House of Commons Hansard Debates for 24 Mar 1993

Mr. Smith : First, day-to-day control, even of short-term interest rates, will inevitably be influenced by the policy on the external value of the exchange rate, which, as the treaty makes clear, is a matter for the politically accountable ECOFIN. The second point is how much long-term freedom Britain will have to set interest rates within the context of an increasingly powerful European economic union.

If we are to progress to economic and monetary union in Europe, the light in which we must judge the status of the central bank and the Bank of England is that which recognises the possibilities of genuine pluralism within accountable institutions that serve the public interest.

The challenges before us with regard to this part of the Bill present an opportunity for reform--to make it not so much a Bank of England, but rather more a bank for Britain, just as we would expect the European central bank to serve the interests of the Community as a whole with regard to the goals of article 2 of the treaty and within a framework of democratically co-ordinated economic policy. Those are our aims. I commend new clause 1 and new clause 58 to the Committee.

Sir Peter Tapsell : I have always thought that one of the redeeming features of the Rome treaty is that it did not seek to regulate financial matters. That has permitted the enormous increase in the volume of international financial business which has taken place in the City of London during the 35 years that I have worked in those markets, and has enabled that increase to take place without being hindered in any way by Brussels.

It is difficult to believe that during the 1970s--broadly speaking, a period of great weakness for the British economy and British manufacturing industry--the Eurodollar and Euroyen markets were established in the City of London. To this day, the City of London has remained the capital of those vast markets, which earn an enormous amount of foreign exchange for the United Kingdom and give us influence in the world which perhaps we do not achieve in many other respects. It is difficult to believe that, if we had been subject to interventions from Brussels and the Commission in the 1970s and subsequently, and if a European central bank had been in place which was anxious to develop financial centres in different parts of Europe, that degree of success could have been achieved by the City of London.

The continental financial centres have always been intensely jealous of London's primacy and will certainly use the provisions of the Maastricht treaty to reduce it. Perhaps it is worth noting that, before 1973, when we entered the Common Market, we had a surplus in our trade with the then six countries of the European Economic Community which has since turned into a massive deficit. During that same period, the European financial primacy of the City of London steadily increased. The contrast is striking between the industrial position where we have been increasingly the subject of European

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provisions and the financial position where we have been free to pursue our traditional policies of trading with the world. In contrast with the Rome treaty and the Single European Act, financial provisions lie at the heart of the Maastricht treaty. Its core is economic and monetary union. The engine of such union is to be the European central bank. As fiscal and monetary policies should march together in any properly conducted economic policy, economic and monetary union which is operated by a European central bank will take away from those nation states which make up the European union the freedom to issue their own currency, to choose their own interest rates, exchange rates, the level of their money supply and the level of their public expenditure and to decide the level of their own taxation.

In other words, European and monetary union will remove all the characteristics, of sovereignty which characterise a proud and independent nation, and which still to this day give to the British one of the few binding characteristics of discipline that entitle us to call ourselves a great nation. All that will be put at risk. The European central bank, together with the Commission, will have the exclusive right to exercise all the powers throughout Europe to which I have referred and the sole power to print money and control the currency which the British will use.

Effectively, the European central bank will become the most powerful economic, and therefore political, institution in the Community--indeed, in the whole free world. With 12 or more Ministers of Finance to play off against one another, any skilful president of the European central bank will be in a more powerful position that Mr. Delors has ever been. As the directors of the bank will be explicitly, deliberately and absolutely unelected, unaccountable and unassailable, I do not know what the hon. Member for Oxford, East (Mr. Smith) meant when he said that we will have to be careful in those circumstances to ensure that the Bank of England remains in public ownership. It will not matter two hoots who owns the Bank of England or, indeed, whether there is a Bank of England in the circumstances laid down by the Maastricht treaty.

The hon. Member for Great Grimsby (Mr. Mitchell) read out article 107 on a point of order before the debate. At the risk of boring the Committee I should like again to put on the record in my speech just what article 107 says. The words of article 107 are perfectly clear. A child of 16 could understand them. I am rather bored with people telling me not to bother to take the words of the treaty seriously. I am rather bored with Ministers, retired ambassadors and grandees in the City taking me on one side and saying in a patronising way, "Can't you be a little more sophisticated in your approach to the Maastricht treaty? We all understand that the treaty is a nonsense. It is absolutely unworkable. It will never take effect. But, my boy"--I am getting somewhat elderly to be addressed in that way, but that is the tone of voice--" if we vote against the Maastricht treaty, we shall lose all our influence in Europe. Therefore, you must vote for this ludicrous, unworkable treaty. Don't let's worry about the wording of it."

