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Mr. Legg: I do not think that it is that strong a constraint. Again, it is a matter of judgment. The ratio is sufficiently diminishing and approaching the reference level at a satisfactory pace. There is tremendous scope for judgment over such phraseology.
If the hon. Gentleman doubts that, I suggest that he talks to German politicians about the prospects for Belgium joining the single currency. German politicians say, "Of course, the Benelux will have to join the single currency." Belgium's debt level is about 130 per cent., but that is not considered to be an impediment. Luxembourg, the only country meeting the criteria, has the same currency as Belgium. In that context, the politicians will not see an impediment in 1998 in bringing in the countries that they believe have sufficiently converged.
So we have deflationary policies on the continent.At the same time, we have the franc fort policy. We all know that it is an extremely damaging policy for the French economy. It is dragging down economic growth in France and driving up unemployment. Why does France continue to pursue such crazy economic policies? Why do the French not look over the continent? Why do they not look to the United Kingdom, where we have a floating exchange rate?
Why do they not recognise that, when the UK came out of the exchange rate mechanism, unemployment started to fall, exports started to increase and there were no worries about the exchange rate with the dollar? Why does France not say, "Floating is the right way to go. Let us abandon the franc fort policy and get our interest rates down"? The base rate is 7 per cent., and inflation is less than 2 per cent. Why does it continue to inflict such punishment on the economy and on the French people? The answer is political: there is a political will in France and Germany to have monetary union.
An objective analysis of the economic criteria and their consequences would lead to a rejection of the whole concept. There is no such analysis because of the political will behind the concept. When French or German politicians are challenged on the subject, they accept that there is economic nonsense in the system, but they then say, "But of course there must be political union as well." The German Chancellor and the President of the Bundesbank are completely frank about it.
We have had the message loud and clear from continental politicians, so why do not we hear it, and say, "Not only is economic and monetary union bad economically, it is not the right course for Britain politically; we do not want further political integration and a European super-state"?
Mr. Cash:
My hon. Friend makes a fundamental point. Therefore, does he agree that the only way that we can get out of the situation is not merely to wait for a collapse and the disorder that would follow, but to take the opportunity of the intergovernmental conference to
Mr. Legg:
My hon. Friend makes a valuable point.
Mr. Budgen:
Will my hon. Friend give way?
Mr. Legg:
Perhaps I may be allowed to deal with the intervention by my hon. Friend the Member for Stafford (Mr. Cash). It is time for Britain to take a lead on this important issue. That would not only help our partners to abandon the economic nonsense upon which they are engaged, but enable them to look more closely at the political consequences of their action.
The French Government still believe that there is a good prospect of Britain joining the single currency. From the British and French points of view, there would be nothing better than to make our position clear and say no to a single currency. The French would then understand that, if they wanted to go into a single currency, they would be going in with Germany.
Mr. Bernard Jenkin (Colchester, North):
Perhaps my hon. Friend would clarify one matter. Some of my colleagues suggest that this problem will go away because the convergence criteria cannot be satisfied and that,at the very least, France and Germany will probably seek a delayed start date to economic and monetary union. Does my hon. Friend share that opinion, or does he think that, because of their political objectives, France and Germany will drive ahead, come what may?
Mr. Legg:
I think that France and Germany will drive ahead because of their political motives.
Mr. Budgen:
Will my hon. Friend give way?
Mr. Legg:
Perhaps I could finish dealing with the point before giving way.
Many times in the past, this project seemed to have been derailed. In the Danish referendum, the Danish people voted against the whole project, but it was afterwards put back on the rails. We thought we saw the break-up of the exchange rate mechanism in August 1993, but the ERM was reconstructed with 15 per cent. bands and the project went on. As I have said, political will and legal obligations are driving this project and I cannot see it being derailed unless Britain explains the economic and political disadvantages.
Mr. Budgen:
Why do we have to keep waiting for it to be derailed in Europe? Many people concede that it may be right for some European countries. It would be a great impertinence for us to tell them what was right for them. Surely it is the role of political leaders in this country to decide what is right for Britain and simply to say, diffidently and kindly, "It may be right for you but it is wrong for us."
Mr. Legg:
My hon. Friend makes a good point. The British Government should certainly say that they consider that the single currency is wrong for Britain and
Economic and monetary union would be damaging economically. I do not believe that the idea of a single currency will work, even between Germany and France. Last week, we had an extremely serious development in the concept of the single currency. The Bundestag acted to reduce the mobility of labour in Europe. It passed a law ensuring that foreign workers could not be paid less than German national workers. That will impede the mobility of labour in Europe.
When one is committed to the concept of a single currency, to take measures to reduce mobility of labour is highly irresponsible in economic terms. It is particularly so, given that the German Government and people do not want to raise their taxes to make higher levels of fiscal transfer payments around the single currency area.
Mr. David Shaw (Dover):
My hon. Friend has suggested that the mechanism is being driven by a political, not an economic, agenda. He and I are both accountants. Does he suggest that the only way in which economic and monetary union between France and Germany is likely to come about, especially if it is to involve some other countries, is if the convergence criteria are fiddled? A number of countries cannot meet the criteria in the next five, 10, 15 or possibly 20 years.If that is the case, the only way in which economic and monetary union can come about is by fiddling the books.
Mr. Legg:
Like my hon. Friend, I am extremely reluctant to predict precisely economic conditions in the coming few years; to predict deficits or inflation levels for any country. However, I think that he has grasped the point that the only way in which the criteria are likely to be followed and monetary union is likely to take place is if there is flexibility and, in my hon. Friend's terms, the figures are fiddled and countries do not stick to the letter of the legislation. That is a great danger.
If the treaty were inspired by a desire to achieve true economic and monetary union, we would not have these odd convergence criteria. We would look at all sorts of convergence criteria within the real economy. We would look at levels of unemployment, how financial markets worked in different countries, trade flows and so on if the desire was genuinely economic. If it were genuinely economic, would we need the criteria? If countries are coming together, markets will produce convergence. If we trade more and more with Germany or with France, convergence will take place naturally. It is not for states to enforce convergence on themselves and other states.
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