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The Prime Minister has told us that we cannot assess the advantages and costs at this stage. He is wrong: there are four clear reasons why such an assessment can be made. The first is investment. As the world moves towards a truly global economy, industrial nations such as ours will depend increasingly on inward investment. If monetary union comes, the bulk of that investment is likely to flow into the core single currency area, not into countries that choose to be outside it. Both the Japan Times --speaking for Japanese car manufacturers--and Ford have recently warned of the effects on their operations and investments in this country if it chose to be outside the core of Europe. The cost will be measured in lost jobs, lost trade and lost opportunities; we know that now.

Secondly, being within a monetary union will almost certainly mean lower interest rates and lower inflation. We know that now. Our long-term interest rates are already at least 1 per cent. higher than those of Germany because of the market's uncertainty over the Government's ambivalence on Europe, and question marks over their determination to keep inflation low. Our inflation record may have been good over the past two years, but the markets have a long memory. Over the past 25 years, inflation in Britain has averaged 8.7 per cent.--double the German average.

Even if the price of being outside monetary union were no more than the present 1 per cent. risk differential, according to the Chancellor's own figures £25 billion a decade would have to be paid in extra costs associated with debt servicing by British industry. That cost would be met by British firms and British jobs, and added to the price of British goods in the global market. We know that, and we know it now.

Thirdly, staying outside monetary union will not increase our control over our economy; it will decrease that control. We shall continue to have sovereignty over our short-term interest rates, but that will be largely illusory, for the markets will continue to have sovereignty over our exchange rates. That means that the markets will dictate long-term interest rates too. That is the practical reality--words used by the Prime Minister- -of our theoretical economic sovereignty in a go-it-alone Britain. As a periphery economy outside monetary union, we would have as much control over our macro-economy as a cork has over the wake of an ocean liner. Inside monetary union, we would certainly lose the illusion of sole national control, but we would gain the reality of a share in genuine economic power strong enough to withstand the speculation of world markets.

Lastly, keeping Britain outside monetary union would mean a further major loss of British influence in Europe and abroad. Our capacity to shape and reform Europe's institutions, including the common agricultural policy and monetary union itself, would be greatly diminished. As was made all too clear to me in Washington last week, so would our influence with our closest allies abroad, particularly those in the United States.

For all those reasons, we Liberal Democrats are clear about where Britain's interests lie. We understand that the ambivalence of both the Conservative party and the bulk

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of the Labour party arises not from a calculation of national interests, but from a need to cover internal party divisions.

Mr. Robert Key (Salisbury): Will the right hon. Gentleman give way?

Mr. Ashdown: I hope that the hon. Gentleman will forgive me if I do not.

Of one thing I am sure: Britain needs a clear lead on Europe, and it will not get it from this divided, uncertain, weakly led Government. That is why they should be defeated tonight--and afterwards, as soon as possible, in the ballot box.

5.28 pm

Sir Edward Heath (Old Bexley and Sidcup): I know that Madam Speaker wants us to be brief, and I think that I may be able to help in that respect.

My views on Europe have not changed since I made my maiden speech on 26 June 1950. I can therefore dispense with the considerable amount of the time taken by both the Leader of the Opposition and the Prime Minister in exchanging quotations from their own past or someone else's.

I shall come straight to the question of Europe. The Prime Minister rightly emphasised that in taking a decisive step such as entering a common currency one should do one's best to carry people with one. Of course I agree with that. I do not entirely agree that the option of a referendum should be kept open. One reason is that the Conservative party has always been opposed to referendums. We had them only when one was forced upon us by the Labour Government in 1975 and in the case of Northern Ireland where there was no Parliament. I do not want to depart from that principle because I believe that Parliament should take the sovereign decision and it is impossible to visualise the House voting against the result of a referendum. We should stick to our historic positions.

Secondly, we well know from European experience that it is difficult to get voters in a referendum to vote on the point that is wanted. It starts with one question and ends with an entirely different one, and referendums usually produce a vote against the Government if people dislike them. The argument against a referendum on a single currency is absolutely convincing in all circumstances. What will happen to our own currency while we spend four or six weeks stumping up and down the country arguing whether we should go in or stay out? If a public opinion poll suggests that we will go in what will the speculators do? The next poll a week later may say, "No, we will stay out." Barings would be child's play compared with what the speculators would do then. It is unthinkable to have a referendum on the question of whether to enter a single currency. It would be exactly the same as a referendum on devaluation of any kind. Quite apart from the time factor it is just not possible. I am against a referendum in all circumstances and particularly on the question of currency.

