House of Commons Hansard Debates for 24 Mar 1993

Mr. Winnick : It is possible to argue that if, during the 18 months leading up to a general election, a Government decided to adopt certain measures that might help them to be re-elected, and that involved more public spending, what my hon. Friend suggests could happen.

However, when I said that a country could be in a humiliating position, with its Ministers having to grovel, I meant, of course, that those Ministers and that Government would represent the people of this country. I do not believe that there is any mandate for us so to abandon our economic sovereignty in the manner outlined in the articles.

I am working on the assumption that Governments would be reluctant to raise taxation anything like enough to cover a deficit such as the present United Kingdom deficit, and that would mean not less unemployment but more. I have great respect for my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts). He and I usually agree, but this is one issue on which we disagree. None the less, I know that my hon. Friend is no less committed than I to trying to end, or at least substantially to reduce, the curse of mass unemployment, I shall refer to my hon. Friend's maiden speech now, and I hope I am not embarrasing him by doing so, because this is the second time that I have mentioned that speech ; the other was at a party meeting. In that speech, my hon. Friend said that he was entering the House at the age of 42--an age at which so many of his constituents were not only unemployed, but had probably given up hope of ever being able to work again. My hon. Friend is fortunate, as we all are, to be able to continue in employment. But if we in the Labour party are not concerned about unemployment, what could we possibly be concerned about? I do not question the commitment of our Front-Bench spokesmen to ending or substantially reducing mass unemployment, but how can we argue with any real conviction in favour of measures to try to reduce unemployment and end the curse affecting so many people in Britain and throughout the European Community while at the same time agreeing to measures that would involve a substantial cut in public spending? I do not understand it.

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I have already said that Britain is likely to have a deficit of 8.2 per cent. To get anywhere near the 3 per cent. limit, we should need billions and billions of pounds' less of public spending. That is why I believe that we should be very critical indeed.

My right hon. Friend the Member for Chesterfield (Mr. Benn) argued that, if people have no recourse, as they may not if the treaty is ratified, they may riot. I do not know whether they will riot or not ; circumstances differ. [ Hon. Members :-- "Nonsense."] What I do know is that, if the House of Commons loses its authority on such fundamental issues, it will be perfectly understandable if people conclude that voting makes very little difference and that the House of Commons makes little difference.

At the moment, when people are dissatisfied, they write to their Member of Parliament. Of course, they work on the assumption that, especially if their Member of Parliament is an Opposition Member, not much will come of it, but at least they know that we will do our utmost and that, ultimately, if the Government who are in office want to act, they can do so : power resides here in the House of Commons. It will not reside here if the treaty comes into force.

Mr. Bill Walker : The hon. Gentleman has been in the House some time. He will have witnessed the feeling among hon. Members on both sides of the House who represent peripheral parts of the United Kingdom, especially Northern Ireland and Scotland, that the House does not fully understand the aspirations of the people in those parts of the United Kingdom. The hon. Gentleman should consider what implications there would be for the unity of the United Kingdom if those people felt that Parliament had no purpose because it had lost all control of finances. Does the hon. Gentleman really believe that that would not lead to some kind of unrest outside?

Mr. Winnick : The hon. Gentleman is right to suggest that people already feel that Whitehall, the Government and the rest are rather remote from their ordinary lives. One of the purposes of writing to a Member of Parliament is that that Member of Parliament then writes to the Minister : there is a reply setting the position out in detail, which one sends on to one's constituents. In other cases, of course, one brings the battle to the House.

I do not want to be provoked, but I am rather concerned because my hon. Friend the Member for Liverpool, Walton (Mr. Kilfoyle) said a moment ago from a seated position that I was talking nonsense. If I am talking nonsense and my hon. Friend is disagreeing that such powers will be taken away, perhaps my hon. Friend would care to intervene and explain why he thinks I am talking nonsense. Has he read article 104c ? Why does he conclude that my thesis--that the House and therefore the country would lose tremendous economic power that would be transferred elsewhere--is wrong ?

