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practice the Government are voting for continued control by the Bundesbank. In reality, if the commitment to the exchange rate mechanism is respected, national monetary sovereignty will prove to be a fiction.The Government and others speak of defending the national interest, but in financial and economic terms, national sovereignty is already a fiction. How else can we explain that, in 1989, even before we joined the ERM, Britain was forced to raise interest rates to keep in line with the Germans? It could be argued that common interest through a European central bank accountable to all member states would give us more power over monetary conditions than we have now. At present, economic policy is effectively dictated by the Bundesbank.
The Chancellor of the Exchequer stressed that the Delors proposals dealt with uncertainties which were difficult to predict and that there were no precedents in history. He even suggested that the Bretton Woods agreement could not be quoted as a precedent. However, it is worth reflecting on the Bretton Woods agreement as a precedent of a sort.
The original proposals by Lord Keynes for a world central bank to manage a world reserve asset was sabotaged by the United States on the ground that it did not want to surrender its sovereignty over monetary policy. We were left with the existing international monetary fund which plugs economies driven by market forces, despite the fact that they suffer from high interest rates, high inflation and high unemployment and massive balance of trade deficits--hardly recommended models for developing countries. That is what emerged from the Bretton Woods agreement, and it is worth remembering that the United States resisted it on the ground of sovereignty. If national sovereignty in financial and economic affairs in a world of international financial exchanges is a fiction, it is not too much to imagine that, by the year 2020, local and regional centres of power will be increasingly connected to international centres. That may formulate the axis of power. The role of national parliaments may diminish within the next 50 or 100 years. We should not fear that but face up to it and what it could mean in terms of democratic and internationalist politics.
Another overworked fiction is the mechanism of the market. Today the Prime Minister said that the hard ecu would be driven by the market and not imposed on anyone. He spoke as if market forces had a life of their own, entirely autonomous of human influence and decision. But the Chancellor said that he would work with the market. He implied that the hard ecu would not be so subject to the forces of the market as the Prime Minister suggested. However, there is a dominating fiction that the iron laws of the market exist in a determinist sense, which suggests that we must be committed to an arithmetical equation. We are dictated to by the vagaries of market forces.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell) drew a parallel with the weather. Perhaps it has not occurred to him that clouds can be seeded and climate can be influenced and changed. We do not need to be subject to these determinist laws. In assenting to that, the
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Government reject any positive role in the plan for an active transition to a single market in economic, social and monetary policy.The new pro-EMU stance of the Prime Minister and the Chancellor is cast and set in the language of free market forces, with the hard ecu as the only iron in the fire. The Government's approach is deliberately to neglect, if not be downright hostile to, the wider agenda set by the Delors report. In particular, they neglect the need for substantial social and economic convergence between member states before monetary union can take place.
Some Conservative Members have suggested, as I think the hon. Member for Ludlow (Mr. Gill) did, that convergence is geographically impossible and unnatural. But surely he and others would accept that, at the very minimum, it is important to prevent increasingly widening divergences that would damage all Community members. Convergences should be not only in terms of inflation, as even the Chancellor accepts, but in terms of ability to gain sustained, balanced growth and development for all in the Community.
The Cecchini report of economic experts on the benefits of the single market, drawn up in 1988, states :
"If the new rewards are not shared fairly, the EC home market will rest on a brittle skein of regional and social tensions Undoubtedly assistance will be needed for the Community's declining regions and labour affected by industrial restructuring."
It continues :
"there is a need to examine the sector by sector impact of removing non- tariff barriers and to envisage accompanying social policy measures across a range of fields : vocational training and mobility ; labour market flexibility ; and the more intensive use of the Community's social and regional funds. The extent to which the 1992 programme can attract economic and social cohesion around it will be the key to its chances of success."
Most recently, some economists have drawn attention to the fact that technology changes in the 1990s could have as devastating effect on employment in the service sectors of Community countries as de- industrialisation had on manufacturing in the late 1970s and 1980s. But at least and at last, employment needs, inequality and poverty issues are getting on to the agenda. Some 14 per cent. of the Community's population lives in poverty which, as we all know, is unevenly distributed throughout the Community, as German reunification graphically demonstrates at present.