The Prime Minister said that the problem of carrying public opinion is now very evident, and that there are various indications that public opinion in the country has moved away from support for the European Union. He asked about the reason for that. I can give him one very sound reason. Not a single good thing has been said about

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Europe and the European Union by the Government or their representatives over the past 15 years. We have had nothing but quite unjustified condemnation and there has been no information for the public about the good things.

The Foreign Secretary knows how much we did between 1961 and 1963 during the first round of negotiations and how much we did between 1970 and 1972 in the second round to ensure that everybody was fed with all the details. The pamphlets which were published have never been challenged. Nobody says that we gave out wrong information: it was correct. Some of it proved to be better than we thought. We thought that prices would go up by more than they did, and that was good.

Mr. Christopher Gill (Ludlow): Will my right hon. Friend give way?

Sir Edward Heath: Who is it?

Mr. Gill: I am flattered that my right hon. Friend should recognise me. I should like to ask him about information, or misinformation. I have a letter which he wrote in 1971--during his time at No.10--to fishermen in the west of England. The letter states:

"For our part, as the White Paper said we are determined to secure arrangements which will safeguard the interests of British fishermen."

Does my right hon. Friend know that today there is scarcely a fisherman in any harbour in the British Isles who believes that his interests have been safeguarded?

Sir Edward Heath: If my hon. Friend looks up what happened in the negotiations and examines the agreement that we reached he will see that the fishermen got complete protection. What has happened has occurred in the past few years, not because of the treaty but because of the complete change in the fishing industry and in its technology and other matters. I hope that hon. Members with fishing constituents have the strength to point that out to them.

The other reason is that we have not taken opportunities to move into other fishing areas that were open to us. We had the Iceland crisis and we were finally kept 200 miles away from Iceland. At that time I set up an investigation into fishing on the west coast of Latin America. The report said that the fish looked a bit odd but there were plenty of them and fishing there would be beneficial. Could I persuade any fisherman even to go to look at them? Not at all. We saved fishing in 1971 and it is all on the record. There is still much to be done in terms of the good things of Europe. At this moment the Prime Minister should set in hand a fresh campaign to tell people about the good things that come from the Union. His speech put all the questions and all the doubts but did not deal with the great possibilities that can come from Europe. Some 80 per cent. of people in business and industry want a single currency because they know that it would be beneficial to them.

Mr. Bernard Jenkin (Colchester, North): Will my right hon. Friend give way?

Sir Edward Heath: No, I am sorry.

It would save industry much money in trading because instead of needing 12 or 15 invoices a company would need only one in one currency. It would also save businesses the cost of offsetting currencies in case they

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got caught out on the exchanges. That would be a great help to industry, manufacturing and sales and it would also be a great advantage to the consumer and the traveller who would not have to stop at every border and change his money. In a journey around 12 states he would save over 30 per cent. All those are good things about a single currency and they should be taken into account when looking at the difficulties.

I should like to comment on the political side. We have heard little about the views of the rest of the Union but a great deal about standing on our own. I agree that at times one has to stand on one's own, but it is infinitely better when one has friends who will offer support and see one through. The past two years have shown that we have not had the friends. We did not have them over the devaluation of sterling or in the attempt to change the voting system. We were exposed and, diplomatically, that is not a good situation to be in. We have to make sure that when working for change we have the support of the other countries.

On the question of voting, the small countries are determined not to give up their position. When the Community was founded those countries were given a more than fair position. Germany with 60 million people had 10 votes. Luxembourg had one vote, which suggests that its population was 6 million, but it is 450,000. The attitude of the European Union is to give more than a fair share to the weaker members in the organisation and in society. We should keep that attitude.

I ask people to be realistic on the issue of new membership. The eastern countries will not be democratic by our standards and nowhere near our economic standards for a long time. To start thinking ahead and working out various projections over five years is to be out of real touch. We cannot encourage them to think that in five years' time they will all be just like us, because they will not. I am afraid that more and more some of the people who were in the old regimes have taken hold of the new regimes. That is worrying. Some of those countries have a standard of living which is only 20 per cent. of ours. We should consider how much they have to catch up before they start moving with us. We must be realistic. We do not need to work out voting positions for 20 or 25 countries until the next century. However, we can do everything else to help them.

