House of Commons Hansard Debates for 4 May 1993

Column 119

confidence, particularly when the Government are trying to borrow £55 billion to cover their deficit, if we are faced with the rumours of censure from Brussels. What effect will it have on markets and currency speculation? We are exposing ourselves to that possibility by accepting the obligations in the treaty.

We are facing economic difficulties--and that is the importance of amendment No. 32, which was tabled by the hon. Member for Southend, East (Sir T. Taylor). The Government are behaving schizophrenically. On one hand, they are pursuing a policy of competitive devaluation to break out of the ERM corset and the constraints that it imposed on us. That policy has been successful. The only success that the Government had was when they were forced to take up the policy of competitive devaluation. However, at the same time they are putting back the straitjacket of controls of the exchange rate mechanism. That is totally schizophrenic.

What is industry to make of the prospects for investment? Is it to seize the opportunity of competitive devaluation and expect a continuously competitive currency and on that basis it will be successful in exporting to world markets? How can it if at the same time the Government are putting back the straitjacket of all that is implied in stage 2 and the uncertainties of whether we move to stage 3? We know that that will bring us back into alignment. What is industry to make of that? Will the Government go back into the exchange rate mechanism, with all the disasters that ensued, or will we be able to remain competitive?

A Financial Times editorial last week stressed the need for an economy in a state of deficit to keep the currency continuously competitive. The Government are totally ambiguous in their proposals.

The Minister has said in writing to me and other hon. Members and again from the Front Bench today that there is no obligation in the treaty or in stage 2 to return to the exchange rate mechanism. That is true. But we must look beyond the formal provisions. The whole emphasis of the treaty and all the processes of stage 2 are about convergence. We will take part in all those processes until we give notice that we are not moving to monetary union.

I ask hon. Members to think of all the pressures that will be on us once we have signed the treaty and once we have signed up for that kind of process. It is not only the external pressures. I ask hon. Members to think of all the internal pressures, of that fifth column of Euro-enthusiasts, of people in the City, who will be telling us that we must get into monetary union, we must stick by our commitment and we must go ahead, otherwise the bank will not come here, investment will not come here, all those Japanese firms that are going to invest here will not come after all, and we cannot be left behind. That will be the argument and we shall be back in the debate on which we spent so long before we eventually joined, with such disastrous consequences, the exchange rate mechanism. The argument will again be clamorous, and it will be much more high-octane and high-powered. So we will have internal division and external pressure.

Mr. Winnick : Is my hon. Friend aware that Ministers are apparently trying to sell the treaty to their own supporters on the basis that it will not come to pass, that it is all exaggerated, that it will not really mean anything

Column 120

and that, once Parliament approves it, that will be the end of it? Is not my hon. Friend right in emphasising that those who are responsible for the treaty will make sure that economic convergence will come and that it will be implemented precisely as stated in article 104c and elsewhere?

10.30 pm

Mr. Mitchell : My hon. Friend is quite right. The Government will have to move down that path, certainly down the path of stage 2, and they will have to signify at an early point on stage 3. That is not only because of what is in the treaty. As my hon. Friend said, they have opted for a policy of bamboozlement. The Prime Minister's preferred policy position is to keep all his balls in the air at any one time, and that is what they are trying to achieve in this process of bamboozlement about the treaty.

The opt-out from monetary union is the Government's figleaf. What is the point of the opt-out when the whole of the treaty is about monetary and economic union? What good does the opt-out from the central core of the treaty do? I have no doubt that, while the opt-out is there to keep the Conservative party as united as it can be--and it will not be very united in any circumstances--once the treaty is signed, the position will change, as the Prime Minister indicated just a couple of weeks ago in the first flush of success at getting the Bill through Committee, to a degree of Euro -enthusiasm, and Britain will go down that road.

It is bound to go down it by the treaty. Let us take the second paragraph of article 3a :

"Concurrently with the foregoing, and as provided in this Treaty and in accordance with the timetable and the procedures set out therein, these activities shall include the irrevocable fixing of exchange rates leading to the single currency".

Those words are specific, and European law is bound by the preambles ; the lawyers interpret it in the light of the preambles. We shall be vulnerable to pressure.

