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Lord Tordoff: My Lords, I thank the noble Lord for giving way. I hope that he will recognise that it is the task of their Lordships' Select Committee to scrutinise documents coming from government departments. In this case, Sub-Committee A was doing precisely that. The committee did not generate the documents; the members scrutinised them to the best of their ability on behalf of the House, in order to inform the House.
Lord Beloff: My Lords, the noble Lord is completely right. I never suggested that the members of the committee produced the documents. They were fulfilling their allotted function in this House. But they could have written a word or two of preface saying: "We know that we have to do this, but we also know that there is not much point, since the decisions will not be taken on the basis of the documents which we are examining". Perhaps that is asking too much of an all-party committee. I was not expressing any complaint about the conduct of the committee, I was commiserating with them on a great deal of expenditure of energy which, to me at any rate, seems beside the point.
I was interested in the references made by the noble Lords, Lord Hooson, and Lord Owen, to the United States of America. Unless we follow the course of American history for 200 years, we cannot understand the role of the single currency, the European Court of Justice or the other institutions of this embryonic federation. After all, the question of whether the United States should have a national bank, national control of credit--which is, after all, at the root of the idea of a European bank, a single currency--was of vital importance and caused endless conflict in the early years of the American union.
The most important judgment made by the Supreme Court of the United States, McCulloch v. Maryland in 1819, was precisely on the point as to whether a federal government could set up such a bank and whether the states were entitled to interrupt its operations by taxation.
It was not until relatively recently that the issue was settled by the setting up of the Federal Reserve Bank, as the noble Lord, Lord Hooson, said. As he reminded us, the United States now has machinery for pursuing a single economic policy over the whole of that vast area.
If I may say so, I thought that the noble Lord, Lord Hooson, slightly underrated the difficulties which exist, even in the United States, and how much greater they would be in Europe. After all, convergence is artificial, if it is thought of merely in abstract statistics about GDP, deficits and all such matters. The real question in running an economy is whether it is sufficiently united in its purposes and sufficiently attuned in its various parts to be capable of management from a single centre.
The noble Lord, Lord Hooson, was quite right. The United States Government have the capacity, through the use of their financial power, to make up for the differential effect of recessions on different parts of a varied country. As he pointed out, they also have the inestimable advantage of a free-moving population. Unlike the history of western Europe in the corresponding two centuries, the history of the United States has largely been a history of population movements. That continues to this day.
I should have thought that the obstacles in Europe to both those attributes of the American federal system are at the moment insuperable. In the first case, although Americans occasionally complain about supporting each other's welfare systems and so on--and there is some evidence of a movement away from that--nevertheless the people are all Americans and they recognise a mutual responsibility as members of one nation.
That is not the case in western Europe. No western European country feels that people in the neighbouring country, still less in countries several hundreds of miles away, have the equivalent claim upon their financial resources. So it is extremely difficult. As we all know, it is done. Ireland is constantly mentioned and it is the great beneficiary of the ability of the European Union to transfer funds. That is why the Scots--I believe mistakenly--think that they would receive the same if they went in as an independent country. However, that is a special case. Ireland is always a special case.
The other point is even more formidable. Language is a much greater barrier than I think the noble Lord, Lord Hooson, admits to the free movement of population in terms of seeking permanent employment and residence. For one thing, it makes people more reluctant to move and for another it evokes in the countries into which they move the possibility of a reaction by the indigenous population, who may claim that their jobs are being taken away by immigrants from other countries. Therefore, we cannot assume that the lessons of American federalism are seriously applicable. But we ought to look at the history of American federalism to see how it originally came about and how it is likely to develop in the future. Therefore, that is an important and I should have thought overriding consideration.
The noble Lord, Lord Peston, with whom I have exchanged words on these subjects more than once, said yesterday that on the main issue he was leaning towards British membership. I thought that "leaning towards" was a rather curious phrase. I felt that it was rather like an ordinand of the Roman Catholic Church telling his bishop, "I lean towards celibacy." It seems to me that either you wish to become part of a federal system or you do not wish it. I find a halfway house rather difficult in that respect.