Mr. Peter Kilfoyle (Liverpool, Walton) : The utter nonsense to which I was referring was the suggestion that there would be riots in the street over Maastricht. I have no evidence of that, and neither has anyone else in the Committee. That is the utter nonsense to which my hon. Friend refers.

Mr. Winnick : I am glad that I provoked my hon. Friend into intervening. He misunderstood me. [Interruption.] I do not know what sarcastic comment my hon. Friend

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wishes to make, but perhaps he will be courteous enough to listen to my reply. I hope that we can conduct this debate in a courteous manner. I have respect for my hon. Friend, as I had respect for his predecessor, with whom I also sometimes disagreed.

It is not part of my argument that people will riot over what we are debating, and if I did not make my position clear, I apologise. I am simply saying--my right hon. Friend the Member for Chesterfield said it with greater emphasis--that, if the treaty comes into force and power is transferred, as it will be, and people find that the House of Commons cannot deal with issues, a certain situation may arise. We must consider what view people will take if there is much concern over mass unemployment and so on. I do not want rioting to occur.

I have always defended some of the scenes that take place in this Chamber. People often ask why there is so much noise at Prime Minister's Question Time and on other big occasions. Far better, I say, that the outlet for the noise should be here than on the streets. When there is controversy--over, say, the poll tax--the divide is great, there will be scenes that some people do not like but which do not bother me. But I assure my hon. Friend that I am not suggesting that people are rioting or even that they are writing letters about what we are debating. I am pleased to have resolved any misunderstanding that may have existed.

Mr. Cash : Is the hon. Gentleman aware that we could be in grave danger of underestimating the consequences of what might happen if this massive arrangement for convergence were brought into effect? Already people in France are rioting over the lamb question, and there is the fishing situation. Difficulties have arisen in Italy and there are problems in Rostock and Frankfurt. The problems in Russia are getting more worrying, and there is Bosnia, Kosovo and so on. All will be exacerbated by an implosion of the arrangements for economic and monetary union, which will disintegrate just as the exchange rate mechanism has disintegrated. With voluntary euthanasia by national parliaments and, as the hon. Gentleman says, without any means of redress, people will have no base point to which to refer. They will not be able to vote people out, and they will certainly not be able to turn out the bankers.

The First Deputy Chairman : Order. Perhaps we can have more about finance and less about riots.

Mr. Winnick : Rather than pursue a course of action that will not help to resolve the problems of Europe, we should be spending our time, at Community level, dealing with the problems of Europe, inside and outside the European Community.

Mr. Nicholas Winterton : Does the hon. Gentleman agree that, if people lose the ability to influence matters and decisions close to them, affecting their everyday lives, because of the inability of this place, through its economic policies, to respond to people's aspirations and expectations, then in due course, following the build-up of frustration, the sort of situation to which reference has been made--of people going on to the streets--could occur?

While the hon. Gentleman may not be receiving letters about the treaty, I am receiving at least a dozen a day,

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99.9per cent. in favour of the anti- Maastricht stance that I have taken. They come not just from my constituency but from all parts of Britain.

Mr. Winnick : Those are valid points, which go to the core of the article and the protocol which we are debating. What are the roles and functions of the House of Commons? Certainly, it is an outlet for grievances. It is a way in which constituents can express their concerns and we can echo those concerns, as we do daily at every opportunity.

Above all else, the function of the House of Commons is the supply of money. All the battles which took place for the supremacy of the House of Commons against the sovereign and so on were, to a large extent, involved in that issue. If the treaty goes ahead and steps are taken before the third stage--whether we go for economic convergence or not--what will be the function of the House of Commons? However much we may wish to pursue policies--even if the Government of the day take the view that such policies are desirable--if the Government know that they will go over the spending limit and, in so doing, be brought before the Commission and the Council, it is clear that they must take the view that they cannot do what they may wish to do and what they may consider desirable.