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Ministers who sign contracts and treaties without worrying about the wording will be in some danger of being thought to have wined and dined a little too frequently with their Italian counterparts. 6.30 pm

Mr. Giles Radice (Durham, North) : When did the hon. Gentleman last dine with an Italian Minister?

Sir Peter Tapsell : I have not dined with an Italian Minister for some months. The last time was with the then Foreign Minister of Italy, who is now being prosecuted for corruption.

Sir Ivan Lawrence (Burton) : I hesitate to interrupt my hon. Friend's flow, but does he agree that the warning that we shall lose influence if we do not sign up to the Maastricht treaty is exactly the same as the warning that will be given in 1997 when we refuse to sign up to the single currency, the central bank and central economic control? The same argument will hold. If we do not do it, we shall lose influence in Europe. That is not what the Government have in mind to do. There is an illogicality about their actions.

Sir Peter Tapsell : I agree with my hon. and learned Friend. If I might make a party political point on behalf of the Conservative party, I have never been able to understand the political thinking that, although we have theoretically opted out of the single European currency and economic and monetary union until 1996, we shall seize the nettle in 1996 on the eve of the next general election. When we do that, Lord Cardigan at Balaclava will look like a cunning strategic manoeuvrer by comparison with the Conservative party. The Whips alone will be asked to charge the guns.

Article 107 is the governing paragraph. There are an immense number of selected articles, paragraphs and protocols. I am not an expert on the treaty like many of my hon. Friends. I have been referred to several other subsections but it seems to me that article 107 is clear. It says :

"When exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies"

Sir Ivan Lawrence : Shall.

Sir Peter Tapsell : Indeed, shall--

"from any government of a Member State, or from any other body. The Community institutions and bodies and the governments of the Member states undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks."

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

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

Sir Peter Tapsell : I shall draw two conclusions from article 107, and then I shall give way.

First, the words seem perfectly clear. Secondly, new clause 1 and new clause 58 drive a coach and horses through article 107. With respect, I slightly differ on the new clauses we are debating from my hon. Friends the

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Members for Southend, East (Sir T. Taylor) and for Stafford (Mr. Cash), who made the point a few moments ago about these Labour amendments.

I shall deal with the provisions of the Federal and Reserve Board and the Bundesbank later. I am rather more familiar with them than with the treaty. However, the fact remains that we shall not be allowed to influence the European central bank in any way. Any body or individual which sought to do so could presumably be summoned before the European Court and punished by a fine.

Mr. Winnick : A few moments ago, the hon. Gentleman said that it did not make any difference whether the Bank of England existed under the proposed arrangements. Would not the same apply to the House of Commons? If such power is to be transferred, as undoubtedly it will be, what will be left to the House of Commons?

The hon. Gentleman read out article 107. Monetary policy will be decided in the way in which article 107 makes clear. The House could debate various matters in a county council way, but on major financial and monetary policies, power will have been transferred. Therefore, not merely the Bank of England but our parliamentary and democratic institutions are at stake.

Sir Peter Tapsell : I agree with the hon. Gentleman, who represents a part of England which I contested in my first by-election almost 40 years ago. He speaks with admirable black country good sense. May I add that one of the reasons why these debates take so long is that we all seem to prompt each other with helpful remarks. While I entirely agree with both the interventions that I have taken so far, they only delayed my speech. They echoed things that I intended to say rather less gracefully in my own speech. So if I am not to speak at inordinate length, I should be grateful to be allowed to put the anti-Maastricht case unassisted by my friends.

Mr. Leighton : I hope that I shall not take the hon. Gentleman away from his speech. He read out article 107, which says that the institutions must not seek to influence the central bank. Does he understand that to include the famous ECOFIN?

