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10.50 pm
Mr. Denzil Davies (Llanelli): The hon. Member for Milton Keynes, South-West (Mr. Legg) referred to Germany. I do not know to which German politicians he has been speaking, but certainly Mr. Waigel wishes to lay down a law that, once we get to 3 per cent., we find another peak ahead and have to get to 1 per cent. If we cannot get to 1 per cent., we are denied regional development grants and payments out of the budget.
Mr. Legg: That perfectly illustrates my point about political union. It cannot stop at monetary union. The Waigel proposals are an example of the political union that will have to follow. There will have to be central direction of fiscal policy following on from a single monetary policy.
Mr. Davies: That may be the case. I merely make the point that it is in the interests of many in Germany, and certainly of business men, to devalue the deutschmark. For years, the German economy has benefited from a slightly undervalued mark. Once unification took place, interest rates had to rise and, if one can talk about undervaluation or overvaluation in a free market, the mark is now probably overvalued. That is something that the Bundesbank has tried to avoid over the years.
With an overvalued mark, German exports to the economic area of Europe will suffer. There is a certain schizophrenia--if I may use that word--in Germany as German business men wish for a weaker currency. There is no doubt that the euro, if it happens, will be weaker than the current value of the mark.
To some extent, this debate is about paragraph 4.10 of the Red Book. It refers to
In a curious phrase, written carefully by the Treasury, there is then a dash and the paragraph continues,
Perhaps even when I was at the Treasury many years ago there was something called the general Government financial deficit, but it certainly was not computed in accordance with a European system of accounts. We get the feeling that the Treasury is a little worried about suggesting that paragraph 4.10 exists because of the Maastricht treaty, but it is there for no other reason. There is no need to compute those figures according to something called the general Government financial deficit.
I want to make a pedantic point to the Paymaster General. We do not have the figures for the calendar year 1995. With the Maastricht treaty, the final hurdle to be overcome will be the figures for the calendar year 1997, which will come out some time in 1998. We are on calendar years. According to the Commission, its estimate of Britain's general Government financial deficit for 1995 is 5.1 per cent. of gross domestic product. In paragraph 4.10, we are told that for 1995-96--which goes into the fiscal year--the Government's deficit will be 4.75 per cent. It then says that it is forecast to be close to 3 per cent. in 1997.
As 1995 is over, and it is not terribly difficult to work out the figures, could we have tonight, if possible, the figures for the general Government financial deficit for the calendar year 1995? On the Commission's figures, which were forecast before the end of the year, the average for the 15 countries of the European Community for 1995 was 4.7 per cent. of gross domestic product.The British figure was 5.1 per cent, slightly higher than the 5 per cent. forecast for France. Will the Minister tell us the present position? Those ridiculous figures are to be entrenched--indeed, are entrenched--in law. I do not know what the deficit in Britain should be this year or next year. Perhaps it is correct to estimate 3 per cent.,1 per cent. or 8 per cent. Nobody can judge what the figure should be. Nobody wants to borrow too much if possible. Why entrench such figures in law?
I believe that there was an attempt in the United States by Mr. Newt Gingrich and others to try to entrench the concept of a balanced budget into the American constitution of all places. The attempt was thrown out because the Americans could not possibly stomach the concept that economic fashion and figures for it should be entrenched in their marvellous constitution. Yet that is what we are doing. We are entrenching figures that have been plucked out of the air by fanatics, as my righthon. Friend the Member for Bethnal Green and Stepney(Mr. Shore) said, in a fundamental law--a kind of natural law--of the European Community. Not only will they be law; they cannot really be changed--they can be changed only after 15 countries agree that they should be changed.
Mr. Cash:
Does the right hon. Gentleman accept that, if the arrangements are met for entering stage 3--if the Maastricht criteria are fully complied with--a central bank will be created, the governors of which will not be allowed to seek or take instructions from their member states? Does that not add a great deal to what he is saying?
Mr. Davies:
As the hon. Gentleman and the House will be well aware, the whole premise is that the power is reserved for the European central bank. A few weeks ago, I read a rather pompous editorial--I think that it was in The Independent--which suggested that it would be marvellous if the European central bank fixed interest rates for the whole economic community. How on earth can one fix one rate of interest for that whole area with its diverse economies? Presumably that is what the bank would have to do. Otherwise, it might have to set different rates for different areas.
Mr. Marlow:
The right hon. Gentleman talks about fanatics fixing the figures in law. Is it not a cause of great chagrin to him that among those fanatics are his own Front-Bench team?
Mr. Davies:
Certainly not--I would never suggest such a thing of either my hon. Friend the Member for North
Mr. Budgen:
On the general problems of how excessive deficits might work out, let us suppose for the sake of argument that we were in the single currency and we had a war--over the Falklands, for instance--which initially did not turn out very well, cost us a great deal of money and we had to run a very large deficit for two or three years. Let us also suppose for the sake of argument that many of the Latin countries in the European Union disapproved of the war.
Would we not find ourselves exposed to very considerable pressure from people who disapproved of that war to change our national policies so as to conform with their idea of what happened to be a reasonable deficit? Am I wrong in thinking that that could be a major infringement--
Mr. Deputy Speaker:
Order. The hon. Gentleman is wrong to make interventions lasting well over a minute.
Mr. Davies:
I shall not answer the hon. Gentleman's intervention in detail, but I should have thought that, once one had transferred levers of economic policy and economic power from one's own Government, one's capacity to wage war must be extremely limited. I do not believe that one can divorce economic matters from matters of defence and foreign policy.
Mr. Spearing:
A few moments ago, my right hon. Friend talked fantastically and ridiculed the idea of setting a single interest rate for the whole Community. Does he agree that people who insist on the beneficial effect of a single market will probably insist that that may well be the aim? They will claim that without it there will not be the great level playing field for competition that they crave.
Mr. Davies:
That may indeed be the case. I am not clear in my own mind whether the European central bank will fix one interest rate or more than one. I presume that it will fix one for the whole area. We talk about a single currency, but if we get to 1999 and only two or three countries--France, Germany and Luxembourg--have met the necessary criteria, we shall not have a single currency. We may have something called the euro, which is merely one currency in a very large area. That, too, creates problems.
My right hon. Friend the Member for Bethnal Green and Stepney has been in correspondence with the Prime Minister and the President of the Commission regarding one of the other convergence criteria--membership of something called the European monetary system. Clearly, my right hon. Friend will deal with the matter in another debate and I do not want to steal his thunder, even if I could. I simply ask the Paymaster General what is happening to that criterion.
Mr. Iain Duncan-Smith (Chingford):
It has disappeared.
Mr. Davies:
It has not disappeared, because it is mentioned in the treaty. I am a pedantic lawyer, and I believe in law, words and treaties. I do not think that treaties should be torn up. Article 109j refers to
"The general government financial deficit".
"which is also the measure used to monitor budget deficits under the European Union".
"the observance of the normal fluctuation margins provided by the exchange-rate mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other Member State".
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