know the details or the background. Members of Parliament have other means of pursuing these matters, as, indeed, the hon. Gentleman did. This is just the sort of subject on which it would not be appropriate to make a statement every day. Indeed, it is the kind of case that I had in mind when I said that it would not be right to debate daily particular aspects of the Gulf. If the hon. Gentleman feels so strongly, I hope he will reconsider the decision he took when he voted earlier this week.

Mr. Gavin Strang (Edinburgh, East) : Why are the Government so severely curtailing opportunities to debate the Gulf war? Is it not disgraceful that since the war broke out we have had only a single day's debate on it? Is the Leader of the House seriously proposing to the House this afternoon that not one day of Government business next week will be allocated to a debate on the Gulf war?

Mr. MacGregor : I utterly reject the view that we have been depriving the House of the opportunity to discuss these matters. We have had two debates within a short period, we have had a number of statements and private notice questions, and we have had Question Time. I have made it clear that we are happy to keep the House fully informed and will make statements as appropriate, and that may well be the case next week. But I do not think that it is the mood of the House at the moment that we should have a debate on the issue every week. We must judge as and when the need arises, but I stress again that, as I think most hon. Members recognise, we are making every effort to keep the House fully informed and to debate the issues.

Mr. Greville Janner (Leicester, West) : I welcome the prospect of food aid to Romania and Bulgaria, but surely we should have a full-scale debate on the effect that the Gulf war has had on countries such as those? I refer in particular to the wretched winter which is being suffered now by Bulgaria's people, who are without adequate fuel, heating and other essentials of life. It is about time that the United Kingdom provided help to those countries, particularly as Bulgaria's miseries have been brought about entirely because of its robust support of the embargo that we asked it to join us in imposing.

Mr. MacGregor : Clearly we cannot have debates every week on a number of major issues that concern all of us. That just is not possible. But I recognise the hon. and learned Gentleman's anxiety about the matter and, as I said earlier, a new proposal on food aid for Bulgaria and Romania is expected shortly.

Mr. Ken Livingstone (Brent, East) : May we have a debate next week, or at the very least a statement, so that the Home Secretary can explain to the House on what grounds he has authorised the deportation of my constituent, Mr. Abbas Cheblak, a respected campaigner for human rights in Iraq and throughout the middle east, a known pacifist, who has lived here for 16 years and who has two children of British nationality? The Home Secretary has refused to speak to me by telephone and has refused a meeting with me on the subject.

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Mr. MacGregor : I shall draw the hon. Gentleman's point to my right hon. Friend's attention.

Mr. Andrew Welsh (Angus, East) : Is the Leader of the House aware that farm incomes in the livestock sector have now reached the lowest level since the second world war which, allied to rising costs, will lead to a brutal restructuring of the industry through bankruptcy? Will the Minister of Agriculture, Fisheries and Food at least make a statement to the House ; or at best, given the troubles which affect every sector of agriculture, may we have a full-scale and urgent debate on the future of British agriculture?

Mr. MacGregor : We had agriculture questions this afternoon, and I am sure that my right hon. Friend made the point then that he is about to embark on discussions on possible Community proposals in relation to agriculture. I understand that no specific proposals have been put forward yet, only some tentative ideas about what they might be, and the Council of Ministers will be meeting again shortly--I think the week after next--to discuss those matters. We need to keep in mind when would be an appropriate time for a statement or a debate.

Mr. Jeremy Corbyn (Islington, North) : Will the Leader of the House speak urgently to the Home Secretary on the matters raised by my hon. Friends the Members for Walsall, North (Mr. Winnick) and for Brent, East (Mr. Livingstone)? The situation is extremely serious. A large number of people of Palestinian or Iraqi background have been taken into custody, held for up to 19 hours a day in cells, denied proper recreational or visiting facilities and now, we hear yesterday, have been denied the right of legal appeal other than through an internal tribunal.

Will the right hon. Gentleman ask the Home Secretary to make a statement to the House on the number of people who have been taken into custody and why, and also why he is refusing to meet hon. Members who wish to represent their constituents in this serious matter at a serious time? Civil liberties are at stake.