Mr. David Nicholson (Taunton): Will my right hon. Friend give way?

Sir Edward Heath: Yes.

Mr. Nicholson: I am grateful to my right hon. Friend for that signal of approval. I agree that there is considerable divergence, not necessarily in democracy but certainly economically and especially in agriculture, which concerns many of us. Does not that add weight to what my right hon. Friend the Prime Minister said about the need for the Union to develop flexibly so as to take account of those divergences?

Sir Edward Heath: I shall deal with being flexible straight away; it is also tied up with the attitude of the rest of the European Union towards us. Flexible means one has no real control over what is going on. That is

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what it amounts to in the end, but no one is prepared to accept that. The great suspicion against us in Europe now is that all the talk of an enormous Union, flexibility and the rest of it means that we are trying to get back into the old European free trade area. The suspicion is that we want to return to that old free trade area, in which we just said what we wanted to, when we wanted to and there was no control over it. As a result, it made little progress. I sat on EFTA as the British Government representative for three years, so I know full well what it is like. One cannot get it to make any decisions. When one sees the speed at which the Community acts, the old free trade area has nothing in it.

Our European partners suspect that flexibility means gradually getting rid of all the Community's mechanisms--getting rid of the Commission, weakening the power of Ministers and weakening all the Community's powers. I notice that we heard nothing today about more powers for the European Parliament, but that is important. We treat our European Parliament Members worse than any other country in the Union. We treat them thoroughly badly and that, too, does not pass without notice.

We are subject to that suspicion from Europe all the time, but we must get rid of it. We must do so by showing that we are wholehearted members of the Union in every respect. That means getting the machinery to work fully. We must also put forward proposals to improve the Union, instead of trying all the time to take away its powers and merits. That has tended to happen.

As for defence and foreign policy, we should get as close as we possibly can in our joint policies. I am not quite sure whether I agree with what the Foreign Secretary said yesterday, because I have been unable to get a full report of his remarks. I hope that he will not try to separate everything and say that we must become so nationalistic.

Having sat in the House for 45 years, it is interesting to see the extent to which, suddenly, we are hearing about the nation state. Decades went by when no one spoke about the nation state--a form of nationalism. We were a country of which we were proud and we wanted to work with others in the Community. I wish that we could return to those days, because the Europeans do not like our remarks about the nation state. When we say, "Look what we have done," that prompts Europeans to say, "The British treat us like colonies. That is what they think we are." I was told that just the other day in Europe. We cannot possibly make friends and have successful policies if we treat those countries in that way.

Mr. Peter Shore (Bethnal Green and Stepney) rose --

Sir Edward Heath: I am not accusing the right hon. Gentleman of being a colonialist.

Mr. Shore: I do not know why the right hon. Gentleman is worried and puzzled by the frequent references to the nation state and the loss of sovereignty. It so happens in this country that our democracy is coterminous with the frontiers of our national community. It is the loss of that democratic power to European

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institutions that are not democratic which is one of the principal worries of those of us who are serious about this matter.

Sir Edward Heath: I do not agree that the countries of the Union are not democratic. Most of them are pretty sceptical about some of the things done by our democracy, so I do not accept that argument. As for the nation state, the right hon. Gentleman may be right, but when I am up in Scotland, I find that the Scots do not accept that we are a nation, nor do the Welsh. I will not mention the Irish, but the English think we are the nation. The situation is entirely different from that suggested.

We are now in an entirely different world from what it was when there were two super-powers. We now hear about the emergence of a super-state, should there be any changes in the constitution of the Union. If that happens, why should we become a super-state? We do not say that we are off to New York to visit that super-state--never for a moment--nor do we say that we are going to the super-state of Moscow. That is ridiculous propaganda, but, of course, it is perpetuated by the press.

Should our colleagues take the heavies on a Sunday, I wonder how many of them realise that 60 per cent. are foreign owned. Those newspapers do not have any interest in Europe, except to try to disrupt it and the royal family in the process, if they can. Nearly 50 per cent. of the daily press is foreign owned. Those papers are not concerned about our position in Europe and produce every sort of scandal they can make up.

