---

Mr. Giles Radice (North Durham): Rubbish.

Mr. Legg: If we did not have an exchange rate, there would be considerable regional booms and slumps and there would have to be significant transfer payments. The chart clearly shows that the German and UK economic cycles are not synchronised, and that the UK economic cycle is much closer to that of the US.

Mr. Quentin Davies: I am afraid that the currency fluctuations to which my hon. Friend referred prove a point opposite to his argument. Sterling fell out of the exchange rate mechanism at a parity of DM2.95. The rate fell at one time to DM2.17 and is now back to, I think, DM2.72--it is certainly over DM2.7. Those fluctuations do not make sense. They do not correspond to fundamentals. We are back almost to where we started, but in the meantime, enormous and gratuitous uncertainty about costs has been caused to traders and to business.

Mr. Legg: I am grateful to my hon. Friend. He has added to my arguments. He has shown that we need considerable exchange rate flexibility. The rate has floated, varying freely in accordance with the market since we left the ERM. The United Kingdom economy has benefited substantially from that. I am afraid that my hon. Friend has strengthened my case.

We have heard that there should not be fudging of the criteria. I urge my hon. Friends to think carefully about that. Many of them say that joining the single currency should be our objective; but when exchange rate fluctuations are pointed out, they say that they do not want to be judged by the fourth criterion. They want to put the exchange rate stability criterion aside. That is a considerable fudge. We should be saying that we need exchange rate flexibility, which is good for our economy. That is one reason why we should not envisage joining a single currency.

The Red Book and the inflation report give a good idea of some of the convergence criteria that we are achieving, but they also show that in no way is the UK economy so convergent with the German economy that they should have the same currency. There are considerable structural differences between the two economies. Can anyone

26 Feb 1997 : Column 362

argue that this would be a good time for the UK and Germany to have the same currency when Germany clearly has to deal with substantial structural problems in its economy? The social costs in the German economy are high. Unemployment has recently gone up by 500,000. There are 4.7 million unemployed in Germany, with another 2 million on make-work schemes, and there are very few real jobs in east Germany. It would be economic nonsense for Britain and Germany to have the same currency at the moment.

Those are the economic arguments. However, too much concentration on the convergence criteria obscures what economic and monetary union is all about. Historically, states have adopted single currencies for political reasons, because of a perceived common interest in those states that justified having one Government and one currency. Looking at the convergence criteria obstructs that view. Having a single currency is not just another step in the process of achieving greater economic co-operation, as the hon. Member for North Warwickshire (Mr. O'Brien) seems to think; it is a step that inevitably leads to a single state and a single Government.

My hon. Friend the Member for Stamford and Spalding seemed to swallow that line. He thought that, if we joined a single currency, we would have financial prudence for ever and a day--no longer would it be possible not to have prudent financial policies. He was wrong. The wording of the convergence criteria is flexible. There is no 3 per cent. limit. The deficit qualification says--

Mr. Radice: Will the hon. Gentleman give way?

Mr. Legg: I have very little time. I have already given way. I should prefer to continue making my points.

The deficit qualification says that, if the deficit is only exceptional and temporary, the 3 per cent. limit can be ignored. As we have not yet achieved the holy grail of a 3 per cent. deficit, in which of the four years of this Parliament that we have not been able to achieve a 3 per cent. deficit does my hon. Friend the Exchequer Secretary consider the excess to have been "exceptional and temporary"? That phrase provides the let-out for the European single currency.

Economies cannot operate in a formulaic way. Political judgments will have to be made. In respect of the single currency, political judgments will be made by European institutions. The economy cannot run on autopilot. Bureaucrats and politicians will have to make political judgments. That is why the single currency is becoming more unpopular in the United Kingdom and why more of my hon. Friends feel that we should not go ahead with it.

One would think that the fact that we were achieving the criteria set out in the Red Book would lead to greater confidence on the Conservative Benches that we should go for the single currency, but the reverse is happening: there is more scepticism about the single currency among my hon. Friends, because they realise that a political project lies behind it. They have seen many examples over the past four years of political power having been given up to European institutions. They now understand the political power that would have to be given up along with the currency. The regulations before Christmas concerning the stability pact made that absolutely clear.