Mr. MacGregor : I have already made it clear that there are clear procedures for dealing with such matters, and the majority of people would feel that it was right for the Home Secretary to be taking the action that he is taking. I have already said that I will draw the points raised to my right hon. Friend's attention.

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Economic and Monetary Union

[Relevant documents : Minutes of Evidence taken before the Treasury and Civil Service Committee on 25th July 1990 on Enonomic and Monetary Union (House of Commons Paper No. 620 of Session 1989-90).

European Community Document SEC (90) 1659 on economic and monetary union and the unnumbered explanatory memoranda, submitted by Her Majesty's Treasury on 23rd April and 5th November 1990, describing Commission reports on the economic rationale and design of economic and monetary union and the potential benefits and costs of economic and monetary union.

Government's proposed treaty provisions for economic and monetary union-- beyond stage 1, published on 8th January 1991].

Motion made, and Question proposed, That this House do now adjourn [Mr. Nicholas Baker.]

Mr. Speaker : Before I call the Chancellor of the Exchequer, may I say that a large number of right hon. and hon. Members wish to take part in this important debate? I propose to put a limit of 10 minutes on speeches between 7 o'clock and 9 o'clock, but I ask right hon. and hon. Members who are called before then to bear that limit in mind. 4.14 pm

The Chancellor of the Exchequer (Mr. Norman Lamont) : Questions of monetary union, parallel currrencies, the hard ecu, economic convergence and the European monetary fund may sound deeply impenetrable and technical but they are none the less matters of profound economic, political and constitutional importance to the House.

This Parliament has a deep and legitimate interest in the issues raised by economic and monetary union. That is one reason why the Government have made it plain to our European partners that we cannot accept any changes to the treaty of Rome which would bind us to move to a single currency or a single monetary policy without a separate decision by the United Kingdom Government and Parliament. That will be a question that only future Parliaments can decide. That was the position expressed by my right hon. Friend the Member for Finchley (Mrs. Thatcher) the former Prime Minister, and it remains the policy of the Government today.

I should like, if I may, to set out to the House first, what our proposals are ; and secondly, the arrangements for the organisation of the intergovernmental conference for European monetary union, EMU. Thirdly, I should like to go over again some of our reservations about the plans put forward by Mr. Delors.

Mr. Peter Shore (Bethnal Green and Stepney) : We have before us a clutch of documents, as detailed on the Order Paper. Indeed, a large number of issues are covered. Can the right hon. Gentleman explain why, given the obvious relevance, we do not have before us the Commission's draft treaty on economic and montary union, dated 15 December 1990? It is by far the most authoritative and up-to-date version of what the Commission proposes and what most or our European partners are likely to accept. In addition, why do we not have the draft statute for the European system of central banks and of the European central bank, sent to the intergovernmental conference by the committee of central bank governors on 27 November?

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Those are the most definitive documents, yet they are excluded from the clutch of documents to which the attention of the House has been drawn. Can the Chancellor explain?

Mr. Lamont : Those documents are important to the debate, and I shall certainly be talking about them.

To go back to the point which I was making, the impetus for European monetary union dates back to the 1960s. The Werner report of 1970 set out a three-stage process for greater economic and monetary integration. That was never implemented because, to be frank, the economies of member states were not remotely ready for it. However, the Delors committee's report two years ago revived the issue and brought it to the forefront of the European debate. The report defined EMU as a once-and-for-all locking of exchange rates, leading to the adoption of a single currency, with a single monetary policy and a single European bank ; and it set out a three-stage process to get there, laying down strict conditions which would first need to be met.

Much of what was defined as stage 1 by the report was very welcome to the Government. Indeed, in some areas we have led the way. They include the completion of the single market and a single financial area, free movement of capital throughout the Community and a strengthened competition policy. All these steps continue the process of economic integration by which both the Community and the United Kingdom economy have benefited greatly over the past two decades. Monetary integration at this stage is merely the logical development of the single market.

But we part company with the Delors report over its centralising, prescriptive approach to developments beyond stage 1, especially the proposal that 12 member states, in their current state of economic development, should commit themselves today to move to a single European currency. The Government believe that it would be wrong to make such a commitment. Profound issues of sovereignty are involved, and apart from that the Community is a very long way from being ready for a single currency, as I shall explain to the House in due course. It would be foolish to bind ourselves now to a rigid, inflexible structure for monetary union when there are huge uncertainties about what lies ahead.

