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11.52 am
Mr. Anthony Coombs (Wyre Forest): First, I congratulate and thank my hon. Friend and parliamentary neighbour, the hon. Member for Ludlow (Mr. Gill),for giving us an opportunity to discuss this important subject and for pointing out that a single currency enjoys not only minimal popular support in this country but dwindling support throughout Europe. The gulf between the political elite in Europe and popular opinion on this issue is increasing, which is extremely dangerous.
I was going to begin by saying that the single currency is an idea whose time has come and now, thankfully, gone. Far from moving smoothly towards its conclusion in 1999, as my hon. Friend the Member for Harrow, East(Mr. Dykes) would have us believe, its wheels are falling off as it moves forward. We have been told that the convergence criteria are being achieved. But only Luxembourg--not exactly a major player in Europe--currently meets those criteria. In 1993, the franc had to be loosened from its 2.5 per cent. band to a 15 per cent. band within the ERM.
It is interesting to read some of the comments of former Maastricht enthusiasts in France, quoted in The Economist this week. Julien Dray, a leading left winger and author in 1992 of a pro-Maastricht book, said that if the fight against the budget deficit was simply to meet the Maastricht criteria,
Even Martine Aubry, a former socialist Employment Minister, who happens to be the daughter of Jacques Delors, conceded that a single currency was
Jacques Delors has argued that, if the French and German economies slow down, the deadline for European monetary union and a single currency will not be met. My hon. Friend the Member for Harrow, East would like us to believe that the French and German economies are not slowing down. The latest figures show that, for the past three months, German gross domestic product has been
falling. In France, industrial production over the past three months declined by 6.4 per cent. If that is evidence of their moving smoothly towards the convergence criteria, those who argue it are living in cloud cuckoo land.Theo Waigel, the German Finance Minister, is also gradually distancing himself from the idea of a single currency by arguing for additional criteria and hinting that Italy and possibly France could not meet them.
The wheels of the single currency are undoubtedly falling off, and the reasons are obvious. First, the idea of a single currency is fundamentally flawed. At a time when European countries need to be more flexible in terms of dealing with the "challenge of global competitiveness",a single currency would impose a straitjacket on them by requiring unrealistic convergence criteria in fiscal terms. It would have no popular mandate in terms of the huge transfers of money from one country to another that would be required to make it work. For example, interest rate changes would have a far greater effect on Britain than on other European countries, for the simple reason that more people in Britain own their own homes. It has been calculated that, in Britain, the effect of interest on ordinary householders as a proportion of their household debt is 10.9 per cent., whereas in Germany it is only3.9 per cent. and in France it is 3.2 per cent. So the effect of ceding decisions on interest rates to a supranational body would be far greater on British householders than it would be on French or German householders.
Secondly, the Maastricht criteria are, inevitably, heavily deflationary, especially if they are related to the strongest currency, as the Germans insist that they must be, through the exchange rate mechanism. As a result,as we have seen in France, Germany and other countries that have become constricted into preparations for the convergence criteria, our economy would probably gradually contract.
Moreover, budget deficits, the reduction of which is a major Maastricht criterion, will not be reduced as a result of cutting Government spending. That would be a virtuous way of achieving the criteria, especially for countries like Germany where nearly 50 per cent. of the country's resources go to the Government. Instead, they will be reduced by raising taxes, which will make the problem far worse in the long term. It will also worsen the problem of Europe's global competitiveness. So the criteria impose a fiscal straitjacket, whereas strenuous slimming is needed.
The third reason why it is becoming increasingly evident that a single currency is unrealistic is that it is not only anti-competitive but totally unnecessary. The Germans are so keen on it because they want to lock other countries into the very high social costs that they now endure. No less than one third of GNP in Germany goes on maintaining the welfare system, and the add-on to the average wage to cover welfare costs is no less than80 per cent. As a result, the German economy is becoming increasingly sclerotic, and Daimler, Volkswagen and Siemens--companies that one would think of as paradigms of German competitiveness--have lost 150,000 jobs between them in the past few years.
It is small wonder, therefore, that even people such as the chief executive of the CBI, Adair Turner--he has never been exactly regarded as a Euro-sceptic--have described the inevitable concatenation of a single currency with the social chapter as "an employment-destroying disaster" here and throughout Europe.
