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Keith Vaz: We should never forget Chelsea. I agree with the right hon. Member for Kensington and Chelsea that convincing people of the necessity to join cannot be left to the individual charms of members of the Cabinet or, indeed, to the Prime Minister, charming though he is. It will require explanation and engagement on an individual basis with people throughout the country. If we do not explain and engage, the tabloid press and Conservative Members, some of whom want us to leave the European Union, will win the argument.
It should not be up to the Daily Mail to conduct a referendum at Welcome Break service stations on the M1. The Government should hold a referendum, not on the Convention, but on the euro. We can do that only if
we have leadership from the highest echelons of Government. That means that every member of the Cabinet should go out and make a major speech on the euro between now and the Budget.
Mr. Colin Challen (Morley and Rothwell): Does my hon. Friend believe that there are lessons to be learned from public participation in discussions on the Convention? My studies of the Convention's internet site show that only hundreds or thousands out of hundreds of millions of people have bothered to participate. The issue has gone right over most people's heads.
Keith Vaz: My hon. Friend is right. It has gone over their heads because of the distortion in the tabloid press—every discussion on Europe has to end in hysteria; we cannot have a sensible, reasoned discussion about the matter. My right hon. Friend the Member for Neath (Mr. Hain) tried to talk about the Convention when he led the British team. The tabloid press subjected him to appalling abuse and attacks. Consequently, the general public misunderstood the debate.
I should like the Government to take a lead on the matter and all members of the Cabinet to follow the example that the Prime Minister set on 10 June. I hope that the Chief Secretary, when he replies to the debate, will give us a list of Cabinet members who have made a major speech on the euro since 9 June, and make a commitment that the Government will continue to push the issue at least until the Budget, when I hope that we will be told whether a reassessment should be made of the tests. I am sure that that will happen.
I want to make two further points about policy on the euro. As usual, the Chancellor made a brilliant analysis of our position on economic reform in the context of the European Union. However, we should pay special attention to the Lisbon agenda, which was a great achievement for the Prime Minister and the Prime Minister of Spain, because their joint initiative allowed progress to be made on it. Lisbon was the first European summit that benchmarked progress on economic reform. It set out a list of dates, targets and tasks for the European nations to make us competitive with the United States. It reminded us that in the previous decade, more than 10 million jobs had been created in the United States of America, whereas the figure for the European Union was just 1 million. It is as a result of what the Prime Minister did at Lisbon that we have, for the first time, a specific set of tasks. I am afraid that we might have lost our focus in terms of what we were trying to achieve at Lisbon, and I hope that, in the run-up to the re-assessment on Budget day next year, we shall adopt a clear strategy on how to ensure that our European partners move as swiftly as we would like to move on economic reform.
Part of that economic reform must also include a discussion on the way in which the European Union itself should be reformed. I remind the House of the joint letter from the Prime Minister and Herr Schröder in February last year, in which they set out about 25 key policy aspects that they wanted the European Union to
adopt in order to make it a much more efficient place in which to work. Economic reform is possible only with the consent of our partners, but in that regard, Britain has a leading role to play in the Council of Ministers.The Chancellor also has a leading role to play on the issue. I believe that he is widely respected as the best Finance Minister in Europe. I accept that we are not part of that select little group that makes the decisions on economic and monetary union or on the policy of the euro, but we are part of a much wider initiative to push the European Union towards economic reform. If we do not do that, we shall be letting down the new member designate countries that will join on 1 May next year. They expect something much better from the new Europe that will be created at that time than they would have found in the old Europe that they originally applied to join.
Mr. David: Before my hon. Friend moves on to wider issues, may I ask him a question on economic reform? Does he accept that it is important that the Government should take the opportunity over the next few months to develop a proactive regional policy?
Keith Vaz: I entirely agree with my hon. Friend, and I pay tribute to him for the work that he did in the European Parliament, when he was leader of the Socialist group there, on pushing forward the idea of a Europe of regions to ensure that our regional economies benefited from any changes.