We believe that the right way forward is to build on our experience of economic and monetary integration to date, and to take the practical steps that we can all agree on towards closer integration. In our view, monetary union should not be equated with a single currency ; it is a process. As we go further down this road, our experience will increase and we shall be better able to take decisions about the future. But we should not try to prejudge questions to which we cannot possible know the answers today. The British Government have therefore concentrated on the immediate steps beyond stage 1. They were the first Government to put forward proposals for stage 2, and these remain the only substantive proposals for stage 2. The proposals involve the creation not of a single but of a common currency ; that is to say, a currency that would exist alongside or parallel with national currencies rather than replace them. This common currency, the so- called hard ecu, would be a genuine, new, international currency. The ecu would no longer be, as it is now, a basket of other currencies--that is to say, a weighted average--but would exist in its own right and be a currency within the ERM.

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It is called the "hard" ecu because it would never be allowed to devalue against other Community currencies and would therefore be an attractive store of value for use by businesses and individuals across the Community. Banks would be able to take deposits and issue loans in this currency.

Mr. Anthony Nelson (Chichester) : I am obliged to my right hon. Friend for giving way and I am listening with care to what he says. He has just said that the intention was that the common currency would not be allowed to devalue against individual state currencies. If it is intended at some stage in the future that each of our national currencies will be relatively fixed to a new common currency, surely the two will become interchangeable, and the difference between "common currency" and "single currency" will be essentially semantic.

Mr. Lamont : With great respect to my hon. Friend the Member for Chichester (Mr. Nelson), that does not follow. What would follow is that the hard ecu would be the hardest currency within the mechanism, and if one currency was revaluing upwards all the time it would become more like that currency, because it is, as I said, not a weighted average as is the existing basket. So I do not think that it carries one forward inevitably in the way described by my hon. Friend.

In the first instance, the hard ecu would be used largely for business purposes and for financial transactions, although it might also have attractions for individuals as a store of value. As a result, the hard ecu could, over time, evolve towards a single currency. But that, as we have always made clear, is a decision not for now but for the future, and one that would be debated fully in the House.

At the same time we would create a new institution, the European monetary fund. It would be responsible for issuing the new currency in exchange for national currencies ; and it would be responsible for operating in the money markets, setting hard ecu interest rates. Both the hard ecu and the European monetary fund would come into being at the start of stage 2.

Our proposals have stimulated debate about the alternative of a common as opposed to a single currency. Opposition Members have tried to ridicule our proposals, but they have attracted an increasing amount of interest in Europe. For instance, Mr. Beregovoy, the French Finance Minister, said recently :

"It would be better to increase progressively the credibility of the ecu rather than to bring it in by decree on the first day of stage 3. I approve entirely of the idea of an ecu whose definition will be strengthened and whose use on the markets will be developed."

These wise words echo our own approach, but Mr. Beregovoy has not been alone. Other countries have expressed interest and Spain has incorporated something very similar in its own plans for stage 2. The chief executive of the Federation of German Industry, the equivalent of the Confederation of British Industry, Herr von Wartenberg, described them as

"An interesting alternative to the rather more centralist approach in the Delors report",

and said that they

"should therefore be examined free of bias."

This growing interest is not surprising, because our proposals have a number of district advantages. First, they provide a way in which all 12 countries can move together

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as a Community. Secondly, they provide for the creation of a genuinely European currency and a European monetary institution at the beginning of this process.

Thirdly, they reinforce the pressures in the ERM for all member states to converge on the lowest inflation rate in the Community. If a Government depreciate their own currency, they might find that businesses were turning increasingly to the hard ecu. As the hard ecu would not be permitted to devalue within the ERM and the monetary fund would set interest rates to achieve that, it would therefore provide a secure anchor for the other ERM currencies.

Our proposals would work with the market, allowing individuals and firms to use the common currency, in the form of the hard ecu, whenever they wanted to do so, but it would not be forced upon them. Nonetheless, our experience with the existing ecu suggests that a common European currency could have considerable attractions. The Institute of Directors has said that it believes that the introduction of the hard ecu as a common currency

"would be of immediate benefit to business and individual travellers".

