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The Prime Minister: When I referred, a moment or so ago, to some of the practical implications of moving towards a single currency, I had not expected, in trailing my coat, that I would get such a splendid response from the Opposition. But the reality is that one can see the turbulence and difficulty of moving forward in that direction. The relevant difficulties in terms of absorbing the Northern Irish pound and the Scottish pound and just having the pound sterling are absolutely trivial compared with the difficulties of replacing sterling with a single currency across 15 nation states, so perhaps the large number of Scots in the shadow Cabinet might address their minds to the possible--

Mr. John Home Robertson (East Lothian) rose --

The Prime Minister: Ah, I shall give way to a Scot.

Mr. Home Robertson: Can the Prime Minister grasp the fact that Scotland and England have had a single currency since 1707?

The Prime Minister: That is because Scotland and England are part of a single Union, and I am determined that they will stay so.

Mr. Alex Salmond (Banff and Buchan): Surely the question at issue is: could Scotland and England currently have different currencies and still be part of a single Union?

The Prime Minister: If the hon. Gentleman recalls what I just said, he will know the answer to his question.

Let me reiterate the changes that need to be made. They are: locking exchange rates, agreeing a single currency, abolishing domestic currencies, making the Bank of England independent and passing control of interest rates and monetary policy as a whole to an international bank, on which this country would be represented as one among many. Those are the practical implications of going forward to a single currency, and the House and the country should be aware of them.

In addition to that, we should accept the possibility--perhaps even the likelihood, although no one can be certain about that--that a unified monetary policy would require a far greater alignment both of spending and of tax rates. If the House were to proceed with them, such changes would be the most sweeping changes in fiscal and monetary management that the House, with its history of control of supply, had ever considered and accepted in all its long and proud history.

The House knows, from the Maastricht negotiations and the opt-out that I negotiated there, that I am wary of a single currency for those economic reasons--wary of its economic impact and of the serious political and constitutional implications. However, if some of our partners do go ahead, there will be implications for this

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country in any event, albeit different ones. There is no way in which we can sit out that argument without affecting us in one way or another.

If we go in, we shall have the changes that I have set out, but if we stay out there are other serious implications to consider, and I shall spell them out to the House. No one at the moment can be entirely certain what the implications of staying out might be. We cannot know what the impact of a single currency might be on the pound sterling if the pound were outside it. We cannot know what the impact would be on the reputation and work of the City of London as the pre-eminent European centre if we were outside a single currency. We do not know what the impact would be on domestic or international investment in this country if we were outside a single currency, and we cannot know what the impact would be on employment.

Crucially, no one can possibly know at this stage the way in which market forces would react to the decision either to go in or to stay out of a single currency.

Mr. George Stevenson (Stoke-on-Trent, South) rose --

The Prime Minister: If the hon. Gentleman will forgive me, I shall make a little progress.

The purpose of spelling out those implications is to communicate the fact that at the moment those matters are necessarily unknown. They will become clearer as we move towards the point of decision; that is beyond doubt. We shall be in a position to know more of those. However, as of this moment, the answer to those questions cannot possibly be known, except as a matter of hunch. It is for that reason that I believe that it is in our own national and economic interests to keep open the option of going into a single currency-- [Interruption.] --and equally to keep open the option of deciding that it will not be in our national interest to go in.

Several hon. Members rose --

The Prime Minister: I shall give way in a moment to the hon. Member for Stoke-on-Trent, South (Mr. Stevenson).

I make no apologies now, nor will I in future, for deciding as an act of policy, in the interests of the country, that we should not make such a decision without the facts at our disposal to know the right answer. If a future Government decide to go ahead, they will need the consent both of Cabinet and of the House. They may also need the consent of the country in a referendum because, as the right hon. Member for Sedgefield said, we shall need to carry the opinion of the country with us, whichever way we proceed, but most definitely if we decided that we were to go into a single currency.