Although we are debating the deficit and so on, the core of the matter is the future of the House of Commons and Parliament. I do not wish to say that the House of Commons will have no functions and will virtually close down if the treaty is ratified. To exaggerate the position would be bad enough.

If the powers to decide how the money is spent, what polices are pursued and so on are removed, what are we left with? Effectively, we will be left with the same powers as those of an existing county council. That would be a great disservice not only to ourselves--after all, we are but the servants of our constituents--but to the people of the United Kingdom who, over centuries, struggled to obtain the sort of parliamentary democracy which we have and which I greatly value. I hope that other hon. Members also value it.

As my remarks were not meant to be lengthy, I shall conclude with two points. Unemployment is perhaps one of the most important and crucial issues at present. The hon. Member for East Lindsey (Sir P. Tapsell) referred to the 1944 White Paper on employment. It is interesting to note the last speech of Lord Merlyn-Rees in the House of Commons, which was excellent. It was one of the best speeches he ever made. Anyone who did not listen to it should read it. He specifically referred to the need to go back to the values of the 1944 White Paper on employment and the emphasis which existed just before the war ended, and said that the curse of pre-war unemployment should not return to the United Kingdom, which it has now done. If one takes the view that we should return to as near full employment as possible, the remarks of Labour Members and the criticisms of some Conservative Members would be of little value if policies along the lines which we are debating were pursued. Such policies would make it virtually impossible to go back to what was intended in 1944 and what was carried out for some 25 or 30 years. Therefore, it would be wrong to look on article 104c as a technical, academic matter which is not of great importance and which we are using for mischief. The policies that we want to see to end mass unemployment,

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provide necessary spending on health and welfare and ensure that the people most in need in our country get their right due are related to this issue.

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The Liberal spokesman, the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy), obviously takes a different view. If he is so critical--as I know he is--of mass unemployment, he should recognise that he is defending a policy which would make it so much more difficult, if not impossible, to end the curse of unemployment in Britain.

I regret that we are debating the Bill at this hour. I have mentioned that before, so I shall not repeat it simply because there has been a change of occupant of the Chair. It is disgraceful that such matters should be debated at 5 o'clock in the morning. I hope that I shall not be seen as unduly critical of other hon. Members on both sides of the House--I am not criticising one side in particular--when I say that it is unfortunate that they have not taken a greater interest in the debate.

I know that Labour Members' commitment to the policies about which I have spoken is no less than mine. They have campaigned in their working and political lives no less than I have done. But in so far as they may be sympathetic to Maastricht and all that goes with it, they should recognise that so much of what they want to see done for the British people, will be undermined if the treaty goes ahead. The hon. Member for Stafford (Mr. Cash) said in an intervention at the beginning of my speech that the treaty was a substantial step towards a federal Europe. I agreed. It is a step towards a united states of Europe. Those who are in favour of that, including Ministers, have not the honesty openly to declare what they want. In a federal Europe, we would lose even more political and economic independence than we would lose under the Maastricht treaty. When I look back on my life, I value my working life because I have had the honour and privilege to be a Member of Parliament, however much people disagree with some of my remarks and however much I may cause upset. I hope that it will continue for many years to come. The House of Commons has achieved powers and privileges over the centuries. The House of Commons is the forum of the country. It gives me no pleasure to be in the House of Commons at a time when so much of what we have achieved over the centuries is being undermined by a treaty which I most ardently believe to be against the interests of Britain.

Mr. Dorrell : When he moved his amendment, the right hon. Member for Bethnal Green and Stepney (Mr. Shore) made it clear that this group of amendments dealt with the other side of the coin from the group immediately before. The former group addressed the institutional arrangements that would be necessary for the conduct of monetary policy if there was a single currency in the member states and in Britain.