We do not plan to grant the hard ecu legal tender status in the first instance. Nonetheless, as we have made clear, if, over time, people saw advantages in that, the Government could consider it.

Mr. Quentin Davies (Stamford and Spalding) : Would my right hon. Friend say why he does not envisage that the hard ecu will be given legal tender status?

Mr. Lamont : I do not think that that is necessary. As I am sure my hon. Friend knows, legal tender is a highly complex subject. I am sure that it will not surprise my hon. Friend, as he is well informed in this matter, but all the notes in circulation in this country do not come within the definition of legal tender. The currency could evolve and could be used increasingly without that legal change. As I said, there could--as opposed to would--come a point when it might be considered.

I have outlined our proposals and why we believe that they represent the best way forward. Now the business of negotiation with our partners in the Community is under way, and I should like to explain to the House how the intergovernmental conference will be organised, and set out the approach that we intend to take in discussions and our objectives during the months ahead.

The conference has been called to amend the treaty in order to facilitate the later stages of EMU. The agenda is decided by the IGC itself. Ministerial meetings--at which I or the Financial Secretary will represent the United Kingdom--will take place once a month, with officials meeting once a fortnight. I attended the opening session of the IGC last month, and the next ministerial meeting will take place in four days' time.

The conference will be chaired by the presidency--the Luxemburgers in the first half of 1991 and the Dutch in the second half. We shall keep the House in touch with progress as the conference continues. No date has been set for the conclusion of the conference, but at the European Council in Dublin last April it was agreed that member states should ratify treaty amendments by the end of 1992. The opening session last month was encouraging. Every member state expressed its wish for the IGC to reach an agreement acceptable to all 12 members. We agreed that

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the main objective should be price stability. On other issues, such as the need to avoid excessive budget deficits, we also found a lot of common ground.

Of course, there are several issues on which the positions of member states differ substantially. That is hardly surprising when one considers the huge complexity of this subject and the uncertainty that there must be about the consequences of EMU. But the gap between us is not unbridgeable. As Finance Ministers get down to the detailed, practical negotiations that are required to make progress, I am confident that problems can be resolved constructively. Far too much of the debate in the Community so far has focused on the abstraction of a single currency, but I am glad to say that discussion is now turning towards the immediate practical issues of what we do next. It is clear that the United Kingdom has been instrumental in influencing that change of direction.

Earlier this month I made available to the House texts for treaty amendments which showed how our proposals could be framed in treaty language, and how the European monetary fund would operate. These have been tabled for discussion at the intergovernmental conference. If we compare our texts with the Commission's, it can be seen that there are clearly some differences and some similarities between the aims and operations of the fund and the proposed European central bank.

We differ on the imposition of a single monetary policy and a single currency, which this Government cannot accept and have not provided for in our proprosals. The European monetary fund is not put forward as a central bank, for the very simple reason that we do not favour a single currency. The function and purpose of a central bank is to issue a single currency. We agree with the Commission on the need for the new monetary institution in the Community to have a two-tier structure of governing and executive boards. Therefore, we have incorporated those provisions in our treaty texts which are along the lines of those proposed for the European central bank. The texts are designed specifically to meet two of the main worries that have been expressed about a common currency.

The first worry has been that a common or parallel currency might prove inflationary. As the argument goes, it might add to the money supply of the Community. As I have explained on several occasions, our proposals are designed to avoid that drawback and indeed to operate specifically as a counter-inflationary discipline. The European monetary fund's operations would not add to the Community's money supply because any hard ecus issued would have to be exchanged for national currencies. Anything that the fund added to the total money supply in the Community would be matched by what it took out. In addition, the EMF would have powers to discourage national Governments from pursuing loose monetary policies. If a Government printed too much money and businesses and individuals came to believe that national currencies were losing their value, they would be able to exchange them for the new currency. The monetary fund would begin to build up an excessive stock of national currency and beyond a certain limit would require the national Government to repurchase it out of its reserves. That would directly counteract the excessive growth in money supply and would be a heavy penalty on the country in question.