There has already been some welcome response to poverty and social needs in the restructuring of funds, such as the European regional development fund. But the real trends of divergent development between European towns and cities continues, increases and needs to be tackled. References to free flow of capital must be matched by references to the movement of labour within the European Community. There is a real danger that all that will happen in 1992 is that the divergent trend between skilled and unskilled labour will be reinforced.
We must face up to the mobility implications of that divergence because professional and skilled people will freely move in and out of major European cities and benefit them, but those northern cities that are in decline will lose their populations as unskilled and semi-skilled labour heads off in search of work. The result will be a growing polarisation between rich and poor within the Community. Unless that issue is addressed, moving in the direction of economic and monetary union alone will be of no benefit.
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7.55 pmMr. Ian Taylor (Esher) : This is an important debate, and one of the problems is that we are talking about economic and monetary union rather than trying to separate them. There is a distinction between the two ; it is possible to have monetary union, with a large degree of discretion and flexibility for Governments in economic and fiscal matters.
Economic union is already being advanced in the European Community, with the support of the British Government, through the single market programme. I for one welcome the Commission's announcement, in its report issued earlier this month, that it is aware that some countries are not applying the single market programme with the same efficiency as this Government and will start proceedings against those Governments. The House will welcome that ; it is a good, high priority in the Commission's plans for this year. Economic union will flow from the completion of the single market programme, which does not need to contain fiscal harmonisation or managing, on a statutory basis, budgetary deficits between member countries. Therefore, I do not believe that many hon. Members would oppose economic union, which is certainly very much part of the Government's clear policy. Monetary union has been more controversial. However, there is now a series of basic agreements on policy between most Governments in the Community that create a favourable atmosphere for discussions in the inter governmental conference. For example, there is general agreement on the value of stable monetary supply, stable prices, low inflation and, crucially, an understanding--unfortunately not shared by some Opposition Members--that there is no value in policies resulting in devaluation. The depreciation of the currency is not, in itself, a merit. The important point is that we in this country have so often had surreptitious impoverishment because we have allowed reduction in the value of our currency without consideration of the fundamental issue of how to improve the competitiveness of our industrial performance. The need to avoid devaluation is understood throughout the Community.
The ERM has been remarkably successful, and I welcome our entry of it. All of us would like interest rates to fall in this country. Those who approach that aim by saying that we must challenge the central rate of sterling in the ERM at DM2.95 do a great disservice to the efforts to reduce interest rates. As long as there is uncertainty about the British Government's determination to hold the DM2.95 level, there will need to be a premium on sterling in terms of interest rates. The greater the confidence that we are determined at all costs and at all times to maintain the DM2.95 central rate, the greater the confidence of people investing in sterling and thus a reduced need to have a high interest rate premium against the deutschmark. I urge those who agree with me that we want lower interest rates to cease to question the DM2.95 level ; that would be a great service.
I think that the sooner we move to the 2.25 per cent. margin on either side of the central rate, the sooner we shall increase the likelihood that the market genuinely believes that the British Government are determined to crack inflation--not to resort to the antiquated device of depreciating currency. That would increase certainty,
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increase investors' confidence, and lead to a reduction in interest rates through a reduction in the premium necessary over the deutschmark.There are other factors that assist in that, such as the technical rule that any movement of adjustment in the ERM, particularly when there is a smaller central rate margin, should not be done outside the existing rate. At present, there is a 6 per cent. band on either side and we should never move out of that range when resetting the central level of the 2.25 per cent. band. The strength of ERM could develop further by moving progressively downward in the band on either side of the central rate ; 1.5 per cent. would be achievable. That would be an extremely beneficial move, and in this country's interests, in terms of reducing our interest rate premium. The consensus that has emerged on various economic policies has also given rise to the need to bring convergence in the Community between the performance of the various economies. That is clearly an objective of all those involved in the discussions. The question is how to do it. That is where the hard ecu shows the role it can play. Setting a non- inflationary standard through the mechanism of the European monetary fund will provide the possibility of ensuring that good money chases out bad.
Therefore, any country pursuing profligate policies that lead to a tendency of its own currency to depreciate within the ERM bands will find that its citizens and businesses will opt for the harder currency--the ecu. That will be a disincentive to that Government, who will have to put their house in order. Therefore, over a period--one that is not easy to define but will be shorter than expected--there will be a convergence on a lower inflation rate throughout the Community. That will give the right basis for stable money and therefore monetary union.