I had an interesting experience the other day with The Sun . It related to the European Court of Human Rights, which had made an award of £59,000 to a British person and said that the Government ought to repay it because they had no right to take it away. That was reported in a stinking leader in The Sun , which said, "Here it goes again--Brussels and the European Union telling us to give back £59, 000." That paper had no idea that the European Court of Human Rights at Strasbourg has nothing to do with the Union in Brussels. That court was founded largely by Britain, four years before the first Community was formed.

I wrote a polite letter to The Sun --well, the first two paragraphs were polite--to explain the true situation. It was sent on the day that that article appeared, Friday. Nothing happened on Saturday and so, on Sunday, my office rang The Sun . We were told that they did not realise that Mr. Heath wanted his letter published. My office said that if those responsible had read the third paragraph of my letter it said, "Will you kindly publish this letter and apologise to all your readers for misleading them?" They said that they would have to read it again. They did so, but on Tuesday I was told that they were sorry, but they did not have enough room to publish my letter. Presumably there were too many sex scandals. That letter finally appeared on the Friday. Why? Because they hoped that, by then, everyone would have forgotten what had been originally published. The British people who read that paper were misled. That is what we are up against.

I took part in a discussion on Sunday morning with Lord Lawson--it was amiable and well behaved--on that subject. A report appeared on Monday in The Sun , which set out what Lord Lawson had said, but not a word about my counter-arguments. Is that impartial journalism? That

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is what it has descended to. We were brought up on the basis that all reporting should be impartial and the leader should publish the views. That has all gone.

We are now in a new world with five powers. One is the United States, which is now having to learn a new way of life, rather painfully. Russia is still a great power militarily and behaving in a way that is absolutely unjustifiable. Have the western nations shouted about that? No, not a word. The next great power is the People's Republic of China. Of course, what happened in Tiananmen square and the 3,000 people affected is still held in horror. It has a population of 1.25 billion and the standard of living is increasing on average by 12.5 per cent. a year. It has enormous potential. The next power is Japan, which is ahead of us all in technology. Those four countries are the four powers. What is the fifth? The European Union. What chance have we got against those powers unless we are in the Union? What chance has the Union got unless we put our hearts, souls and minds into making it the success that it deserves to be?

5.48 pm

Mr. Peter Shore (Bethnal Green and Stepney): I made my first point during my intervention on the speech of the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), when I reminded him that the fact that our nation is coterminous with our democracy is a serious point. I did not say that we were handing over the powers of our democracy to other countries that are not democracies. That was not my point. I was saying that we were transferring them to European institutions that were far from being democratic in the way that we would accept for a mature country. That is a very different point but one that must be insisted on.

I listened with great attention to my right hon. Friend the Member for Sedgefield (Mr. Blair), who made a scathing and intellectually very effective speech. In terms of the argument, he certainly won hands down in the duel that then followed. However, although I applaud the speech for its form and effectiveness, on two matters of judgment I cannot fully subscribe to what my right hon. Friend said. The first was my right hon. Friend's conclusion that there was no constitutional barrier to our joining a single currency. That is a very important matter, and I do not believe that my right hon. Friend has yet realised all the implications of transferring the powers of economic management which would certainly and necessarily be lost if we were to join a single currency. I shall develop that point a little further before dealing with what the Prime Minister had to say.

We are committed as a party to an economic policy as well as a European policy. One of our problems is that our economic policy and our European policy are now in violent contradiction. No Labour Member would dispute the fact that our economic policy is to make our first priority the attempt to regain full employment as fast as we can. That is the great aim of our economic policy, as reiterated many times in the House and elsewhere. To that end, as outlined specifically first by John Smith and then by his successor at three successive Labour party conferences, we have said that to promote the goal of full employment we would use all the major instruments of macro-economic policy--interest rates, exchange rates, public expenditure and borrowing.

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How can that economic policy be reconciled with an acceptance in our European policy that we can go along with third- stage economic and monetary union, a European central bank and a single currency? We would lose control specifically of our interest rates. Control of them would pass, of course, to a European central bank. No one denies that--it is self-evident. We would lose the possibility of using exchange rate policy to assist our own economic recovery and goals. We would be bound to do so because permanently fixed exchange rates and a single currency inevitably mean that that very important weapon, or safety valve, is lost for ever.