The second worry has been that the creation of a 13th currency would somehow confuse responsibility for

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monetary policy. Our proposals provide a clear division of responsibilities. The job of the EMF would be to manage the new currency, preventing it from ever devaluing against other Community currencies. National monetary policy would remain in the hands of national Governments with decisions taken at national level. Now that we are in negotiation, we shall be arguing for our proposals but also seeking the views of other member states on specific questions where we have not yet taken a firm decision--for instance, how the monetary fund might best be made accountable to Finance Ministers, national Parliaments, and perhaps also to the European Parliament. This is a subject on which there is a wide range of views held among the other member states and many of the views held by other states will not be easily reconcilable with each other. The same may be true in regard to hon. Members on both sides of the House. The monetary fund would be a new institution, and it is by no means obvious how we could best ensure its accountability, so we shall listen with care to the ideas and views expressed by our partners, as well as those advanced during today's debate.

Mr. Tony Favell (Stockport) : My right hon. Friend has mentioned the wide divergence of view among hon. Members of all parties and, indeed, throughout the country. Can he tell us whether the Cabinet now has an ultimate goal? We hear a good deal of Euro-speak about commonality, convergence, gradualism and unity. Where is all that unity going to lead us? What is the Government's ultimate goal?

Mr. Lamont : I sympathise with my hon. Friend's feelings about Euro- speak and jargon, although I fear that a certain amount of such language is unavoidable. I have at least tried to explain what each word means when I have used it for the first time, but it is almost impossible to make a speech Matthew Parris-proof.

Our objective is to leave the realisation of monetary union, if it happens, to an evolutionary approach to be determined by markets, individuals and businesses. We are not prepared to sign up to move to a single currency with a single central bank ; our objective is to negotiate that outcome successfully.

Mr. Shore : I promise not to interrupt the right hon. Gentleman a third time.

The right hon. Gentleman said that he thought it possible to reconcile our proposals, which he has described, with the approach of the majority of the Community partners who are now meeting, or about to meet, in the IGC. He also told the House very clearly that we could not accept any commitment to a single currency at this stage. Article 2 of the draft treaty of the Commission--the first substantive article in the treaty, which I wish were among the papers before us--states :

"The Community shall have as its task progressively to achieve economic and monetary union, which will be based on a single currency, the ecu".

Is that article to be deleted from the draft treaty, or are we discussing complete unrealities--measures that we consider sensible, but on which the Community has already made its decision, with the aim of going much further?

Mr. Lamont : The right hon. Gentleman is referring to the Commission's proposals. I am talking about an intergovernmental conference at which both we and the Commission will present proposals, and at which we shall

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negotiate. We are trying to get our objectives embodied in treaty amendments. In due course, there will be other texts from the French, and, I believe, from the Spanish and the Belgians as well. There will be a good deal of cross-party and intergovernmental discussion about the different ways in which different amendments may be reconciled : that is what the conference is all about.

Now that we are in negotiation, we shall be arguing for our proposals, but also--as I have said--seeking the views of other member states about specific questions on which we have not yet taken a firm view, such as the accountability of the European monetary fund. Let me make it plain, however, that a willingness to discuss and adapt our proposals does not mean that we have modified or abandoned our concern about a single currency : we are not about to withdraw the objections that we have expressed all along to the original Delors proposals.

Our overall objective for the IGC is twofold--to reach an agreement with our partners, but one that meets our own concerns by fully respecting the sovereign rights of this Parliament. That means keeping open the options not just for this Parliament, but for future Parliaments. We shall be looking for a treaty that does not impose a single currency on the United Kingdom ; for developments beyond stage 1, which incorporate our ideas for a common European currency and for a European monetary fund ; and for continued national responsibility for the main elements of budgetary policy.

The Delors report recommends setting binding rules on the size of budget deficits which member states would be allowed to run. This would mean that the House of Commons would no longer be sovereign on matters of taxation or public expenditure or both--a position that we could not accept. That objection aside, binding rules are neither necessary nor practical ; excessive budget deficits are certainly something that we should try to avoid, but how that is done and what constitutes an excessive deficit can be judged only on a case by case basis.