We must all clear our minds about this matter. We do not know what will happen. I agree with the noble Lord, Lord Shaw, that on the Continent as well as in this country opinion is moving very fast. To assume that we know whether there is to be EMU or who is to be part of it, or what the reactions will be depends on assessing the political complexion of a number of important advanced countries, not only France and Germany, which have rightly been the centre of our attention, but also of course Italy and Spain. We do not know.
Therefore, although we can talk and write interesting papers on the preconditions of entry, the stability pact, whether we shall be fined and how much, where the money will go and whether there will be any money, for the moment I believe that we should take care.
6.12 p.m.
Lord Bruce of Donington: My Lords, I join in the expressions of appreciation of the work of my noble friend Lord Barnett, from whose committee by the convention of the House I was--temporarily I hope--excluded and therefore unable to put my views to him in greater detail in relation to the document that he and his committee have produced. That is unfortunate. I hope that one day that may perhaps be rectified.
The arguments that are and have been presented in this House and the other place ever since the debate on Maastricht--indeed before--surely have taken place within the stratosphere. A language has developed in discussing European Community matters. Technical terms have become commonly used by us but they are not understood or even appreciated by the ordinary members of the public. I do not wish to incur the House's displeasure by venturing to remind your Lordships that there is a wide public outside, comprising millions and millions of ordinary people, to whom the
arguments presented here about "fixed yet flexible" may appear slightly strange in view of the amount of logic that may have been included within their school curriculum. Some people who adhere to common sense might not appreciate the deadly logic of "fixed", which presumably means what it says--fixed--yet "flexible", which means that it can be moved.Yet such arguments as "fixed and flexible", "negative expenditure", "non-repayable advances" and such terms have become part of the technical language of Europe and indeed of a large number of your Lordships who take part in these debates. I myself must plead guilty. My first paper on the European question was some 34 years ago in 1962, since when I have ventured to study the subject in detail. Therefore, I plead guilty just as much as anybody else in helping to perpetuate the jargon and gobbledegook in which European affairs are discussed, not only at Community level but at political level as well.
Perhaps your Lordships will permit me to lift myself from the jargon and the various extant expressions and talk in what may be thought more commonsense language. For example, what do we mean by "discipline", when we refer to it in community documents? We interpret it to mean that there are some rules in place which must be adhered to if we are to remain--another jargon term--at the core or heart of Europe. On the other hand, the ordinary person these days--throughout Europe--thinks of "discipline" in terms of things from the outside being imposed upon him as an individual: the disciplines of poverty; the disciplines of homelessness; the disciplines of having no prospect; and the disciplines of having no vista either in one's home or outside it upon which it is easy to rest one's eyes. They and indeed I call that discipline. That is discipline in the eyes of the ordinary people. It means doing what you are told and not having much argument about it.
That is what is happening in Europe. At the moment there is ever present the discipline of unemployment or the prospect of it for millions of people in Europe--and in the United Kingdom when account is taken of the fiddles with the definitions that would reveal that unemployment in the United Kingdom is about 4 million instead of being slightly over 2 million. That applies throughout Europe. Europe as a whole is enduring unemployment on a greater scale than it did seven years ago, despite the single market. Surely, therefore, a wise Community, acting through its established instruments of representation and indeed its executive arm ought to be concentrating on this matter.
Certainly, the Chancellor of the Exchequer defined the position very well when reporting on the recent conference of ECOFIN. He said,
- "European policy is not a European matter. There is no European Community competence in employment matters".--[Official Report, Commons, 3/12/96; col. 805.]
As I was alive at the time, together with a not inconsiderable number of your Lordships, I well remember the days before the war when economic orthodoxy ignored the existence of unemployment. I well remember the time when Adolf Hitler came legally to power in Germany, not on the basis of the excesses that were to evince themselves later, but on the basis that he was prepared and quite obviously able to deal with the question of unemployment.