If a decision of great constitutional significance were to arise over a single currency or, for that matter--although I do not for a moment expect it to be the case--from the intergovernmental conference, a referendum could be necessary; it could be desirable, and I am prepared to keep that option open.

Mr. Stevenson: The Prime Minister has expressed his caution about entering a single currency, but will he answer a question? If the conditions are right and if the criteria are met, would he then agree to join a single currency--yes or no?

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The Prime Minister: I do not know where the hon. Gentleman has been for the past 10 minutes--he has clearly not understood a single word. No wonder he is in favour of going in: he does not understand the implications of going in or staying out.

Mr. Tony Marlow (Northampton, North): My right hon. Friend has said categorically that we will not seek to enter the single currency in 1997. He will know that article 109j of the Maastricht treaty states that if we were to join on 1 January 1999 there would be a two-and-a-half year lead time. That means that, to keep the option open, we should have to join the exchange rate mechanism by 1 July next year. Is it conceivable that my right hon. Friend would put such a proposal before the House?

The Prime Minister: I certainly do not anticipate joining the exchange rate mechanism in the lifetime of this Parliament.

Mr. D. N. Campbell-Savours (Workington): The Prime Minister would have us believe that he has not made up his mind and that he wants to leave his options open. Does he not understand that what we object to is the fact that he is prepared to tolerate the activities of members of the Cabinet who have made up their minds? They are saying no, no and no again. How long will he put up with that dissent?

The Prime Minister: I think that the hon. Gentleman will find, when we get to 10 o'clock tonight, that the line that I have set out for the Government will receive the consent of the Conservative party--he need not worry about that.

It is important over the next few months that people understand what this debate means. In recent months--from time to time in this House too--far too many people have been playing off against one another as supporters of Europe, opponents of Europe, nows, nevers, wets and drys and those who have been implacably for or against a single currency. Every phrase has been analysed, every nuance noted, every speech dissected to see whether it represents a shift in one direction or another.

I must tell those concerned that such an artificial tournament is nonsense. I passionately believe that the freedom of choice which I obtained at Maastricht must be fought for and held in the interests of this country. It is by far the best vantage point from which to conduct a single-minded and successful campaign for our national interests in the European Union.

We are going to maintain the option because the decision that may have to be taken will be the single most important economic decision to face this country this century. To take it at long range, without knowledge of the circumstances, without knowledge of the daily details, without an examination of what is happening in the markets or without anything else besides would be folly in the extreme.

Mr. James Molyneaux (Lagan Valley): May I gently chide the right hon. Gentleman for his failure to thank the Leader of the Opposition for his assurance that in the lifetime of this Parliament the Government will not be defeated--unless, Madam Speaker, you are invited to discount nine votes?

May I return the Prime Minister to the point about sovereignty, which he may touch on later? It was always clearly understood that there would be a pooling of

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sovereignty by all the member nations. May I ask the Prime Minister for an assurance that there will be no horizontal transfer of sovereignty to any other member state on a bilateral basis?

The Prime Minister: From the moment we entered the European Community--now Union--there have always been areas in which we have pooled sovereignty and also to some extent lost sovereignty. But we also gained sovereignty over the actions of some other nations. There have been semantic arguments about that question, but it is a fact that there has been a pooling of sovereignty in some areas. That has not applied to issues of great national concern, and I do not believe that the concerns which clearly activate the right hon. Gentleman are ones that he need worry about. I do not believe that we are going to face the difficulty that he envisages.

I come now to some of the related fears about the Community that I mentioned earlier. Let me address directly some of the fears that people have.

Mr. Blair: The Prime Minister was describing what he saw as the balance of economic advantage one way or another which would progress over time, but if, over time, the balance of economic advantage is, in his view, in favour of entering a single currency, is he in principle in favour of doing so?