Sir Peter Tapsell : The hon. Member for Oxford, East quoted article 109. It says that the Council would have to be unanimous in acting on anything to do with the external exchange rate. I see the Financial Secretary shaking his head. I am not a lawyer. In any case, lawyers never seem to agree about anything in the treaty. If we have a single currency, it is difficult to envisage 12, 15 or 18 Finance Ministers agreeing on the correct external exchange rate for us all. In the past 18 months, we in Britain wanted a different external exchange rate from that which Germany wanted. I simply cannot envisage all the Ministers agreeing.

I shall press on with my speech now. I have quoted article 107. We are expressly forbidden by the treaty from ever seeking to influence the decisions taken by a group of unelected foreigners. Those decisions will have the most profound impact on the welfare, prosperity, employment and wealth of our constituents.

It is incomprehensible to me how the Labour party can have become sympathetic to the treaty. I have always been accused of being a left-wing Tory. I am proud of that. One of my characteristics throughout my political life has been

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my passionate concern to maintain the highest possible level of employment. I thought that the White Paper of 1944 which laid down a full employment policy and a target for unemployment of 3 per cent., and which was agreed by all the parties at the time, set the correct aim. It may be difficult to achieve, but it is the correct aim. It is absolutely certain that, if we enter into the arrangements for a single central bank and a single currency, the system will be banker- dominated, and levels of unemployment throughout Europe will for ever be much higher than most of us in Britain would want to see. Those on the Labour Front Bench must understand that, in supporting the financial provisions of the Maastricht treaty, they are voting for permanent high unemployment in Britain. I am not making a party political point ; it is my profound conviction that that is the certain consequence of the policy. I do not deny that it may have other advantages in terms of future inflation and so on, but I am absolutely certain that it will lead to permanent high unemployment in Britain.

Mr. Clive Betts (Sheffield, Attercliffe) : Is the hon. Gentleman saying that there is any realistic possibility for Britain as an independent nation outside the European Community achieving the full employment that he seeks as an objective? Is he saying that the alternative is to be outside the European Community in order to have any realistic chance of achieving those objectives?

Sir Peter Tapsell : I am not suggesting that we should leave the European Community. In 1961, I voted in favour of the original application to join the Common Market. I also voted in favour of the Single European Act and the acceptance of the treaty of Rome. Our membership of the European Community is not at risk.

I am convinced that, if we remain within the Community and the single European market, we can pursue an extremely successful industrial and financial policy trading with the whole world, and that we would have a much more successful role in that position than if we were part of a European monetary and political union.

Mr. Jenkin : Will my hon. Friend give way ?

Sir Peter Tapsell : I really must get on ; otherwise, I shall never finish. I have not even begun to approach the core of my speech.

Mr. Jenkin : Is my hon. Friend aware of a country which in 1966 took a negative approach towards the European Community in defence of its national interests and left an empty chair ? However, since then, France has established itself very much at the heart of the European Community. I saw an article written at the time by my noble Friend Lord Lawson pointing out that we could now join the European Community, as France had left an empty chair. Although France took an anti-communautaire attitude, it subsequently established itself at the heart of the European Community.

Sir Peter Tapsell : My hon. Friend is absolutely right. Of course, France will always be a leading state in the European Community, as will Britain. However, France has already suffered terribly from its franc fort policies and its continued membership of the exchange rate mechanism. Last Sunday, the people of France gave a clear

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indication of their feelings, which they will reaffirm next Sunday. My expectation is that there will be fundamental changes in French economic policy in the months ahead.

I am glad to see my hon. Friend the Financial Secretary in his place, because I want to refer to our friendly exchanges on 14 January, which underline my anxieties and the differences between the declared policies of Ministers, whatever their private views may be, and the views that I express in public.

As has been echoed by the hon. Member for Oxford, East and others, hon. Members, friends and business associates around the world have often asked me why I am so concerned about an independent central bank, when the United States and Germany have independent central banks. To my astonishment, Lord Lawson was apparently a secret believer in an independent central bank. Like the Prime Minister, he was part of a silent minority. Apparently there were a lot of silent minorities in Lady Thatcher's Cabinet.

As there are independent central banks in Germany and the United States, which are clearly democratic countries, people ask me why I am concerned that we cannot do the same in Britain and Europe. I want to address that argument.