The economic convergence conditions--contained, first of all, in the protocol of excessive deficits and in the other protocol concerning convergence criteria--make no mention at all of employment. All they reproduce--I am sure the noble Lord, Lord Beloff, will verify this if he has studied this aspect of the matter, which no doubt he has--are the economic orthodoxies of the 1930s, which I well remember, in this country. They are reproduced as part of the economic convergence and deficit excess expenditure limits that are contained within the Maastricht Treaty in large letters.
Amazing though that may be, it is even more amazing that some people take it as a virtue that they have not examined the Maastricht Treaty--until recently, on his own admission, that included the Chancellor. If only Members of another place--and I venture to suggest Members of this place as well--would read these matters themselves instead of relying on the versions of their research assistants, and therefore had it firmly imprinted in their minds, we would not be in the existing intellectual impasse when considering the whole question of economic and monetary union or, as the noble Lord, Lord Beloff, said, political union, which is the main objective.
Is that surprising? I listened carefully to my noble friend Lord Peston who, in economic affairs, has a greater degree of skill and recognition than I would have if I lasted another 200 years. He was careful to point out in relation to one of the basic conditions of economic and monetary union that he would be bound to enter a caveat that he wanted a European bank to be democratically accountable. I shall await with interest the draft amendment he proposes to submit to the Leader of my Party incorporating the exact terms he should bring before the intergovernmental conference. But that goes to the root of it. Indeed, it goes to the root of the whole matter. As the noble Lord, Lord Beloff, said, we are discussing matters in their political context.
How democratic and how accountable are the institutions of the European Union? That surely should be basic to us; after all, we are democrats, or are supposed to be, or we call ourselves such and some of us may swear we are. Neither the European Monetary Institute nor the European central bank are responsible politically to anyone. They are not democratically elected; they are not democratically accountable. If anyone wishes to correct me by reference to the treaty and prove otherwise, I shall be delighted to hear it.
The all-powerful Commission is not democratically accountable either. We all know that the European Court is a political court with legal trimmings, some of them highly reputable; and the Court of Auditors has proved to be irrelevant for our purposes anyway. We are left with the Council consisting of Members of the governments of the various member states, of which my noble friend Lord Barnett is an illustrious example. I can testify, as one who appeared before the Council of Ministers, that he was unique in one respect: he was thoroughly alert and he knew his papers backwards whereas some of his colleagues in the Council, as verified by Alan Clark himself, were half asleep, gave every appearance of being half asleep or were suffering from a postprandial excess of vision or otherwise.
What are the democratic institutions to which we are going to entrust these delicate matters? Are we prepared for them to be completely non-accountable? I will not go into the subject of the European Parliament except to assure your Lordships that, on the basis of my four years' experience in it and my study of its proceedings almost weekly ever since, I cannot recommend it to your Lordships as a proper democratic institution as we understand the term. So are we a free nation with democratic institutions? That has been dubious over the past 17 years as developments have occurred, but nevertheless there is an election every five years, or earlier if circumstances provide.
Surely it is time for us to pause a little. As the noble Lord, Lord Shaw of Northstead, put it, let us ascertain the facts before we act on matters of this kind; before we introduce a universal currency within Europe with all the unknown factors that have been put forward this afternoon. I am bound to say that I was very impressed--I hope he will not derive any political discomfort from this--by the speech of the noble Lord, Lord Owen; it was most agreeable. He seemed to bring a genuinely independent state of mind to the discussion of this problem and I sincerely hope that we shall hear from him on this subject many times again.
Sometimes from the Liberal Benches we get the impression that it is quite wrong, when we are accused of having erred or when we disagree with other members of the European Community, for us to argue back. The Liberals apparently require--I shall be delighted to receive assurances to the contrary--that we agree with them all the time; otherwise we are dragging our feet or being awkward. In other words, they like to be able to find us always in the wrong when it comes to a genuine argument with other member states of the European Union. I trust this tendency will not continue.