A single currency is also unnecessary, and even the EC is admitting that there is no particular correlation between exchange rate stability and investment or trade flows within the trade bloc. As for Britain being marginalised, I would frankly prefer to be marginalised if our economic performance continued to improve as it has done in the past few years when we have not been part of the ERM, as opposed to how constricted we would be were we a part of it. As evidence for that, the president of the German equivalent of the CBI recently said not only that Britain had attracted nine times as much inward investment as Germany in the past 15 years but that it was the European country best equipped to face the challenge of global competitiveness. That is a result of the flexible, free-market policies that we have been following in this country, away from the constrictions of European monetary union and the single currency.
The main flaw in the single currency enterprise is that its main aims are not primarily economic--however flawed the arguments may be--but political. Helmut Kohl talks about an
Mr. Rowe:
Does my hon. Friend agree that the Union between Scotland and England was primarily political?
Mr. Coombs:
Precisely. My hon. Friend makes my point for me.
When one sees the vilification poured on Bernard Connolly for having the temerity to challenge the intellectual basis on which political union and the single currency are based, the concern felt by many in the EC and the Commission at the feebleness of their arguments becomes ever more evident. The irony is that a single currency will not work unless the conditions for political union are in place. It is obvious that the conditions for political union are not in place, and there is no public support for regarding Europe as a federal body or entity in the way in which a successful single currency would inevitably require.
It is time that the Government recognised that a single currency is a flawed and eventually disintegrating enterprise. It would be very much in their interests if they committed themselves to a referendum on a single currency, if it ever happens--although I do not think that it will ever come to that, and the matter will remain, happily, entirely hypothetical.
Mr. Richard Shepherd (Aldridge-Brownhills):
I am pleased to follow my hon. Friend the Member for Wyre Forest (Mr. Coombs). My hon. Friend referred to Bernard Connolly, who has been a good and faithful servant of the Community and has pointed out some of the inherent problems with the way in which monetary matters are managed.
The debate has focused on a subject which has consumed a great deal of the 20th century: the adjustment of exchange rates between one country and another.
We can go back to the post-first world war settlement, Winston Churchill, the gold standard and the famous and wonderful pamphlet by Maynard Keynes, "The Economic Consequences of Mr. Churchill", the Bretton Woods settlement, through to the fixing of exchange rates by the mechanism that Europe developed. Unfortunately,we joined that system and had some very unhappy experiences in it.
My purpose is not to look at the economic side of the matter, although we know full well that only 44 per cent. of our total trade--visibles and invisibles--is with the continent of Europe, that the principal foreign currency in which we trade is the United States dollar and that we have a critical relationship with the US. Whether the proponents of the single currency or its opponents like it or not, our economic cycles seem to follow more closely those of the United States than those of the central European countries.
I wanted to look at the constitutional argument, which has divided part of our Government and Opposition Front Benchers, and particularly the Leader of the Opposition. Article 107 of the Maastricht treaty, which is justiciable, states:
that is, the European system of central banks--
That is reinforced in chapter 1, article 7 of the constitution of the European system of central banks.
I understand that to mean that no elected representative of the British people--including the present Chancellor of the Exchequer or, should Labour come into office,its Chancellor--may make representations to the central bank in respect of monetary policy, to cite one area. This is a huge constitutional change, and so profound. How is it possible for the Leader of the Opposition to say that he has no constitutional problem with that?
If the Leader of the Opposition becomes Prime Minister, what will he say to the millions who vote for Labour when our economy is out of joint with the central European economies? What will he say when interest rate policies pursued in Frankfurt are not appropriate for the British economy? What will he say to all those who elected him? Will he say that we no longer have the constitutional power? Is that what the present Chancellor of the Exchequer is saying by his promotion of the endeavour?
I suggest that it is a profound constitutional area and it startles me slightly to understand that, on the very basis of article 107 and the subsequent articles, any British Government could contemplate turning round to their people and saying, "I am afraid central European interest rates, although not appropriate for us, are the governing factor." We will then ask what the Government are doing about that and whether they are making the sternest, strongest representations to the government of the European central bank. The present Chancellor would no doubt reply, "Oh no. What does it matter? I no longer
have authority as we signed it away by treaty without any consultation with the British people." I have not heard a reply from the Prime Minister on that subject, and we have great difficulty in pinning down the Chancellor to specific detail on such matters of great importance.
"our fellow-citizens will rightly soon be saying that they have had enough of this Euro-construction which requires nothing but sacrifices in the name of an Eldorado which no one is any longer sure even exists."
"not worth breaking the country to acquire".
"irreversible process for which decisive steps will follow in the next two years".
"When exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB,"--
"neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a Member State or from any other body. The Community institutions and bodies and the governments of the Member States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks."
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