The Prime Minister: It is a matter of practice, not principle. What matters-- [Interruption.] . It is a serious point. The right hon. Gentleman asks a serious question and he deserves a serious answer. What is relevant is what the practice of entering would mean for Britain-- [Interruption.] Of course, predominantly, in economic terms. We have to make a judgment about what is in the national interest. I repeat what I have said in the past. If I reach a decision that it is in the national interest to stay out, I will stay out. If I reach a decision that it is in the national interest to go in, I will recommend to Cabinet and the House that we go in. But we cannot reach such a decision without having the information in front of us; the right hon. Gentleman has done so. I decline to do so as an act of policy because I believe that we need to make that judgment when we have that information before us.

Mr. Blair: Will the right hon. Gentleman now say whether he sees a constitutional barrier to it? Does he agree with the Chancellor of the Exchequer that it is a threat to the nation state or not? Now let him answer.

The Prime Minister: The right hon. Gentleman is trying to tie this up into tiny little parcels. It is a serious point. What is relevant is what the whole package means for the House, the country and our future. If the whole package says that it is in our interests to go in, we go in, and if the whole package says that it is not, we stay out. But there is no point dancing round semantically on these points. At the end of the day, the only thing that matters is the British national interest. We cannot judge that except in the round. We cannot judge that until we have all the information available and we know the consequences of going in and the cost of staying out. I come now to the fear that I mentioned earlier that many people in Britain have--whether there will ever be what some refer to as a European super-state. In the sense of a European Government, I believe not, and personally I would prefer to leave the European Union before I

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accepted a European Government, but the degree of integration in Europe is a matter of dispute, not least between Government and Opposition in the House.

Upon some things we are agreed. The Government are not prepared to lose the border controls that we have at present and the Opposition have said that they will support us in that. I hope that that proves to be the case. In any event, particularly to protect our improved race relations, we are not prepared to weaken our immigration and other controls for non-European citizens. The Heads of Government across Europe pledged their word on that years ago and we expect them to keep it. We shall take whatever steps are necessary to that end. The right hon. Gentleman accuses us of divisions. He should look behind him a little more carefully before he levels that charge at us. We know what he has had to say about his Members of the European Parliament, but what is his attitude to his nearly 60 hon. Friends who opposed the Second Reading of the Maastricht legislation? What is his attitude to the 40 who rebelled against his leadership over the European finance legislation?

What is the right hon. Gentleman's attitude to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), who believes that

"the nation state is outdated"

and wants us to

"accept the increased jurisdiction of a centralised European authority"?

Does he agree with his right hon. Friend the Member for Copeland (Dr. Cunningham), who said:

"I personally am in favour of a single currency"?

Or does he agree with his right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott), who says:

"I am not a fan of a single currency"?

Not only is the Labour party divided, but the right hon. Member for Sedgefield failed to explain all the aspects of Labour's policy. He promised to, but he failed to keep that promise. I am not prepared to give up Britain's national veto. I am not prepared to give up the right to say no.

Mr. Blair: Neither are we.

The Prime Minister: The right hon. Gentleman says, "Neither are we," but he is. The right hon. Gentleman did not mention that Labour would undermine the veto by making majority voting the rule. The right hon. Gentleman shakes his head but it is in the European socialist manifesto, co -authored by the right hon. Member for Copeland, who said, subsequently,

"We stand by everything in this document."

It is no good the right hon. Gentleman shaking his head and looking embarrassed. That is what the right hon. Member for Copeland said. With whom does he agree--his right hon. Friend the Member for Copeland, his right hon. Friend the Member for Kingston upon Hull, East, socialist Members of the European Parliament or the European socialist partners whom he goes to visit and signs things with so often? Whom does he agree with? Does he agree with himself on this issue? Do we know?

If we gave up the veto we could not only be outvoted on own resources, tax harmonisation, foreign policy, immigration policy, protected areas of environmental policy and any policies which, in the words of the treaty, are deemed

"necessary to attain . . . the objectives of the Community".

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[Interruption.] It is a spirited discussion. If it were possible, I would give way to let the right hon. Member for Copeland intervene upon the right hon. Member for Sedgefield, but I am sure that they can discuss it elsewhere.

