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4.53 pm
Mr. Alan W. Williams (East Carmarthen and Dinefwr): I want to speak about the single currency. I am a strong European and I am glad that the speech of the hon. Member for Stratford-on-Avon (Mr. Maples) contained a measured acknowledgement of the positive results that we have obtained through our membership of the European Union.
The single currency has been launched and I take the view that my right hon. Friend the Deputy Prime Minister expressed a few years ago. There is no sense in being part of the single market without being part of the single currency now that it has been launched. It would be of enormous help to manufacturing, agriculture and tourism.
Most British people spend their holidays in Spain, Greece or in continental Europe. It has struck me over the decades that whenever we travel abroad, we lose money when we exchange currencies. Despite the comments of the right hon. Member for Wokingham (Mr. Redwood) about transparency, it would be much easier to compare prices when on holiday in Greece or elsewhere if there were a single currency. It would encourage much more tourism, too.
The problems with joining the new currency are public opinion and the fact that since the euro was launched in January last year it has gone through difficult times. I do not think that anyone would have predicted that the first year and a half would be so difficult or so stormy, and that such a substantial devaluation would take place, amounting to 20 or 25 per cent.
I have felt impatient during the past three or six months, feeling that something should be done about interest rates or that there should be intervention. I am pleased that over the past four or five weeks things have changed. The euro has substantially strengthened in value. I put the change of opinion down partly to the comments of Economic Ministers on 8 May, including my right hon. Friend the Chancellor of the Exchequer. His remarks have been much quoted and they are prophetic. He said:
- The present sterling-euro exchange rate cannot be justified by any view of the long-term fundamentals.
On the Government Benches, and certainly among some members of the Cabinet, there has been increased enthusiasm for making the case for joining the single currency. My right hon. Friends the Secretaries of State for Northern Ireland and for Trade and Industry, the former Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), and the former Prime Minister, the right hon. Member for Huntingdon (Mr. Major), have all made positive remarks about the euro.
The right hon. Member for Huntingdon made quite a strong speech earlier this month. He said that
- the euro is Britain's ultimate destiny.
-
He added:
The new currency is far bigger than the pound or the yen. It is big enough in time to rival the dollar. It has huge gold reserves to back it. It will end exchange risks in Europe.
A week ago, the OECD referred to convergence criteria in its report and underlined the fact that we have met them extremely well. The public sector borrowing requirement is in surplus and inflation is well under control. The ratio of debt to gross domestic product is the lowest in Europe. However, two elements of convergence are not moving so quickly, and these are interest rates and exchange rates. Our interest rate is 6 per cent. and that of the European central bank is 4.25 per cent. There is considerable convergence, but there is a substantial step to take. If that happened quickly--for example, over six months or a year--there would be an unsustainable boom in the United Kingdom. We must phase ourselves towards convergence on interest rates.
As for the exchange rate, manufacturers and farmers are not happy even with the present rise in the euro. It needs to rise by at least another 10 per cent. I noticed that, in May, the Bundesbank estimated that the euro was 20 to 30 per cent. undervalued.
Currently, the exchange rate is about DM3.10 to the pound. Even though I am enthusiastic about joining the single currency, the exchange rate at which we do so must be competitive and sustainable. There should be a national debate on the correct rate; I should like it to be around DM2.60 or DM2.70 to the pound--almost a 20 per cent. devaluation from the current rate. Our problem is that we cannot recommend to the country that we join the single currency until the exchange rate is competitive. In principle, we support entry, but the five economic tests set out by my right hon. Friend the Chancellor must be met.
If the pound falls and the euro strengthens, with the time lag taken into account the result will be higher inflation. Mervyn King of the Bank of England's Monetary Policy Committee estimates that a 25 per cent. change in the value of the pound against the euro would put an extra two or three percentage points on the inflation rate. If that happened within 12 months, we would have serious problems, but if it took place over two or three years, we could accommodate that within the Bank of England 2.5 per cent. inflation target.
We must give ourselves two or three more years to get into line with the European economies. I hope that interest rate movements, our economic performance and domestically generated inflation will be compatible with at least no increase in interest rates--preferably with a lowering of interest rates, so that we match that 4.25 per cent. average European rate--and that the exchange rate stays in line with that.
The Government's policy on the single currency is the only one practicable: prepare and decide. We are making preparations, and the decision on whether we meet the five tests will be taken soon after the next general election; then, it will be up to us to put our case to the country. The events of the past month to six weeks have helped and I am confident that we are moving closer to joining the single currency.
5.5 pm
Sir Raymond Whitney (Wycombe): I believe that the hon. Member for East Carmarthen and Dinefwr (Mr. Williams) draws the right conclusions from what has happened to the euro since its launch. Many of those who were hostile to the euro predicted that it would never be launched, or that it would fail immediately after take off. Since then, they have seized on the changing dollar-euro exchange rate and, in my view, drawn the wrong conclusions. The great majority of those who live in euroland regard the single currency as a success; they are confident that it will consolidate that success in future, and I believe that they are right to be so.
This is an unhappy occasion--the latest in a series of unhappy occasions on which the House has debated European issues. We in this country used to be regarded as a mature and confident nation, stable and consistent, who believed in ourselves and in our values. That was especially true of the Conservative party, but I am sorry to say that it is not true of the national reaction to the European Union. Events in the Chamber reflect the mood of the country as a whole.