A Government subject to that preamble, with all the qualifications in the treaty and all the impositions of the treaty, will be unable to get away as blithely as they have done with a competitive devaluation which must be sustained to keep British industry growing and to expand our industrial base so that it becomes viable again. That demands a prolonged period of sustained competitiveness which we cannot have if we are to be subjected to continuous nagging pressure from Europe to get back into the exchange rate mechanism and to go along with the other member states.

It is even worse than that. The barrister, Martin Howe, has argued lucidly and logically in a pamphlet that not only would we be vulnerable to pressure--which would be real enough because we should be out of line with everybody else and they would want us to get back and be as miserable as them, abandon our competitive advantage and abandon the benefits that we have received from it--but we should be liable to legal action at the European Court to take us back into the exchange rate mechanism unless we went there. I have not heard that argument rebutted or even challenged from the Government Front Bench. If we are to have this treaty, they have an obligation to tell us what they think of that argument.

Mrs. Dunwoody : Give way and let the Minister answer.

Mr. Mitchell : I am happy to give way to the Minister.

Column 121

Mr. Dorrell : I have said more than once in correspondence with the hon. Gentleman that the position in the treaty is made quite clear, both in the text of the statute on the European Monetary Institute, as regards stage 2, and as regards our own position under our protocol in stage 3, that unless and until a member state becomes a fully fledged member of stage 3 of economic and monetary union monetary policy remains the responsibility of the institutions of the member states. That cannot be reconciled with any implied or express obligation to join the ERM.

The position is clear : for Britain, during stage 2 and until we join stage 3, our capacity to determine our own monetary policy is safeguarded in absolute terms by the treaty.

Mr. Mitchell : That is certainly the Government's position, but it ignores the distinction between monetary policy of the ERM as well as in the treaty to move on to the ERM ; it ignores the continual political pressure that will be brought to bear on us to be good Europeans ; and it ignores the preamble. The Government do not seem to understand the workings of the European Court. Faced with a British Government who try to maintain a competitive edge for a long time, what will our competitors do? They will haul us before the European Court, and there we will be vulnerable. That court will be bound by the treaty, and by the preamble in particular.

The penchant, the inclination, of the European Court is to further union. It is not an impartial body--

Mrs. Dunwoody : It is neither a penchant nor an inclination. The court will be bound by the need to interpret the treaties in relation to the original treaties and subsequent treaties. They are not something that the court thought up : they are the only reason why the court exists.

Mr. Mitchell : I only wish that I had my hon. Friend's directness of mind and approach. I was skirting round the issue, using French words like "penchant". The court is an instrument of unity ; it will be forced to act as I have described, and the conditions for doing so are explicitly set out in the treaty.

Column 122

Mr. Dorrell : The court is not an instrument of unity ; it is an instrument for interpreting the treaty. And the treaty that it would be asked to interpret says, at article 3 of the EMI statute, that the powers of the EMI are

"without prejudice to the responsibility of the competent authorities for the conduct of monetary policy within the respective Member States".

So much is clear. Furthermore, the United Kingdom's protocol states that if the protocol is activated the United Kingdom

"shall retain its powers in the field of monetary policy according to national law".

That is what the European Court would be asked to interpret. It is plain and beyond dispute.

Mr. Mitchell : That brings us to the arguments about our being bound by the imperatives of stage 2, as set out in the treaty, even before the protocol is activated. I have already mentioned the irrevocable fixing of exchange rates, which is what the treaty is all about. That is the sort of issue that the court would take into account when interpreting the treaty.

The Government are attaching themselves to a figleaf in the hope that they can get away with all this. Politically they cannot, because the pressure will be on them to show themselves good Europeans--and there will be legal pressures to abandon the competitive advantage that we have gained by leaving the miseries of the exchange rate mechanism.

I fear that reports to Parliament are a fragile weapon compared with the power and might of the treaty, but the amendments are at least at attempt to safeguard ourselves from the deflationary pressures that lie in store for us if we accept a treaty that has deflation at its core. It is the cancer at the heart of the treaty. It is explicitly written into the text, and it would be disastrous for the people whom I represent.

I am not in politics to give powers to unaccountable central bankers or to aim at zero inflation. That has never been the objective of the Labour party, of socialists, or of anyone who wants a better society and full employment. These aims will be damaged by the deflationary techniques deployed in the treaty. It would be disastrous not only for Labour, for our people and for the parts of the country that we represent, but for Europe. The people of Europe will not be made enthusiastic about Europe by being put out of work.