Dr. John Cunningham: I am grateful to the Prime Minister for giving way. [Hon. Members:-- "Resign."] If anyone should resign around here it is the Prime Minister and his right hon. and hon. Friends.

The Prime Minister should withdraw his allegation that either the European socialist party manifesto or our own manifesto for the European elections last year said that we should abandon Britain's veto. Neither document did so and to suggest otherwise is to tell an untruth.

The Prime Minister: The right hon. Gentleman said that the Labour party would make majority voting the rule. If it is the rule, what else could it be other than the abolition of the veto? He can wriggle and wriggle and wriggle, but he is on the hook and he knows it. Without that veto how would the Labour party protect our interests? The right hon. Member for Sedgefield had some other memorable omissions as well. He did not mention the memorable indication by the shadow Chancellor to have some renegotiation on our rebate. Our rebate was protected at Edinburgh. It saved the country billions, but without the veto it might not be possible to save it.

Neither did the right hon. Gentleman mention those Labour Members of the European Parliament who voted to double the European budget and dramatically increase Britain's net contribution. I do not know whether that is Labour party policy or whether they were simply being infantile again. He did not mention that Labour wants

"to avoid a tax-cutting competition between member states". What does that mean? At the moment British taxes are lower than those of our European partners. Does he want to raise British taxes to higher European levels or does he believe he can negotiate with the Europeans to bring their taxes down to our level when they all have fiscal deficits in their countries?

We know that the Labour party would impose the social chapter and drive out investment and competitiveness. We know that the right hon. Gentleman has said that he will

"never allow this country to be isolated . . . in Europe".

Sir Russell Johnston (Inverness, Nairn and Lochaber): Will the Prime Minister give way?

The Prime Minister: If the hon. Gentleman will forgive me, I will not. I have given way on a number of occasions.

How will the right hon. Member for Sedgefield win battles in Europe that are in our national interest if he is too frightened to be isolated in those battles? Does it mean that he would never be prepared to stand alone, never be prepared to defend any position, any principle, any vital interest, if it would mean offending his socialist colleagues across Europe?

What happens if Europe wants to do something that is genuinely against our national interest? How would the right hon. Gentleman prevent it? He does not want to disagree. He does not want to use the veto. The fact is

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that the Labour party's policy is one of weasel words and soundbites. It is not a policy for Britain. It is an abject surrender by the right hon. Gentleman.

We have fought for the changes that we want--the single market, enlargement to the east, a new accent on competitiveness and free trade, less new European legislation with national action as the norm and development of the Union through intergovernmental consent. None of that suggests that the Government would be dragged along by others in a direction in which we do not want to go. That may be the stuff of tabloid tales, but it does not stand up to detailed examination of our record.

We are prepared to be isolated and fight our corner, and the House does have to choose--between our hard-headed, commonsense, pragmatic approach to Europe or the politically correct federalist posturings of the Opposition. It should not be a difficult choice and I invite the House and all my hon. Friends to make that choice tonight.

Madam Speaker: Before I call the right hon. Member for Yeovil (Mr. Ashdown) I have some good news for the House. Because the right hon. Members on the two Front Benches have co-operated so well, for which I thank them, I can now bring the 10-minute limit forward to 6 o'clock. That means that I can call more hon. Members today. 5.10 pm

Mr. Paddy Ashdown (Yeovil): The Prime Minister, in a speech that will, I suspect, in some of its places, come back to haunt him later, asked us at the end of it to express our confidence in the policies of the Government on Europe. To do so would require either blind loyalty to the Conservative party or a suspension of our judgment--probably both. The Government's policy on Europe has been a catastrophe for the Conservative party and a tragedy for Britain. The question of Europe, as the Prime Minister rightly said, and this country's part in the development of the European Union, is, in my view, without question the single most important issue now facing this country. That question should be the subject of a widespread public debate about the long-term best interests of our country. But it has instead been dragged down into an internal spat in the Conservative party about how far the Prime Minister is willing to appease a tiny minority of his own right wing, whom, so far, he has not had the courage to face down.

