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5.13 pm
Mr. Michael Fallon (Sevenoaks): We have had a passionate and vigorous debate, but it will not be decisive because there is no motion before us. Given that the Government have considered the issue for six years, in which time they have conducted two major assessments, it is extraordinary that they are not prepared to commend a substantive motion to the House.
Perhaps that is a reminder that the final decision is political rather than economic. Our currency is not only a trading convenience—if it were, we would probably all use the dollar. The decision is not only economic, because if we were just considering our economic interests we would probably not even consider joining the North American Free Trade Agreement—we would want to join the United States of America. It is a sobering thought that if one measures the gross domestic product per head of G8 countries and the 50 individual states of the United States of America, one realises that not one of the G8 countries would rank in the top 40 of the 50 states. The decision is not simply economic. Currency is a definition of sovereignty. It is an expression of our political and economic culture.
I want to deal not with the political tests that the Chancellor set, but with some of the fallacies that have characterised the debate. I have singled out five euro
fallacies, which I shall tackle one by one. The first is the fallacy of convergence. The extraordinary idea that great economies can be locked together like passing spaceships ignores the reality of the very different and international nature of the British economy. No student of the international structure and openness of our economy could ignore the wisdom of Henry Grattan's dictum that the channel forbids union, the ocean forbids separation. Anyone who believes that convergence can suddenly be attained should look hard at page 71 and what follows in the Treasury's document. It sketches out a horrifying prospect of the extent to which taxes might have to rise to dampen UK inflation or public spending might have to be cut to meet certain scenarios. True convergence—permanent convergence—of the kind sought by proponents of euro entry could take many years, as the Government have begun to realise as they flounder around in housing market reform and regional pay reform. That is the fallacy of convergence.The second fallacy is what I call magical advantage—that there is some benefit to our economy that can be achieved only by entering into one or other of the euro arrangements. We had that argument with the ERM. There is nothing advantageous about any European discipline that we could not achieve in this country anyway. To their credit, the Government have demonstrated that successfully by imposing a new monetary policy framework over the past six years. Every business man would like more certainty or stability—I remind the House of my business interests—but there is nothing in joining the euro that we could not do here anyway.
Thirdly, there is the fallacy—we heard it sketched out by the hon. Member for Rhondda (Mr. Bryant) and many other euro enthusiasts—of the missed bus. We are always being told that we will be too late and that it will be impossible to mould the arrangements in the way that we want unless we join at a particular time. In fact, the history of European co-operation shows that it has always been possible for different states to join in at different times under different arrangements, as France does even today in its membership of NATO. I cannot believe that the fourth greatest economy in the world cannot make its own way in its own time.
The fourth fallacy is that of influence—only by joining the centrally prescribed arrangement can the UK change Europe to its way of thinking. The Government have tested that theory to distraction. It began when they put themselves at the heart of Europe and ended six years later when the Prime Minister left the last European summit a day early because he was fed up with what was being discussed. Britain is already locking itself out of the key axis of Brussels, Berlin and Paris. The Government are just as far away from influencing or restraining the federalist centralising impetus that derives from that axis as they were when they started six years ago.
Of course there are useful reforms in the European Central Bank and the growth and stability pact that a good dose of British realism can help move along, but we should not delude ourselves that Europe will suddenly be converted to following the UK agenda. The reality is otherwise, as chapter follows charter, convention follows treaty. The drag-along rights are all the other way and Britain, if anything, is becoming more continental day by day.
Fifthly and finally, there is the fallacy of the single stand-alone currency. As my right hon. Friends the Members for Kensington and Chelsea (Mr. Portillo) and for Wokingham (Mr. Redwood) have demonstrated far more eloquently than I have, no single currency can operate without a common budget or a uniform tax regime. That has not happened or worked anywhere else in the world, and it certainly cannot work here. We see that that is the case even in the Treasury's own assessment and its prediction that taxes might have to be used to regulate our economy at times when the euro interest rate is inappropriate. Having lived through the ERM debacle and the unnecessarily high interest rates that followed it and did such damage to our business, I never want to live in a country that has an inappropriate interest rate. Our interest rate should be in our interest, and if it is not, the single currency cannot be in our interest either.