It is a mantra—almost a cliché—that we shall soon have the largest single market anywhere in the world. We shall be able to compete with any economy. When the applicant countries join on 1 May, the business opportunities will be huge for the United Kingdom. Anyone who has visited the central and eastern European countries, as I know that the Chief Secretary has, will know of their enthusiasm to deal with British business. There is no doubt that the opportunities are there, but they will not be seized unless the Chancellor and the Prime Minister push forward the case for economic reform that was clearly set out in the Lisbon agenda.
Sweden is a country very similar to ours in terms of its Government and economic policy. On 14 September, it will go to the polls on the euro. I very much hope that it will vote yes, and that the decision taken by our Government on 9 June will not scupper the Swedish referendum. The circumstances are different there. Sweden has had a very long referendum campaign, but the outcome is on a knife edge. I hope that this Government will show support to Sweden and that the Chancellor has telephoned the Swedish Finance Minister to explain that our decision was quite separate and different from the decision that Sweden is going to make. I want to see Sweden in the euro because it would be good for the country. I believe, having visited Stockholm recently, that it would bring enormous benefits.
Mr. Wilkinson: That is a matter for them.
Keith Vaz: That is a matter for them, but I think that I am entitled to my opinion. I hope that Sweden's joining will create an even greater momentum for our
Government to take the matter even more seriously, and to be even more committed to that final timetable. A timetable is essential, and I look forward to hearing details of it when the Chief Secretary replies to this debate.4.18 pm
Mr. John Redwood (Wokingham): I have declared my interests in the Register of Members' Interests.
Yesterday, the Foreign Secretary came to the House to tell us that the Government were minded to accept most of the huge transfer to the European Union of powers and opportunities to govern ourselves that are set out in the draft constitution. Today, a rather reluctant and muted Chancellor of the Exchequer came to the House to tell us of his rearguard action to save the pound—forced, I think, by the political reality that there is no hope of his winning a referendum to abolish it, and by the fortunate fact that some of us have forced the Government into offering a referendum on the currency. The Government will not yet offer a referendum on the even more important issue of the constitution.
That means—unless we can force a change on the constitution—that the Government wish to embark on a most unusual experiment. It is quite normal for a country that wants to be self-governing to keep the powers to govern itself and to have, as part of that variety of powers, the opportunity to run its own currency, settle its own interest rates and make its own monetary decisions. Indeed, I do not think it possible to say that a country is an independent self-governing democracy unless it both retains all its principal constitutional rights and has its own currency.
I can just about understand those who wish to conduct the experiment of having a self-governing country without its own currency, although I do not think that it would work very well. Ireland gave up and wisely decided to have its own currency some years after becoming independent from the United Kingdom, and I believe that that judgment was correct. Never in my life, however, have I heard of, or read of in history books, any group of politicians wishing to run a self-governing currency without a country to go with it. That seems to be where the Government have taken themselves through their asymmetrical approach to referendums, and the political logic that led to their decision that, while they cannot sell the euro to the British people, they can ram the European constitution through the House regardless of opinion in the country.
The arguments adduced in favour of our sacrificing the pound and adopting the euro are extremely flimsy. I give credit to those in the Treasury—they are well-informed economically, and they clearly have a sense of humour as well—who have managed to produce 18 volumes containing all the evidence that people like me need to make a strong economic case against joining the euro today, against joining it next year, and indeed against ever joining it.
We know that, when having conversations in the bar, members of the Government who have not read all 18 volumes try to keep it rather more simple. We are told that joining the euro would be good for all those with mortgages, because clearly mortgage rates would be lower. Yet evidence from these documents, and from the pages of the interesting financial press, shows that
mortgages are dearer on the mainland of Europe—in euroland—than they are in Britain. It is difficult to see how it can be argued that mortgage rates would fall, as we would be joining an area with higher mortgage rates.We are sometimes told by Ministers and other campaigners that if we joined the euro there would be what they call price transparency, and that miraculously the prices of all the things that are dearer in Britain than in Germany or France would tumble. Suddenly the scales would be stripped from our eyes, and at last we would understand that cars were cheaper in Germany than in Britain. Then people would no longer put up with the current situation.