The Prime Minister has brought this present predicament on himself. Right from the start, in the Maastricht Bill, he had the chance to lift Europe above party politics. If he had done so, he could have mobilised a cross- party majority in the House, which would have isolated the hard-core minority of anti-Europeans in his own party, who are now his scourge.

Lord Howe put it clearly and fairly in an article in the Financial Times on 30 January, when he said:

"When the UK joined the EU in 1973, and during the referendum of 1975, the governing parties of the time included"--

as they do now--

"irreconcilable cores of opposition, anxious to thwart membership. They were defeated by the determination of those governments to mobilise a wider majority in Westminster and in the country."

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He concluded:

"The current government could have pursued the same approach. It had the opportunity to do so in 1992, when the Commons overwhelmingly endorsed its achievement at Maastricht. But this position of strength has been progressively undermined . . . by a willingness to concede ground to those expelled from the parliamentary party in late 1994." Quite so. That is exactly what has happened. Or, to put it another way, the Prime Minister chose to put party before country and is now paying the price. Like all who venture down the road of appeasement, he has ended up not master but servant to those whom he has sought to appease.

What is the Government's European policy, for which the Prime Minister now asks for our support? It is a policy driven not by the best interests of the country but by the divisions in the Conservative party and in the Cabinet. It is a policy that depends on internal appeasement and external obfuscation. It is a policy, the aim of which extends no further than to enable the Government to survive by any means until the next election, when they can wrap themselves in the flag and play the English nationalist--no, the Essex nationalist--card, not because they believe it to be right, but because they know very well that it is the only means to ensure the survival of the Conservative party.

Mr. David Shaw (Dover): Will the right hon. Gentleman give way?

Mr. Ashdown: In a minute.

So, as we heard in the Prime Minister's speech, he is now condemned to an eternal search for new words to describe a non-position. We heard that at length during his speech of nearly 45 minutes. He has become a Prime Minister permanently impaled on the fence, because he dare not get off it. While he sits there, his party drifts closer and closer to outright opposition on Europe, his Government remain divided, his authority continues to be weakened and Britain's influence in Europe is unquestionably damaged.

The truth is that the Government are now so split and at war with themselves over Europe that they are no longer capable of governing effectively at home or of representing Britain's interests in Europe in the intergovernmental conference of 1996-97.

The Liberal Democrats are clear about what the European Union must now do, and about what Britain's role in that process should be. After a thousand years of war and conflict on our continent, the purpose of the European Union is absolutely clear: to bind the nations of Europe more closely together to ensure peace, prosperity and new opportunities for Europe's peoples.

Liberal Democrats are also absolutely clear about the way in which we want Europe to develop.

Mr. Duncan Smith: Will the right hon. Gentleman give way?

Mr. Nigel Spearing (Newham, South): Will the right hon. Gentleman give way?

Mr. Ashdown: If the hon. Member for Newham, South (Mr. Spearing) will give me just a few moments, I shall give way to him, and then to the hon. Member for Chingford (Mr. Duncan Smith).

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We want to see a democratic Europe in which the bureaucracy in Brussels is held to account by the European Parliament, and in which national Parliaments have greater control over the Council of Ministers. But that cannot be done without strengthening the powers of the European Parliament and without strengthening the powers of scrutiny of the House of Commons.

We want reform of Europe's institutions, starting with the programme of the common agricultural policy and the common fisheries policy. But that cannot be done without an extension of qualified majority voting in the Council. It cannot be done if Britain is always sitting obstructively on the periphery, instead of working constructively with others to secure the changes that are in our nation's interest. The Government must understand that it is no good calling for reform without willing the means that make reform possible. If they stick to no further extension of qualified majority voting, the consequence will be that the CAP will not be reformed, and that is not in this nation's interest.

