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Mr. Clarke: The European central bank will be an independent bank, such as that which they have had for years in the United States of America and they had in the Federal Republic of Germany. It will be responsible for monetary policy decisions. Questions of taxation, public spending and priorities and budget setting of the kind that I presented to the House two weeks ago would remain the responsibility of the nation state. I shall return to that subject in a moment.
Mr. Gordon Brown (Dunfermline, East): We are anxious to know the Government's position. This morning, the Chancellor said that he supported the principle of a single currency. Is that the position of the Prime Minister, the Cabinet and the Government?
Mr. Clarke: I do not believe that I said that. I support having the option. I am answering questions from those who believe that one of the options would rule out the existence of the nation state. I do not agree with that, but I have made it clear that I am sympathetic to the idea of economic and monetary union. I am trying to explain why I believe that the Government's policy of retaining the choice in both directions, and exercising it responsibly in the national interest, is what we are all about. I am seeking to define the national interest in relation to economic policy.
Mr. Brown: The Chancellor said this morning that he had no objection, in principle, to a single currency. Will he answer a second question? A number of Conservative Members have said that they will stand under a different manifesto, and that they will oppose a single currency in principle. Has the Cabinet agreed a dispensation for them?
Mr. Clarke: I shall be deterred by that irrelevance for only a few moments. I have here a list of 50 members of
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the parliamentary Labour party who, in July this year, put out a document opposing the whole idea of a single European currency. When we discussed Maastricht, Labour was against having an opt-out. At the last election, the Labour party's policy was to bind ourselves by treaty without a choice to a single European currency. We have a clear policy, on which we shall stand at the next election. [Interruption.] The right hon. Gentleman has his answer, and he knows perfectly well what our policy is.
Let us consider the Government's economic aims, which, unlike those of the Opposition, are clear. All Conservatives want a deregulated market economy in Europe. We are all vehemently against the social chapter, no one more vehemently than me. We all want subsidiarity to be respected to the full in the single market. We can accept no question of Government or Parliament giving up control of either public spending or taxation. But we have many allies on those points in the European Councils that I attend. The Germans are probably our strongest supporters on deregulation, subsidiarity and national control of taxation.
The British Government insist that the European market must continue to be based on competitive free market principles and free trade. British membership of the EU was extremely important in shaping the European contribution to the successful completion of the last general agreement on tariffs and trade round. At this very moment, while we have this debate, at the first ministerial meeting of the World Trade Organisation in Singapore, we are pushing forward our free trade agenda. In Singapore, we the British are fending off the protectionist instincts that some of our trading partners would like to introduce into the European position.
It is against that background of the clarity on the Government Benches of our key interest in the nature of the single market that we have to consider our role in negotiations about a possible future single currency.
The European countries committed to joining a single currency are our nearest neighbours. They are the market for nearly 60 per cent. of our exports of goods. Our companies are big investors in their companies. When our continental neighbours do badly, we slow down. When they do well, we prosper. That is the economic reality. That is why we must do everything we can to ensure that, if economic and monetary union goes ahead with any member states in membership, it has to be a success.
The United Kingdom ought to punch its weight inside the EU. We have shaped the rules in the single market, to the benefit of everyone in Europe. We should have the self-confidence to believe that we can do the same on the single currency if we stay at the table.
Mr. Peter Shore (Bethnal Green and Stepney):
I understand very well that the Chancellor is blind to all the evidence of the federal thrust on the continent of Europe, but he is at least, or so he tells us, concerned about the sustainability of any euro currency that emerges, and totally opposed to finagling with the criteria.
That being so, what has the Chancellor to say about the evidence of finagling on the other side, and in particular of the Commission accepting the French Government's transfer of the France Telecom pension fund into their account, so that they can reduce their borrowing requirement by half of 1 per cent.? The Chancellor knows
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Mr. Clarke:
I have been debating the fear of a European super-state with the right hon. Gentleman in one way or another for about 25 years now, and we have always disagreed on that. It has not happened yet, and I do not think that it will happen, either. For the umpteenth time, I am against it.
Mr. Norman Lamont (Kingston upon Thames):
Will my right hon. and learned Friend give way?
On the second point, I disapprove of the transfer to the French Government of payments for the pensions liabilities of France Telecom being regarded as acceptable--the only difference that it has made. As I shall explain, that one transfer, which everyone knows about, does not affect one's basic judgment about convergence. I, along with most other people, would disregard it when it came to making the key judgment in the end, and I am sure that all the other member states will as well.
Mr. Clarke:
With respect, I must be allowed to make a little progress. I should like to go on to the negotiations. I will return to convergence.
Our strongest card in the discussions on economic and monetary union is the British option that my right hon. Friend the Prime Minister negotiated at Maastricht. The House needs to debate how and when to exercise that option. Whenever the time for decision comes, the answer must depend on a balanced judgment of possible advantages and disadvantages. Nothing in this world is ever going to be black and white, but, when we do exercise our option, essentially it will be a judgment for the House to make about the upside and the downside, and we will probably find that they present themselves in a combination that we should begin to analyse at this stage of the debate.
Mr. Clarke:
I should be grateful if my right hon. Friend would allow me to move on.
I understand how strongly some Members feel about the federal united states of Europe and so on, and we all understand the difference of opinion on that issue, but I should like to move on to what might be the advantages and disadvantages of a single currency. It is time that, as a House, we debated what we perceive the arguments on both sides to be, because that is the balance that we are going to have to strike.
Let me first consider--I stress that I am coming to the possible disadvantages--what the possible advantages of a single currency are. Why are we going to Dublin at all and taking part in the discussion? Why did we leave an option open at all at Maastricht, and why did the Labour party say that it would sign up there and then, and enter into a treaty commitment to take advantage of economic and monetary union?
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If EMU can be made to work, it would eradicate exchange rate movements, which can disrupt trade and have disrupted trade in our recent history. We have done well in the past two or three years partly because we have had a reasonably stable exchange rate, but our comparative success is tending to strengthen the pound. Exporting industrialists have already begun to voice concerns about strong upward movements, which obviously happen when we have a floating currency.
Against a weak euro of non-convergent economies, for example, the pound outside could strengthen a lot or it could simply fluctuate widely. Inside a strong EMU, countries would engage in straight competition, undistorted by the foreign exchange markets.
EMU would also reduce transaction costs, making it easier for smaller businesses to enter into and compete in the European market. The members of a strong euro zone would also expect to enjoy lower interest rates, both short and long term, based on the financial strength and reputation of the bloc. Countries with a history of devaluation or bursts of inflation pay a lasting premium in terms of higher interest rates, as we in Britain know only too well.
Mr. John Redwood (Wokingham)
rose--
Mr. Clarke:
Let me finish the advantages, and then I will give way.
Finally, a single currency will make comparisons of prices and wages across member states direct and stark--they would all be denominated in the same terms. That will expose industry in member countries to more intense direct competition with one another, which could reinforce the desirable pressure on industry and commerce in all member states to become ever more efficient and competitive. It would speed up the drive towards competitiveness.
In that way, EMU could help member economies to rise to the real global challenges of the next 10 years. Every member state in Europe must contemplate the need to be able to compete with the economic might of Japan and of the United States of America, and with the increasing strength of the south-east Asian economies and Latin America. That is one of the European problems, and EMU could speed up that drive, making the core economies competitive.
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