House of Commons Hansard Debates for 9 Dec 1993

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west of the country. That shows how a single party, which must fight geographically on more than one front, can be completely obliterated without too much of a collapse in its share of the vote under a first-past-the-post system. The Conservatives perhaps should be worried about that, not least one suspects in the context of next year's European elections with the Liberal Democrat, Labour and nationalist parties to worry about.

Madam Speaker : Order. This is a wide-ranging debate, but I am not aware that Canada is part of the EC.

Mr. Kennedy : Even under the welter of documents, I have not seen an accession application. I make the point to stress that there is a clear difference, not just within the House, but between the Government and other Governments in Europe as to what federalism means. It is important, as the debate rages during the coming months, for those of us who argue for federalism as a decentralising force away from the political centre to get across that case.

The second point is not one of constitutional theory, but one of direct practice as the right hon. Member for Bethnal Green and Stepney (Mr. Shore) said earlier. The political leaders of the various countries and both sides of the House also were arguing during the debates on the Maastricht treaty about details which the electorates had difficulty in following. The arguments did not seem to be in touch with what the real priorities were.

There is no doubt that the burning political priority for the European institutions on a social level must be to tackle unemployment. It is quite clear that the President of the Commission has that firmly in his sights. The credibility of individual European leaders, as much as the credibility of the European Union, is at stake to the extent that unemployment can be effectively tackled. Although I share the priority which the right hon. Gentleman gives to the matter, I do not share his profound scepticism about the ability of EC member states to tackle it in an effective way. It is significant that one of the more perceptive critiques of the Budget last week was that the Chancellor of the Exchequer clearly hopes to be in a position where he can still meet most of the convergence criteria of the Maastricht treaty in 1996 or thereabouts, despite the fact that he has been somewhat negative about what President Delors says in that respect. That may depend on whether we make all the assumptions about the Budget--there is a lot in the Budget--and if we give every "if" the benefit of the doubt.

If one looks at the graphs of various European countries, the one which is way out of step and which is rising inexorably is that which relates to unemployment, and that must be given emphasis. Equally, the Foreign Secretary said, so must trade and not least GATT. I would enter a specific plea here. The subject has been mentioned in the debate in relation to the aircraft industry, and equally I mention it in relation to the oil sector. We want free trade internationally, but we want the single market to operate fairly without hidden subsidies or unfair competition within Europe. The Economic Secretary will be aware of the continuing anxiety within the United Kingdom about aspects of alleged--I can put it no stronger--unfair competition from other member states. The Commission must be rigorous in its efforts to police such matters. I hope that the British Government will take that message to the Council discussions this weekend.

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Mentioned in the welter of documentation is the issue of enlargement and of the forthcoming accessions. There is still suspicion that part of the Government's thinking, and the reason for the emphasis that they put on widening the Community during the British presidency and beyond, is that that is a way of slowing down the pace of integration and the development of the Community. The argument must be in contrast to what Baroness Thatcher would argue. She points at the former Yugoslavia and says, "There you are--Europe cannot work. Look at the tragedy." Surely the former Yugoslavia is proof that Europe must work in a more integrated way to prevent that kind of absolute tragedy taking place within Europe's sphere of influence and its perimeter of political activity. That means enlarging the Community and taking on more countries in as realistic a time scale as is possible, while allowing for the huge economic dislocation which some countries are experiencing in the transfer from former Communist dictatorships to what they now enjoy. I hope that we will see during the coming period the building of a Europe which is not just about politicians or Parliaments, which have tended to be the dominant influences so far, but more about the peoples of Europe. That means a more decentralised and more open Europe. It looks for some of the written guarantees for individual citizens, which are absent from this country, to be achieved and applied from a European level downwards.

6.56 pm

Mr. Ian Taylor (Esher) : The hon. Member for Ross, Cromarty and Skye (Mr. Kennedy) rightly said that this is a difficult debate because it compresses so many subjects. In fact, we are dealing with the whole question of our interests within the EC and the European Union because virtually every subject in the British political debate has a European dimension. We do in a sense rather confine the subject to an occasional debate, when we should broaden all our discussions to look at the European dimension. In that way, the House could look closely at what is happening, rather than trying to compartmentalise the EC and the European Union. That is simply no longer realistic.

