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Mr. Deputy Speaker (Mr. Michael Lord): Before I call the next speaker, may I say that a large number of hon. Members are seeking to catch my eye. They are much more likely to be successful if other hon. Members will make their contributions reasonably short.

6.10 pm

Mr. Denzil Davies (Llanelli): I shall be as brief as possible, Mr. Deputy Speaker.

The meeting at the end of this week in Amsterdam was called mainly to approve the text of the draft treaty that has come to be known as Maastricht 2--the intergovernmental

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conference treaty. The Heads of Government have some unfinished business arising from Maastricht 1 and the stability pact. They must also approve in particular a draft instrument giving legal authority to the so-called stability pact--a somewhat bizarre and Orwellian description, if I may say so. The hon. Member for Gordon (Mr. Bruce) may have preferred to call it a sustainability pact, but to describe it as a growth and stability pact in Europe in the present circumstances is bizarre.

With regard to Maastricht 2, I approve and applaud the stance taken by my right hon. Friend the Foreign Secretary and the Government, in particular--this was not mentioned today, although it is set out clearly in our manifesto--the determination to maintain a veto over defence and to ensure that defence remains within NATO, the determination to maintain a veto in effect over foreign policy, and the determination to maintain the right of the United Kingdom Government to decide on immigration matters and, as the Prime Minister has said, to protect our borders. There will be no qualified majority on those issues.

By asserting those rights and powers, the Government are asserting the primacy of the nation state in those matters. They are making it clear that the governance--an inelegant but sometimes rather useful word--of defence, foreign policy, borders and immigration is to be left in the hands of a democratically elected Government and Parliament. To some people, it is an assertion of that somewhat old-fashioned and much-derided concept of sovereignty. When we defend those aspects, as I am sure my right hon. Friends do vigorously, we are defending the old-fashioned concept of sovereignty.

That is in stark contrast to what the Government are expected to do in regard to the single currency--that is, to sign the draft instrument that authorises and establishes the stability pact. I do not criticise the Government for that, as I shall make clear. The House well knows that the stability pact is required so that we can, in effect, enshrine into the treaty the 3 per cent. limit on Government borrowing, which is contained in the Maastricht treaty and is an entry requirement.

Subject to the exceptions, if a country breaches the 3 per cent. limit, there is a power under the stability pact to impose fines on that country from the centre. As I understand it from the documents, those fines will be scattered around and distributed among the good boys of the members of the single currency. That is clearly an incentive for the others to fine the recalcitrant member. As I am told and as I read in the newspapers, a deficit will have to be well below 3 per cent. normally to ensure that a Government do not transgress. In future, deficits will have to be 1 or 2 per cent. at the most.

The stability pact, together with the 3 per cent. entry requirement, the 60 per cent. debt question and the transfer of monetary policy and the control of inflation to the European central bank, are all to be enshrined and entrenched in a treaty, which can be changed only with the consent of all the members of the European Union. That means that, to a substantial extent, the economic governance of Britain and of all the states of the EU will no longer be democratically based.

My right hon. Friend the Foreign Secretary mentioned our sister parties in Europe and the values of democracy that we in the Labour party share with them. In the governance of economic matters, most of the powers of

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the various Governments of Europe will be placed with unelected, undemocratic institutions operating beyond the frontiers of the state and beyond the borders of Britain or any of the other countries. That is what will happen if we join the single currency.

The hon. Member for Gordon spoke about taxation. In theory, taxation will remain in the hands of the nation state, but buried in the papers before us is a request for the Heads of Government to consider signing common guidelines on taxation. I have obtained those guidelines, which are contained in a resolution made on 13 May 1997 by the European Parliament. They are set out clearly, with the aid of the Commission.

The guidelines end by stating, in one of those marvellous phrases that we get from Europe, that taxation is an example of the excess of subsidiarity, which is therefore to be whittled away. The nation state has and will still have an excess of subsidiarity, at least in theory, once we have enshrined everything else in the Maastricht treaty.