That too is complete bunkum. The studies show that in the early stages of currency union there was quite a bit of rounding up in the countries that were abolishing their own currencies and going in for the euro experiment—just as there was a lot of rounding up when we last had a fundamental currency reform in Britain, over the period of decimalisation. It stands to reason that there is a great temptation to round up prices when people are shopping in a foreign currency for a while, as they would be during the painful and difficult transition from shopping in pounds to shopping in euros, were we ever foolish enough to say yes to that.
More important, we could have price inflation if euroland set the wrong interest rates for us. As a business man, before entering the House, I was responsible as chairman for a fairly large industrial conglomerate. I gave careful consideration to the idea of the exchange rate mechanism, and decided that it was definitely against the interests of the business I was leading, and definitely against the interests of my employees. My decision led to my resigning the company from the CBI, which happened at the time to have a policy of urging membership of the ERM. I was able to save my company £20,000 a year in CBI membership fees because we could not see eye to eye on that central policy.
The CBI came to see me in despair, saying, "What do you want, Mr. Redwood? We will come and visit you every week." I said, "No, that is not quite what I had in mind. That would not make my day, or my week. What I want you to do is change your policy, because the ERM will be very damaging." The CBI said that that was the one thing that it could not do.
I tell that story because the entire British establishment recommended the ERM. At the time there were many wrong heads on the Labour Benches, in the shadow Cabinet and elsewhere, as well as in industry and the trade unions. It was a monumental mistake. The first thing that happened on linking our currency to the Deutschmark—as it then was—was that we set interest rates that were too low and we experienced rampant inflation. Subsequently, things turned round, we had to set interest rates too high and we experienced a very cruel recession.
I wrote a pamphlet in the late 1980s—before we joined—in which I said that if we joined, we would end up with either high inflation or a deep recession, because there was no right rate for entry. I said that there would be no common interest rate that would make sense across the ERM area, and that we would end up with the wrong interest rates because we would undoubtedly go in at the wrong currency rate. Even I, in my wildest
nightmares, did not dream that we would end up doing both, but we did, because people did not understand the economics.I was therefore delighted to discover that the Treasury officials who wrote the 18 documents have grasped that point. They say that it is quite possible to end up with the wrong interest rate, and that adjustments would then have to be made to the level of employment, taxation or output that would probably be more severe than allowing the strain to be taken through the exchange rate. What they say about exchange rates is particularly interesting. Today, someone expressed a misconception about exchange rate movements by saying that they could be a worse shock than other factors—but the Treasury clearly states that
- "exchange rate movements have not been a significant source of shocks to the UK economy as a whole. Instead exchange rate changes appear to have absorbed shocks that might otherwise have had a greater impact on UK output and prices."
We also hear from advocates of this foolish scheme that we would get exchange rate stability if we joined. Of course it is true that we would have absolute exchange rate stability against the former currencies of euroland, because that is the idea of the scheme. Despairing of being able to bring the currencies together in the normal marketplace through the ERM, which was busted apart by market pressures, such advocates decided on this ultimate ERM—the one that can never be got out of. One locks oneself in the burning building and throws away the key, as one of our right hon. Friends memorably reminded us. The advocates suggest that we would have guaranteed rate stability because there are no longer separate currencies, which in their view would bring business great success and the ability to plan well.
What advocates of the scheme ignore is that it could well produce greater instability for the new, adopted currency against the other very important trading currencies of the world. It so happens that we use the dollar much more than we use the euro for our trade and investment flows. We are an oil producer, and oil is priced in dollars. We are a big producer of high tech, and high-tech products are normally traded in dollars. We deal in all sorts of soft commodities and in investment markets, many of which are priced in dollars. On this issue, the Treasury study tells us the self-evident truth:
- "In recent years the euro has been more volatile against the US dollar than the pound . . . If these trends were typical"—
- "then the UK exchange rate against the dollar would be more volatile within EMU than outside."
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