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

Mr. Taylor : I am flattered that I have provoked an intervention already.

Mr. Jenkin : I challenge my hon. Friend to try to raise Europe in every debate about every subject. He would quickly find that he incurs the disinterest of a great number of his colleagues. Is not that part of the problem with the debate ?

Mr. Taylor : My hon. Friend has his own views. However, if he reflects carefully and quietly later this evening, he will be quite embarrassed by that intervention. The point I made was that, in the interests of our constituents, there are many aspects which cannot be simply resolved by debates which are confined to narrow British politics. We cannot resolve our economic or environmental problems if we look only at the United Kingdom. I will not take up the time of the House. I am sure that my hon. Friend now better understands the point that I was making.

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I welcome the Commission's report, and it is an extremely timely move. Perhaps it would have been more timely had it come out a week earlier, which would have given the House more time in which to read it. That does not change the fact that the Commission is doing the job that it was asked to do by the European Council Heads of State in the summer. It has tried to do a job that focuses on some of the real problems to which many colleagues have referred.

I pay tribute to my hon. Friend the Member for Southend, East (Sir T. Taylor). He and I may not always agree on some conclusions, but there is no doubt that he has been a great champion of the examination of the European Community.

In the Community White Paper, some of the great difficulties that face us are examined. I repeat that those problems cannot be solved by any one nation alone. We cannot solve the problem of unemployment if the way of creating jobs depends on exporting to other members of the Community, let alone the world. I will leave the GATT talks aside as they are up in the air at the moment and colleagues may want to refer to them.

If one looks at two of the charts which follow page 42 in the White Paper, one may see the size of the problem of rising unemployment. The charts show rising unemployment in Europe in relation to unemployment in the United States and in Japan, and also the problems that the European Community is having in creating jobs. During the past 10 years, more jobs have been created in the public sector in the EC than in the private sector. That compares worryingly with the rate of job creation in the United States and Japan in the private sector. The problem of the EC pricing itself out of jobs is also dealt with, and that is an issue which simply cannot be ignored. That is clearly shown in the charts contained in the Government's presentation to the Commission regarding the growth, competitiveness and employment in the EC. The document was prepared and dated from 30 July, and some of its charts are extremely worrying. For example, the table showing the rise in unit labour costs in manufacturing for the period 1980-92 illustrates the Community's difficult problems in relation to our main competitor blocs, the United States and Japan. Those are warning statistics. The question is not whether Community institutions have caused the problems but how we can influence debate in the EC so that those institutions can help us to find some solutions. Too often in the House we appear to blame the Commission, as was apparent during the debates on the Maastricht treaty. We all know our institutional structures and are aware that the Commission should not alone be blamed, because it is answerable to the Council and can be questioned by the European Parliament.

First, we must determine the Commission's remit and, secondly, we must discover how effective our Conservative Government are in arguing their corner in the Community. In recent years, one of the Government's great victories was the internal market. There is no question but that many of the other countries found our concept of an internal market, with its unrestricted movement of capital, goods and services, very difficult. They were instinctively more protectionist, but, remarkably, we won the intellectual argument and the Commission carried it through. I pay tribute to the

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Commission and to Jacques Delors, interestingly, for carrying through the process of the internal market in which, as good Conservatives, we strongly believe.

Until quite recently, the Government failed to understand some of the implications of the single market and to realise that we had to enter debate in some of the other areas as well. To an extent, we were confused by the nomenclature that was current in the Community about the social dimension and the social chapter. Labour Front-Bench spokesmen have also been confused about that. In that sense, it is not social, because employment, labour costs and structures are the real focus of many of the measures under that heading. For some months, we have been engaged in that debate and once again we are beginning to win the argument.

It was clear from his reply to my intervention that the right hon. Member for Copeland (Dr. Cunningham), who speaks on foreign affairs for the Labour party, had not understood how the Community had changed in terms of Labour's arguments. I shall shortly come to the Commission paper. In my intervention, I quoted the German Federal Government whose submission is full of headings and items which clearly show the worries in Germany about the rise in non-wage costs and the lack of competitiveness of German industry vis-a-vis not only those countries closest to it, such as the Czech Republic where labour costs are between a sixth and a tenth of those in Germany, but with other countries including America where several German car manufacturers are now putting plants. That means a net export of jobs from the Community.

