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Clearly the parrot is dead, although the Government cannot say so. Not only is it dead, however; it was the euro that killed it. There have been two consistent efforts in Europe to achieve the goal of ever closer union that was in the treaty of Rome and has been maintained since then. The first has gone down the constitutional track, constantly strengthening the centre as the European constitution did, turning this assembly of states into a state in its own right with its own foreign policy, its own army, its own economy, its own law, its own rights. The aim has been to build a state over the states. Then there is the economic track, or rather the monetary union track. Monetary union would provide a European economy, a European bank and the institutions to run that European economy and European bank. It would strengthen the institutions at the centre and the impulsion towards unity.
Unfortunately, it was that second track that produced the disaster. It involved taking what is essentially, and can only be, an economic instrument, an instrument of managementinterest rates and the exchange rate, the only crucial weapons to manage the economy that are left to usand using it for a political purpose, that of building ever closer union. Such a distortion produces damaging economic consequences.
The trend towards monetary union began with the snake, which failed. It was then revived with the exchange rate mechanism between 1978 and 1979the Labour Government wisely stayed out of thatand the union was consummated with the euro itself. We hoped, when we entered Europe in 1972, to hitch ourselves to an institution with a rapid rate of growth so that our own economy would grow rapidly. Those growth rates stopped, however, when the entire EU went down the path of monetary union. What ended was economic growth; what came was high unemployment. Both were consequences of the use of the exchange rate and interest rates as a political instrument to build union.
Why? First, it is clear that one interest rate could not fit all. It could not possibly cope with the economic situation in Germany and that in Ireland at the same time. Secondly, it is clear that a nation state must use and retain its instruments of management if it is to manage the economy for its purposes, and offset any damaging consequences to the economy. It needs its weapons of management, and its own independent economy. Without those, there will be a deterioration. Thirdly, it is clear that the regime is deflationary, as
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exemplified by the growth and stability pact. The pact was, in fact, the most anti-Keynesian measure ever seen. It proposed savage cuts in Government spending. Deflationary measures imposed by monetary union were driving up unemployment, thus increasing public spending, reducing the inflow of taxes and therefore increasing deficits.
Kelvin Hopkins : I agree entirely with what my hon. Friend is saying. Does he not think that it is even madder that the countries with high unemployment have been urged to cut their spending and deflate even further, making an even worse problem?
Mr. Mitchell: It is simply madness, and it goes against anything that is sensible in economics. We in this country have been inoculated against the dangers of managing the economy to maintain the exchange rate. Things should be the other way round: the exchange rate must be used and adjusted for the purposes of the economy. Failures in this country caused by such an attempt to maintain a fixed exchange rate at all costs should have inoculated us against any enthusiasm, interest or involvement in either the exchange rate mechanism or the euro. We have enough examples of the damage that that has done.
Fortunately, those examples have convinced the Chancellor of the Exchequer to control our Prime Minister's naive enthusiasm for making a political commitment by joining the euro. We are all very grateful for that because the country has benefited, but for France and Germany the consequence of that trend towards monetary union was that that their economies slowed drastically. They are the European economy's driving motors, but both slowed down: growth was much lower and unemployment was much higher, hovering between 10 and 12 per cent., with disastrous consequences.
The euro created the depressed economic situation that lies at the heart of Europe. In fact, the euro turned Europe into the high-unemployment, low-growth blackspot of the advanced worldthe worst example of failure. Even Margaret Thatcher's Britain did better in growth terms, for reasons that I will come to in a minute, and it is that climate that produced no votes in France and Holland. "It's the economy, stupid," one has to say.
Clearly, Spain was going to vote for the European constitution to keep the money flowing because it has benefited substantially; it is laughing all the way to bank. But, equally clearly, those countries where the people have a say in a referendum and where the euro has done economic damageHolland and France so far; there are others to comewill vote against the constitution in such circumstances.
Kelvin Hopkins: My hon. Friend is making a very strong point. Overall, during the Thatcherite period, growth in Britain was rather higher than in the eurozone. Does he accept that that growth was built on a big depreciation of the currency of about 35 per cent. during Nigel Lawson's term as Chancellor?