National Governments can and should be left to make those decisions within the disciplines created by the financial markets. Those disciplines will be effective provided that the markets know that Governments are on their own ; there is no Community guarantee of their debt and that they will not be bailed out by the Community if they get into trouble. All that is required to make that plain is a rule against financing the deficit by printing money and an explicit prohibition of bail-outs by the Community. On this key issue, I am pleased to report, we are among a clear majority in the Community. One might ask what approach the opposition would take to EMU and to negotiations with our partners? Hon. Members on this side of the House will not be alone if they are somewhat unclear about the Labour party's policy, and not least, as usual, about the approach by the Leader of the Opposition himself. On 2 November last year, the Leader of the Opposition explained to the listeners of the "Today" programme what accepting a single currency meant to him. He said :

"You don't have to have the abolition of the pound ; you have a pound with its ecu value and everybody can go on using whatever currency they want so long as it is in stipulated ecu value." When asked whether it mattered if we had a common or single currency "so long as the Queen's head is on it", the right hon. Member beamed :

"That's the whole point Leon Brittan and Jacques Delors and everybody else has made and they're right".

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As usual, it was the right hon. and learned Member for Monklands, East (Mr. Smith) who set about the damage limitation exercise, as he so often has to. On 7 November he told The Daily Telegraph : "What Neil was trying to make clear was that it was rather a foolish view to say the only issue was whether the Queen's head appeared on the currency or not".

That was a heroic, but slightly unconvincing, attempt, to save the day.

In November, Labour's national executive committee published a paper entitled "The Intergovernmental Conference on Economic and Monetary Union". This states that, since our Community partners have made clear that their desire is to move towards full monetary union and the establishment of a single currency, Labour believes that "it would not be in the national interest if Britain allowed itself to be excluded from such developments".

In December, in another interview on "Today", his favourite programme, the Leader of the Opposition said :

"The 11 other countries are unanimous"--

about their desire for greater economic and monetary integration-- "Now the choices therefore available are to go and turn our backs on that, which would be foolish, or to be involved in it." I do not wish to be unfair to the Labour party, but it is not being at all clear. I put it no more strongly than this : the implication seems to be that the Labour party would be prepared to sign up to a single currency if sufficient of the other members of the Community think that that is a good idea. I very much hope that when the right hon. and learned Gentleman speaks on this matter he will make his position crystal clear.

Our position is that we will not commit ourselves to move to a single currency. Our proposals are designed to safeguard Britain's interests. Other countries are interested in our proposals, but the task of persuading our partners is a difficult one. It is not always made easier by the Leader of the Opposition denouncing our proposals when he is abroad. We do not hear of President Giscard d'Estaing coming to this country and criticising his country's proposals ; he stands up for French interests.

Sir Russell Johnston (Inverness, Nairn and Lochaber) : Before the right hon. Gentleman leaves the question of the single currency and the hard ecu, would he simplify one basic point which I think I understand correctly. The hard ecu is not a transitional arrangement and the Governnment do not ever wish to move to a single currency. Is that the approach?

Mr. Lamont : I have already made it clear this afternoon that the hard ecu could evolve if markets and individuals want that. That would be a decision to be made by a future parliament and a future Government. This Government reserve decisions on moving to a single currency for this House. Opposition Members seem to be prepared to rush headlong into agreements in Europe without having a clear idea of what these will mean for Britain and without the slightest regard for the sovereignty of Parliament.

Unlike the Opposition, the Government have always objected to the Delors prescription for EMU and the imposition of a single currency, and we will continue to oppose it. Let us just consider what the proposal would

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mean. Overnight, 340 million people would accept a single currency in a Community in which income per head varies from £9,400 in Germany to £4,500 in Greece.

Income is only one way of measuring the diversity of economies in Europe. Let us consider, for example, the following differences between member states : inflation ranges from 2 per cent. to 23 per cent ; short-term interest rates are 9 per cent. at the bottom end and 19 per cent. at the top ; unemployment, an important indicator of labour market flexibility, ranges from 1 per cent. in Luxembourg to 16 per cent. in Spain ; and budget balances range from a surplus of 3 per cent. to a deficit of 19 per cent. of gross domestic product. As long as such wide divergences exist, a commitment now to move to a single currency would be a massive leap in the dark.