Mr. Allan Rogers (Rhondda) : In reply to the hon. Gentleman's intervention, my right hon. Friend drew his attention to the fact that the potential increase in employment costs about which the Germans complain has already come to pass in this country. The Government are increasing national insurance contributions and other charges next week, and the hon. Gentleman voted for that. Employment costs in this country are going up : the hon. Gentleman cannot have his cake and eat it. He said that he wanted to separate social costs and employment costs. The Government are putting up employment costs by more than any other European Government. The hon. Gentleman speaks about the social chapter or contract. He should remember that eight out of 12 countries in Europe have Conservative or Conservative coalition-led Governments.

Mr. Taylor : The hon. Gentleman's intervention suffered from length, as did mine. In this country, the trend for statutory labour charges is downwards. Pages 166 and 167 of the Commission report contain tables, but, as the document is on the record, I need not read them out. The hon. Gentleman misses the point about Budget measures. There has been no increase in industry's labour costs because various Budget adjustments have compensated industry for movements in basic costs. National insurance contributions for employees may well go up, but that touches taxation policy.

I was referring, as were the German Government, to the non-wage costs to industry of employing labour. By way of a quote, I shall give another example of the way that other countries are looking, in the way that the Budget has done, at the social security burdens :

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"The social security mechanisms, especially retirement schemes must be adjusted to such trends in good times so as to avoid undue burdens on enterprises, the workforce and beneficiaries."

That could have been taken from last week's Budget, but it is taken from the German Federal Government's presentation to the Commission. Those arguments are now being understood. Not long ago, it was believed that, somehow, international competition could be ignored and non-wage costs could be loaded on employment. That is no longer true, and that has certainly been realised by the French Government, although their process of change is slower than one might have anticipated since the centre right took over.

Those features are succinctly pulled together in a document entitled "Beating the Crisis : the Message in brief" issued by the European Round Table of Industrialists. That document was quoted earlier, and it states :

"Labour costs are the single major cause of falling competitiveness and rising unemployment. Work is there, but not at these prices." I urge hon. Members to read that document because it shows industrialists' concern about the social and economic effects of unemployment and proposes ways to bring about change.

It is significant that not only the German Government but our Government and others have come together to influence the Commission in its report. Of course, some items in the report cause concern, and we as Conservatives may feel less comfortable about them than Labour Members. However, the Commission is right to present its proposals about how Europe as a whole can get out of the terrible mess of unemployment of about 17 million to 20 million when there is unlikely to be a take-up of the unemployed as the Community begins to expand again, however slowly. That is simply because of changing work practices and technology. Therefore, we have to concentrate encouragement on wealth creation and smaller businesses.

If we had a longer debate we could evaluate many ideas. The industry charter presented by industrialists is extremely good for concentrating attention on what can enable industry in the EC to expand again and be competitive. We should concentrate closely, as does the Commission, on cost per unit of output. As my right hon. Friend the Secretary of State for Employment has said, every measure advanced by the Commission should have a competitiveness audit. That would be reinforced by the business men's call for a competitiveness council.

All those topics coming together show that at last the debate is spreading across the Community to find grounds on which we can create jobs by creating wealth and, once again, industrial competitiveness. That is a welcome sign. My message to my right hon. Friend the Prime Minister as he goes to the Council this weekend is, "Let us support collective action within the Community because it is important for our people to see the European Community as part of the solution of the problems that afflict us, and not solely as part of the cause." If we can do that, we can reinspire people about the importance of the Community and about the way in which it can contribute to the well-being and protection of the interests of British people. It will also give people a much wider vision of how a strong economic Community can help those further to the east who are experiencing difficult days after their freedom from communism. We cannot do

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that if we are introverted ; nor can we do it if we are uncompetitive, thus failing to create wealth and jobs in the Community itself.

7.9 pm

Mr. Roy Hughes (Newport, East) : I will not follow the hon. Member for Esher (Mr. Taylor), because he was merely an apologist for the EC's failures. When I made up my mind to try to catch your eye in this debate, Madam Deputy Speaker, I collected the relevant documentation from the Vote Office. I was handed a stack of documents a foot high, and thought to myself that whatever other merits the EC might have, it is certainly good at paperwork. I cannot claim to have read all those documents from cover to cover, but I readily gleaned that the EC's principal issue and overriding factor is its terrible unemployment.

