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6.15 pm

Mr. Robert Sheldon (Ashton-under-Lyne): The right hon. Member for City of London and Westminster, South (Mr. Brooke) referred to the pragmatism of the British,

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but that pragmatism seems to have deserted the Conservatives. We saw yesterday, and my right hon. Friend the Member for Livingston (Mr. Cook) referred to it today, the barracking of the Chancellor of the Exchequer--something I never expected to see.

It was astonishing because, in my political life, I was brought up to believe that the secret weapon of the Tories was loyalty. I now see that their loyalty was based on the absence of dogma. They subordinated all principles to that of retaining power and it was when they violated that approach, such as at the time of the corn laws, that they became divided and lost their power and influence. That is Margaret Thatcher's legacy. She gave dogma to the Conservative party, and the squabbling and the antagonisms are the inheritance that she has bequeathed to them. Following the Labour party's divisions over dogma 15 years ago, we now see the Tory version, which is likely to be fierce and long-lasting.

I am a pro-European, although I have certain reservations on economic and monetary union. I voted for entry into the Community against a three-line Whip, and I have never seen any reason to regret it. In this debate, we have heard from a number of Euro-sceptics. Engel, the confidant of Karl Marx, said that an agnostic is a shamefaced atheist, and Lord Roll said in another place that many a Euro-sceptic is probably a shamefaced anti-European. Many of them are against the European Community and several wish to withdraw from it. Their hostility has come to a head over the debates on EMU.

I suppose it is possible that, despite the enthusiasms from prominent players, EMU may be postponed, perhaps for some time. To my mind, that would be an adequate solution. The problems of convergence are bound up with the difficulties of nationalism, which are likely to continue for a number of years. It is a pity that the project is being rushed by Chancellor Kohl, who wants to see it in place before he goes. His time as Chancellor is coming to an end and he is in a hurry.

Although outside EMU we can still decide many things for ourselves, the area of independence is dwindling all the time. As examples of that, we have only to observe the effect of Alan Greenspan's decision last week, which brought turmoil to the City of London and many other parts of the world, and the effect of Bundesbank decisions. Can anyone believe that an EMU with Britain outside will not have an even greater effect upon our domestic economic and financial affairs?

My preferred solution is for there to be some delay in the implementation of EMU. There is more to be done in the matter of convergence, as my right hon. Friend the Member for Livingston said, and such a postponement may yet happen. But at this stage, we must assume that EMU will go ahead roughly as planned and roughly according to the timetable envisaged. In all of this, we must assess the level of uncertainty in what we propose, and I regard staying out of EMU as representing the greater risk. If we stay out and EMU is successful, it will be likely in some ways--some of them unknown at this stage--to discriminate against us. As we know, the absent are always in the wrong. Excluded from the inner councils, our weight will be diminished.

A real danger, as mentioned by the right hon. Member for City of London and Westminster, South, is a struggle between Frankfurt and London, and we should not take too much comfort from the expectation that all our skills will remain with us in such a contest.

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Mr. Dykes: Will the right hon. Gentleman give way?

Mr. Sheldon: I am sorry, but I have only ten minutes.

We should not take too much comfort from the rules that we hope to establish. We must not depend on rules--which will not always help us--but on practice. Even if EMU is not successful--it is interesting to speculate on the mechanics for dealing with an unsuccessful EMU--we will gain no credit and no friends for any hostility that we may show.

The major question for Dublin, and beyond Dublin, should be whether the criteria for convergence will be firm. Will the criteria be tough in terms of admissions? If they are, the stability criteria will be less severe. If the criteria are firm and the admissions policy is tough, the stability criteria will be less severe. What steps can be taken to ensure that latecomers to EMU come in without discrimination? Ideally, there should be no disadvantage in late entry, providing that the conditions are met. In practice, the founders will have a greater influence on both the rules and the way in which they operate.