It is important to understand what the Government have proposed. The European monetary fund will have teeth. It can force countries to make good the loss in value in their depreciating currency by purchasing hard currency. That is an important role for the EMF, and one that is deliberately anti-inflationary. Secondly, the EMF cannot increase total monetary supply within the Community because it can only issue the hard ecu against reserves from existing currencies. Therefore, the Germans' worry that the EMF and the hard ecu would increase inflation is unfounded, and I hope that we can get that argument across to the Bundesbank. The worry that it might make Bundesbank management of monetary supply more difficult is also unfounded, and I hope that our arguments on that will prevail. The other interesting point about the proposals--there is a good deal of agreement with the Commission on this--is that there will be no bail-out of deficits built into the arrangements, as countries will not be able to print money to finance deficits. This is important, because if one has a common monetary policy throughout the Community--that will be achieved as the European monetary fund sets the conditions for monetary policy--each country will have some budgetary flexibility if it is creditworthy, and it will be creditworthy only if it is able to show that it has a sensible anti -inflationary policy.
Furthermore, such a country would be more exposed to criticism and assessment by lenders. Lenders will not lend to a country in whose policies they do not have confidence. However, if the policies are sound, lenders will be prepared to lend to that country, and that will give the Government substantial fiscal flexibility and sovereignty. As has been
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said, Germany is running a budgetary deficit of 5 per cent. of GDP. That is a remarkable increase, but people still believe that the German Government are pursuing anti-inflationary policies and are prepared to lend to Germany, so there has not been a significant change in German tax or interest rates.The important point is that we have the European monetary fund as an institution to set monetary discipline. I do not see a great distinction between what the Government are proposing and what many of our friends on the continent wish. The European monetary fund could be the Euro Fed of the future. Our proposals could satisfy our friends because the common currency could lead to the single currency. In my view, the hard ecu is likely to be the safest and fastest route to the single currency, and I hope that our proposals will get more and more consent as the IGC continues.
8.3 pm
Mr. Peter L. Pike (Burnley) : I shall pick up two of the points made by the hon. Member for Esher (Mr. Taylor) on which I came to a different conclusion. I have not yet heard an industrialist or anyone on the commercial sector say that the Government were right to enter the ERM at the rate of DM2.95 to the pound. I do not accept the view of those responsible about the need to keep interest rates high so as to maintain that exchange rate. They are kept high because the Government got it wrong in the first place, and now do not have the flexibility, which they would like, to reduce interest rates. I have met many industrialists, most of whom told me that the Government were wrong even before I asked. Going in at the wrong rate has put our manufacturing industries at a disadvantage and made imports cheaper. That gives the Government another problem to cope with in their efforts to get the economy right.
We fully accept the need to get inflation down and we recognise the importance of that to the economy. However, we believe that the Government fail to recognise the contribution to inflation of interest rates. The Government say that the guilty party in this is wage rates, but interest rates are a bigger contributing factor. I support the line taken so ably by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). I do so for two reasons. First, I am a regional Member of Parliament representing a constituency in the north-west. Secondly, I represent a constituency heavily involved in manufacturing industry. If we are to maintain our manufacturing industry, we should take the line set out by my right hon. and learned Friend, because that is the best way to protect manufacturing industry and secure job stability.
Because we are in the ERM and fast approaching 1992, with all that that implies, a single currency and European monetary union are inevitable. However, we should not be going along that line with a blank cheque approach, agreeing to every condition. We have to get everything right. When the Government went into the ERM, they did so in a panic, and fixed the rate wrongly. I should be far happier about my right hon. and learned Friend the Member for Monklands, East and a Labour team
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negotiating those terms and conditions than I am about Conservative Ministers doing so, because we would look after the interests of Britain and the regions.Last night, my right hon. and learned Friend and I were at a meeting with the general secretary of the General, Municipal, Boilermakers and Allied Trades Union, of which we are both members. He told us that the membership, at grass roots level, was pushing the union to take a far more positive approach to EMU and European matters. That change among the membership is because people working in industry believe that it is the best way to safeguard their future. Anyone who argues that we should not be moving in that direction has to recognise that we have lost so many jobs and that manufacturing industry has deteriorated so much in the past few years that we have to do something positive if we are to prevent a further decline.