Unemployment in the EC is well over 17 million and hovering close to 20 million, and it seems that the bubble of expansion has well and truly burst. The introduction to the report, "Growth, Competitiveness and Employment in the European Community", published by the Department of Employment on 30 July and submitted to the EC, states :

"There has been an upward trend in EC unemployment from cycle to cycle since the late 1960s and an increasing proportion of long-term unemployed people."

In 1991, long-term unemployment accounted for 45 per cent. of total unemployment and that upward trend is continuing. The EC's alarming figure of 45 per cent. compares with 18 per cent. for Japan and only 6 per cent. for the United States, and it points down the road of no hope for many unemployed--particularly youngsters, so many of whom have no stake in society. Is it any wonder that they turn to crime when they should be paying taxes and meeting their social obligations?

Yesterday's Financial Times reported that Mr. Delors is calling for infrastructure investment. The Commission's paper on growth, competitiveness and employment talks of creating 15 million new jobs by the year 2000. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), whose expertise I hold in the highest possible regard, says that that plan is wholly incompatible with the deflationary criteria enshrined in the Maastricht treaty, and I tend to go along with that argument.

The need for infrastructure investment goes without saying. In the years that I have lived in London, I have witnessed the steady deterioration of London Underground, exemplified by power failures and the general grubbiness of its facilities. Failure to invest in British Rail has brought the neglect of rolling stock, track and even safety. The same applies to other forms of public transport. Investment in years gone by would have helped to ease congestion on our overcrowded roads.

The finance to do that was available to the Government, who enjoyed vast revenues from North sea oil. No Government in the history of this country have ever received such largesse. They also enjoyed the receipts from the sale of public enterprises. A large part of that money should have been invested in our infrastructure instead of being given away in tax concessions to the better-off in our society.

Wales, which has long experience of unemployment, could certainly do with some of the infrastructure investment suggested by Mr. Delors. The construction

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industry could play a major part in reducing unemployment. Housing and all manner of public works are needed throughout the country. In recent years, the Welsh coal industry has been almost wiped out, bringing hardship to families and communities. Likewise, a decade ago there were thousands of redundancies in the Welsh steel industry although we managed to retain the two main strip mills in south Wales, at Port Talbot and at Llanwern, which is the cornerstone of Newport's economy.

Fortunately, new industries and enterprises have been attracted to Wales, but many of the new jobs that they create go to women. I am not criticising women who work, for that is a matter of individual choice and circumstances. However, it cannot be denied that male unemployment far exceeds that of women. I was vividly reminded of that fact the other evening, when I was driven home by a friend after attending a function in my constituency. We passed a large biscuit factory and saw dozens of cars turning and revving up outside. My colleague explained that we were seeing men picking up their wives at the end of the shift. That experience was a sign of the times. Wales still has a lean and efficient steel industry which can compete in world markets--provided that there is a level playing field. There is unease among steel workers at present because Germany, Spain and particularly Italy are failing fully to participate in the planned reduction of EC steel capacity and in the abolition of subsidies.

Mr. Peter Hardy (Wentworth) : My hon. Friend is right to draw attention to the anxiety felt by steel workers. He is, of course, deeply concerned about the perceived threat to south Wales, but is he aware that in my own area a superior works is now out of production because of unfair practices in Spain and Germany, supported by those countries' Administrations?

Mr. Hughes : It is a national problem, and I used the example of south Wales because I am, of course, familiar with it.

The latest cause for concern is an incident involving an Italian company, Arc-Sipra, which manufactures corrugated steel products used in road building and infrastructure projects. Mr. Keith Brookman, the general secretary of the Iron and Steel Trades Confederation, and the Welsh officer of that union, Mr. Brian Connelly, have been in touch with me alleging that that Italian company is applying to be placed on the Department of Transport's approved list of suppliers. I tabled a question to the Secretary of State for Transport about that issue a few days ago and all I have received today is a holding answer. That firm is 50 per cent. owned by the Italian state steel company, Ilva and the other 50 per cent. is owned by a private company called Abate. The Italian state steel company has current debts approaching £8 billion which the Italian Government are seeking to write off. Our steel trade union has experience of the company Arc-Sipra selling in France at absurdly low prices. That can be done only through the firm obtaining feedstock from Ilva at prices which reflect its huge losses.