Column 123

Mr. Rupert Allason (Torbay) : I am grateful for the fact that I was able to catch your eye, Madam Speaker. I failed to do so during the latter proceedings in Committee.

I support new clause 12 which I regard as the key to the issue. The hon. Member for Great Grimsby (Mr. Mitchell) said that Conservative Back Benchers were told by the Government that Maastricht was a meaningless affair because it would never happen. But Maastricht is already under way in the sense that the British public are paying for it. The hands of the European Community are in our pockets. By that, I mean that there are only two major net contributors to the Community as it exists--Germany by a large margin and ourselves ; the French seem to break even, more or less. It is important that the House makes the decisions and scrutinises all future steps to economic integration.

The hon. Member for Great Grimsby has spoken eloquently about the central bankers who will be running economic integration. That is not just the first step towards federalism ; it is a considerable step down the road. Yet when we examine what Maastricht means and how new clause 12 would put a brake on the less palatable aspects of Maastricht, we cannot deny that we will be passing over sovereignty in a range of areas and passing over powers from the House to faceless bureaucrats and central bankers in Europe. Above all, we will be paying for it because we will be putting money into the European cohesion fund. Our voters will be required to pay ; yet they will never have an opportunity to kick out the institutions at the heart of the treaty.

In my understanding, convergence means that at some stage in future there will be economic union in which we will all be subject to the same currency. The idea that the economies of the emerging eastern bloc countries that intend to join the European union will remotely converge with our economy is fantasy. It is not beyond the bounds of possibility that Albania will apply in the not-too-distant future to join the European union. It is fantasy that the Albanian economy should be even remotely connected with our economy. Lithuania, Latvia, Estonia and some other countries are looking enviously at the European union. Who can blame them? In my judgment, my right hon. Friend the Prime Minister is right in seeking to deepen the European union and not to make it a rich men's club, which, in essence, it is in danger of becoming.

I regard the European union as the free trade club for which I campaigned in the early 1970s. If new clause 12 were accepted, it would at least give the House control over our own destiny and our own affairs. I am wildly enthusiastic about a free trade club, but I draw the line at a federal structure. If we are to talk about an integrated economy and cohesion in future, we must learn to get along together under the existing regime.

In a straightforward way, there are three criteria by which to judge whether the European Community is working. First, I should like to know whether my Devon fishermen may fish in French waters. The answer is simply that they may not. Secondly, a useful way to judge European union is to see whether a British business man operating in Europe can fly with British Airways between, say, Madrid and Rome. He cannot, and that is not a level playing field. British Airways will not be able to pick up passengers from second countries and fly them to third countries until 1997 at the earliest. That is another criterion on which European union fails. The third matter

Column 124

is straightforward. Many business men, especially in Devon, rely on cellular telephones. It is extraordinary that cellular telephones used in England cannot be used on the continent. European-wide allocation of frequencies would make life much easier.

Those three criteria show that there is not a single market. I am an enthusiastic European and I should like to see a single market, a free trade club, but that is not on offer in the Maastricht treaty. New clause 12 will at least enable the House to curb the power of Ministers and those who will take decisions without consulting the electorate.

It is surely fantasy to believe that there can ever be a completely agreed, integrated foreign or security policy. A few years ago, there was a most blatant and obvious example of aggression in the Gulf in which the aggressor and the innocent party were perfectly obvious. Could Europe agree on a foreign policy? No, it could not. If we cannot get agreement in those circumstances, what are the chances in future?

10.45 pm

Mr. Winnick : Does the hon. Gentleman not realise that those who are most enthusiastic about the treaty and who may be in a minority--I mean not those who support the Government in the Lobby but enthusiasts such as the right hon. Member for Old Bexley and Sidcup (Sir E. Heath)--believe that the treaty lays the basis for a federal Europe? When challenged by my hon. Friend the Member for Newham, South (Mr. Spearing) to say whether a single currency would mean a single Government, the right hon. Gentleman said yes and was quite happy about it. Although, for obvious reasons, the word "federal" is not included in the treaty and the Government minimise the issue, the treaty is the basis for a federal Europe. Apart from anything else, it would certainly diminish and undermine the whole purpose of the House of Commons.