This group of amendments deals with the arrangements for the conduct of fiscal policy in the context of the introduction of a single currency. As I said in the last debate, it follows as night follows day that, if there is a single currency, it is necessary to have a single monetary

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authority. Therefore, it must follow that the authority is divorced at least to some degree from the member states of the Community. There is unanimity among Members of all parties that, even if there is a single currency managed by a monetary authority and divorced from the member states, the fiscal side of economic policy making should remain the responsibility of member states.

The purpose of the right hon. Gentleman's amendments is to remove from the treaty the qualifications on the responsibility for fiscal policy which rests on the individual member states. Under the terms of the treaty, the main responsibility for fiscal policy, even at stage 3 of monetary union, rests with the member states. It is, however, a responsibility that is qualified both in article 104c and in the protocol that is supported by the article.

The debate on the effect of the article has proceeded on very much the same basis as the debate on the implications of introducing a single currency. It has been based on a similar leap of logic, because it has tended to concentrate on the implications for sovereignty and for the power of the House of the full effect of article 104c as it would apply if a single currency were introduced and we moved to stage 3.

It is therefore necessary to restate the proposition that Britain has given no commitment to move to stage 3 of economic and monetary union as defined in the treaty. We have given no undertaking to introduce a single currency. The House will have to address another time the question whether we would accept the full force of all the paragraphs of article 104c. It is not a question that we have to address later tonight.

Mr. Cash : Will my hon. Friend explain something that so far no Minister has sought to explain or, I believe, can explain? There is another protocol immediately adjacent to the stage 3 protocol--I am glad that the Minister is looking it up as I shall quote parts of it verbatim--that states that we shall not exercise the veto in respect of other member states' movement towards stage 3, that it will be irreversible and irrevocable and that we, as a member state, have agreed to it.

Does my hon. Friend agree that if we have agreed that we will be at the heart of Europe but that we will not prevent other member states from going ahead with stage 3 we are locking ourselves into an arrangement that necessarily presumes that we will go down that route? The decision that the protocol refers to as our so-called opt-out is no more than a fig leaf. It is a clever fig leaf, but it will not kid us.

Mr. Dorrell : I do not accept my hon. Friend's proposition. He seems to be confusing a treaty obligation set out in a protocol not to obstruct the development of monetary union on the part of other member states with a rhetorical flourish used by my right hon. Friend the Prime Minister to describe his frame of mind in approaching European policy. The frame of mind of my right hon. Friend the Prime Minister is of considerable interest and importance to me and, I would hope, to my hon. Friend, but it does not constitute a treaty obligation.

The treaty obligations are set out in the document to which my hon. Friend and I have access, and the protocol on the United Kingdom set out on pages 114-15 of the treaty states clearly :

"The United Kingdom shall notify the Council whether it intends to move to the third stage".

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It also sets out clearly in the context of that protocol what the implications would be if we decided not to move to stage 3 of monetary union.

Mr. Cash : The Minister must reply to my point about the protocol of transition to the third stage of economic and monetary union. If, as a member state, we are a high contracting party and, together with the other member states, we declare the irreversible character of the Community's movement to the third stage of economic and monetary union stating that it is irreversible and irrevocable, surely my hon. Friend is bound to admit that we as a member state have said that we would go down that route.

Mr. Dorrell : With respect to my hon. Friend, that is a rather different point. He was quoting the phrase that our right hon. Friend the Prime Minister has used about his desire to pursue a policy based on the proposition that we should be at the heart of Europe. That is a rhetorical flourish not found anywhere in the treaty.

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As regards the question of the irreversible character of the Community's movement to the third stage of economic and monetary union by signing the new treaty provisions on economic and monetary union, the treaty provisions in this document set out a total package, and part of the package is the following protocol on the position of the United Kingdom. The protocol makes it abundantly clear, in words that do not, frankly, require a professional lawyer to interpret them, that the United Kingdom has preserved for itself a freedom to join or not to join a single currency, that decision to be made by the United Kingdom in accordance with arrangements that we make for ourselves and which are set out in the Bill which the Committee is considering.