We have accepted, or at least the Maastricht treaty would make us accept in the provisions spelt out at great length in its protocols and articles, that the European central bank would discipline our borrowing requirement-- the balance between our public expenditure and revenues--to a limit of 3 per cent. of gross domestic product. The macro-economic powers which I have outlined are still available, although sometimes with great difficulty, to the British Government. How can we possibly surrender them to European institutions, the most important of which--the central bank--is wholly independent of any influence from national or European Governments? That is a major problem that has yet to be resolved.

The resolution may be in what was said about the economic conditions as well as the purely Maastricht treaty conditions being right. What we mean must be spelt out clearly, and the same is true for the Conservatives, too. I am thinking of what the Prime Minister said about the convergence criteria and "other conditions" that would need to be met before he could recommend that we join a single currency. It would be interesting to know what those "other conditions" were, and I hope that, in winding up, the Foreign Secretary will tell us. That is a critical point.

The Prime Minister ended a recent speech by saying that the Chancellor of the Exchequer was about to state what the additional conditions for convergence not contained in the Maastricht treaty were. In the event, the Chancellor did not explain but made a speech saying something very much to the contrary, which delighted the Europhiles in the Conservative party and offended the Europhobes.

Mr. Hugh Dykes (Harrow, East): The unsatisfactory part of the right hon. Gentleman's argument is that it reflects the theory of economic management, the theory of supply and the theoretical ritual of independent states, with their own parliamentary activity, acting independently of others. However, in the real world, currency management also has an external value expression. Does not the right hon. Gentleman feel that people should be alarmed at the fact that, for example, the pound sterling- -our national currency--has lost more than 90 per cent. of its value against the deutschmark, most of that slide having occurred under successive Labour Governments? Is that not more important than foolish theorising about a pretend world?

Mr. Shore: I should not have given way to the hon. Gentleman. As the Germans have well known since the war, it is of course better to have an appreciating rather than a depreciating currency because that reflects the

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growth in output and the strength of the economy. Germany is now a more prosperous country than Britain, but let us consider for a moment the events of 16 September 1992--black, or white, Wednesday. We were then frozen into an exchange rate which was costing us an increase in unemployment of about 1 million a year, and we were uncompetitive with the pound standing at DM2.95.

The present level is something like DM2.30 or DM2.35, although it might be a little better in other circumstances. The change is enormous and has made all the difference to this country's exports recovery in the past two years. To say that we should have been better off had we stuck with a permanent rate of DM2.95 beggars belief. I do not believe that the hon. Gentleman, in spite of his great enthusiasm for all things European, can sustain that argument.

Sir Edward Heath: Does the right hon. Gentleman agree that, had the Government joined in 1985 when the then Chancellor of the Exchequer wanted to do so, the rates would have been almost exactly what they are today and we should not have had the devaluation?

Mr. Shore: I am not sure about that. I was going to mention the important fact that the convergence of the economies of member countries that share a currency is crucial. There are very great dangers in their not converging. I thought that the Prime Minister was remarkably frank in covering this ground. I give him credit for the fact that, despite much barracking and hostility, he put forward the idea not of a single currency but of a common currency. He put forward the idea of a hard ecu as a reserve currency for the growing European Union. It is a very sensible idea.

I could go along with a common currency but I, and, I suspect, half of Europe, could not live with a single currency for the reasons that I shall develop in a moment. The importance that the Prime Minister has always attached to his opt-out is, I think, a reflection of his own fears and worries about the consequences for Britain if we were jammed into a single currency when our economies had not converged. A new and serious contribution to the argument about convergence and single currencies has been made in recent weeks. I am thinking especially of the Governor of the Bank of England's Winston Churchill lecture on 21 February. The Governor, of course, balanced his arguments very carefully, but I do not think that anyone who read what he said could fail to conclude that, in the Governor's judgment, the costs--the dangers--of going into a single currency were far greater than any possible prize that might be won through it. The Governor made the point, which is the starting point of any serious debate, that there is a real difference in the economic performance of different countries in Europe and that nominal convergence criteria, of the kind stated in the Maastricht treaty, are simply not enough. He cited in his lecture that the lack of convergence is reflected in the current unemployment statistics. Western Germany has 6 per cent. unemployment, Britain has 9 per cent., France has 10.5 per cent., Italy has 11 per cent. and the figures lead up to Spain with 24 per cent. It is true; those are enormous differences.