6.45 pm

On 14 January 1993, I asked my hon. Friend the Financial Secretary :

"since, throughout our history we have never thought it right to establish an autonomous central bank, run by our own fellow countrymen, why should we now in any circumstances wish to set up an autonomous central bank run by foreigners"

My hon. Friend replied :

"If my hon. Friend takes the view that in no circumstances can he contemplate a monetary authority that is not, first, combined with economic policy and second, that is responsible 100 per cent. to the House, he clearly cannot in any circumstances support a single currency that circulates in 12 member states of the European Community. That is the consequences of taking such a position." As I said at the time, my hon. Friend the Financial Secretary puts matters with absolute clarity, and those words of his exactly express my position and the reasons for it.

He went on :

"It seems to me rather odd to argue that the United States or Germany are any less democratic as the result of the institutions that they have chosen to establish."

I said :

"May I define what I mean by autonomous? I mean a central bank that is not democratically accountable to democratically elected Ministers answerable to a democratic assembly. So even if we had a single European currency, I would argue strongly that we need to have a single European bank that is democratically accountable and answerable--and that is what we do not have in the Maastricht treaty."

My hon. Friend the Financial Secretary replied :

"I understand the point that my hon. Friend makes, but I invite him to design a workable system for a European central bank that is politically accountable to a European political process. I do not believe that it will be easy to do".--[ Official Report, 14 January 1993 ; Vol. 216, c. 1141- 42.]

That is absolutely true. It is not a question of it not being easy to establish a European central bank that is democratically accountable ; it is impossible. The Financial Secretary in effect admitted that. He may wish to qualify that answer when he replies to the debate, but I congratulated him at the time on his clarity. I should like to consider the word "independence". The present Governor of the Bank of England, for whom I have great personal regard and for whose recent personal

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bereavement we all feel extremely sad, said that he favoured an independent central bank, as did his nominated successor. I wonder whether they really mean what they say.

The word "independence" is often misused. The matter rests not on independence but on accountability. Real independence--that is, non- accountability to a democratically elected body or democratically chosen Ministers--is not possible in a democratic society, as my hon. Friend the Financial Secretary accepted in his reply to me on 14 January.

Let me turn first to the Fed in the United States, and examine to what extent it is really independent and unaccountable. I have had a lot to do with the Fed in the past 30 years. I have known the last four chairmen, and I think I know how the Fed works. I have been there perhaps 30 or 40 times in my life, and I have sat in on all sorts of functions there and attended congressional inquiries, and I feel that I understand how the Fed works. It bears not the smallest resemblance to the European central bank that is described in article 107, which I read out, and in all the supporting provisions of the Maastricht treaty.

In the United States of America, the Federal Reserve Board is wholly accountable to Congress. I invite Ministers to ask any governor of the Fed or any senior congressman or senator whether the Fed is accountable to Congress. The answer will be yes. The Fed was established by Congress, the law governing every activity of the Fed can be changed at any time by Congress, and the Fed remains wholly accountable to Congress. The governors of the Fed have a legal obligation to report to Congress twice a year.

That is why I do not dismiss out of hand new clause 1 and new clause 58-- because, much though I dislike the entire concept, if we were to have something like these Treaty provisions, new clause 1 and new clause 58--if it could be Europeanised, as it were, and not just a British provision-- would be some help towards moving the European central bank in the direction of what happens with the Fed in the United States.

Mr. John Butterfill (Bournemouth, West) : I am following what my hon. Friend says with great interest. Can he just enlighten me as to whether the Fed takes direction from Congress on the conduct of monetary policy or whether it retains an independence in its day-to-day actions in that regard?

Sir Peter Tapsell : It is extremely difficult to give a one-sentence answer to that. It certainly does not take direct instructions.

Mr. Hugh Dykes (Harrow, East) : Ah.

Sir Peter Tapsell : It is no good my hon. Friend saying, "Ah." Of course it does not take direct instructions like the Bank of England does. The Secretary to the Treasury in America does not stand up, as Lord Lawson, I think mistakenly, did, and announce that he has moved interest rates up or down. It always used to be announced by the Bank of England, and I think that it was a mistake when the Chancellor openly said that he was making the decisions. In any event, that does not happen with the Fed. On the other hand, in the way that I am going to explain, it is subject to tremendous and effective political pressures.