I am uneasy about establishing a rigid formula for stabilisation, convergence or any of the criteria that will decide important matters. If a country is in financial difficulties, it has the choice at present of raising interest rates, raising taxes or cutting expenditure. Under EMU, that range of choice--as well as devaluation--will not be available. The only choices available will be increasing taxes or reducing expenditure. What happens if convergence is not realised? What if a Government cannot politically increase taxes or reduce expenditure? What if they cannot do any of these things? In such circumstances, how real a discipline is a fine?

There are political problems, and there are things that the Government can and cannot do. It would be foolish to assume that all we need is to establish a rule that will apply to bring countries into line. What happens if a Government face lorries and tractors on the roads, or even greater civil disturbance? In that connection, how real a discipline will a fine be? The political imperative may be much greater than the financial one. In any case, it is a peculiar comment to impose fines on a country that will not pay because it cannot pay.

We must accept that we cannot be too rigid. There are those who say that, once one starts easing the criteria, it will bring problems--particularly for the Germans, who will feel that they are exchanging their strong deutschmark for a weak euro. It is unlikely that the euro will be anything like as strong as the deutschmark, as too many countries are involved and there are too many problems. We must not be too rigid, and if that is the price for achieving EMU, the Germans may well have second thoughts about it.

Maastricht did not represent the end of nationalism, and we must allow for some of the practices, as well as the characteristics, of certain countries, which cannot be dismissed. We will not bring about social change in a year or two just because we have something called EMU. We must accommodate these matters and if that is the spirit in which the negotiations are conducted, EMU may well succeed. In our dealings with the Community, history is unswervingly against our claim to high statesmanship. So often we have assumed that that which we do not like will fail. Let us for once in our miserable experience in these matters assume that that which so many expect to fail may actually succeed.

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6.24 pm

Mr. John Redwood (Wokingham): The other day, I was speaking at the Henley management centre. Perhaps because it was near Henley, I was asked whether I was ever invited to speak in Europe, given my views. I was delighted to affirm that I received many invitations, including that one for that day in Henley. Here I am again, today--speaking in Europe. Britain must be proud that we are a part of Europe--but Europe is our continent, not our country. We believe, rightly, in a Europe of nations. I agree with M. Santer that we are fast approaching an important decision point for us and the other member states of the European Community.

We have the Chancellor Kohl version of how we should develop. Chancellor Kohl wishes to have ever deeper and wider integration, and he wishes to see ever more powers going to the centre. He is quite open in saying that he likes the German federal model, where there is strong central control but where the centre decides to devolve some of the powers and decisions to the lander, the individual regional parliaments. The authority for that system comes from the democratic authority of the German people, expressed through the German parliament.

That is why I believe that Britain must offer an alternative to Chancellor Kohl's vision. I believe that true democratic legitimacy will remain in Germany in the German Parliament, and will remain in Britain in the British Parliament. We therefore need a Europe of nations, because I do not believe that we are about to establish democratic legitimacy at the European level through the European Parliament, which would be the only democratic way of proceeding towards a more centralised or a federal state.

What need does a Europe of nations have of an anthem, a common passport, a common flag, a supreme court or all the other institutions that are clearly the institutions of a proto-state in the making? We must now put it clearly to the British people--the choice is there. It is said that it would be quite impossible for Britain to negotiate a common market but not common government. It is said that we would be isolated in Europe if we took the Government's view of a Europe of nations, developed it and thought it through for ourselves, and for the other member states who like our vision better than Chancellor Kohl's.

There are a lot of people in western Europe who share exactly our view. They want the European Community to add to the prosperity and happiness of the peoples of western Europe, and they wish us to co-operate and to find out whether there are things that Governments can better do together by their mutual agreement. But just as there are growing resentments in our country about the number of ways in which the European Court and the European institutions interfere in our democratic decisions, so there are tensions and disagreements visible in other member states of the Community about the interferences, and the consequences of those interferences, in their policies.

The biggest step towards federal union that is currently before us is the step to a single currency. It is wrong to suggest that no power would transfer from this country if we abolished the pound and joined a single currency. Of course it would. We know that the power to settle interest

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rates and to influence exchange rates would go from British institutions and from this Parliament to the institution of a central bank.