Mr. Allason : I do not often agree with the hon. Gentleman, but on this occasion I endorse what he says. A few days ago, my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) was asked about the consequences of political and economic union when he took this country into the European Community. I was surprised to hear him brush that aside and clearly say, "That was always the intention." I fear that there is a hidden agenda. I campaigned for this country to join the European Community, and I do not regret that because it is unquestionably in our long-term interests to be able to operate within a European trading bloc. I am enthusiastic about a free trade club, but I do not subscribe to the hidden agenda of European economic and political integration.

People become vague and their words become fuzzy when they are pressed to define exactly what is meant by political integration. I want decisions made in this Parliament, which must remain sovereign. If we allow our economic future to be determined by faceless bankers in Frankfurt, we shall store up a great deal of trouble for ourselves.

Mrs. Dunwoody : Is not what will happen exactly what happened when the fishermen felt that they had been badly treated and that no one was listening to their complaints?

Column 125

There will be direct action rather than parliamentary action. Is that not a much greater worry than the idea that, somehow or another, we will be left behind?

Mr. Allason : I do not want to be drawn down that avenue because I have strong views on the rights of our fishermen to be able to operate, if not on a level playing field, at least on a level ocean with European fishermen. That illustrates the point that there is not equal enforcement. My fishermen in Devon would be pleased to comply with tying-up regulations and the controlling of catches if they believed for one moment that such regulations would be equally enforced across the rest of Europe. The difficulty for my fishermen is that they can use a pair of binoculars and see on the horizon French fishermen busy catching what they regard as their fish. That is an unacceptable view of Europe.

There are only two arguments for Maastricht. One is that there will be greater European enforcement of regulations. The second is that if we keep quiet and agree to Maastricht, the EFTA countries will be stupid enough to join in and they will then foot the bill because they will be net contributors, along with us and the Germans. New clause 12 gives the House the opportunity to scrutinise all future decision making in relation to economic and monetary policy. If the House is to continue to command the respect of the electorate, and if the electorate is to continue to believe that it has the final say over who comes to the House and who decides taxation policy, it is essential that new clause 12 and all the amendments that limit and control the impact of the Bill are passed into law.

Mr. Hain : I found the comments of the hon. Member for Torbay (Mr. Allason) interesting because they were rather schizophrenic. He praised the free market in Europe as, almost without exception, Tory Members do, but he did not accept that the logical consequence of that is a free market in money as well. If one wants free trade and a free market for business, one needs, as a conclusion of that process, a free market in capital and money, and one ends up with monetary union, which is the agenda of the right.

I find it puzzling that many socialists have gone along with that. For me, the problem with the Maastricht treaty is not the movement towards political unification or social cohesion, but the fact that it imposes a monetarist agenda on Europe. The key is not the social chapter or measures such as additional reporting mechanisms for Parliament to scrutinise the economic developments in Europe, welcome though they are. The key is the way in which Maastricht's monetarist agenda imposes deflation on members' economies at a time when they desperately need the opposite.

The policies being developed through Maastricht are like relying on leeches to cure a fever. They impose rigid economic constraints, the most notable being restricting the public sector deficit to 3 per cent. of GDP and insisting that total public debt must not exceed 60 per cent. of GDP.

The constraints and convergence criteria are not permissive and flexible, contrary to what my hon. Friend the Member for Oxford, East (Mr. Smith) said. They are extremely rigid. Article 104c, on page 19, makes it clear that member states shall avoid breaches of those monetary and fiscal constraints. In addition, paragraph 11 of article 104c on page 20, says that punishments will be imposed. A

Column 126

kind of European state capping will be imposed if member states do not conform to achieving the objectives. Those are all well described in the Maastricht treaty.

Sir Peter Hordern (Horsham) : Will not that pose a considerable problem for Belgium and Italy, because, as I understand it, last year the Belgians' debt was 120 per cent. of GDP and the Italians' 105 per cent? Does the hon. Gentleman think that those two countries will slash their public expenditure in half or double their taxation in the next three years during which time they must decide whether to enter phase 3? Surely that casts doubt on the capacity of the EC to come together as suggested in the Maastricht treaty. Therefore, does not that emphasise even more the wise decision of my right hon. Friends in going for the opt out from this monetary union?

