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6.1 pm
Mr. Barry Gardiner (Brent, North): Before I begin my speech proper, I wish to join my hon. Friend the Member for Southampton, Test (Dr. Whitehead) in paying tribute to the hon. Member for Chichester (Mr. Tyrie) for his absolutely excellent speech. I can only imagine that the Conservative party's present difficulties will continue for as long as he remains on their Back Benches rather than being on their Front Bench.
I speak from the perhaps quaint premise that it ill behoves Members of this House to be either pro-European or anti-European. The only thing that Members of the British Parliament should be is pro-British. That is why I reject the Conservative dogma that says that EMU should be opposed even if it were good for Britain, and the Liberal Democrat dogma that would insist on joining EMU, even if that were bad for Britain.
Of course, Conservative Members would respond by saying that EMU could not be good for Britain, and Liberal Democrat Members would say that it could not be bad. That is the trouble with fundamentalists—one cannot hold a rational argument with them because they refuse to consider possible anything that might expose their position as flawed.
When the right hon. and learned Member for Folkestone and Hythe (Mr. Howard), the shadow Chancellor, spoke in the House on 9 June, the whole House laughed. It was a genuinely funny speech, with some excellent gags. I cannot claim that the speech has since been forgotten, as the right hon. and learned Gentleman has committed the mistake of repeating most of the gags several times. However, the shadow Chancellor experienced something worse than laughter today: his speech was ignored. He singularly failed to win the attention of the House.
By contrast, the statement by my right hon. Friend the Chancellor contained no quips or gags, and no polished delivery of a line. However, it had a very clear line. The message was, "Not now, but not no." The euro will be good for the UK. It will reduce long-term business costs, and act as a spur to economic dynamism in this country, but we can join only when there is real convergence with the European economy.
I am sorry that the hon. Member for Sevenoaks (Mr. Fallon) is not present. He spoke about the fallacy of convergence—the notion, as he put it, that economies
could become linked together like spaceships floating in space. His view has been widely held. It is a classical one, in the sense that it was held in great esteem in the 18th century classical period, when cities had walls around them. The thought that economic decisions could be taken that would work as well for both Bremen and Bonn was deemed to be ludicrous. What made that view outdated was greater communication, improved technology and better transport. It is technology, transport and communication that render the classical view that he espoused equally inappropriate when considering independent nation states today.The business community welcomed the Chancellor's message. Digby Jones, director general of the CBI, noted:
- "The process for review on convergence and flexibility will be welcome to businesses that need certainty to plan ahead. We are pleased the government is doing nothing to harm the hard-won economic stability that has made the UK the most successful economy in Europe",
- "the main thing to understand is quite simple: the policy is right, politically and in economic terms as well."
The 9 June statement was about more than the decision to enter the euro, momentous though that is. It was about dealing with systemic problems in the British economy as well—problems that we need to deal with regardless of whether we join the eurozone. Under the Conservatives 300,000 families were in negative equity as the economy went through cycles of boom and bust—not an impressive record. That is why today the Chancellor has set out his vision of a sustainable housing market: one that would ensure added personal economic security for home owners and sustainability for the impressive economic framework that we have established. Those are the domestic prospects that EMU membership holds out. Attaining the goals set down by the Chancellor will ensure that home owners have long-term security with the increased use of fixed-rate mortgages.
The Chancellor also made it clear that he will seek reforms to the stability and growth pact so that when Britain enters the eurozone it will benefit from reforms to the structures that govern Europe's economy. There is growing agreement that the current structures are not right and that there needs to be reform if the UK and the rest of Europe are to benefit from our joining the
European economy. It is because Britain has a policy of engagement with the EU that we can expect movement on that issue.On jobs and prosperity, investment may produce a short-term increase in employment, but Europe's labour markets are far more restrictive than the UK's. Ultimately, that may present problems. As for convergence with the eurozone economy, our GDP growth, unemployment and the output gap are not aligned, although they are closer than they were six years ago. Tackling that problem is difficult, because on all those indicators Europe is lagging behind the UK. In effect, we have to wait for Europe to catch up with us. If we want to join in the near future, the economy cannot afford to grow too much. Growth of even 2.5 per cent. while Europe is in recession will mean large gaps opening up and causing real problems in meeting the convergence criteria. Convergence is, of course, about cycles. It is not just about having the same vital signs at the point of entry; it means having the same cycle and experiencing and responding to the same shocks and stimuli thereafter.
Mr. Portillo: Will the hon. Gentleman give way?
Mr. Gardiner: If the right hon. Gentleman will excuse me, I will not, as a number of other hon. Members wish to speak and I was about to conclude my remarks to allow them to do so.
The final test, flexibility, poses the greatest challenge. I doubt that our economy is flexible enough at present to lose the shock absorber of its own exchange rate. Fiscal constraint to stop the public sector borrowing requirement running at more than 3 per cent. of GDP would severely restrict the Chancellor, irrespective of the overall level of debt. I suspect that that loss of flexibility, so necessary to our economy, as the Red Book figures on the public sector net cash requirement show, means that the UK economy must continue outside the eurozone for a little while longer.
It is clear, however, that the course is set. We should go in when we can go in, and when we do, it will be because it is right for Britain and the British economy.
6.10 pm
Mr. Kelvin Hopkins (Luton, North): I shall speak briefly because much of what I wanted to say has already been said by others, probably better than I could say it.
I congratulate hon. Members on making good speeches, whether or not I agree with them; for example, the hon. Member for Chichester (Mr. Tyrie) seems to be in favour of EMU, while I am against it. His speech convinced me that I was right.
I take issue with the hon. Gentleman on his dismissal of the need for fiscal transfers and provision for subsidiary fiscal transfers in a single currency. That is mistaken. More than 20 years ago, the McDougall report stated that the European budget would have to be multiplied many times if the European economy were to work under a single currency.
Mr. Bacon: I was a little perplexed by my hon. Friend's comments, too. Does the hon. Member for Luton, North (Mr. Hopkins) agree with Hans Tietmeyer, the former president of the Bundesbank, that greater fiscal harmonisation is essential in a single currency?
Mr. Hopkins: Indeed. McDougall argued that, in essence, one would need a single government and a single economy, with a tax and benefits system, which would automatically make for big fiscal transfers—plus regional policy and government, locating industry in the regions and so on.
The hon. Member for Chichester mentioned America. Federal spending is vital to keeping the American states together and helping the poorer states to survive. If the Americans wanted to reduce the differentials in living standards between rich and poor states, the fiscal transfers should be even bigger.
Mr. Tyrie: Fiscal transfers play a role in narrowing income differentials between states, although in the United States that role is relatively small. The important point is to identify the flows that may take place as a consequence of a shock hitting one part the US, creating asymmetric performance between regions, and the extent to which the federal budget can compensate for that. That issue has been extensively studied and the conclusion is that federal transfers provide only limited protection—about 25 per cent. The main study has been carried out by Barry Eichengreen.
My general point in response to the hon. Gentleman's remarks is that many currency zones with free trade and high investment flows have no fiscal protection at all—the gold standard being the clearest example.
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