The Governor went on to say that he did not think that those differences could be easily or readily resolved and that they would remain. He then, of course, made the

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point that to join a single currency with such differences in economic performance would sacrifice the great safety valve--it always has been in the past--of exchange rate adjustment and that we would be faced with continuing stagnation for the less successful economies and rising unemployment.

Mrs. Edwina Currie (Derbyshire, South): Will the right hon. Gentleman give way?

Mr. Shore: No, not at the moment. The Governor went on to say what, given that consequence, the alternatives could be. He cited two alternatives. First, he said that there would have to be a mass movement of labour from countries where unemployment was high to countries where jobs were still available. That, of course, is why we have the absurd emphasis on free movement of labour, with virtually no constraint, throughout the European continent. The second great danger which he posited--he did not posit it so much as a danger--was that there would have to be an enormous increase in the budgetary expenditure of the Community to compensate, if it were minded to do so, the regions and countries that had suffered from the consequences of a single currency.

Mrs. Currie: The unemployment rate in my constituency is 6 per cent, the unemployment rate in the right hon. Gentleman's constituency--I believe --is probably about twice that and the unemployment rate in the constituency of, for example, Liverpool, where I was born, is more than 20 per cent. How come we can run with a single currency?

Mr. Shore: It is not the same at all. If the hon. Lady were to think for the moment, she would realise that we have the resources of the British state. The 43 per cent. of our gross national product which comes to us in taxation is distributed around the country to the different areas to meet the different needs of our people. I admit that, in Europe, we are talking about a mere 1.25 per cent. That is entirely different and it would be very wrong to confuse them.

As I said, the Prime Minister knows the costs of joining a single currency only too well. His speech today was, once more, pretty sceptical about the prospects of it. I wish that he had been more definite. In fact, I wish that he had followed his own arguments to their conclusions and said that he had come to the conclusion that, as far ahead as he could see, it would not be possible on economic grounds for Britain to join a single currency. Further, since he insisted on inserting the word into statements made by the Cabinet a week or two ago, I wish that he had said that there are constitutional and, indeed, political implications of membership of a single currency and not only economic implications, even though those are very grave indeed.

The Government are divided--very obviously so. There is nothing necessarily odd about Governments being divided, but this Government have been peculiarly incoherent in their policy pronouncements on European matters. I would like that dissonance of voices to be stopped. I would like a more positive and single line to come out and I would like it to come out as a clear statement that the Government are opposed to Britain joining a single currency and that, as far ahead as they can see, it cannot be a course of action that the Prime Minister would recommend to his colleagues and the House.

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I hope that, in addition, we would agree-- both the Prime Minister and my right hon. Friend the Leader of the Opposition are very near to pledging it--on a referendum. For constitutional reasons, for the importance and significance of what is involved in the transfer of democratic power from Britain to Europe if we were to have a single currency, I believe that the Prime Minister and the Leader of the Opposition should pledge that they would hold a referendum before any further significant transfer of powers is agreed.

6.5 pm

Mr. David Howell (Guildford): When I hear speeches about the weakness of Britain in Europe--I exclude the speech of the right hon. Member for Bethnal Green and Stepney (Mr. Shore), to which I shall return-- I have to ask why, if that is so, this country continues to attract the vast bulk of investment from overseas into the region of the European Union. Britain not only continues to do that, but, from all the evidence, is set to do so in future. That at least requires an answer from those who insist that we have completely denuded ourselves of power and influence in the European Union. I do not believe that that is so and going on and on without answering that question does not help our cause.

I am genuinely grateful to the Leader of the Opposition for securing the debate today as it has already done a number of things. It has made it pretty clear that the right hon. Gentleman and some of his hon. Friends are hell-bent on a single currency. Whether it happens or not does not seem to worry them; whether there are dangers, as I believe that there are, does not seem to worry them; what it will do to the whole of the Europe for which we have worked over 20 or 30 years does not seem to worry them; and whether it will be pro-European or anti-European does not seem to worry them. They are going that way and it is very good to hear where they stand. It is also interesting to hear Labour's view that there is a need for leadership in Europe, although listening to the right hon. Member for Sedgefield (Mr. Blair), leadership seems to imply following the rest of Europe. If that is the kind of leadership that Labour Members want, my right hon. Friend the Prime Minister was quite right to say that there is a different kind of leadership in Europe, which is more pro-European than merely following the Franco-German agenda, as served by whoever happens to be in power in Paris and Bonn. It is very useful to have clarified some issues.