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The obvious example of that was at the beginning of President Reagan's first Administration, when there was considerable divergence of opinion on monetary policy between the Fed, most of whose members had been appointed by President Carter, and President Reagan. In the end, President Reagan got his way, but there was a very open debate in the United States, and the chairman of the Fed had to appear repeatedly before Congress and be cross-examined in front of the television cameras, with the whole nation watching and with all the commentators writing. In the end, the Fed came round to accommodate the Reagan economic policies. That is roughly how it works. I am not suggesting that the Fed takes instructions from the Secretary to the Treasury--the system in America is different--but it does not destroy my argument that the Fed--

Mr. Dykes : It does destroy the argument.

Sir Peter Tapsell : My hon. Friend says that it destroys my argument, but it does not, for reasons that I will explain. The Fed has a legal obligation to report to Congress twice a year. The report is published. The chairman of the Fed is summoned before a congressional committee and is cross-examined at length and in detail on television. These are the basic legal requirements in the United States.

In practice, the chairman of the Fed is frequently questioned by Congress, and usually in front of the television cameras--more than once a month. A former chairman of the Fed complained to me a few years ago that an excessive amount of his time throughout the year was taken up in preparing for congressional interviews and cross-examination, because he was concerned that he might inadvertently, under questioning, mislead markets as to his real intentions. He said that it was very difficult to appear for two hours before a congressional committee and say nothing, which was his intention.

So, far from the chairman of the Fed not being accountable, he is extremely accountable in all these ways, and none of this bears the smallest resemblance to the arrangements in article 107, where nobody is supposed to be allowed to bring any pressure to bear at all on the operation of the European central bank.

Mr. Forman : I am following my hon. Friend's magisterial speech as closely as I can. Is it not a fact that there is much in the arrangements that have evolved in the United States which is not only attractive in regard to what it does for genuine parliamentary accountability in this area but could provide a model for the future development of the European Community? What I have in mind is a matching of the degree of ex post accountability to the European Parliament for the European system of central banks in future with a similar, transparent accountability, again ex-post, to this Parliament for our own, more independent, central bank in this country. Will my hon. Friend accept that it could be a viable model for future development towards European monetary union?

Sir Peter Tapsell : I agree with my hon. Friend in the points that he has made. If we were to have a European central bank and European union- -I am against both concepts--the Fed would be a much better model for us to take than the unworkable, totally undemocratic and unaccountable arrangements set out in the Maastricht

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treaty. But it is the Maastricht treaty that we are debating, after all, and we have no amendment before the Committee, suggesting that the European central bank be modelled on the Fed. I would be making a rather different speech if that were the case.

The Fed's inability to manoeuvre in exchange rate policy, even short term, is also a major constraint on its independence. The hon. Member for Oxford, East mentioned the fact that this European central bank would not have such complete powers in exchange rate policy as it would have with the internal currency. That matches the arrangements of the Bundesbank. People often point out that the Bundesbank is not as independent as it seems, because, when the two Germanies came together, Chancellor Kohl was able to override President Po"hl's well known wishes about the exchange rates between the two Marks. The same thing happened with the Anschluss in 1938 under the Reichsbank, when Hitler insisted on a much closer relationship between the Austrian schilling and the German deutschmark than the Reichsbank, under Dr. Schacht, wanted, but that is a different point.

Having no responsibility for exchange rate policy at all greatly limits the Fed's powers in the monetary sphere. As I understand the Maastricht treaty, the European central bank would have much more control over exchange rate policy than has the Fed in the United States, where it is specifically excluded from exchange rate policy. If Congress were to decide that it did not like the way the Fed behaved, at any time it could change the law governing the Fed's activities. But the House of Commons would not be able to do that once the provisions of this treaty came into force. No doubt, if the 12 or 15, or more, nation states that made up the European union ever agreed on a change, it could be brought about, but it is quite unrealistic to suppose that this House alone would be able to make any significant changes to the working of the European central bank. So there is another great difference between the relationship of the Fed to the democratic assembly to which it is answerable and the relationship that the European central bank would later have to this House or this country, or even to the European Community. Article 107 of the treaty would be anathema to Congress. It would be inconceivable, intolerable and unacceptable if it were to be applied to their own union of states. So why, I ask, do we think that it is acceptable for us? When the Financial Secretary asked me on 14 January why, when the United States had an independent central bank in the Federation, I was worrying about a central bank for Europe, that is the American part of my answer.