If Arc-Sipra is allowed to go on the approved list, it could seriously affect British firms producing corrugated steel, particularly one in my constituency known as Asset International. Also, primary steel works such as Llanwern and Port Talbot, which supply the raw material, could also

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see their orders cut. As my hon. Friend the Member for Wentworth (Mr. Hardy) said, the same problem applies throughout the British steel industry.

That anxiety hangs over our steel industry. On 29 October, the hon. Member for Colchester, North (Mr. Jenkin) tabled a parliamentary question. He asked for a statement on the future of the iron and steel readaptation benefit. The Minister for Industry replied : "The scheme was set up in 1974 since when many improvements have been made to the arrangements for helping unemployed people. ISERBS is not very effective in assisting redundant steel workers to re-enter the labour market and has not proved good value for money. Further large-scale restructuring in the United Kingdom steel industry is no longer anticipated. Redundant steel workers should henceforth be treated in the same way as most other redundant workers. ISERBS will therefore be terminated."--[ Official Report, 29 October 1993 ; Vol. 230, c. 804. ]

I hope, in the interests of steel workers, that that decision is not premature.

It is one thing to talk about a single market, but the rules and provisions relating to it must be implemented and enforced consistently throughout the Community. There is certainly a need for some rigid enforcement in respect of the steel industry.

On page 40, paragraph 9.11 of the document on emphasis and development in the EC from January to June 1993, the Government point out the need to put pressure on Italy, Germany and Spain to bring them into line. If that is not done, our domestic steel industry will once again be in jeopardy.

7.24 pm

Mr. Barry Legg (Milton Keynes, South-West) : This afternoon we heard an eloquent speech from my right hon. Friend the Foreign Secretary. Once again, he put the case that we are winning the argument and winning friends in Europe. I know that my right hon. Friend is an eloquent statesman, but I doubt the power of persuasion and oratory. Very few people, no matter how open-minded they are, are swayed by speeches, rhetoric or even a well- argued case. In the lead up to the second world war, Churchill argued eloquently the case against German aggrandisement, but it was events rather than the eloquence of his case which won the day.

Europe is currently an economic black spot. For a Conservative Member, the most encouraging thing is that events and markets are moving against the Delors concept of economics. Global markets are making considerable changes in the balance of economic power. Britain has traditionally believed in free and open markets and the developments in the world economy are reinforcing the wisdom of that view.

In the United Kingdom, there was a great deal of debate and argument about our membership of the exchange rate mechanism. I believe that, during our membership, very few people were swayed by arguments or were converted either way. In the end, markets intervened. Once that happened, many converts appeared. They suddenly realised that the exchange rate mechanism was not workable. Suddenly, it was obvious that it was full of fault lines and we united behind a new economic policy, at the centre of which was a floating currency. The effect of that on the United Kingdom economy and on confidence has been quite dramatic. Earlier this week

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during the debate on the Budget, my right hon. Friend the President of the Board of Trade highlighted the changes. He said :

"Productivity in the third quarter of 1993 was almost 5 per cent. higher than a year earlier. Industrial production is rising in the United Kingdom but falling in Germany, Japan, France and Italy. Unemployment has fallen by 137,200 since January. Exports are 3.5 per cent. higher than a year earlier. We have reduced our spending plans by £10 billion compared with those of the March Budget. Public expenditure is expected to fall as a share of national income, with the Budget returning to balance in the second half of the decade."--[ Official Report, 7 December 1993 ; Vol. 234, c. 146.]

That is quite a transformation in our economic fortunes from a year earlier.

Some argue that recovery started before we left the ERM. There may have been some bumping along the bottom, but one of the best indicators of recovery is the performance of the stock market. Its performance is part of the Government's statistics in identifying lead indicators. Since we left the ERM, the London equity market has risen by 50 per cent. That must be a reflection by the markets of what the current economic prospects are for British companies. It is quite a marked change. We now have low interest rates, low inflation, public expenditure coming under control, growing exports, and a floating currency ; and we should, over the coming years, achieve above-trend growth.