Mr. Malcolm Chisholm (Edinburgh, Leith) : I accept what the Minister is saying about stage 3. Strictly speaking, he is saying what is stated in the words of the treaty, and I accept that because I am interested in looking in detail at the words of the treaty. The question that I want to ask him is about stage 2. Are the Government fully committed to implementing--

The Chairman : Order. The hon. Gentleman is anticipating. He specifically said that he wished to ask a question about stage 2, and the next debate is about stages 2 and 3. I imagined that he would be trying to catch my eye in the next debate. Perhaps he would like to rephrase his question.

Mr. Chisholm : I am talking about budget deficits because in stage 2 there is an undertaking to get budget deficits down, and most of article 104c actually refers to stage 2. Are the Government committed to all the parts of article 104c, apart from paragraphs 1, 9 and 11 ? A related question would be about the exchange rate fluctuation : are the Government committed to getting back into the ERM at the narrow bands in stage 2 ? That is what I am interested in.

Mr. Dorrell : The question about exchange rate fluctuations is a question on convergence criteria and the effect of convergence, which really arises in the next group of amendments. As regards the hon. Gentleman's straight question--whether we acknowledge that article 104c, with the exception of paragraphs 1, 9 and 11, applies to us in the

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course of the stage 2--the answer is that we do accept it. Article 104c.1 is substituted in stage 2 by the provision in article 109e.4, which is that, during the second stage of the progress to economic and monetary union as defined by the treaty,

"Member States shall endeavour to avoid excessive government deficits."

The introduction of the word "endeavour" makes the obligation at stage 2 significantly different from the obligation in stage 3. I want to describe percisely our obligations in stage 2. There is a lead obligation to endeavour to avoid excessive budgets deficits and during stage 2, as the hon. Gentleman quite rightly pointed out, the teeth, when it comes to making the obligations in article 104c compulsorily applicable, are drawn, because the teeth of article 104c are to be found in paragraphs 9 and 11 of the article. The other paragraphs of the article interpret the meaning of the phrase "excessive government deficits", and the obligation that we accept in stage 2 of the progress to economic and monetary union, as defined by the treaty, is an obligation to endeavour to avoid those deficits.

Mr. Winnick : As the Minister states, the appropriate paragraph reads

"Member States shall endeavour to avoid excessive government deficits"

in the transitional stage.

Is it the Government's wish, as far as possible, to bring the deficit to 3 per cent. in the period between ratification of the treaty and 1996? If so, what are the implications for public expenditure cuts?

Mr. Dorrell : I shall discuss the impact of the reference values in a moment. Government policy is in line with the treaty obligation which we wish the House to bless and which we wish to sign up to--to endeavour to avoid excessive budget deficits. I will describe how the reference values inform that commitment.

Sir Teddy Taylor : So that we may know exactly what Government policy is, if the Council makes a recommendation under paragraph 7 of article 104c, naming a time limit, would the Government endeavour to seek to achieve that budget deficit within the given time ? It is important for people to know the Government's intention. We accept that they are not legally bound by paragraphs 9 and 11, but if the Council recommended that Britain do something specific with the budget deficit within a specified time, would the Government seek to achieve it ? It would be helpful if the Minister were to answer that question.

Mr. Dorrell : If the Government found themselves in receipt of an opinion issued under paragraph 7, we would seek to avoid excessive budget deficits, not primarily because of the opinion received under the paragraph but because we think that the policy commitment is sensible in its own terms, for reasons that I shall describe. I will return to that theme because it is relevant to discussion of the treaty of Maastricht and to the great majority of what a Treasury Minister spends his life doing.

I do not accept the argument advanced by the hon. Member for Walsall, North (Mr. Winnick) that a choice must be made between the delivery of social objectives and the avoidance of excessive budget deficits. The two

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propositions go hand in hand and, for reasons outwith the treaty of Maastricht, it is Government policy to seek to avoid excessive budget deficits.