I have some observations to offer to my noble friend Lord Barnett, who on a number of occasions, rather than replying to the detail of my argument, has been kind enough to refer to me as an anti-European, as though that were somehow an argument in his favour and excused him from arguing in detail against the somewhat terse arguments that I am able to put forward on the basis of my own studies. Perhaps I may therefore remind him as gently as I can that when he was 16 years of age I was, in common with a number of noble Lords on all sides of the House, in the Army, where I remained for six years, and that one of my objectives and one of
the objectives of my colleagues was to liberate Europe. It was a matter of some inconvenience at that time, particularly as four years had been taken out of one's life at a somewhat tender age earlier.Therefore I trust the noble Lord will choose his words a little carefully when he says that those whose philosophy he dislikes are anti-European. I trust he will reflect a little on the fact that for some of us our experience of serving on behalf of our country to liberate Europe does not always deserve the implied strictures that are implicit in the general observation, "You are an anti-European", as though that were an argument. I am not. What I have sought to do and what I shall continue to do is to try to the best of my ability to acquaint the House, however controversial it may be from time to time, with the thoughts I have on the subject which are the result of a protracted study and which I hope deserve occasionally some notice.
6.33 p.m.
Lord Haslam: My Lords, I was somewhat dismayed when I saw that I was to follow the noble Lord, Lord Bruce, today, knowing his powers of oratory and my inadequacy in this field. Nevertheless, having served for a few years with him on the Select Committee, I do say that we miss him and we miss his jousting with the chairman. The chairman is now having an easy time, I think, with the other members of the committee.
First, I pay tribute to our chairman for the delightful and skilful way in which he has run our discussions on these complex and difficult items. Secondly, I fully identify with the letter from the noble Lord, Lord Tordoff, to the Chancellor. There is, however, one issue on which I personally would have gone further. The letter states:
- "The merits of membership of ERM2 for those outside EMU require, in our view, serious consideration".
I believe the present ERM, from which we withdrew, is very unfairly criticised. The damage which occurred in the UK was essentially self-inflicted by entering at much too high a rate of 2.95 DM/£. That was at a time when interest rates in the UK were over 6 per cent. higher than those in Germany. I was a member of the court of the Bank of England at that time and many industrialists were advocating figures of 2.40 to 2.50 DM/£. If we had gone in at that level I believe we would still be a member today, and would not have suffered all the traumas which have since been unfairly blamed on the ERM.
As a member of Sub-Committee A one heard many voices from the Treasury, the Bank of England and other financial institutions, saying we have now seen the light, and even if we do not rejoin the ERM, we will behave impeccably in exchange rate management and ensure stability; hence our European partners need have no worries about our behaviour. The obvious response to this is: if you believe that, why do you not rejoin the ERM? Clearly, our partners are not convinced. Demonstrably, sterling's lack of credibility--a product
of our past record and of our lukewarm attitude to the EMU--is already being paid for in higher interest rates. We are paying interest on our borrowings of at least 1.5 points more than Germany, France, Holland and many other countries. As the noble Lord, Lord Cockfield, pointed out in the debate on the Address, this extra interest on the national debt is equivalent to 3p on income tax.Furthermore, recent events cast doubts on our exchange rate management. There had been a desirable period of stability during the whole of 1995 to the middle of this year, with the DM/£ relationship being contained between a band of 2.20 and 2.30. In recent weeks, this has suddenly surged to 2.60, which of course now presents a serious problem to exporters, and certainly does not reflect the promise of future stability by those who shape and determine our financial destiny. That again is also a manifestation of placing inflation on a unique pedestal, and letting any other key parameters like exchange rates fall wherever they may.
Nearly every witness who appeared before Sub-Committee A emphasised the critically important point that if the UK decides not to participate in EMU, our access to the single market should not be restricted. If we opt out of the single currency, having already withdrawn from the ERM, and having exercised our opt-out from the social chapter, our European competitors will perceive that all these actions are clearly designed to give us an unfair substantial competitive advantage over them. Indeed, in the case of our opt-out from the social chapter, we have widely trumpeted these advantages. Having battled with continental industrialists in many businesses for most of my working life, I am sure that they will not tolerate this blithe assumption; namely, that you can have all the benefits of the single market without participating in the single currency. Pressure for discrimination, reprisals and covert action, despite their illegality, would be intense and difficult to resist. They would, I believe, lead to confrontations, which will make our recent quarrels on mad cow disease look like a proverbial tea party. This issue is probably the most likely source of whether or not eventually we have to withdraw from the EU altogether.