The countries that remained wedded to the mechanism and the concept of convergence--about which we hear so much--are mired in recession. I am pleased that my right hon. and learned Friend the Chancellor has rejected much of the Delors spending package. I have not had a chance to analyse the costs involved, but I read in this morning's papers that the cost of the proposals, over a timescale, will be some £95 billion.

Mr. Duncan Smith : Does my hon. Friend agree that one of the more invidious points in Delors' recommendation is the off balance sheet funding that has crept in? Does he recall that at the height of the boom in 1986- 87, a largemy next point. My right hon. and learned Friend the Chancellor is setting out a programme to, in his words, deal with the problem of public borrowing once and for all. If he had signed up to the Delors' package, it would have been like some private sector finance director telling his shareholders at the annual general meeting that he had a plan to reduce gearing over five years, and then going straight round to the bank to arrange some off balance sheet finance. It would have been totally irresponsible to sign up to the package, and I welcome his decision not to do so. I believe that the free-market philosophy of Britain will yield substantial benefits in the coming years. That success will strengthen our negotiating position and our ability to argue Britain's economic case in Europe.

The German economic miracle is over. High social costs cannot for ever be piled on top of each other, irrespective of developments in global markets. Many German business men are realising that and relocating their industries outside the European Community, either to

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eastern Europe or to the United States. The markets are working in favour of our argument about how a free market should develop. Regrettably, on page 6 of the White Paper, we find that economic and monetary union is still the direction in which the Commission wishes to drive the nation states of Europe. My right hon. Friend the Prime Minister, in an article in The Economist, on 25 September, dealt with the issue very effectively. All Conservative Members should be able to embrace his words :

"I hope my fellow heads of Government will resist the temptation to recite the mantra of full economic and monetary union as if nothing had changed."

Eminently sensible words, but, regrettably, his fellow Heads of Government did just the opposite and recited the mantra of full economic and monetary union when they met some six weeks later. That is set out in the presidency conclusions of the meeting of 29 October.

Mr. Gill : I understand my hon. Friend's frustration. He is a successful business man who has come into politics. In business, he would expect to be proactive ; now he is frustrated because we only react in politics when the chips are down and there is nowhere else to go.

I share his frustration that the arguments still do not win. When we came off the gold standard in September 1931, interest rates were 6 per cent. and within a few weeks were reduced to 2 per cent. Exactly the same thing happened when we were kicked out of the exchange rate mechanism in September 1992. Interest rates on the afternoon of that day had been 15 per cent. ; within three months they were 6 per cent. Why is it that politicians and Governments cannot learn from those clearly demonstrated lessons of history?

Mr. Legg : My hon. Friend makes a very sound point. One of the problems that politicians have in learning those lessons is that all too often it involves some eating of words. Churchill said that there were many times when he had to eat his words and that he always found them most nourishing. That attitude should be adopted by many politicians ; they would be much more successful if they did. My hon. Friend the Member for Ludlow (Mr. Gill) pointed out the benefits that we gained immediately we left the exchange rate mechanism. Regrettably, our partners in France have not taken the same opportunity and are still wedded to the mantra of economic and monetary union. Stage one of economic and monetary union has been an economic disaster. It resulted in attempts to defy the markets and to set interest rates that are inappropriate to domestic conditions. The consequences have been recession and unemployment, about which Opposition Members are so concerned.

Those are the lessons of stage one, and we are now headed towards stage two. Stage one ends on 31 December and on 1 January we commence stage two. The principle of pegging the currencies of medium-sized powers does not work. It does not create economic stability and does not get rid of inflation.

That lesson has not yet been learnt, and far too many hon. Members--despite the realities of the outside world--will say, "Oh well, we went in at the wrong time and at the wrong rate. If only we could have got those things right, the system would have worked." From my experience as a

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business man, politicians will never find the right time and rate for currencies. That role is performed by the interchange and interaction of markets. I urge politicians to set aside their desire to find the right times and rates for currencies.