Mr. Hain : The hon. Gentleman makes a fair point. He could point to other countries. Virtually no country in the EC at present satisfies, or is anywhere near satisfying, all the convergence criteria. However, the hon. Gentleman does not mention that virtually all of them are trying to do so and are seeking to go down that road. But consider the consequences. Europe now has massive unemployment which is threatening social stability and cohesion and causing a rise in racism. In the end, if the process is proceeded with, as Maastricht will ensure that it is, it will bring down Europe and the prospects of European unification.

If the convergence criteria are flexible, why are they framed in such clear, legally defined, specific terms in the treaty? It is illogical to argue that they could be flexible. Why should France, at huge cost to its economy, Ireland, at huge cost to its economy with extensive public expenditure cuts, Spain and Germany, with its problems resulting from the pursuit of a monetarist economic agenda, seek to conform to the terms of the treaty?

Will those countries let us off the hook? Will they let Britain stand back and interpret the convergence criteria flexibly? Of course not. They are suffering huge costs as a result of seeking to meet them and they will not allow us to escape from the stranglehold that Maastricht imposes. They will insist that we follow them down that same road. Otherwise, we cannot be part of the European monetary express train. It is in their interests to insist that we follow them ; otherwise their populations will ask why they should suffer the consequences of the monetarist dogma when Britain stands free and interprets the criteria flexibly.

We know that the central driving force behind Maastricht is the competitive single market, where price, currency and interest rate stability predominate, together with tight restrictions on borrowing and debt, virtually regardless of the consequences for employment, growth and redistribution. Price stability is defined in article 3a as the overriding objective of the treaty's economic framework. It must be pursued "without prejudice" to any other objective, such as those that are stated in article 2.

It is not good enough to quote article 2 as the bible of the treaty when its provisions are overridden and swept aside by the much tighter, more specific constraints in article 3a. The policeman of this monetary regime, the independent European central bank, has its independence uncompromisingly spelt out in article 107. I shall not describe all the details of the banking regime because that would take me beyond the terms of the amendments.

Column 127

However, when one considers the monetary constraints and the convergence criteria, the bank's role becomes crucial.

Article 107 says :

"When exercising the powers and carrying out the tasks and duties conferred on them by this Treaty and the Statute of the ECB, neither the ECB, nor a national central bank, nor any members of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and 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."

Not much fudging or flexibility there.

11 pm

We see a microcosm of the central bank's operation in the way that the Bundesbank currently operates. It is driving the German economy into deep recession at huge cost to industry and at massive cost to social relations- -with the rise of Nazism and all the other problems that we see in Germany now.

When an independent central bank pursues price stability in a dogmatic and fanatical fashion, the consequences are the rising unemployment and deflation we see throughout Europe, yet the treaty invites us to adopt exactly that agenda and framework.

A recent worldwide academic study showed that there is no relationship between the dogmatic pursuit of price stability and zero or low inflation and economic growth and success. Economic success is due to other, structural factors. Price stability is desirable, but it should not be fanatically pursued in the way that the treaty suggests and the Government worship at every opportunity. While the treaty sets out strict criteria for monetary stability, it sets no comparable targets for growth, full employment or resource distribution. Its monetary targets are so strict that they are imposing deflation on member state economies, with devastating effects on the weak--at the very time that they need an expanison in demand and a strategy for full employment.

The savage public spending cuts being made across Europe are driving up unemployment beyond its present level of 18 million, or 10 per cent., towards the OECD forecast--if it is to be believed, and there is nothing to rival it--of 30 million jobless or 16 per cent. unemployment by the end of the decade.

Given the social strains that unemployment at its present level has already created--most frighteningly, in Germt regime is caught in a time warp. It was designed in an era when monetarism was fashionable and lauded in Britain under Thatcherism, but it has run out of steam. It was never valid and the treaty's objectives and framework are completely out of date. No one in Europe seriously suggests that the convergence criteria are not deflationary. Anyone who has studied the matter universally--including members of my own Front Bench--accepts that they are. The argument is whether they can be interpreted with sufficient flexibility, but I suggest that that is not possible under the terms of the treaty.