Of course, I concede that there may well be some marginal trading advantages, particularly for manufacturing companies and possibly even for British agriculture, in eliminating the exchange rate risk. However, I believe that those advantages are far outweighed by the loss of political and economic sovereignty that would be involved in the decision and that they do not constitute the basis for a decision that would be irrevocable.
I wish that there were a motion in front of the House tonight. If there were, I would certainly oppose it.
5.21 pm
Mr. Colin Challen (Morley and Rothwell): I have only one test for supporting the European Union—that it should be greater than the sum of its parts, or, as somebody said in another context, that we can achieve more working together than we can alone. In addition, we should never be asked to pool or share our sovereignty if the outcome is no greater than what could be achieved by our acting alone or even bilaterally with other countries.
I am concerned by some of the comments that I have heard this afternoon, especially from the Opposition Benches, as the argument seems to be tending towards the Cubanisation of this island off the north-west coast of Europe. Just as the North American Free Trade Agreement is creating a very large trading area in which Cuba and other small islands could be completely isolated, we could go the same way if we followed the Opposition's line of argument.
There is no doubt that European economic union is an article of faith for the many who share a vision of Europe as a united and strong political body, underpinning what they see must be its renaissance and reinvention as a powerhouse of innovation, productivity and economic growth. I should like to add a few other items to that list, such as care for the environment, our civilised values and the social needs of European Union citizens, as well as respect for democracy. Those are some of the things for which economic and monetary union should provide the foundations, and in the main that principle is worth supporting.
We can clearly see the alternative, which is laissez-faire liberalisation, driving down standards and health and social care for the many, destroying the environment, seeking ever cheaper and nastier solutions
to all the problems that it encounters and widening the poverty gap in all the societies in which it finds purchase and in the wider world. A short name for that is NAFTA, which does not have a social and environmental context, whereas the European Union does.Sadly, economic union as it is currently on offer is failing. In the eurozone, it has failed to produce the right answers—the only kind of answers that we should be seeking in respect of the worldwide economic downturn. If anything, it has probably exacerbated those problems, with the European Central Bank stuck like a rabbit transfixed in the path of deflation. Its monetarist nostrums have been of little use in helping member states to escape from their recessionary tendencies. The growth and stability pact is widely derided and now seems more obeyed in its breach than its observance. For the third year running, Germany is likely to break the 3 per cent. deficit rule, France likewise, and Portugal, which had a good dose of the pact's remedy, is reportedly ready to slide back over the 3 per cent. level. A recent article in the Financial Times claimed:
- "Many analysts have welcomed the acceptance of the Pact's uselessness as a necessary condition for more stimulative policies for Europe."
What is happening in Germany is a direct rebuttal of the oft-repeated argument by EMU enthusiasts that membership of the euro will not invalidate or limit the spending choices that are open to Governments. They say that the rules of the pact limit only borrowing—on the face of it, that may be true—but they do not admit that one policy will have consequences for others. In this case, radical fiscal policies are being implemented because of reduced freedoms and stagnation in others. It is ironic that the Germans are following the United States down that route, because the US's tax-cutting policy has been attacked by the Bank for International Settlements for creating the danger that Government debt could reach unsustainable levels and may be followed by a painful correction. However, at least the Americans have their hands on all the economic levers and may be able to use them all to avoid such a boom-and-bust scenario. They also have more freedom than we do to move more regional assistance around, so deprived areas may have some protection. By comparison, the European Union's regional budgets pale into insignificance, and cannot realistically be seen as sufficiently effective tools to even out the damage of a one-size-fits-all monetary policy in more than a handful of cases.
