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Ms Stuart: On Gibraltar, I broadly agree with the hon. Gentleman that we need three voices round the table. However, the Chief Minister of Gibraltar made it quite

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clear when he gave evidence to the Select Committee that he believes that the interests of the people of Gibraltar are better served by an empty chair than by his presence at the negotiations.

Mr. Spring: The hon. Lady does the Chief Minister an injustice, because he has made it plain that the concept of two flags and three voices is one to which he would be happy to accede. In fact, we have had discussions about such a process echoing the peace process in Northern Ireland. The hon. Lady is not being fair to the Chief Minister, because the situation might be quite different had the matter been handled differently by the Minister.

Peter Hain: The fact is that we have offered the Chief Minister exactly the same conditions for participation in the Brussels process talks—which are aimed at securing an agreement that will improve life in Gibraltar—that previous Chief Ministers have agreed to, and which have been offered by previous Conservative Governments. We are simply picking up the baton in a process started under Baroness Thatcher in 1984, seeking to promote dialogue with Spain and Gibraltar to resolve this intractable problem.

Mr. Spring: Of course, the right hon. Gentleman is right to want to resolve this intractable problem. He must, however, ask himself why there has been such fury and passion on the subject, and why the Chief Minister adopted the attitude that he did. It is no good the right hon. Gentleman shrugging his shoulders. He should not be shrugging his shoulders about an issue such as this, because it is of deep concern not only to the people of Gibraltar but to the British people who write in their droves to Members of Parliament because they are concerned about what is happening. All I am suggesting is that there is a way of resolving this issue, but it does not involve using the kind of language that the right hon. Gentleman and his Parliamentary Private Secretary have used with such reckless abandon.

There are many lessons to be learned from the last 12 months. Nice was a failure of aspiration and influence by this Government, and the Brussels process was turned wholly unnecessarily into a cauldron of anxiety and suspicion. Nevertheless, following September's truly terrible events, we have been forced to examine the nature of our own societies. Despite our being a pluralistic, socially liberal country, tolerant by world standards and slow to anger, the Prime Minister's determined response overwhelmingly had the support of the nation. It has brought all of us who cherish civilised standards more closely together, from the Atlantic to the Urals and beyond. But it has also shown us in Britain that we abandon our ultimate independence and flexibility at our peril. If we disconnect our people from our institutions—as we continue to do, particularly with regard to the EU—the validation of our democracy will surely be further weakened. This is clearly a lesson that the Government must urgently learn.

Several hon. Members rose

Madam Deputy Speaker (Sylvia Heal): Clearly, many hon. Members wish to contribute to the debate, for which there is limited time available. I urge hon. Members, therefore, to keep their contributions brief. More may then be able to catch my eye.

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7.55 pm

Alan Howarth (Newport, East): We are now being encouraged at the highest level to address ourselves to the possibility of an early referendum on membership of the euro. My right hon. Friend the Prime Minister sees the barometer rising; the chairman of the Labour party—the Minister without Portfolio, my right hon. Friend the Member for Norwich, South (Mr. Clarke)—has boldly pushed the boat out.

I am a European. I have lived in France and remain an unrepentant francophile, and I have studied the classics and history—how could I not be a European?

The motives and ambitions of the founding fathers of the European communities were noble. French and German officials who had jointly administered occupied France were determined that enlightened politics and bureaucracy should prevent any further such catastrophe.

I confess that during what sometimes felt like the rather long hours that I spent seated at the table of the Council of Ministers, there were moments when I allowed my mind to wander from the immediate agenda. I have watched the representatives of 15 European nations, with their histories of conflict between them, earnestly thrashing out their policy differences under the auspices of this still new institution, the European Union, and I have been moved.

My right hon. Friend the Prime Minister has expressed regret that Britain did not play a shaping part in the inception of the European Union. But why did we not do so? It was not for reasons of insularity. The fact is that nothing in Britain's historical experience disposed us to feel that we should be part of the new system that the French and the Germans were creating. We had not experienced almost total destruction in war. We had not been occupied since Norman times. We had seen off the threat of German invasion. We were complacent about our institutions of parliamentary sovereignty.

If we had deep national doubts about more limited propositions in the 1950s and the 1970s, there are now even deeper doubts about merging our currency with the single European currency.

For all my personal sense of being a European, and notwithstanding that I believe firmly that it is right for Britain to be a member of the European Union, I cannot believe that we should join the single currency—in the foreseeable future, at any rate. The reasons that we should not do so are both economic and political.

Fixed currency regimes have not been good for Britain. The 1960s saw a struggle, first to avert devaluation and then to cope with its consequences. The Bretton Woods system collapsed in the early 1970s. The snake, the crawling peg, the shadowing of the deutschmark, and the exchange rate mechanism—all the subsequent devices to fix currency parities—were damaging to the British economy.

