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Sir Edward Heath: I quoted the CBI's figures for industry, and public opinion polls reported in the press. North America does not have a single market; it is a free trade area--in part.

Mr. Shore: We could spend some time on the precise difference between a free trade area and a single market, but not today. I think the right hon. Gentleman accepts the CBI's figures too easily. I do not believe that it accurately represented its questionnaire and the replies to it.

Mr. Jenkin: The CBI's previous survey showed that only 14 per cent. of respondents were in favour of further European integration. That prompts the rather important question: how do we impose a single currency that does not involve further integration on the whole of Europe? This conflict rather suggests that the business men answering the questionnaires are confused by the phrasing of the questions.

Mr. Shore: That may be the explanation.

My major concern, which I believe is shared by my right hon. and hon. Friends, relates to the third stage of economic and monetary union. So far in this debate, there has been no mention of events on the other side of the English channel--a violent deflationary move by the French Government at a time when France is suffering from persistently high unemployment of more than 11 per cent. The total number of unemployed throughout the Union is 18 million. Why are deflationary measures being introduced not only on a large scale in France but elsewhere in Europe? The reason is that all the countries of Europe are trying to meet the convergence criteria laid down in the Maastricht treaty. The French made no pretence of concealment. They feel that they must reach their 3 per cent. target by 1997 to qualify for monetary union membership in 1999.

The French borrowing requirement was 5.6 per cent. of gross domestic product in 1994 and 5 per cent. in 1995, That leaves a gap of 2 per cent. to close in the two years remaining, which roughly works out at a mixture of tax increases and public spending cuts of £20 billion. France

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is not the only country to have to deflate. Italy, Spain and many other European states are way above the 3 per cent. of GDP threshold and are strongly deflating their economies by cutting public expenditure and raising taxes to converge in the time scale envisaged. If EU countries that I have not mentioned have no difficulty reaching the 3 per cent. criterion, they are caught on the 60 per cent. of national debt criterion. Only two countries could meet the Maastricht treaty criteria--Luxembourg and Germany. The rest are faced with finding some way of conforming to the criteria.

I have not mentioned Britain, but I will. The Foreign Secretary took it all too easily, saying, "Britain's going to be there. We're going to conform." The newly published Red Book shows that in 1995-96, Britain had a 4 per cent. public sector borrowing requirement, representing £29 billion of expenditure. The new forecast for 1996-97 is £22.5 billion and 3 per cent. PSBR. However, the British PSBR is not the same as the general Government borrowing requirement that is used in measuring convergence under the Maastricht treaty. The major difference is that we count into our accounts and PSBR the receipts from assets. The difference between our PSBR and the measure used to conform under the treaty is roughly equivalent to 1.1 per cent. of GDP. Our PSBR target for 1996-97, which is the last year before convergence, is 3 per cent., but it will be more than 4 per cent. by the European Union's accepted measure. Our forecast for 1997-98 is 2 per cent., but on my interpretation it is bound to be at least 3 per cent. and may be more.

It is not the case that Britain will conform just like that. We too face considerable cuts in public expenditure or increases in taxation if Britain is to conform to the rules of the Maastricht treaty and the convergence provisions. European monetary union is not an easy option for the UK either, which also has major problems of high unemployment--although I willingly concede that the figure is not as high as in France, Spain, Italy and certain other EU states.

As to my own party's approach, I will refer to arguments used in the past and those deployed by my hon. Friend the Member for Livingston (Mr. Cook) this afternoon. When we debated the Maastricht treaty, Labour's Front Bench spokesman argued, "The targets of 3 per cent. and 60 per cent. are just guidelines or approximations. There is plenty of flexibility. If things get difficult, there will be no holding us to account on 3 per cent. and 60 per cent." I wonder what the people who made that argument have to say about Herr Waigel's stability pact, which was proposed to the French on 13 November. It allows for a 1 per cent. GDP borrowing requirement, and it argues for and claims an automatic fine on any country that exceeds the 3 per cent. GDP borrowing requirement. If that rule had been in force, and taking into account our behaviour over the past two years, we would have already paid the European Union a fine of £16 billion, which does not make sense. I hope that I have dealt with the ludicrously optimistic argument used in the Maastricht debate, unfortunately, by the individuals who spoke for the Labour party at that time.

Another get-out is used in the document that went before the Labour party conference in October, which has been quoted. It invests a great deal in supporting the Delors white paper, as though it offsets in some way the deflationary effects in not only Britain but Europe

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generally of converging with the treaty criteria. Dare I mention those famous trans-European networks and other things? The sum total of all those expenditures in relation to stimulating the GDP, output and employment of the European Union is negligible. It does not meet the needs in terms of quantity, amount--although the figures are confused--or the time scale in which those expenditures will take place. In general, they comprise large investment that will take years to come to fruition.