We know that there would have to be limits to the budget deficit that we would be allowed to pursue. People might say that we should never want a bigger budget deficit than that laid down in the treaty. None the less, the right to choose to have a bigger or smaller budget deficit would have been limited by that decision.

Of course, if we joined, soon afterwards we would be told that to make it really work one needed common taxation throughout the Union, and common financial and expenditure policies. People are already beginning to suggest that. In Brussels, they are saying today that we need to bring our value added tax rates together. They are saying that there should be a minimum and a maximum rate, and their intention would be to narrow the gap between the rates until there was a standard rate throughout the Community. They want us to impose VAT on the same items as other member countries.

We already see that they think that it would be unfair of the United Kingdom to get rid of capital taxes, because other countries in western Europe have them and we would obviously have an advantage if we got rid of them while they retained them. We might find that they would try to build that into the system, and that a limit would be placed on this Parliament removing or reducing capital taxes below a certain level.

People would soon discover that, as Chancellor Kohl said, with a single currency one would need a political union to have any chance of making it work. Let us be open in our debates about what is proposed, and be positive in suggesting an alternative that might be better.

The best parallel that I can draw for the single currency is with taking out a joint bank account. It would be extremely foolish to do so with someone that one did not know very well, or with a mere friend or neighbour. Normally, one would contemplate doing it only with someone with whom one had a very intimate relationship. That joint account can work only if the two or more parties have confidence in each other's actions and know how much money they are putting in and drawing out.

If we combined with other countries and had a single currency, it would be like having a joint bank account. Indeed, the deposit account part has to transfer to the central authorities. Our foreign exchange reserves would have to be taken to the central bank in Frankfurt and the deposit account would be controlled by that institution and would no longer be under the control of the British people through their Bank of England and this House, which has democratic control over British institutions.

The joint current account would be a little freer, but one would discover that there had to be strong controls over what was put in and taken out, because the consequence of one country borrowing would be to drive up the interest rates of the others. The consequence of one part of the union over-borrowing is to affect the creditworthiness and stature of the currency of the others. There is an optimum size for currency unions. A currency union stretching over France, Germany and Britain, given their different labour markets, the inflexibility between them and the different styles and histories of the countries, could not work as a practical proposition.

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I trust that, in Dublin and beyond, our Government will represent a different view of Europe--not wishing to withdraw, not saying that we have no time for Europe and its institutions, but saying that we want those institutions to have limited powers over the peoples of western Europe, and that those limited powers should be used to promote jobs, prosperity and free trade, not to undermine those things.

The policies that are leading to monetary union are destroying jobs on the continent of Europe, and they need to be reversed. There is no need for all those people to be out of work in France, Italy and Germany. It is the direct result of exchange manipulation, and the interest rate and budget policies required under the Maastricht treaty. Those countries would be much better advised to take a leaf out of our book and to have floating exchange rates and interest rates that really work for their economies--policies that promote growth rather than stifle it.

On the other issues, I hope that the Government will demand a better deal on beef and fish. I hope that they will say that independent nations co-operating with one another cannot be answerable to a supreme court that overturns Acts of Parliament. Of course there needs to be a court to adjudicate trade disputes between parties, but it should have some limit on its power if it wishes to overturn sovereign decisions of sovereign Parliaments, solemnly expressed in the light of the treaty and the advice of the European institutions.

I hope that we will say that we want a clear opt-out on social and employment policy, which really works. I trust that we will be saying that, on matters of the European budget, we do not want any more money to pass to European institutions--certainly not before they have tightened up on fraud and waste, and probably never, because we find their present requirements high enough.

I do not believe that it is unrealistic to negotiate that agenda. We have vetoes over every treaty change that other members states wish to propose--over the regulations they need to develop their currency union. We should use those vetoes constructively, saying that we will not lift them so that they can progress in the way that they want until we, Britain, have got the satisfaction we deserve on the fish, beef, court and budget issues--things that matter very much to us.

We should go in there proud that we are the second biggest contributor financially to the Community, proud that we make a big contribution to western European defence, proud that we are a successful economy trading within the European Community and well beyond it, and proud that we are a global nation with global vision, capable of influencing around the world and trading--

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