Mr. Nicholas Winterton : I am aware that my hon. Friend has certain business experience. He has just mentioned his responsibilities at the Treasury, but may I direct my question to him as a business man ? Can he not foresee a number of occasions when a business and perhaps the Government, of which he is a member, might need a budget deficit in excess of the 3 per cent. of gross domestic product specified in the treaty and the Bill ; but find that they are restricted ? We might rightly need that deficit for a good purpose.

Mr. Dorrell : Yes, I can envisage such circumstances, for example, in 1993-94 when we shall want to be in excess of the reference level values. To suggest that there is some automatic level beyond which we cannot under any circumstances go is a misrepresentation of the treaty, and I will deal with that when I discuss the effect of reference values within it.

In stage 2, we undertake the commitment to endeavour to avoid excessive budget deficits. We are not subject to sanctions in the forms provided for in paragraphs 9 and 11 and, therefore, it is true to say that we have accepted a treaty obligation which, to some extent, diminishes our national responsibility for fiscal policy. None the less, it remains true that responsibility for fiscal policy rests with the member state and, furthermore, in the exercise of that responsibility, the state or the United Kingdom Government and institutions cannot be liable to any sanction arising from the treaty.

If, as a matter of political choice, within the terms of the treaty and of the Bill, the Government, with the consent of the House of Commons by way of an Act of Parliament, as is provided for in the Bill, were to decide to move to the third stage of economic and monetary union, the nature of the obligations taken on with regard to excessive budget deficits would, of course, change. If we go down this road--the issue is obviously one that the House of Commons will consider when deciding whether to do so--our treaty obligation will change. It will cease to be an obligation to endeavour to avoid excessive budget deficits--as a former Whip, I am very familiar with the words "best endeavours"--and will become an obligation, set out in paragraph 1 of article 104c, to avoid excessive deficits. Furthermore, the sanctions provided for in paragraphs 9 and 11 will apply to the United Kingdom.

There is no denying that that is a clear limit, defined by the treaty, on the proposition that fiscal policy will remain the responsibility of member states. In a moment, I will explore the precise nature of that limit, but it clearly is a limit defined in a treaty. I do not, however, accept for one moment the development of that proposition put forward by hon. Members who say that because the national responsibility of member states for fiscal policy is qualified, there is no meaningful responsibility left with the member states. There is a qualification, but it is not true to say that responsibility has shifted. The qualification is defined by treaty, under which responsibility clearly remains with the member states.

Dr. Godman : May we take it that, while some of the United Kingdom's immunity against the imposition of

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sanctions by way of paragraph 11 survives, the United Kingdom will not sit in judgment on a state that is being examined because of its failure to adhere to these regulations? Will the United Kingdom take part in the disciplining of another member state when, or if, it loses or gives up its immunity?

Mr. Dorrell : As I said in an earlier intervention, my understanding is that when the Council is reaching decisions about those questions, it meets as the �Council of Ministers, and not as any special body, and that all its members, whether or not they are in stage 3, are entitled to participate within the terms of the article. I am sure that if that information is incorrect I shall be appropriately advised so that I may inform the Committee.

Mr. Nicholas Winterton : Is not my hon. Friend accepting that if and when we go to stage 3 the Government of the United Kingdom will be put into a straitjacket--and I mean a straitjacket--as the only possible action, if we perceive a budget deficit beyond the 3 per cent., will be to raise taxation? In fact, the Government will not be able, in stage 3, to do what the Chancellor has done this year. Is this the sort of decision that my hon. Friend believes is right for the country? Mr. Dorrell : I am about to explore the precise nature of the obligations that we would be assuming. It is the Government's objective to avoid excessive Government deficits--I hope that I share that commitment with my hon. Friend the Member for Macclesfield (Mr. Winterton).

When he introduced the debate, the right hon. Member for Bethnal Green and Stepney correctly drew attention to the fact that the provisions of article 104c do not provide for automatic application of limits, either to budget deficits or to the relationship between gross Government debt and GDP. The reference values set out in the treaty are not commitments. The treaty's commitment is to avoid an excessive budget deficit.