Under the conditions in those regulations, it was clear that no delay from national institutions in implementing the excess deficits procedure would be countenanced.

26 Feb 1997 : Column 363

That means that the House would have to comply with the directions that it received from Europe concerning levels of spending and taxation, and the ancient rights of the House would be taken away. I believe that the single currency is becoming more unpopular among my hon. Friends because of that wider realisation. They can see the political consequences that lie behind it.

Mr. Marlow: Will my hon. Friend give way?

Mr. Legg: No. I am coming to the end of my speech.

I remind the House of what my right hon. and learned Friend the Chancellor of the Exchequer told the Treasury Select Committee in December. He said:

"The single currency is a one way option".

If we take the single currency, there is no going back.

Last week, the House debated devolution and whether powers could be removed from a Scottish Assembly or Parliament once it had been set up. On the single currency, we have the answer: it is a one-way option and there is no going back. It represents an irreversible transfer of power from the House to European institutions, and for that reason alone it will never go ahead with the United Kingdom participating.

5.2 pm

Mr. Denis MacShane (Rotherham): I enjoyed the speech by the hon. Member for Milton Keynes, South-West (Mr. Legg), but I could not for the life of me work out whether the convergence criteria were a straitjacket, as we heard previously, or some type of rubber corset inasmuch as they were indefinitely expandable. I was curious about the hon. Gentleman's scenario on what should happen. In effect, he was saying that Europe should disintegrate into 15 separate states, each with its own currency, monetary and, ultimately, trade policy. I do not believe that the single market for which I expect he voted, as did most Conservative Members present, is achievable without a level of co-operation and, ultimately, a single currency. Getting there will be difficult; that is for sure.

I rise in particular to respond to the hon. Member for Southend, East (Sir T. Taylor), who gently invited me to get lost. That is strong parliamentary language. I am Irish and I rise to such suggestions. The hon. Gentleman is friendly on many other issues, but when he used the language of loathe and despise, I found that much more worrying than a passing ad hominem remark. That language, like the language of hostility from the Foreign Secretary last week, reveals something deeper and more worrying in the Conservative party. I shall be interested to hear whether the Exchequer Secretary confirms the Euro-scepticism of which he was boasting in a debate in the House before Christmas, aligning himself with the hon. Member for Billericay (Mrs. Gorman), or whether he chooses to side with his nominal boss, the Chancellor.

One would think from the remarks of the hon. Member for Southend, East that the past 18 years had been a miracle of low unemployment in this country, but some of us who may not have been sitting on the Conservative Benches at the time have memories of when unemployment went through the roof before entry to the exchange rate mechanism. Some of us believe that the lowered unemployment that we have today may not last.

26 Feb 1997 : Column 364

There is also the problem that, if one measured unemployment in this country using the same criteria as Germany and France--the International Labour Organisation criteria--it would be higher. If one included the criteria used by the American Bureau of National Labor Statistics, which includes people who would like a job but cannot get one, a further 2 million people would have to be added to our unemployment total. Those are inconvenient facts; facts washed away by a diatribe against the problems that Europe faces on unemployment.

The fusion of two countries--a third-world country with a third-world economy such as East Germany and a successful West Germany--was bound to cause problems. The hon. Member for Southend, East seemed to imply that Germany should have run with two currencies in one country. I have heard of the Chinese one country, two systems but never of one modern economy with two competing currencies, as he seemed to imply should have been the choice of the German Chancellor and the Bundesbank in 1990.

I invite the hon. Member for Southend, East to be careful about quoting opinion polls. He completely misunderstood what I said. In the early 1980s, every opinion poll in this country showed that a majority of people were for withdrawal from the European Community. That was the policy adopted by my party in 1983, and a fat lot of good it did us. What people say in opinion polls and how they vote are two very different things. When the British people are invited in the forthcoming election to decide between a party that has set forward clear positions to defend British interests but advance in Europe and a party that is full of the language of loathing, despising and hostility, we shall see which way they vote, just as we shall see which way people vote in future elections in Europe. The people of Europe do not want to break themselves down into competing, rivalry-driven states, which is the avenue and vision offered by Conservative Members.

---