Sir Peter Hordern (Horsham) : Perhaps that is one reason why the protocol states that article 107

"shall not apply to the United Kingdom."

My hon. Friend may care to reflect on that.

I totally accept that the Federal Reserve Board is accountable to Congress, which treats it in just the way that he describes. However, I think he gave the Committee the impression that there was a glorious period for most of our history when we were totally independent--we had our own way of fixing our currency and were independent of any other country. May I remind him that we were members of the Bretton Woods agreement and were wholly dependent on the United States dollar and the Federal Reserve, and had no independence of any kind?

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7 pm

Sir Peter Tapsell : On the first of my hon. Friend's two points, I accept that, because of the opt-out aspect of the protocol that he referred to, we are not governed by that article. As he will know, however, we have to seize that nettle in 1996. Earlier, I pointed out the great political disadvantages if the Conservative party has to go through all these appallingly divisive arguments again on the eve of the next general election. To contemplate doing so would seem to be madness in party political terms, but that is what we are doing by putting off the decision until 1996. That is one reason why I have thrown in my lot completely with the anti-Maastricht group. It is better to get the argument out of the way now, in the first year of this Parliament, than to go through it all again in its last year. On the question of how independent Britain has ever been, obviously its independence has varied enormously. Prior to Napoleon's Berlin decree codifying the continental system, people were telling Pitt that he had lost independent control of the British currency. It is true that, under Bretton Woods, because of the acute dollar shortage after we had sold our assets all over the world to pay for the war, we were to a large extent in tutelage to the United States, but we escaped it. My hon. Friend the Member for Horsham (Sir P. Horden) suggests that we should now put ourselves in tutelage to the Bundesbank and the German mark, in replacement of the United States currency. I have the highest regard for the United States, but I do not wish us to be one of its colonies ; nor do I wish us to live in a German colony.

Everyone talks as though the Bundesbank were such a marvellous organisation that we all ought to model our banks on it. Indeed, I understand that other European countries, such as France, Portugal and Spain, are busy rewriting the provisions for their central banks, with the help of Bundesbank officials, to model them on Bundesbank lines.

One of the things to remember about the Bundesbank, as it is presently constituted, is that it is far more accountable--in the best sense of the word--than the proposed European central bank. Earlier I described what I meant by independence. The Bundesbank is much more accountable than most people realise. For instance, the German Minister of Finance always attends its board meetings, and although he does not have a vote at its council meetings, he is permitted to speak.

I understand from German friends who have held the position that the Minister of the day often speaks at length and with great force at such meetings. He also has the constitutional right to propose motions, although he cannot vote on them, and he can request that the delay of a decision by two weeks. All those are important aspects of accountability, which are built into the Bundesbank's provisions and there are other more technical arrangements, but I shall not weary the House with those.

None of that accountability is written into the Maastricht treaty for a European central bank and there is not even a suggestion that the President of the Council of Finance Ministers can attend its meetings, address it, ask it to do this or that, or to delay a decision for a fortnight. If one is to believe article 107, the bank will not be accountable to anyone.

Mr. Barry Legg (Milton Keynes, South-West) : Another important difference between the Bundesbank and the

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European central bank is that the former works with the grain of German public opinion, but a European central bank will not be answerable to any public opinion, because there is no European public opinion as such.

Sir Peter Tapsell : Yes, the latter part of my hon. Friend's comments is true, but I would not presume to comment on the extent to which the Bundesbank operates with the grain of German public opinion. A number of leading German industrialists have been critical of its monetary policies during the past 18 months. The chairman of Deutsche Bank has publicly criticised it, so there is no unanimity, in Germany even, about the wisdom of the Bundesbank's monetary policies. There is no doubt that, for historic reasons, the Bundesbank enjoys enormous prestige in Germany, but that does not mean that it commands universal support for all that it does. Directors from the German regional central banks outnumber the Bundesbank's directors. The appointment of regional directors has a strong political element, and they feel politically beholden to the people who have appointed them, who are the Mayor Daleys of the German provinces. I do not know any German, but I think that they are called the la"nder--as most of them are borrowers, I find that confusing. The regional directors are expected to champion the economic interests of their region, and they do so.