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Article 104c.3 clearly sets out the consequence of a failure to fulfil a reference value. It is not to declare that an individual member state is in default of its treaty obligations. The result of an individual member state's failure to satisfy the reference values is set out in paragraph 3, where it states :

"If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report." That is the beginning and the end of the precise consequences of failure to satisfy a reference value. The paragraph goes on to discuss the issues that the report prepared by the Commission has to cover if a report is occasioned by the failure of a member state to satisfy the reference criteria.

Ms Abbott : Much has been made of the specific concrete sanctions in article 104c, but long before fines and votes were encountered, would not the very fact that a negative report had been prepared and possibly published lead to the country involved starting to lose access to the capital markets and capital flows ? Rather than focusing on the end of the road, would it not be better to focus on the beginning of the road, where a country that was not hitting its deficit targets would be in a position similar to those countries that receive a bad report from the International

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Monetary Fund ? The IMF does not have to impose concrete sanctions ; the minute the international capital markets are aware that a country is failing its IMF tests, capital flows, whether from multinational institutions or commercial banks, cease to enter that country. We can harp on about the sanctions to the exclusion of looking at what would happen naturally in the market if a country were perceived to be failing its tests, whether at the second or third stage.

The Chairman : That was a very long intervention.

Mr. Dorrell : The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) makes a good point. The truth is that, whatever the treaty of Maastricht says, the financial markets watch the performance, not merely of member states of the Community, but every member of the United Nations. The criteria set out in the treaty are well known to any operator in the sovereign lending market. The mistake of so much comment on the treaty obligation is to assume that, merely because the Commission is under an obligation to prepare a report, the Commission will necessarily come to the conclusion that failure to deliver one reference value constitutes an excessive budget deficit. There is no basis for that assumption. Article 104c.3 makes it clear that, in preparing the report, the Commission has to look at the values that are measured in order to assess reference values-- deficits and gross Government debt. But paragraph 3 also states that the Commission must have regard to the relationship between the deficit and Government investment, and it must also have regard--this is the key answer to my hon. Friend the Member for Macclesfield and to one of the issues raised by the right hon. Member for Bethnal Green and Stepney--to

"the medium term economic and budgetary position of the Member State."

The hon. Member for Sheffield, Attercliffe (Mr. Betts) got that exactly right. That provision not merely allows but requires the Commission to take account of the trade cycle in assessing whether a member state is running an excessive budget deficit.

The treaty recognises that budget deficits will fluctuate according to the state of the trade cycle. The key criterion is none of this mechanistic stuff but the words "an excessive budget deficit". In assessing that, the Commission and, on the basis of its report, the Council must look at the economic position in which a country finds itself. These are guides and there is nothing automatic about the conclusions to which they lead.

Mr. Chisholm : This matter is at the heart of the debate on budget deficits and it is important to examine article 104c 3. The last two lines of that are central to the reinterpretation of this part of the treaty. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) dealt with Government investment and said that, as it was only 2 per cent. of GDP, it was not very relevant to the argument. The key words in the article are

"the medium term economic and budgetary position".

The Minister and my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) are interpreting those words in a Keynesian way as if they refer to cycles and mean that sometimes we can have budget deficits and sometimes we cannot. But the thrust of the treaty is

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anti-Keynesian and does not mean that. It merely says that a year or two will be given to get the budget deficit down to 3 per cent. and then it must be kept there. It is not about Keynesian reflation and troughs and peaks and so on.

Mr. Dorrell : I will later discuss the supposed divide between Keynesians and monetarists. I sometimes wonder which side of that argument Keynes would have been on if he were alive.