Currency flexibility is helpful to economies and provides a safety valve against economic shocks. It is surprising that the Government decided to enter the exchange rate mechanism following German reunification and the rate of conversion between the ostmark and the deutschmark had been settled. Retrospectively, many politicians now say that the problems of our membership resulted from the shock of inappropriate conversion rates between the ostmark and the deutschmark--that it was the wrong rate and that it harmed the system.

Mr. Cash : Looking back to the days when we went into the ERM, we must recognise that intolerable pressures were being brought to bear on the Government to drive us into it. Some of us did go along with it, but issued the direst warning that we would eventually end up getting on to the devil's bandwagon, which is exactly what happened.

Mr. Legg : I thank my hon. Friend for his valuable comments. The point is that politicians are not able to recognise significant economic shocks even after they have happened, so how can they hope to get timing and rates right.

Mr. Ian Taylor : May I redress the balance, as one who was--and still is--a believer in stable exchange rates within the Community? Our entry into the ERM was intended as an extra plank in our anti-inflation policy. Once we had joined, the downward convergence of United Kingdom interest rates towards the German rate, in relation to the premium required for sterling as opposed to the deutschmark in the interest-rate market, represented a very satisfactory beginning.

Mr. Legg : Again, we hear a politician trying to change the evidence or the facts. Joining the ERM at that stage did not help our anti-inflation policy. We had suffered as a result of our attempts to shadow the deutschmark in the lead-up to the decision ; we had suffered as a result of lowering our interest rates to try to keep down our exchange rate against the deutschmark. That helped to stoke up inflation. When we finally decided to enter the ERM, we did so at a time when the Bundesbank--quite rightly, for domestic economic reasons--was operating a policy of bearing down on inflation to deal with the excess issue of money that had taken place at the time of unification. We then adopted the interest rates of a country that was trying to stop inflation, having already dealt with it here by raising our rates to 15 per cent. That mistiming damaged both businesses and employment.

Mr. Jenkin : I hope that I shall be forgiven if I take the name of my hon. Friend the Member for Esher (Mr. Taylor) in vain. Were we not told, however, that if we left the ERM our interest rates could never become lower than the deutschmark-based rate? Is it not a key fact that, the minute we left, we were able to introduce substantially lower rates, and have continued to operate them since then? Does that not prove that we can run our own monetary policy independently?

Mr. Legg : My hon. Friend has made a very good point. I believe that my right hon. Friend the Member for

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Kingston upon Thames (Mr. Lamont) advanced that argument in July 1992, when he was Chancellor of the Exchequer-- although he has told us subsequently that he did not believe what he was saying at the time. That is probably another argument in favour of relying on the markets rather than the words of politicians.

We have heard much about the so-called merits of convergence today. We need to consider what convergence is really about. It is not about a group of statesmen sitting down to decide what are the most prudent economic policies for individual nation states to pursue in Europe ; anyone seeking prudent financial policies would come up with many differences from the convergence criteria.

Mr. Gill : My hon. Friend may wish to consider how successful this country has been in achieving convergence within the United Kingdom over the many years for which it has existed--and, indeed, the large sums that have been transferred from the richer region to the poorer.

Mr. Legg : I shall deal with that point later in my speech. As I was saying, convergence is not about a group of politicians trying to come up with abstract, prudent financial criteria. The aim of the convergence criteria is to achieve economic and monetary union. My hon. Friend the Member for Esher (Mr. Taylor) nods. I respect his views, knowing that he understands the Maastricht treaty and supports those objectives ; unfortunately, some hon. Members are not as clear on the matter as he is.

The objective, then, is economic and monetary union. Behind that objective must lie political union ; a political authority must be there to decide the interest rate for the whole of Europe--perhaps from Greece to the Arctic circle, in the event of enlargement--and to decide budgetary policy for the whole of Europe. The impetus behind economic and monetary union is clearly political.

I think that it is unlikely that the ERM will be resurrected, despite the best efforts of politicians. Markets have expelled currencies from the system and I do not think that the politicians will succeed in putting it all back together. However, the concept of economic and monetary union has not been abandoned : many people, both in the House of Commons and across continental Europe, still seem to be wedded to that concept.