Column 128

If one examines the way in which Europe is evolving under the treaty, one finds that bankers and money markets are ruling the roost rather than Governments and the people. According to Warburg, the merchant bankers, the drive by member states to convince the foreign exchange markets of their financial rectitude is forcing public spending cuts of 1.25 per cent. of GDP in 1993 alone--regardless of other convergence constraints and their impact on unemployment and public spending. That is being done simply to satisfy the foreign exchange markets. The exchange rate stability that the ERM and a more rigid Maastricht treaty would require is, according to merchant bankers, bringing massive deflation.

The Maastricht treaty attempts to establish an industrial policy in article 130, but all that--like the social chapter--pales into insignificance when compared with the monetarist regime that I have sought to describe. Those consequences are not felt only in rising unemployment and deflation ; poverty in the European Community has increased. In 1975, 38 million people were affected ; in 1992, the figure was 53 million, and the position will continue to worsen. I believe that the treaty puts economics before politics, finance before democracy and the interests of bankers before those of citizens, and that that will result in Europe's imploding. I think that those who are genuinely pro-Europe will not support the treaty and, in particular, will oppose its monetarist economic framework. We believe in a Europe of full employment, a Europe of social justice ; a Europe in which economies are encouraged to expand rather than contracting and deflating. Maastricht is blocking that opportunity at every level.

I believe that if the process continues--as it will if the Bill is passed and Europe adopts the proposed course--these "impossibilist" economic constraints will result in Europe's self-destruction. The vision of a united Europe, a democratic Europe--a socialist Europe, from my point of view--will be impossible to achieve : the high unemployment and public spending cuts that are being generated will cause such widespread political and social instability that the whole project will fall apart.

Mr. Dorrell : The hon. Member for Oxford, East (Mr. Smith) dwelt on article 2 of the original treaty, as revised by the Maastricht treaty. The revised article sets out the objectives of the Community, which the House has discussed repeatedly during our debates on the Bill ; it defines them, for instance, as

"sustainable and non-inflationary growth, a high degree of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States."

The hon. Gentleman spoke of those objectives with some enthusiasm. I agree with everything that he said about their importance ; that is why they are written into the treaty. As he rightly said, one of the purposes of the Community--one of the purposes of the process that started with the original treaty--was to facilitate their delivery. The hon. Gentleman went on to argue that new clause 1 would enhance the Government's accountability, particularly in the context of the achievement of the objectives defined in article 2 of the treaty of Rome. With some qualifications--I shall come to those in a moment--I am happy to accept the proposition that new clause 1 enhances accountability. I indicated earlier that the Government would not oppose the new clause.

Column 129

It was at that point--some hours ago--that the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) allowed himself the observation that, as hon. Members from all parties appeared to agree on the subjects that they were debating, this might be an opportunity for us to stop talking and move on to some of the other issues that might need to be explored. It was when the hon. Gentleman sat down that the disagreements started to surface : that was the point at which the hon. Member for Oxford, East began to talk about what he saw as the danger of a deflationary basis built into the Maastricht agreement.

The hon. Member for Oxford, East believed that the wider objectives set out in article 2 were in some sense jeopardised by the commitment set out in the treaty to deliver price stability and the monetary objectives that reinforce that central purpose. He described the old shibboleth that there is a choice to be made by policy makers--a long-term trade-off--between growth and inflation. That theme was picked up by several speakers, but the House will not be surprised to learn that the Government do not accept the hon. Gentleman's premise. It was developed--rather improbably--by my hon. Friend the Member for Southend, East (Sir T. Taylor). He wanted to distance himself from a definition of economic policy which saw the control of inflation--I think I quote his words accurately--as

"the basic sole end of economic policy."

Of course nobody believes that the control of inflation is the basic sole end of economic policy. The purpose of delivering price stability is precisely in order to facilitate the delivery of the objectives set out in article 2 of the treaty.

My hon. Friend the Member for Southend, East did not feel that he could endorse what he described as the German policy of low inflation. It is common knowledge that the Germans have encountered short-term difficulties with their counter-inflationary discipline, but if we want to see the effect on the real economy and competitiveness of a superior performance in terms of monetary discipline, we need look no further than German manufacturing strength and the fact that the German economy has outperformed over a long period the rest of western Europe.