My conclusion on the twin-track approach in which the monetary union track has done such damage to the constitutional track is, "It's the euro wot done it," as The Sun might put it, and there is no point in dredging around for further explanation. The question for the House and for Europe is: what happens now? There have been attemptsparticularly in Europe, but also by some of our Euro-enthusiastic friends in this countryto look at the vote and say that people were not really voting on the constitution; they were voting against Chirac or against unemployment, or whatever.
We are having séances to interrogate the parrotthere is a lot of excuse makingbut we cannot pick and choose with an electoral verdict: no means no, means nein, means nee, and that is it, frankly. I appreciate that the Government cannot say that as openly as we Back Benchers can say it. They have to hang back, dressed in black, looking sombre and serious, perhaps with a few tears added for special effect. They must say nothing, and let the fact of death emerge in Europe. That will certainly complicate my right hon. Friend the Prime Minister's presidency of the European Unionit will make it very difficult.
My right hon. Friend the Minister for Europe listed a quite exciting prospectus for Europe, including fighting poverty in Africa and getting rid of the common agricultural policy. I wish that he had added the common fisheries policy as well, and I certainly wish that its impact was diminished. That agenda is very attractive and important, but it will be difficult for this country to do anything about it, given that the other member states will object to British leadership because that is the only policy left to them. That will make getting anything done in Europe stickier, more difficult and harder during our presidency. In any case, it will make it difficult to lead members of the European Union in a wholly new direction.
It is sad therefore that added to the attractive list of things that need to be done that my right hon. Friend outlined is so-called reformthis is our central propositionwhich amounts to liberalisation, rolling back the state, cutting public spending, cutting welfare provision and weakening the power of labour and the unions. That is laughingly referred to as freeing up labour markets or deregulating them. It amounts to a Thatcherite programme so flagrant that the Europeans could well erect a Thatcher statue next to the pissing boy in Brussels, which we could look on with a certain feeling of shock and concern. It is very much a Thatcherite programme. A Labour Government are urging Europe to get rid of its social programme just as that social programme has been diluted in the Labour party. That is not the answer to Europe's problems. That kind of Thatcherite, monetarist programmewe call it a reform programmeis not what Europe wants and it is not what the electorate of France voted for. They voted against such a programme, which they regard as British.
That programme will not work. It did not even work in this country. That is where I come to the point interjected by my hon. Friend the Member for Luton, North
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(Kelvin Hopkins). In the 1980s, the Thatcherite programme inflicted deep damage on our manufacturing sector, which was more severely harmed and reduced than that of any other country. That makes it very difficult for us to pay our way in the world, to provide jobs for people and to fight back against our current economic circumstances. There has been an expansion of the white-collar and consumer sectors, but the manufacturing base has been drastically eroded.
That programme also increases public spending because the more that we put people out of work to discipline the unions and to weaken the power of labour, the less tax comes in and the more goes out in benefits. Do we want that in Europe? Do we want to force that sort of programme on countries that already have a 12 per cent. rate of unemployment? It is ludicrous to suggest that the rest of Europe should go down that path.
The recovery in the 1980s came, as my hon. Friend suggested, when the value of the pound came down, precipitating the Lawson boom and stimulating the whole economy. That performance was repeatedConservative Governments repeat themselves in this fashionin the early 1990s, when deflation was made necessary by joining the ERM.
I was interested to hear the Liberals' view on the ERM, because I remember that, at the time, they were leading wild mobs down Whitehall, chanting the popular cry of "Move to the narrower bands now!" Now they tell us that we went into the ERM at an over-valued rate, but, back then, they wanted to make things even harder by tightening up the rate. That was the Liberal strategy in the 1990s. We escaped the disastrous consequences of all that only when we were forced out of the ERM, and the economy immediately began to recover.
Labour Members have every reason to be grateful to the Conservative Government who began that recovery by taking the decision to leave the ERM. That has certainly benefited Labour in power substantially, but it indicates that it is not deflation or reforms but a change in the exchange rate that produce recovery and expansion. The problem was effectively ended by devaluation, as was the Thatcher period. That was what stimulated the economy, and it is what Europe needs, given its current situation. An expansion of demand is the only way out of the trap.
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