What, then, is the likely scenario, given that some hon. Members believe that economic and monetary union is such a good thing? It is possible that, at some future stage, if politicians feel that the European economies have moved closer together, they may decide that an overnight move to a single currency would be beneficial to Europe as a whole. No doubt they will argue that trading relationships are very close, and that the time has therefore come for a single currency. Some of us believe that that would mean the end of the nation state as we in the United Kingdom have understood it, because the ability to make basic economic decisions would be removed. Other hon. Members, however, may say that, although a single currency would represent a profound constitutional change, it is economically necessary and will produce benefits.

I believe that, even if that argument is advanced, a single currency and economic and monetary union should be rejected. I do not believe that the ultimate economic union, with a single currency, is compatible with the basic philosophies espoused by Conservative Members. It would remove the safety valve of the currency ; there would not be

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the opportunities for mass migration that have enabled the United States to cope with economic developments ; there would not even be the opportunities for the population movements that have taken place in the United Kingdom. Instead, economic disparities across Europe would increase. Prosperity would not develop evenly ; massive transfer payments would have to be made across the regions. Even in a nation as united and economically coherent as the United Kingdom, with a single currency it has never been possible to abolish regional transfer payments. I am sure that Opposition Members would argue long and hard for such payments.

The pressures would be irresistible. We would have high subsidies--and, as all Conservative Members know, high subsidies lead to high taxes. We would not have a successful European economy. The importance of Europe, as an investment destination for the rest of the world, would decline ; and I believe that it would continue to lose its share of world trade. I cannot envisage a successful economic scenario following economic and monetary union.

Conservative Members must continue to argue the case for free markets, liberal economic policies and the vital importance of competition between nation states. We shall never create a completely level playing field across Europe. That is impossible. There must be a role for nation states competing among themselves. That is the strategy and philosophy that we must enunciate here, and also when we come to the European elections.

I consider that the time has come to reject the whole mantra of economic and monetary union.

7.49 pm

Mr. Ieuan Wyn Jones (Ynys Mo n) : For the past 25 minutes I have been wondering whether I have been listening to the main debate or a debate within a debate, almost as though I were listening to a cameo of a Shakespeare play. We have seen the Euro-sceptic wing of the Conservative party playing a game among themselves--the hon. Member for Milton Keynes, South-West (Mr. Legg) having a particular point of view, and his friends intervening to egg him on.

The trouble is that the arguments that were made by that wing of the Conservative party have passed them by. They lost that argument. They lost the votes. The hon. Gentleman believes that he has won the argument, but I can tell him that he has lost it. We are moving on in a totally different way.

In coming to the debate, I am afraid that many of us felt that we might be resurrecting the Maastricht trenches and that we would be going backwards, not forwards. Conservative Members have the same difficulty as many people in the countries of Britain have : that all the arguments about European integration and progress in the European Union are negative.

The arguments are negative because we fail through institutions in this place to have positive arguments and to understand what has been happening in Europe. Why was there the need to create the European Union? After the second world war, why was there the need for the peoples of Europe to come together? It is by working together that we solve the great problems of our age.

I did some research for the debate. I found that one of the most interesting speeches leading up to the creation of the European Community was made by Winston Churchill

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in Zurich in 1946. He foresaw the kind of debate that we are having today. Lady Thatcher called him in aid in some of her arguments in this place. The reality, however, was that, in 1946, albeit in opposition, Winston Churchill saw the need for Europe to come together and described it as a United States of Europe. The trouble was that the Conservative party could never buy that in government. He could say that in opposition, but when he led the Conservative Government in 1950, the establishment would not have it. He could not go that far. It took another 20 years for the House to accept accession to the European Community in 1972.

Mr. Jenkin : Can the hon. Gentleman point to the part of the text in Winston Churchill's speech in which he says that Britain should be part of a federal Europe ?

Mr. Jones : I do not have the text of the speech with me, but I can tell the hon. Gentleman that, on three occasions--the hon. Gentleman can go to the Library and look for himself--in that short text, Winston Churchill referred to a kind of United States of Europe. The European Community had not been created in 1946. Nobody had mentioned the word "federalism" in 1946, but Winston Churchill understood the need for Europe to come together.

Some Labour Members hold the same views as Conservative Euro-sceptics. The problem in Britain is that the divide on Europe is so deep that the people of Britain cannot be allowed to understand the positive arguments in favour of closer integration.

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

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