Mr. Spearing: Of course the right hon. Gentleman is right to say that Ministers should be more accountable to the House for their actions in a secret Council of Ministers, but does he agree that, whatever we did, we would still be only advisory, because Ministers act there as our representatives, not our delegates? Are not the treaties an authority above all parliaments, including the European Parliament, and is not what he wants when he talks about more accountability and vision limited entirely by the treaties as they are?

Mr. Ashdown: There is an interesting contradiction between what the hon. Gentleman said and what the leader of his party said just a moment ago, which, no doubt, will be noted by all those who read the record. Wherever power resides, whether it be in a local council, in this place, or pooled with others in the European Union, it should be made accountable to the democratic process. That is why we must strengthen the powers of accountability, and of scrutiny, not only in this place but in the European Parliament. It is hypocritical of the Government and others to say that they oppose the decisions that are handed down by bureaucrats in Brussels, and then to say in the next breath that they are not prepared to see strengthened the powers of the European Parliament that would hold them to account. Those are contrary positions.

We Liberal Democrats want a decentralised Europe in which power resides as close to the people as possible, but that cannot be achieved without a clear constitutional settlement of powers between the institutions of the Union and those of the nations, regions and local communities that make it up. We want a Europe that integrates its defence and foreign affairs more closely--and some of what the Prime Minister said was very welcome, if it meant that the Government are at last moving towards such a position.

We want that closer integration in our defence and foreign affairs to ensure that our voice is heard in the world, and so that we can project our power around our borders to secure peace in our area; but it cannot be achieved unless we are prepared to move towards a common European foreign and security policy. We want a Europe that opens up new opportunities for its citizens--opportunities for work and, perhaps especially, for education --that can be taken up throughout the Union;

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but that cannot be achieved unless we establish new rights for our citizens, and provide for free movement within the Union itself. We want a Europe with clean beaches, less polluted waters and cleaner air, but we will protect our shared environment for future generations only by working together and sharing the immediate costs of high environmental standards. My party wants a Europe in which--yes--our economies are more closely integrated, because that makes for a more efficient internal market within the Union and a better chance to win external markets outside it. But that cannot be done unless we strengthen the single market and work constructively towards a single currency.

That leads us straight to the question on which both the Government and the Labour party are so uncertain and ambivalent. Having listened to the speech of the Leader of the Opposition, I am bound to say that I do not believe that he is personally ambivalent on the matter: he has staked out his position, and has done so with admirable clarity. He knows as well as I do, however, that the question is not what he wants but what his party will vote for--and it must be said that his party has more rebels against his view on the single currency than even the Government. The question is not what the right hon. Gentleman stakes out, but whether he could carry it through if his party were in government. That is the question to which he and his party must address themselves.

Mr. Duncan Smith: I must return the right hon. Gentleman to the subject of peace in Europe. He constantly talks of achieving and keeping peace in Europe through ever-closer union and integration. Within the boundaries of the present European Union, which countries does he expect to go to war with each other if we do not adopt that course of ever-closer union? How will such integration achieve much?

Mr. Ashdown: I can give the hon. Gentleman a very clear answer. First, however, let me say that we know very well--having seen it far too many times in this and in previous centuries--that, if Europe is seen simply as a collection of competing states, competition will turn into confrontation. The rise of nationalism and of fascism in some European countries should cause considerable concern about the way in which matters will develop.

If the hon. Member for Chingford wants a straightforward answer to his question, let me give it to him: Greece and Turkey. Indeed, the hon. Gentleman knows as well as I do that the developing situation in Bosnia could lead to European nations moving towards war with each other.

I do not underestimate--and nor does my party--the pain that monetary union might entail for Britain. It would be folly to underestimate that, not least because monetary union will force us to accept disciplines that we have ducked for half a century. I am certain, however, that whatever the difficulties of being part of monetary union when it comes, the cost of being outside it would be immeasurably greater. If this country can be part of monetary union if and when it comes, it is clearly in its interests to be so.

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