As the Chancellor of the Exchequer discovered to his dismay before 16 September, on their way to Frankfurt to attend meetings, the regional directors give little press conferences designed to show their local Bavarian newspaper or wherever what good chaps they are. This may not help the Finance Minister of another country who is desperately trying to protect the parity of his currency. Nevertheless, that is an example of the fact that the Bundesbank is a good deal more accountable than it appears on the surface. The central bank that I know best is the Bank of Japan, although it is not often mentioned. The Japanese economy has been rather a success story--although it is going through a difficult patch--during the past 25 years, but we hardly ever hear the Bank of Japan quoted as an example for us to model ourselves on. That bank is wholly subordinate to the Japanese Government. The present governor of the Bank of Japan is a distinguished former Treasury official, and he does exactly what the Japanese Cabinet tells him to do. So there is no proof that independence and non-accountability alone or necessarily produce great economic success.

King William III, who was a Dutchman--perhaps the Dutch have a flair for that sort of thing--established our central bank to be independent but accountable, and to be run by our fellow countrymen. Ten of the 11 other member states have always followed suit and have had accountable central banks.

We are told that the Chancellor sings in his bath, but I have less operatic tendencies when I am in my bath. Sometimes I lie there and wonder how we can be prepared to hand over the control of our central bank to a group of foreigners under German domination. I wonder what King William III would have thought about that when he drew up the original charter for the Bank of England

"to promote the public good and well-being of our people"

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of our people. We may be sure that the Bundesbank will never allow a European central bank to manage and issue a single currency which, whatever its name, is anything but the deutschmark in disguise. That is a political and economic fact of life. Nor do I blame it for that. If I were German I should certainly hold that view.

Would any German banker in his senses, or, for that matter, any German citizen or saver, want to have the value of his money--his savings and his wages--determined by a secret compromise with the Greek, Italian and Portuguese directors of the European central bank, whose main interest in the Community is to receive handouts from the richer countries and to protect themselves from their own politicians, for whom they have the utmost contempt? To anybody who has ever moved in the real banking world, the idea is absolutely preposterous. With the great influence of the Whips Office, it is certain that, if the Maastricht provisions for a central bank ever come into force, they will rapidly prove to be totally unworkable.

The history of ideas is always significant and worthy of study. As a boy, I trained as an historian, and reading history has always been my main hobby. When one is told that there is nothing so irresistible as an idea whose time has come--which is what people say, or used to say, about European monetary union--I like to think about the history of the idea. We have all read Marx and Engels--at least, Conservative Members have--and we have all wondered how different the Communist utopia would have been if the first Communist revolution had occurred in some country other than Russia. Chinese leaders have made this point to me. Marx clearly hoped that it would occur in Germany. Thankfully for all of us, it did not.

We ought to reflect where the idea of European monetary union originated. The more idealistic souls among us seem to suppose that European monetary union was the brainchild of that nice M. Jean Monnet. In fact, it was the brainchild of the rather less nice Herr Walther Funk.

The First Deputy Chairman : Order. The hon. Gentleman is making an excellent speech, but he is straying from the subject of the debate. [ Several hon. Members :-- "No."] Order. The Chair says that the hon. Gentleman is straying.

Sir Peter Tapsell : I shall come straight back to order, Mr. Lofthouse.

The First Deputy Chairman : I shall be very grateful.

Sir Peter Tapsell : Herr Walther Funk was the president of the Reichsbank, the predecessor of the Bundesbank, from 1939 to 1945. My point is that Funk originated the whole concept of European monetary union, which is what we are debating. Surely, therefore, I am very much in order.

European monetary union was not dreamed up by M. Jean Monnet, an idealistic European ; the idea was floated in July 1940 by Walther Funk, who was a drunken, homosexual Nazi toady and was subsequently sentenced to life imprisonment by the Nuremberg tribunal. In July 1940, just after the German panzer divisions had overrun western Europe, Funk circulated a number of documents on European monetary union. These are all set out in the recently published excellent book "The History of the Bundesbank" by the distinguished financial journalist

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