On the other hand, since we fell out of the ERM in 1992, the British economy has prospered remarkably. Low inflation, low long-term interest rates, low unemployment, successful export performance, and our standing as the world's fourth largest economy—all the achievements that I was so pleased and proud to hear my right hon. Friend the Chancellor expound in the pre-Budget report—are attributable in very real measure

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to the freedom, which we have in the main skilfully exercised, to concentrate on other purposes and on disciplines other than the exchange rate.

Mr. Mark Hendrick (Preston): Does my right hon. Friend not agree that what is being proposed in terms of membership of the euro is membership of a single currency, not—as we have had in the past—membership of a basket of currencies known as the ecu?

Alan Howarth: I agree with my hon. Friend. We therefore have to contemplate this issue with even greater seriousness.

I do not see how the great and the good of the economic establishment can know what the appropriate rate of entry into the euro would be for sterling. They certainly got it badly wrong in the case of the exchange rate mechanism. If—more by luck than by judgment—they should get it about right in 2005, why should we suppose that that rate would still be appropriate in 2010 or 2015? The economies of different countries will perform differentially, whatever the momentary convergence and whether within euroland or outside it.

A single interest rate is difficult enough to judge and manage within the United Kingdom alone. The policy that is appropriate to contain house-price inflation in south-east England is not the policy to help industrial manufacturers in south-east Wales to export, or to help the communities that have been so devastated by the collapse of steel-making to pick themselves up. How much harder it must be to operate a single monetary policy to suit the needs of a community of 12, or maybe more.

The social and political stresses consequential on the single European currency and single monetary policy will not be alleviated, as in the United States, by labour mobility, nor, as in the United Kingdom, by an automatic stabiliser—a cyclical adjustment of deficit targets, enabling public expenditure transfers to take place in favour of people and areas affected by unemployment. The Maastricht treaty sets damagingly tight limits on borrowing by Governments: it must amount to no more than 3 per cent. of gross domestic product, even when their countries are in recession. The stresses will have to be alleviated by tax-funded public expenditure.

The theory is that taxation policy will remain a matter for individual member states, but can the weaker regions of euroland realistically be expected to cope single-handed with the collateral damage caused by interest rates that are inappropriate for them? The pressure for the regional fund and the social fund to grow and grow will be irresistible. Only recently, the President of the European Commission called for the establishment of a European central fiscal institution. Tax-funded redistribution from richer to poorer across national boundaries within the European Union must entail an increase in supranational governmental powers in Europe.

A federal Europe was always part of the original project, as the treaty of Rome's commitment to "ever closer union" effectively avowed. The single currency project has always been politically driven—supported, naturally, by multinational business. It has been driven by elites, who have not carried public opinion with them at all easily. Few economists will argue confidently that it is right on economic grounds.

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The enthusiasts adduce a number of economic arguments in favour of Britain's joining the euro. Their principal arguments are these. They say that Britain will not be able to cope on its own; but we are inside the European single market. They say that our businesses would be protected from foreign exchange volatility, which ignores the fact that the dollar is more important to Britain's trade than the euro, and that the euro has been highly unstable against the dollar. They say that it would be nice not to have to pay the costs of foreign exchange transactions, which is a trivial argument. They say that more international investment would be attracted to Britain. That is belied by the fact that, in each of the last five years, we have attracted more inward investment than the original six members of the European Community put together. They say that we would be better placed to influence decisions in Europe and the world. That is plainly wrong as far as the European central bank is concerned—political influence is specifically ruled out by the treaty—and ignores Britain's membership of the G8 and the Security Council. Some industrialists say that, if only we join, we shall trade happily ever after with a competitive exchange rate. That is the sort of self-delusion that makes it certain that, whatever the exchange rate, they will fail to make their businesses competitive.

The question, therefore, is whether joining is right for Britain politically. I believe it is not, for the historical reasons I have given and because of my conclusions when I examine the condition of the EU's institutions and consider the implications for democracy.

I regret to say that the Commission is entirely unfit to handle significantly greater responsibility. Both as Science Minister and as Minister for the Arts, I was shocked at its incompetence. I was particularly scandalised by Directorate-General XXIII's handling of the droit de suite issue, which must be a locus classicus of misgovernment. Despite repeated requests from British Ministers, the Commission refused to undertake a cost-benefit analysis of a policy which, when implemented, will certainly be destructive of the EU art market, which happens to be located in London. I was also deeply unimpressed by the inadequacies of Directorate-General X in developing and handling the Culture 2000 programme.

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