My constituency is heavily involved in manufacturing, as is the north-west as a whole. However, despite what the Secretary of State for Trade and Industry said at Question Time yesterday, investment in manufacturing has fallen by more than 30 per cent. in real terms since 1979, output is down by more than 30 per cent. and jobs in manufacturing are down 38 per cent. in the north west. Conservative Members like to call that an economic miracle, but it spells economic disaster for Burnley and the north-west.
My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that manufacturing is the creator of wealth, and we want wealth to be created because we want to be able to get enough income for the future Labour Government to fund a more positive approach. We certainly want to encourage that. We believe that what is needed is a much more positive attitude to industry. It is also necessary that there be a much more positive attitude to the regions. The Conservative Government have used additionality against the regions. Only the British Government have operated it in that way, and it is something of which they should be absolutely ashamed.
Many industrialists have put very forcefully to me the point that the ability to trade in a single currency, without the need to be bothered about bankers' commission and so on, would make business considerably easier. We want to be able to compete in Europe on equal terms.
The number of jobs being lost at present may not be so great as the number lost in the early 1980s, but higher productivity means that those losses have a far greater impact in relative terms. That is a matter for concern.
Mr. Ian McCartney (Makerfield) : Does my hon. Friend agree that it is not just a loss of manufacturing jobs that we are seeing? In the north- west, substantial numbers of jobs are being lost with the closure of firms that were set up in the 1980s for the very purpose of replacing lost jobs. In other words, the so-called new employment prospects in the north-west are also being eroded.
Mr. Pike : My hon. Friend is absolutely right. The north-west has changed. Traditional industries have gone, and the new industries are suffering difficulties. Many of these are high-technology firms. It is sad that jobs are being lost there too.
We must enter the negotiations positively, although I realise that we may well encounter difficulties along the route. Perhaps, at some stages, there will emerge certain things that we are not prepared to accept. However--as you, Mr. Deputy Speaker, a prominent union member,
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will realise--it is absolutely crucial to have a positive approach if one is to achieve a positive result. If our approach to a single currency and EMU is right, we should get the type of agreement that we want. We should be kidding ourselves if we believed that no other country in Europe would at any stage find some of the proposals unacceptable. As certain hon. Members have said, there will be times when Britain is not the odd man out.The Opposition envisage Europe extending to include EFTA nations and some eastern European countries. If Europe is to play a positive role in the world--for example, in respect of the environment and the third world--we shall have to do everything we can to ensure that its economy, including the economy of this country, is as strong as possible. I believe that movement in the direction I have indicated would achieve that objective.
8.13 pm
Mr. William Cash (Stafford) : The Gulf war that is going on at the moment has demonstrated a number of serious weaknesses in the way in which the European Community has been developing. In the context of this debate, it is important to remember that the system being proposed would effectively--through the interlocking of economic, monetary and eventually, I think, fiscal policy--have a dramatic effect on our capacity in future years to conduct a foreign policy such as we are engaged in now or a defence policy that would enable us to deal with a Saddam Hussein of the future.
I make this point with reference to the explanatory memorandum relating to the draft treaty on economic monetary union. I think that I am the only hon. Member--apart, perhaps, from Ministers--to have a copy. I do not want to go through it in detail, but I do want to quote these words :
"The joint exercise of new powers in areas in which reach to the very heart of sovereignty, such as currency matters and foreign policy, will require the existing institutional framework to be adapted to a higher degree of community integration."
It could be said by some, of course, that this is nothing more than a Commission document, which should not be taken too seriously. If one were to take a fairly relaxed view of these matters, one might adopt that attitude. On the other hand, the evidence of the engrenage that has taken place within the Community over the past 15 years indicates that the real muscle--the forward drive for the progressive realisation of economic and monetary union--has lain very much with the Commission. This is what some people believe to be progress. It is therefore relevant, in the context of the current dramatic events in the middle east, to consider very briefly what would happen if we were faced with this interlocking monetary and economic system in relation to the proposal for a central bank, in which case we should have, effectively, unelected bankers running these policies. That would reduce our ability to determine the economic and social priorities, including defence. We should have to ask ourselves what impact that would have on our ability to respond to a threat similar to that posed by the activities of Saddam Hussein and Iraq. Bearing in mind the fact that economic and monetary union, together with foreign policy, lies at the heart of the sovereignty question, I should like to mention that, at the meeting of Foreign Ministers on 4 January, Mr. Roland Dumas is reported by The Economist as having snapped :
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"If the European Community had majority voting on foreign policy you would be outvoted."One can therefore understand the relationship between political union and economic and monetary union. As has been said during the course of this debate, one cannot really separate them. For practical purposes, once one has moved to economic and monetary union one is on the threshold of, if not right into, political union.