The chapter that starts with the launch of the Common Market, as it then was, is an unhappy one in Britain's history. Even though Churchill was in favour of joining in 1948, we held off from the launch; then we were rebuffed by de Gaulle; only later did we get in. As soon as we were in, we held a referendum in 1975, which, we were told, would end the debates; it failed to do so, as today's debate demonstrates. Here we are, 25 years or more since joining, still arguing.
Of course there are problems in the European Union, and of course we must have a detailed debate about what should be done in the IGC to make an enlarged Europe function effectively, but the tenor of so many people's argument is negative, destructive and unhelpful. People say that they believe in the European Union, but their approach is neither positive nor constructive. We must widen our horizons and understand that the European Union is working, and that it is in Britain's interest to be part of it and make it work even better.
The attitudes that are so prevalent in this country and that have been so well reflected in many of the contributions to the debate today are based on a resolute determination to ignore what has happened since the war. We are all proud of our great national history, our empire, the sterling area, the role that we played in two world wars, and our relationship with the United States. We find it difficult to understand how much the world has moved on and how much more rapid and fundamental that change will become in the years ahead.
That should not make us retreat into our shells and become little Englanders. We should recognise that we are a fortunate and well-endowed medium power, with many opportunities. One of the crucial opportunities is the European Union, which is an extraordinary construct. Even its critics should recognise that. We must be inside it to make it work in a sensible direction--in our direction.
I hope that I do not offend too many other countries when I say that the history of western Europe has always been the relationship of the three big countries--France, Germany and Britain. Even my Spanish and Italian friends would agree with that, I think. Within the troika, the balance moves one way or the other. Sometimes it is Blucher and Wellington against Napoleon, and sometimes
it is the entente cordiale. Since the war, for all sorts of reasons, some of them better than others, there has been the Franco-German axis.Far from being frightened of that, we should seize the opportunities offered. We have so many allies in the EU, but that is not apparent from the general tenor of the debate. We have songs to sing and products to sell in the EU. We need free trade and openness, and a constructive relationship with the United States, to make NATO work.
We know what we stand for, but it is no good being a shrinking little offshore island, not playing a positive part in the game. That way lies the marginalisation of Britain. It is no good thinking that we can somehow join the North American Free Trade Agreement and become the 53rd American state.
We must seize the opportunities offered to us. The opportunity available to us now, apart from making a success of the IGC, is the euro. It is extremely important that the debate be opened up. The silence and the pussy-footing on the part of the Government, particularly No. 10, have been lamentable, but I welcome the recent stirrings in the Cabinet ranks and the attempts to put the issues on the table. Let us have them out.
We are told that there are risks in going into the euro; there certainly are. However, we are not told much about the risks of not going in. They must be described between now and the election and between now and the referendum, which has to be held. Although the euro is an incredible subject on which to hold a referendum, that is now a given factor in the equation.
We must understand the damage that will be done if we stay out of the euro. We can already see it with the high pound and what has happened to Rover and Ford--about 200,000 jobs have been lost in the past two years. As the euro becomes more and more established, the poor old pound will be squeezed between it and the dollar. That squeeze will be greater when Greece and possibly the other two countries join, and we may be the only EU member outside. That will produce tremendous volatility. The volatility of our currency--not necessarily only a high pound--causes so much damage to our own manufacturers and discourages inward investment. We have rightly prided ourselves on how well we have done with inward investment over the past 10 to 15 years, but that will be under serious threat if staying out and playing fast and loose with the EU continues.
The transparency that a single currency provides must be of huge value to this country as well as to others. We already have access to a market of 300 million people and an element of having that access must be the single currency itself. We are losing influence in Europe and it cannot be that our interests are protected when the 11 Finance Ministers of euroland meet, leaving those of Britain and three other nations outside. We are absent, but we must be there. We can debate when, how and at what rate.
I have serious reservations about the adequacy of the five tests of which we always hear from the Chancellor and the Prime Minister. What happens to the exchange rate is crucial. I would not seek to diminish the problems of getting us lined up to go into the euro. However, as the Organisation for Economic Co-operation and Development recognised the other day, it is entirely
feasible that they could be overcome within 18 months or two years. I hope that all the necessary bricks are put in place so that that can be achieved.There will be other difficulties, but not nearly so many as we hear about. Famously, we hear that we will end up paying for German pensions. That happens to be specifically excluded by the treaty. I do not hear the French saying, "Whoopee! We will pay for German pensions." That is not a realistic issue. So many of the other scares, which are the constant diet of many Members from the two major parties, are misleading and do great harm to our nation.
For goodness' sake, let us recognise the modern realities of coming into the 21st century--we are not quite there yet. We have great opportunities that are represented by Britain being a full member of the EU. We cannot be a full member until we use the opportunity of European monetary union. That can be achieved with rearrangements of sovereignty issues, which will by no means damage our national identity. Have the French lost any national identity since the euro was launched? The answer is certainly not. Let us have more national self-confidence; then we can make a success of the euro for our benefit and that of the rest of western Europe.
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