There are those who believe, or who pretend to believe, that the decision to join a single currency is merely a matter of economics--just a matter for the counting house. We have heard that again today. A single currency, apparently, is nothing more than an addendum to the single market. That may be the view of the European elite, but the peoples of the old nation states of Europe know differently. They know that the issues go to the heart of democratic government and economic governance.

The fact that the European elite are determined to take economic government out of the hands of elected Governments and entrench it in a treaty shows how out of touch they have become. They want to do that at a time when one of the real problems in Europe is the alienation of people from politics and the political classes. At such a time, the European elite in France and Germany want to take democratic power out of the people's hands. They want to do that at a time when Europe faces terrible problems.

In the next few years, France and Germany will have to adapt--as Britain has--to global competition. They will have to re-examine their social security systems and their labour markets, which will create considerable upheaval. France and Germany will need to apply every scintilla of democracy at their disposal if they are to solve those problems. At the same time, the European political classes want to eliminate democracy. There will be no safety valve. Democracy will not be allowed to solve the problems: they will be resolved by banks, treaties and the convergence criteria.

I do not expect my right hon. Friend the Secretary of State not to sign the legal instrument at Amsterdam. It has been agreed and it will be signed. Ironically, perhaps he will watch Mr. Jospin out of the corner of one eye to see what he is doing. Mr. Jospin told the French electorate that he does not like the stability pact because it is not flexible enough. However, I guarantee that Mr. Jospin will sign the stability pact because he is a paid-up member of the French political elite. That elite body will not give up merely because the people have decided something different in an election. It takes more than that to make the French political elite change their grand historical designs.

Perhaps my right hon. Friend will look at poor Chancellor Kohl out of the corner of his other eye. Chancellor Kohl is a decent and a good man, but he will

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sign anything. He will certainly sign the stability pact. He still feels the lash of the Bundesbank on his back. The right hon. Member for Old Bexley and Sidcup(Sir E. Heath) attempted to criticise the German bank for revaluing its gold. The bank and the German Government were entitled to do that if gold was low on the balance sheet. I am no accountant, but I found it strange that the bank had to pay a dividend from that revaluation--when it had no cash to do so--to the German Government within one year to enable them to reduce their borrowing and deficit below 3 per cent. That is the real problem.

Chancellor Kohl is caught in a vice, and he will sign anything--despite the fact that the German people are overwhelmingly hostile to the idea of giving up a currency that has secured stability and security for Germany for almost 50 years and swapping it for a currency that has never been tried or traded and over which they will have little control. Kohl, Chirac and Jospin will sign the stability pact because they are locked into the project and they cannot go back.

Mr. Cash: I do not wish to embarrass the right hon. Gentleman, but does he realise that this debate is about removing the scrutiny reserve that was imposed last December by the Select Committee on European Legislation? The effect would be to release the Government to sign the stability pact.

Mr. Davies: Those matters have been debated already. The reality is that the Government will sign the instrument for the stability pact in Amsterdam at the weekend. I am trying to explain the potential consequences of that action.

We like to use the phrase, "Think the unthinkable." Perhaps the time has come to think the unthinkable about the single currency project. We cannot expect the French and German political establishments to think the unthinkable: they are incapable of any rational thought when it comes to the single currency. Who knows? Perhaps funny old Britain, with its centuries of global experience, should start thinking the unthinkable. We talk about the global economy and the global market, but no European country has the historical global experience of Britain.

Britain has an intuitive feeling for finance and commerce. The Liberal Democrat spokesman, the hon. Member for Gordon, said that the central bank should be based in London--for a moment I thought that he was a little Englander. Britain's financial intuition has not always coincided with financial thinking on the continent--and we have often been proved more correct on such matters. Britain also has a healthy distrust for corporatism and for all the undemocratic institutions that follow it. Perhaps funny old Britain should start thinking the unthinkable--and perhaps the Foreign Secretary should begin that thought process on the ministerial aeroplane as he returns from Amsterdam.

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