We saw what happened yesterday in the European Parliament. A six-hour debate on the Gulf crisis broke up in confusion. Newspapers reported Mr. Jacques Delors as having put an imaginary pistol to his head and walked out in disgust. I do not take any pleasure in this, nor do I take any satisfaction in saying, as many hon. Members have said from time to time, "I thought that this might happen." The reality is that it is a matter of immense importance for the future of this country that we should not make any mistakes in this respect. If, for example, the European Community, had a common defence policy--a proper defence policy along the lines of that of the United States--its current average expenditure of 3.1 per cent. of gross domestic product would have to be just about doubled. Incidentally, in the United Kingdom at the moment the figure is about 4 per cent. The extra resources would have to be produced via taxation, which would inevitably have to be drawn from the member states.
To achieve defence at the level of that of a country of equivalent standing, such as the United States, taxation would have to be raised to that extent through the processes of economic and monetary union and fiscal policy, and I just do not believe that the individual member states would wear that. Individual contributions for defence by way of the percentage of gross domestic product, are way below the British contribution. That is a point that we must bear in mind. I repeat that there is nothing anti- European about my attitude to the various questions. I was the founding member of Westminster for Europe and I want the EC to work, but I do not want to see the whole thing disintegrate as a result of embarking on policies which are essentially impossible and unreal and which, in the context to which I have just referred, are potentially dangerous. I have no doubt that the British people, looking at the state of affairs in the Gulf and the almost non-existent contribution that has been made by other member states, would be deeply concerned if they thought that the proposals for EMU could or would have an impact on our defence policies in the Gulf or elsewhere in the future.
If there were an increase in the amount of money spent on defence in percentage terms, it follows that there would be a corresponding decrease in the amount of money available for other areas of public expenditure. That in turn would cause grave difficulties which would probably have something to do with the arguments that were raging in the European Parliament yesterday. There are serious questions about the economic, social, defence and public expenditure policies that would be pursued under the regime that has been postulated by the Commission in its draft treaty. The same could be said of the proposals for a single institutional structure, or political union, which have also come from the Commission.
Our proposals entitled "Possible treaty provisions and statute for a European monetary fund" were published in January 1991 and have been presented to the House. I put my observations in the form of questions, a number of which arise. For example, article II says :
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"The overriding objective of the European Monetary Fund shall be to promote and maintain price stability in the Community as part of the progressive realisation of Economic and Monetary Union."It goes on to say :
"Without prejudice to the object of price stability"--
which many economists would say is extremely difficult to define, and is not well defined in any of the Commission documents, but is generally taken to mean that inflation will be kept as low as possible--
"the Fund shall support the other economic policy objectives of the Community."
The question is, what are the Community's economic policy objectives? Is there not an invitation, as my hon. Friend the Member for Esher (Mr. Taylor) suggested, to massage the present arrangements proposed under the document into what he would like, which is the Euro Fed arrangement.
I hope that my right hon. Friend the Chancellor of the Exchequer with whom I have had the pleasure of discussing--
Mr. Deputy Speaker (Mr. Harold Walker) : Order.Mr. John Butterfill.
8.23 pm
Mr. John Butterfill (Bournemouth, West) : As chairman of the Conservative Group for Europe, I believe that it will come as no surprise to hon. Members that I hope that we will eventually evolve much closer unions within Europe, both politically and economically. Evolve is the important word. In recent times, some of our European partners have been trying to press things much farther and faster than most of their populations are prepared to tolerate or economic conditions within the Community can sustain.
I would go even further than my hon. Friend the Member for Esher (Mr. Taylor) and say that, first, we must achieve economic union, as we are doing through the agency of the single market, but before we proceed to monetary union, we must have much closer political union, because the two things are inseparable. Unless we can achieve political agreement about the Community's general objectives, it will be impossible to achieve full monetary union. Therefore, to a great extent, we have been putting the cart before the horse ; or, more importantly, the Delors committee has been putting the cart before the horse.