What my hon. Friend the Member for Southend, East described as an obsession with inflation is not confined to Germany. Recognition of the importance of a counter-inflationary discipline as the sine qua non of the delivery of successful economic policy is increasing throughout Europe, particularly in northern Europe. I do not regard it as an obsession with inflation. I regard it as a clear commitment to deliver the building block, the foundation upon which a successful economic policy is built.

My hon. Friend the Member for Southend, East talked about the importance of expanding employment and of wider social objectives. Of course, I agree that expanding employment and raising living standards is the purpose of economic policy, but that remains so much hot air if we do not provide the foundation upon which experience demonstrates that a successful economic policy is built--namely, a sound monetary system.

The Government want successful monetary discipline and flexible labour markets that allow growth, generated on the basis of monetary discipline, to be converted into jobs. That is the mixture we commend in the Bill : a commitment to sound monetary discipline, which is the commitment that the Government give, and the avoidance

Column 130

of new obligations that would impair the workings of the labour market and thereby impair job creation. I look forward to the support of my hon. Friend the Member for Southend, East in resisting the proposals in the social chapter, added to the treaty, which would have the effect of impeding the expansion of employment which my hon. Friend espouses and which would also have the effect of destroying jobs in the United Kingdom.

Mr. Winnick : Leaving aside the social chapter, which we are not debating, does the Minister realise that with 17million unemployed at present in the member states of the Community, what is required is economic expansion? Why does he believe that the much-quoted article 104c, under which member states are told that their budget deficit must not exceed the permitted limit of 3 per cent., which is spelt out in another article, will help to reduce unemployment? Will not he thereby ensure that, instead of 17 million people being unemployed, far more than 17million will be unemployed?

Mr. Dorrell : The hon. Gentleman misreports article 104c. It does not say that under no circumstances may a member state's budget deficit rise above 3 per cent. of GDP. It says that at stage 3, to which this country is not committed to proceeding, member states will commit themselves to avoiding excessive Government deficits--or budget deficits, in our parlance. The purpose of avoiding excessive budget deficits and maintaining monetary discipline is for exactly the reasons that I described earlier--to facilitate wealth creation and, along with wealth creation, job creation.

The right hon. Member for Llanelli (Mr. Davies) spoke to amendment No. 3.

Sir Teddy Taylor : In case there is any misunderstanding, what did my hon. Friend mean when he mentioned the social chapter? As far as I am aware, we are discussing only amendment No. 2, which the Foreign Secretary said will not apply the social chapter to Britain. Has there been some misunderstanding?

11.15 pm

Mr. Dorrell : In discussing not amendment No. 2 but new clause 1, I was simply responding to my hon. Friend's point about wanting an economic policy that leads to the expansion of employment. That is also what the Government want, which is why we are commending the combination of monetary discipline and the absence of social chapter regulations as the way to maximise growth and job creation in Britain.

The right hon. Member for Llanelli spoke to amendment No. 3, which he and some of his right hon. and hon. Friends tabled. At least some parts of amendment No. 3 define a kind of Euro-elysium, which the right hon. Gentleman espoused and which he wanted to see achieved. I should also like to see a world in which inflation over three years averaged less than 1.5 per cent. and in which growth proceeded briskly. That is a shared objective, but I disagree with the right hon. Gentleman's scepticism, which he again expressed this evening, about whether it is possible to achieve non-inflationary growth. During our previous debate on this subject, he asked me whether I could cite an example of non-inflationary growth. While he was speaking, I was looking up two examples which I think will be of interest to him and, possibly, also to the House.

Column 131

In 1986-88, which is not ancient history, the average rate of inflation in Germany and Japan was less than 0.5 per cent. Statistically, that may not be zero, but it is certainly well within what amendment No. 3 recognises as being near price stability. During that three-year period when inflation averaged less than 0.5 per cent. in both countries, growth in Japan averaged 4.4 per cent. a year and in Germany 2.5 per cent. a year. Unemployment in Japan during that period averaged 2.7 per cent. and in Germany 6.2 per cent. That is a pretty attractive model for the type of economic development that I should like to see pursued in this country and, indeed, elsewhere in the Community.

Mr. Denzil Davies : Does the hon. Gentleman agree that it is significant that he has been able to cite only one country--

Mr. Dorrell : Two countries.

Mr. Davies : -- one country in western Europe, and then only for a period of two years?

Next Section

Home Page