My hon. Friend the Member for Livingston spoke helpfully about convergence in the real economy. He was insistent, when answering the questions that I put to him, that there will have to be convergence in the real economy. When I pointed out that nothing about that appears in the Maastricht treaty, he said, "That's too bad for the Maastricht treaty. We are going to have our convergence, otherwise we will not sign up." That is most welcome.

My hon. Friend mentioned that the Swedes have proposed that employment criteria should be written into the revised treaty. I like that idea, but one must be realistic about the degree of support that it will enjoy. Sweden may vote in favour. The incoming British Labour Minister will vote for it. What about the rest? I am sorry that my hon. Friend the Member for Livingston is not in his place. Is he not aware that during the negotiations on the Maastricht treaty there were allegedly socialist Governments in France, Spain and Italy? I would not like to say where those Governments are now when it comes to the law. However, three major socialist Governments who were involved in the Maastricht treaty were unable to secure agreement on the articulation of a high level of employment, let alone full employment, anywhere in the treaty. Why does my hon. Friend the Member for Livingston think that we have only to clap the Swedes on the back and say, "We are with you"? Does he think that in no time we shall be able to convince the other member states to write in the new convergence criteria in the real economy, including a commitment to full employment?

I find that events and comments are moving helpfully against the single currency. Our experience in the exchange rate mechanism in September 1992 is still vivid in our minds. I assure the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), who preceded me, that it was not a matter of letting Britain be isolated. In a sense, thank heavens that we were not supported at the then rate of exchange. Imagine that there had been funds available in Europe to prop up the pound at 2.95 against the deutschmark. What would be the level of unemployment in Britain now? The ERM was folly and thank heavens we escaped from it. Are we to expose ourselves to it again? We would have to do so two years before the move to a single currency. We have seen what it has done to France. Political disorders, let alone economic, may ensue. We would be mad to countenance such a move.

I am not sure about tactics but I would keep our opt-out. We might weaken our position in saying no to joining a single currency on the present criteria if we do not maintain our opt-out.

It is interesting to see opinion on the move in Britain and elsewhere. An influential commentator from the Labour party's point of view is an excellent journalist who writes in The Guardian, Will Hutton. He is the author of

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"The State We Are In", a well-received book. Will Hutton convinced himself--no doubt he hoped to convince some of my colleagues on the Opposition Front Bench--that we should join a single currency. He is generally an enthusiastic Euro. It is interesting that he has now come to a different conclusion. On 2 November, he wrote:

"The deflationary effects of the Maastricht ambition to create a single currency must not become so overriding that they create the very social division and friction they were intended to heal."

There is some foresight there. He continued:

"If Maastricht is seen to be the cause of the dismantling of the welfare system and the social wage upon which millions of the poorest in Europe have come to depend, then it will spark inevitable populist backlashes." Will Hutton sensibly adds:

"The creation of a single currency by 1999 with its convergence criteria needs to be put aside--in its place might be a parallel currency and a loose exchange mechanism, but anything more would be destabilising."

I welcome the conversion of an influential columnist and writer in my party.

Published in November, again, were the opinions of two gentlemen whom I greatly respect. Brian Hopkin was chief economic adviser to the Government during my time, 1974-79, and possibly slightly before the Labour Government took office. He wrote an article with Brian Reddaway, who is a professor of economics at Cambridge. The argument is summarised as follows:

"if, as proposed under Maastricht, a single European currency were created and an Independent European Central Bank given control over monetary policy, the arrangement would be likely to disintegrate, or require drastic reconstruction, because the results of its operation would be found intolerable".

That is the opinion of two men of considerable distinction. Their opinions are well worth recording.

I hope that my Front Bench colleagues, as well as Ministers, will think again, and extremely hard, about their commitment to a European single currency. I know that we have set a condition. It could be an important one because it could be the way out of the commitment. The condition of convergence in the real economy is very much worth having. Let us adhere to that. Let us not weaken our position in any way in subsequent legislation.

The intergovernmental conference that is about to open in Madrid will last for at least 18 months. My Front Bench colleagues should be aware that the victors at the next general election will go to Madrid to negotiate the final settlement. That is where a special responsibility falls. That applies to the Government who are playing their hand now and to my Front Bench colleagues, upon whom will fall the great burden and duty of getting things right in the kind of Europe with which we can live as opposed to the Europe that would destroy so much of that in which we believe.

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