That is not altogether surprising because much of the motivation behind the Delors proposals was to achieve the political objective of pushing the Community's political union faster than it had gone hitherto. There is much to support that. Many leading statesmen within the Community accuse us of having no vision, but I do not believe that. I have just as much vision as they have, but I hope that I have a good deal more pragmatism.
Late last year, with some other hon. Members, I attended the interparliamentary convention in Rome and it became clear to me that many of those present wanted things to go much faster in all those areas than we had previously understood to be the case. Many brave words were spoken, particularly about political union. It is rather sad that recent events have shown that when it comes to the political crunch, for example with regard to the Gulf, those brave words have not been matched by brave deeds.
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I take no pleasure in that, but it is true, so we must take a much more measured approach in the way that we proceed on economic and, later, monetary union.Having said that, are we doing the right thing? Have the Government taken the right approach? I believe that they have. I believe that, in joining the exchange rate mechanism at the central rate of DM2.95, they have got it right. I agree with my hon. Friend the Member for Esher that those who are continuing to speculate that that rate will have to come down in order to give some mythical assistance to British industry are doing nothing but delay the eventual reduction of interest rates which will occur as inflation reduces within the British economy, as I am confident will happen later this year. We should always speak out against the siren voices that we have heard from the Opposition Benches saying that we must devalue our currency in order to assist our manufacturing industry. Nothing could be further from the truth. We have done that consistently ever since the last war, and it has got us nowhere. It is short-termism, and it is a road to ruin.
To see the proof of that one has only to look at the situation in those countries that have not followed that route. Exporters in Japan and West Germany have concentrated on quality, delivery, reliability and service to their customers and they have sold consistently better than we have despite the fact that their currencies have been appreciating in value. It is about time that Opposition Members learned that important lesson. It is sad that the hon. Member for Burnley (Mr. Pike), who is just leaving the Chamber, has not yet taken that on board.
Should we go along some of the routes suggested in the Delors report? For example, should we have independent central banks within the Community? Greater independence for central banks has a good deal to commend it. It would impose disciplines upon the management of the economy which are desirable and in accordance with Conservative thinking. It would prevent us from running the horrific budget deficits that we have seen in the past. It is perhaps no coincidence that the countries which have had to devalue within the ERM are those which run the highest budget deficits, one example being Italy. Therefore, there should be some rigour in the management of the economy and of detachment from short-term political considerations. The market approach is the way forward. If we were to go down the line of redistribution within the economy and straight into a single currency, we would be forced back into the old systems of regional support which have served all of Europe, but especially this country, so badly. Previous policies of regional aid in this country were harmful to the development of the regions, because they created a dependency culture and the feeling that someone else would bail them out.
It was not until this Government came along and encouraged the regions to stand on their own feet, by harnessing the innate creativeness of the inhabitants with inward investment, which attracted foreign capital and capital from other parts of the country, that there was the dynamism which we now see in the Scottish and Welsh economies and the resurgence of the economy in the north. That is the way forward for the whole of Europe. It is no use creating dependency cultures all over Europe or talking about monetary union until we have achieved much greater economic convergence of all the regions within Europe.
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The proposal of a hard ecu is beneficial and should be given greater consideration by our European partners. When I was in Germany in the latter part of last year, I too met Dr. von Wartenberg, the director general of the Federation of German Industry, who confirmed that it was an interesting proposal. He wished to change some of the original British proposals but felt that the hard ecu could work for the benefit of the whole of Europe. Therefore, we should proceed to develop with our European partners the proposals for a European monetary fund. It would impose market disciplines and counteract the centralist and interventionist proposals of the Commission which would be harmful.Monetary union depends upon agreement among the members of the Community about where we all want to go and how we want to get there. It is no use putting the cart before the horse, as the Community has done to date. If we push it too fast, it will all end in tears. If we try to go down the route that we are being encouraged to go down by the Commission, we will create a structure which will be inherently unstable, which will lead to disaster for the less developed countries of the Community and which will bring the whole Community proposals into disrepute. It is clear that we do not yet have that agreement. Therefore, we must adopt a step-by-step approach. 8.33 pm
Mr. Nigel Forman (Carshalton and Wallington) : I welcome the debate as a chance for my hon. Friends on the Back Benches to contribute to the thinking of Ministers on economic and monetary union before my right hon. Friend the Chancellor goes to the IGC on 28 January. In his excellent opening speech, my right hon. Friend admirably met two of the requirements of the right hon. and learned Member for Monklands, East (Mr. Smith) who suggested that the approach to these matters should be realistic and constructive.