I am less clear about why some of my hon. Friends want to continue rebelling, or being Whipless or whatever the state is, over European policy. My right hon. Friend the Prime Minister has set out with the most excellent clarity what may be called a Euro-realist position, which commands a great deal of support throughout the party, in many other parties and groups throughout the European Union and among member countries that are to join the Union. I cannot understand what the remaining grounds for rebellion are all about. I honour and respect my hon. Friends' views and I do not question their motives, but it is very hard to understand what on earth they are rebelling about when the Euro-realist position has been set out with such clarity.

The argument boils down to three issues, which I shall rattle through because we have so little time: the referendum, the single currency and how much muscle we put into the intergovernmental conference agenda.

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I do not have any great difficulties about holding a referendum. I see the point made by my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath), that it would be silly to have a referendum on the single currency. However, there is a case after the next IGC, when there will be major institutional changes--perhaps not constitutional changes, but huge changes--for going to the British people and saying that, having reached that point, we should have another referendum, after the one in 1975. Provided that we were offering a Europe of nation states and not some sort of greater confection or construction that nobody--or very few people--wants, we would have the overwhelming endorsement of the British people and settle the issue for 20 years. I see no problem with that. I am one of the few ex-Ministers who have taken a referendum Bill of sorts--the Northern Ireland poll Bill--through the House, so I cannot object in principle to referendums. That is what we should go ahead and say that we shall have after the IGC in late 1996 or early 1997, or whenever.

I now refer to the single currency. The first question, after listening to the right hon. Member for Sedgefield, who is all for it, is whether it will actually happen in the way that some enthusiasts say. We know what is going to happen. Inevitably, there will continue to be a deutschmark bloc of some kind. We can see its workings in the market now, causing enormous currency disturbance. The magnetism of a bloc that has Germany at the centre of it will remain, with other countries around it--perhaps the Swiss, in a currency union, although abolishing their currency is very unlikely, as they are not even a member of the European Community; perhaps the Austrians and the Dutch; perhaps the Belgians, although they will have great difficulty in converging; almost certainly not the Italians, unless the criteria are fudged; and presumably, I hope, not ourselves. The deutschmark bloc is inevitable.

The other thing that is not so much inevitable as highly desirable is the convergence discipline. The convergence criteria are excellent aims and targets for any sensible and well-run monetary and fiscal policy, as my hon. Friend the Member for Beaconsfield (Mr. Smith) said in an excellent speech on Monday night. That will happen anyway, and will remove much of the freedom and so-called sovereignty that the right hon. Member for Bethnal Green and Stepney, who looked back rather nostalgically to the high days of Keynesian Labour policy, seems to hanker after. That does not exist any more. Ninety per cent. of the freedom of monetary and fiscal manoeuvre has gone anyway and will remain surrendered.

Do we then move on from that, living in a world of 90 per cent. of sovereignty being surrendered to the disciplines of the global market, to 100 per cent? Do we lock the whole thing in permanently? That step is the crazy one. Any engineer, designer or architect will say that some flexibility, an element of adjustment and some freedom of movement make a structure much stronger, not weaker. Therefore, the idea that we move on from having to co-operate very tightly indeed in the global monetary system, to locking currencies in for all time, is engineering and scientific nonsense. It is out-of-date nonsense and it is centralising nonsense.

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Anyone who can understand the sensitivities of the currency market must begin to comprehend that moving from the close monetary co-operation and the discipline imposed on us, certainly from common currencies of any kind--I am all for those--to a single currency, the surrender of national currencies, is a huge step and it is bound to be dangerous and to open up all sorts of new tensions. As the Governor of the Bank of England said the other night, it means that it forces adjustment on to migration, as has been said, and on to fiscal transfers of a kind far greater than anything the Community or Union budget could conceivably cope with. Worse than that, it obviously splits the European Union--the Union that we have backed and fought for over many years.

There is no way in which the Italians could meet the criteria which the Germans insist are necessary if, as they say, the new currency--not to be the ecu--must be stronger and as strong as the deutschmark. There is absolutely no way that that commitment can be squared with the state of the Italian, Belgian or several other economies.