I should like to deal with another question posed by the right hon. Member for Bethnal Green and Stepney. He asked whether the decisions of the Council, which are provided for in paragraphs 9 and 11 of article 104c are appealable to any Community institution. They are appealable in the normal way under article 173 of the treaty of Rome, which states :

"The Court of Justice shall review the legality of acts of the Council and the Commission other than recommendations or opinions." The provisions of paragraphs 9 and 11 are neither opinions nor recommendations and are therefore subject to review on the initiative of the affected member state.

Any hon. Member is legitimately entitled to ask why the provisions for confining the fiscal responsibility of a member state are in the treaty. I hope to give a clear answer to that question. Once again, I must ask the Committee to recognise that the provisions, when they have teeth, apply only in the context of a single-currency system. Those who will not accept under any circumstances a single currency clearly do not have a basis for engaging in the argument, because to be against a single currency means that one is against all the paraphernalia that goes with it. The provisions are part of that paraphernalia.

In the context of a single currency in the member states, every member state has a clear interest in avoiding excessive official borrowing because that would influence financial conditions in every member state. If some member states engage in such borrowing, it would lead to a distortion of capital markets and it is not difficult to see circumstances in which that distortion might lead to market turbulence which would damage the interests of every member state. It would in a sense introduce into the single currency area decision-making process precisely the market pressures to which the hon. Member for Hackney, North and Stoke Newington referred. We do not want the position where market operators can conclude that sovereign borrowers within a single currency area have collectively become a bad risk. If we enter that world, the countries within a single currency region would collectively run a serious risk of damaging their interests as a result of market turbulence.

Mr. Bill Walker : I admire the intellectual way in which my hon. Friend is answering the debate. Is he saying that, if we accept a single currency and we cannot borrow and cannot print money, we will still have financial control?

Mr. Dorrell : If we chose--and I emphasise that point--to go for a single currency, we would have satisfied ourselves that the arrangements for managing it were adequate. We would also accept the obligation placed on ourselves--as on every other country within the single currency area--to limit official borrowing to avoid the market turbulence and damage to our collective interests that would flow if that restraint did not exist.

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Mr. Shore : Is it the Minister's view that, when stage 3 is reached, it would be more damaging to Britain--if it had an excess deficit like that of the coming year--to upset the smooth running of the system, or would it be in our interests simply to accept the reasons for our excess deficit, and that it would be far too harmful to reduce it, even if that had the effect of ruffling the surface of the single currency?

Mr. Dorrell : Earlier, there was some discussion of confidence in our own abilities. If we reached the conclusion--and the Government have done so--that in the circumstances of 1993-94 an 8 per cent. budget deficit was not excessive, we would have done so on our own authority. In the belief that that stood up as a rational analysis, we would be able to persuade the Commission and the Council of the truth of that. That is the importance of recognising that reference values are not absolute limits. The only result that will flow from breaking a reference value will be an obligation on the Commission to produce a report.

As to whether there is a deflationary bias, the hon. Member for Walsall, North said that the system is contrary to everything for which Labour has always campaigned. The Committee must ask what is contrary to everything for which Labour has campaigned. It is not a 3 per cent. deficit or a 6 per cent. debt to GDP--it is excessive budget deficits. Although I might want, on a partisan platform, to represent Labour as pursuing a voluntary policy of pursuing excessive deficits, I cannot believe that Labour Members want, out of their own mouths, that policy ascribed to them as being the ambition of 100 years of political activity.

Mr. Winnick : I certainly did not want to give the impression that the labour movement, or the Labour party, was started with the aim of achieving as high a deficit as possible ; that has never been our position. My argument is that at times--such as the present time--a deficit far higher than 3 per cent. may well be necessary if we are to reduce mass unemployment substantially, and to implement health and welfare policies. We should not have to apologise for such a deficit ; certainly, we should not have to grovel to a foreign body. I was complaining about that, rather than suggesting that a high deficit was necessary or desirable at all times.

Mr. Dorrell : Clearly we could continue to argue about the issue for some time ; and no doubt we shall do so, in the context of the Finance Bill.

5.45 am

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