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Ms Abbott: The Minister has talked about the possibility of wages and prices adjusting within an
EMU-type regime. We found when we entered the ERM and locked exchange rates--having been told that all would be well because wages and prices would adjust--that wages and prices did not adjust, the ERM exploded and we had to leave it rather ignominiously. Given that experience, what makes the Minister think that wages and prices would be any more responsive within EMU and under an independent European central bank?
Mr. Heathcoat-Amory: The hon. Lady is right to point out possible lessons to be learned from the ERM experience, which is why the Government have announced that they have no plans to re-enter such an exchange rate mechanism. But enthusiasts for a single currency point out that, if the possibility of a devaluation is permanently removed, other adjustment mechanisms might have to be found. So wages and prices might have to adjust in a way that does not happen now, while the other escape route is still available.
The other option is to respond to economic developments through expenditure and taxation mechanisms, although they will be somewhat restricted by the prohibition on excessive deficits which becomes binding in stage 3. That leaves only the possibility of large transfer payments between member states, which might require a very large increase in the European budget--an idea not being advanced in any quarter at present.
Mr. Llew Smith:
The Minister rightly says that the transfer payments would be very large. Will he be more specific? He seems also to accept my point about the transfer of economic power from elected politicians to appointed and unaccountable bankers. If that happened, and the bankers gained the sort of powers that are written into the treaties, what powers would be left to the
Mr. Heathcoat-Amory:
I have to answer two complicated questions in half a minute. Any formal influence is ruled out by the treaty: member states "shall not" directly influence their members of the European central bank. The size of the European budget might have to increase enormously to render the adjustment mechanisms comparable with those available to member states in the form of their tax and expenditure programmes.
In the United States, a very large federal budget acts as a stabilising mechanism. When a state or zone goes into recession, it pays fewer taxes to the federal Government and receives back larger benefit payments. That acts as an automatic stabiliser of some potency. For the European budget to act in that way, the present 1.2 per cent. maximum of gross national product which forms a ceiling to the budget would have to be removed altogether, and there would be a spectacular increase in the size of that budget.
Luckily, my right hon. Friend the Prime Minister secured the opt-out from stage 3, so it will be up to this House and the Government of the day to make the decision.
Unhappily, the Opposition are not enthusiastic about the opt-out. They have agreed in principle to stage 3 and they have not promised that they would hold a referendum, if and when they have an opportunity to recommend stage 3. I call that a severe democratic deficit on the part of those who occupy the Opposition Front Bench, which no doubt the hon. Gentleman and the hon. Lady will take up with the leaders of their party.
Question put and agreed to.
Adjourned accordingly at twenty-four minutes past Twelve midnight.
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