Enlargement spreads that support even thinner. That is not to oppose enlargement, but merely to recognise the basic truth that unless we are prepared to put a lot more money into the EU, we will not see many more transformations like that of the Irish Republic. It may prove excessively ambitious to have enlargement take place so early in the life of the eurozone. There are already plenty of strains in the European Union, and it
would have been better to ensure that enlargement bedded down well before embarking on the single currency. I place more importance on enlargement than on the expansion of the eurozone. It is far better to engage with those further 10 countries and to help their development in all the areas that I have mentioned than to force them swiftly into an as yet unproven experiment, especially since we do not yet feel confident enough to join the single currency despite being in a stronger position.It would be advisable to consider another impact of enlargement on the eurozone—its impact on democracy. The European Central Bank has already looked to its future enlarged structure, and has concluded that the only way in which it can cope with enlargement is by restricting the participation of national representatives through a system of rotation on its key rate-setting committee. That is highly undemocratic. It is already difficult enough for the ECB to be influenced by events—hence its sloth-like responses to the current downturn—but for it then to deny a vote to member countries would be appalling. That is not pooling sovereignty, but losing sovereignty.
Moreover, the ECB is speculatively seeking to introduce ideas that go way beyond its remit. During a recent Prime Minister's Question Time, I drew the Prime Minister's attention to the suggestion in a recent ECB bulletin that in future countries may not be able to afford to run health services, so Governments should perhaps consider a system of co-payments. That runs absolutely contrary to this Government's policy. However, although we may look on the policy wonks at the ECB with haughty disdain, there is no denying that when such ideas are combined with the tax-cutting agenda in Germany, people may begin to wonder whether two plus two equals four, and to suspect that the ECB is influential in unintended ways.
Another, entirely intended, feature of monetary union is that it should be a major plank in constructing the single market. I suspect that many citizens originally believed that the single market meant simply removing some tariff barriers to shifting a container-load of widgets between one country and another. The more naive may have fondly imagined that it meant simply reducing some paperwork on cross-border trade. If so, they will have long been disabused of that misconception, which Margaret Thatcher and her band of scheming acolytes nurtured assiduously.
The single market, of which economic union forms such an integral part, means removing every obstacle to free trade. For example, although we currently find the phrase "tax harmonisation" difficult because we want to retain control of our tax policies, it is increasingly obvious that that objective does not appeal to everybody. Companies such as Marks and Spencer that trade in more than one country and want to offset their losses in one country with their profits in another are wont to go to the European Court of Justice to seek the removal of tax regulations that prevent them from shipping their losses around the European Union. I assume that the same principle would apply to a company's profits and that the least onerous tax regime would be sought.
That leads to tax harmonisation not though the front door, with countries agreeing a common rate, but through the back door, where judicial decisions are to taken to remove so-called barriers to the single market. There is an inevitable drift in one direction.The European Court of Justice, through implementing economic union bit by bit, may have more to say on the matter than, for example, the European Parliament. The court is making far-reaching decisions, which cut across the powers of elected representatives.
I recently highlighted the court's decision that Governments may not own golden shares in companies. The decision, especially its effect on Royal Mail, shows that the court is finding an ever wider role in determining the detailed application of what stands in the way of a true single market. In the light of that decision, the Government are reviewing the status of 25 British enterprises.
Some decisions may appear peripheral to the central theme of the debate. However, I highlight the way in which the detail of the grand vision is increasingly determined outside the democratic arena. The further the European Union enters economic and monetary union, the more the European Court of Justice will be employed to interpret its implementation. If Governments can be told to sell strategically important assets, what next? How does the project enhance our democratic rights? Are we meant to admire only the grand vision, and never mind the detail? What will be national Parliaments' ability to pass legislation that may challenge the European Court of Justice's decisions?
I said that economic union had a duty to underpin a wide range of goals. National Parliaments must therefore scrutinise the institutions that implement the single market to ensure that definitions of the public good that are too narrow or run counter to democratic expectations are not used. We must answer for the consequences, just as some elected representatives on the continent are grappling with the European Central Bank's failures.
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