Several hon. Members rose --

Mr. Howell: I do not have time to give way.

It is not really in Britain's interests--it is easier for me than for my right hon. Friend the Prime Minister to say that--to take our own global financial system into a regional, rigid currency framework. That simply is not in our interests. I can say that; perhaps my right hon. Friend cannot, but I believe that that is the position that we shall come to. All shrewd and far-seeing business men and financial people now are realising that that is the position and are beginning to question the generalised view that, somehow, it must be a good thing to be in a single currency. That is all that I want to say on the single currency, because that is all I have time for.

On the IGC, I plead with my right hon. Friends that, although there may be no constitutional matters coming up in 1996--everyone will disagree, so the situation will be neutered--inevitably there will be major institutional matters, even if we confine ourselves only to the enlargement issues. I hope that we come forward with a very positive institutional reform agenda, which says, first, that we do not take the Franco-German line on everything as gospel; secondly, that we entrench multi-speed Europe; thirdly, that we enshrine our national Parliaments effectively in the decision-making system rather than just talk about it--we have some ideas in the Foreign Affairs Select Committee on that; fourthly, that we clarify the Council of Ministers' supreme role in the system; and, fifthly, that we limit and define the powers of the Commission.

The Commission is much too powerful. It is much too insidious in trying to make its way into common foreign security policy and defence policy, which it is not qualified to administer or to pronounce upon. If we want to keep matters democratic and to build our security system on the successes of NATO, we shall ask the Commission to support clear delineation, clear definition and clear limitation of its own powers. Also, we must ask for the reform of the highly political European Court of Justice.

Those are the things that we must do at the IGC. We should have the confidence as a nation to put forward a very positive agenda for the intergovernmental conference. Please do not let us stand back and hope that

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nothing much will happen if we keep our heads down. We need to be very positive, and we need to say that we can help to shape a Europe of nation states and put ourselves at the heart of Europe, but it has to be the right kind of Europe.

6.15 pm

Mr. Peter Hain (Neath): I begin by nailing a lie that has been levelled at Labour Members. The Prime Minister said that we had abandoned Britain's veto in Europe. Labour's manifesto at the European elections last year stated:

"The Labour party has long argued for qualified majority voting in important areas such as the environment and social affairs. But we have always insisted, too, on maintaining the principle of unanimity for decision-making in areas such as fiscal and budgetary policy, foreign and security issues, changes to the Treaty of Rome, and other areas of key national interest."

In other words, we have said that we will keep the British veto, contrary to what the Prime Minister asserted.

I welcome the speech of my right hon. Friend the Leader of the Opposition and join him in making a plea for a change in the terms of the debate on Europe. I am someone who voted yes in the 1975 referendum but no to the monetarist economics of the Maastricht treaty. I am pro-European, but anti- Euro-monetarism.

Europe is imperilled not by the chauvinist fantasies of the Conservative right, but because it is straitjacketed by monetarism and gripped by the mania for deregulated free markets that has been so disastrous across the world. Instead of full employment, growth, investment and redistribution being the overriding goals of European economic policy, price, currency and interest rate stability are being obsessively pursued, together with tight restrictions on public spending, public borrowing and public debt.

As a result, poverty across the European Union has shot up--53 million people were under the poverty line in 1992. Total European Union unemployment has been driven up to nearly 20 million in 1994, or 10 per cent. and, according to the OECD, on present policies, that will rise to about 14 per cent., or 30 million, by the end of the decade, with all the social disintegration that that would imply. The toehold on power that was established by the fascists in Italy, and the serious outbreaks of racism and Nazism across the European Union are disturbing enough with present unemployment levels without being fanned still further by rises in poverty and unemployment. The goal of European unity has always been noble. There could be few more desirable ambitions than overcoming the divisions that plunged the world into two devastating wars. But the central problem is that, in practice, the political goal has always been secondary. European unification has progressed by putting economics before politics and markets before democracy. Economic integration has occurred ahead of the democratic mechanisms to hold it accountable. European monetary union would bring undoubted efficiency gains by eliminating the costs of exchanging currencies, which are currently estimated at about £12 billion annually, eliminating risk due to exchange rate uncertainty and preventing currency speculation. Those benefits can be significant for an open economy such as that of the United Kingdom, which, in the past, was often

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