That was a fair description of the approach of my right hon. Friend. As the House knows, he is advocating an evolutionary and practical approach to the next stages of economic and monetary union. Indeed, he need not have apologised for that, because those of us who have looked into the foundations of the European idea since the last war were aware of the famous phrase of Jean Monnet when he described his approach to these matters as "une politique de petits pas", a policy of small steps. There is no doubt that the incrementalism implied there is inherent in the Community method.
I understand very well why the previous Chancellor, now the Prime Minister, said that Governments could not accept the imposition of a single European currency since that would imply a political decision to do so taken against the wishes of at least one important member Government. Even though technically it might be possible for that to happen, it would be a disaster, and I cannot believe that in practice our Community partners, especially Germany which also has reservations about the Delors approach, would allow it since it would disrupt the cohesion of the Community at a time when it could not be more important for all Twelve to be united.
Therefore, I wish the Chancellor and his colleagues well in what is likely to be a long haul in terms of discussion and negotiation. Nevertheless, this is perhaps the right
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occasion to offer a few points of important detail arising from the text of the Government's proposals. I intend to devote my brief remarks to that end.Taking first the Government's draft treaty articles, it is right that the objectives of the proposed European monetary fund should be the maintenance of price stability and consistency with free markets, as set out in article II. It is also right that the hard ecu should not be susceptible to devaluation in any circumstances since that would make it at least as attractive as the deutschmark and could offer an ingenious way of limiting, and eventually reducing, deutschmark dominance within the Community, without recourse to French-inspired supranationalism of the kind advocated by Mr. Delors.
When it comes to the exercise of the powers and duties of the European monetary fund, I would infinitely prefer alternative 1 in the Treasury paper to alternative 2 in draft article V. That is the only way to guarantee independence for the fund, and it should be done right from the beginning. It would be advisable for the following brief reasons. First, it is advisable to make the proposed new institution and its monetary policy as credible as possible in the eyes of markets. Independence would achieve that. That is the most important reason.
Secondly, it is advisable to make the new institution compatible with the established leading model--the Bundesbank in Germany--and thus attract vital German support in the negotiations. Thirdly, it is important to give the idea the best possible chance of meeting its two principal objectives-- those laid down in article II. I realise that would entail a change from our existing approach to these matters.
Indeed, it would probably be sensible for us to legislate at about the same time to put the Bank of England on a new basis of statutory accountability to the House. I sought to pursue that point with the right hon. and learned Member for Monklands, East. I would welcome such a change which would make our arrangements institutionally compatible with the arrangements that we can expect to emerge within the Community. It would not erode the sovereignty of the House in monetary matters--quite the reverse, since under the existing arrangements, dating back at least to the Bank of England Act 1946, not even the Cabinet, let alone the House, has effective control over national monetary policy.
It would impose on the Bank of England a duty of periodic accountability to the House for the conduct of monetary policy, at least for the day-to-day administration of that policy, by obliging the bank to give perhaps a quarterly retrospective account of its stewardship. As I sought to say in my intervention, it would be for the European Parliament to provide the necessary statutory accountability for the proposed European monetary fund in the manner suggested in article IX of the draft text. This House should have a more established role in monitoring the administration of the Bank of England.
Furthermore, I believe that the Government are right to suggest in article VII in the draft text that, in the event of infringement by a member state or a national bank, it should be for the executive board of the European monetary fund to bring the matter before the European Court of Justice. That is a wise principle--that independent monetary arrangements for Europe should be reviewed, and disciplined if necessary, by the already functioning independent judicial arrangements of the
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European Court of Justice. I would not expect such sanctions to be used very often, but it is important that they should be available. The combination of legal accountability to the European Court of Justice and political accountability to the European Parliament is the right one for the European monetary fund. It is then up to this House rather than the Government of the day to provide a statutory framework of accountability for a much more independent Bank of England.I believe that the House should welcome these proposals rather than take fright at them. We should start from a recognition that the days of real monetary autonomy for any single nation state or national parliament are long gone. We should therefore move forward pragmatically in discussions with our partners on the basis of these proposals, making it clear all the time that our ideas could evolve towards the establishment of a single European currency by mutual consent and in response to market forces.