By trying to move prematurely to monetary union, we would run very serious risks. The dangers of forcing the pace have been amply demonstrated in Germany. Karl Otto Po"hl, the director of the Bundesbank, has described Germany's experience as "a drastic object lesson" of the need for prior convergence before establishing a currency union. Reunification there has meant the rapid merger of two very different economies. The short-term consequences are a huge rise in the German budget deficit and rising unemployment in eastern Germany, but for the rest of the Community their experience is salutary. It shows the strains and tensions set up by moving to currency union before there is proper economic convergence. In the case of Germany one strong currency and one strong economy effectively took over those of a weaker neighbour. How much greater would those strains and tensions be if 12 very different states with different economies were now to adopt a single currency?

The consequences could be very difficult indeed. It is possible that to ease the pain of currency union, there would be calls for large sums to be spent in the poorer regions. A programme of transfers--potentially huge-- would be very difficult for the more prosperous countries to take. Even on present policies, by 1993 we will be funding a structural policy costing between £11 billion and £12 billion each year.

A second possible outcome is that the European central bank would prove unable to live up to the high standards of the Bundesbank in reducing inflation. Instead of promoting convergence, monetary union would lead to just the opposite : higher inflation and a poorer economic performance. The truth is that the full economic consequences of the Delors prescription are highly uncertain. They would take a long time to emerge and would be extremely difficult to forecast. The currency union on this scale of individual countries envisaged has no serious precedent that I have been able to find. Fixed exchange rate systems like the gold standard, Bretton Woods and, indeed, the EMS are not the real precursors of EMU. A common feature of all those arrangements was that there was no centralised monetary policy and no single central bank governing all the participants. It is for those reasons that we have put forward our own proposals, which recognise the uncertainties involved. We want to listen to our partners at the IGC and to try to find ways of meeting their concerns as well as our own. We hope and expect that the IGC will recommend a set of treaty amendments acceptable to all member states which we can bring to this House for approval.

At the same time, we cannot accept a treaty that would bind us to move to a single currency or to a single

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continental monetary policy without a separate decision at the appropriate time by the United Kingdom Government and Parliament. That will be a question for future Parliaments to decide.

Mr. Michael Grylls (Surrey, North-West) : Does my right hon. Friend agree that all the talk of monetary union at so early a stage is a real danger to the completion of the internal market, which is a real thing that people--and certainly business people--want to see happen? In Europe, it takes weeks to transfer money, whereas in our own market it is instantaneous. Such hurdles and obstacles have to be overcome. That is more important and practical than dreaming about monetary union which, as my right hon. Friend the Chancellor has said, cannot take place here.

Mr. Lamont : My hon. Friend has a good point. Many aspects of the single market still have to be developed. Our financial institutions and insurance companies feel strongly that we do not yet have an internal market in many areas of financial services. I should have thought that that was relevant to the debate on monetary union. This debate will show that economic and monetary union raises issues of the greatest importance for this country. There are those in the Community who seem ready to bind themselves to make the move to a single monetary policy and a single currency. As we have made clear, while we are ready to respond to the other member states in the Community, we believe it both unnecessary and premature to ask this House to take binding decisions to move to a single currency. We have said that our approach, or some development of it, could lead to a single currency. Although we do not rule out a single currency for ever--if that were what peoples and Governments so wished--we cannot accept a commitment to move to a single currency or a single monetary policy without a separate decision at the appropriate time by this House. It is on that basis that we will carry forward our negotiations in the intergovernmental conference. In the light of those assurances, I ask the House to commend the Government's approach to these complex issues and, especially, our emphasis on practical steps which will promote economic and monetary convergence. I also ask the House to endorse the Government's handling of the intergovernmental conference that lies ahead. 4.53 pm

Mr. John Smith (Monklands, East) : Despite what the Chancellor of the Exchequer said in his closing sentences, this is a debate on the Adjournment. We are not asked to commend anything ; we are asked to make contributions to the debate. It is understandable that the House, like the nation, has other things on its mind this week. However, our natural tendency to concentrate on the Gulf should not lead us to neglect the proper duty of Parliament to scrutinise the actions of Government on other major issues, or to underestimate the importance of this subject.

The debate also offers the opportunity for hon. Members of all parties, and with a wide variety of views on what the future economic and monetary relationships in the European Community should be, to contribute to a discussion that seems now to be firmly under way in the intergovernmental conference. I stress the importance of

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