If we do this we could find not only that we win the argument at the intergovernmental conference, but also that our partners will accept the idea of having a British president of the governing board of the European monetary fund which, for gastronomic and other reasons, should be located in Paris.
8.41 pm
Mr. Alistair Burt (Bury, North) : My starting points for my short contribution to today's debate are two quotations. The first is from an address by Leon Brittan last year to the TSB and published under the title "European Monetary Union--What Money for Europe?" He said : "there is nothing mystical about national currencies--or international ones for that matter. I am in favour of those arrangements which make our economy work better, and so provide more prosperity and more jobs ; and against any changes which do not make economic sense. If, therefore, Britain is better off with its own currency not all the tea in China or even all the directives in Brussels would convince me that it is right to give up that currency."
That seemed to me a pretty sensible base from which to begin one's exploration of this issue. Money is a tool in the service of the economy and one which evolves over time. No one would argue with that.
The second quotation is from my right hon. and learned Friend the Member for Blaby (Mr. Lawson), speaking in the House in a debate on the exchange rate mechanism on 23 October last year, when he said that he entirely agreed with his right hon. Friend the then Chancellor of the Exchequer that
"there is a world of difference between EMS, which is an aspect of economic management, and EMU, which is essentially political."--[ Official Report, 23 October 1990 ; Vol. 178, c. 216.]
It is the political aspect of European monetary union that I would like to explore a little. This has been a wide-ranging debate which has enabled us to cover these matters well. I would like to add something on the political aspect, particularly in relation to the issues of sovereignty and the co- operation of European states. In early November of last year, I was given an opportunity to visit France by the French Government, whom I thank most warmly. I sought to explore the then
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very strong-running controversy of sovereignty, which was thought by many, both then and now, to be at the heart of the issue of European monetary union. Two questions were uppermost in my mind. The first was why, bearing in mind just how strong were our feelings on sovereignty, the French were not similarly concerned. Whatever differences we may have, there is no doubt that as a nation state France is as proud and patriotic as we are. Why were the French not up in arms about the possible loss of sovereignty in relation to their currency?The broad answer that I picked up to this question was that the French consider this argument to be old hat. About 10 years or so ago, it had been much explored, but a consensus had emerged that sovereignty was enhanced through greater involvement in Europe and that European decisions would on the whole be with, rather than against, French interests. They expected this to be the case because they expected to have influence at both political and diplomatic levels. There are lessons there for those who neither expected nor tried to have such influence. Subsequent experience has shown the French that this decision has been broadly correct and they were therefore generally content to move towards a single currency. At this stage I put in two caveats. It was the view of one leading French journalist that the French were perhaps too unquestioning about the whole business. He thought that sovereignty was an important issue and, while he did not necessarily disagree with the broad consensus in France, he did not believe that either politicians or public were asking the right questions.
The second caveat is that the French system invests rather more executive power in its President than in its Parliament ; but, provided that the decision-making system of the European Community allowed for the president to exercise such Executive powers at the highest level, it was felt that the system would be workable. Such veto power is indicative of their desire, as on the Government Benches here, to avoid a completely federal system and to retain the power of the the nation state in some way.
The second question that I wanted to explore, particularly with politicians, was an economic one. Was not the major thrust of European Community economic policy, the common agricultural policy excepted since it is under reform, far from being socialism in disguise, innately market- oriented? Did not the ERM, and future EMU, strengthen this, thus locking political parties of both left and right into a broadly free market economy, limiting shifts in both politics and economics to slightly left and slightly right of centre?
In putting this view to politicians of the right, I was seeking to see whether they shared the reservation sometimes expressed on these Benches that Europe was inevitably moving towards a corporate socialist future. I do not hold such a view, and nor do they. They can see no reason why Conservative politicians should not welcome the growing convergence of European economic policy, because, with the single European market well established, it is inevitable that the economic policy of the Europe of the future will be so
market-oriented that socialism as we had come to know it in our country will be effectively impossible to implement.
Putting the question slightly differently to the socialist representative that I met, I was given a slightly different answer. He also recognised that the socialism that we had come to know and be amused by in this country was not
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