Against this already daunting background, it seems to me that to indicate our intention not to join the proposed voluntary ERM2, if we become an "out", would be a last straw. I believe that most UK industrialists, particularly those operating European and international businesses, have become increasingly alarmed by the quality of debate in the UK about Europe and the way its tone has markedly deteriorated over the past two years as we now seem to be attacking Europe on any issue we can lay our hands on. We are in danger of becoming the complaining semi-detached or non-participating member of the European Union, no longer able to shape or influence the current crucial debates taking place. To make even a relatively minor concession, therefore, by agreeing to join ERM2, might be regarded as significant and timely in showing that we are not negative on every issue.
Finally, I do not deny that the EMU has some imperfections--they are there--and that teething troubles and risks are inherent in the process. These have undoubtedly been amplified by the German-French axis endeavouring to push through the concept of the single currency too quickly. However, the basic question still remains. If a hard core of countries go ahead with EMU, we have to make up our minds. We should respond in a positive way. I have no hesitation in saying that the UK should join at the outset and for once live up to our Prime Minister's oft repeated ambition of being at the "heart of Europe".
6.40 p.m.
Lord Roll of Ipsden: My Lords, once again we have occasion to be grateful to the noble Lord, Lord Barnett, for initiating this debate on the basis of a report prepared under his chairmanship. I had the privilege of serving on the committee and of admiring the mastery of his chairmanship. Thanks to it and to the skilful piloting of the report through the main committee by the noble Lord, Lord Tordoff, this report has reached this House in record time, I think. Above all, it has reached the Chancellor, as he wished, in time for him to take it into account in the discussions he had at ECOFIN on Monday last; and of course in good time, should he so desire, for discussion at the Dublin Summit, although that now looks a little problematical in the light of the Chancellor's last Statement.
The exchanges which have taken place in another place and in this House during the past two weeks, culminating in this debate, have been preceded by a most extraordinary and almost tempestuous flurry in the media, with talk about suppression of documents, constitutional principles having been breached, confidence votes, resignations, anticipated elections and heaven knows what. Happily, the Chancellor's Statement a week ago on Monday caused all that to subside, although the exchanges in the other place were still indicative of a great deal of excitement on this.
Even in this House when the Chancellor's Statement was repeated, although I did not hear it, the pages of Hansard indicate the sense of a tremor of turbulence. The debate today has also proved, as is perhaps almost inevitable, that it is almost impossible to discuss specific questions, such as the three issues which are the subject of discussion for the preparation for EMU, without going back to the transcendental question of whether monetary union is desirable or feasible and, if it is, as is believed by some of our partners, whether we should join.
A good deal of the debate today has touched on that. I do not propose to go along that road except to say--and this will be no secret to some of your Lordships--that I very much agree with the positive approach that has been taken by a number of speakers, including the noble and learned Lord, Lord Howe of Aberavon, and the remarkable speeches by the noble Lords, Lord Haskel, Lord Hooson and Lord Haslam, which brought to the debate the experience and the attitude of business to this question. I do not propose to dwell on the broader issue of the desirability of EMU, and indeed beyond that, as was touched upon by a number of your
Lordships, including the noble Lord, Lord Beloff, perhaps the inevitability of moving eventually to something like a federal structure and comparing that with the United States.The prelude to these exchanges, as I said, was of a very excitable nature, especially in the media. Some of the things which were said at the time amounted almost to saying that we should not even participate in any of the discussions and negotiations in preparation for EMU--as if anything to do with EMU was the work of the devil and had better be left alone. Although I would certainly not accuse the noble Lord, Lord Bruce of Donington, of being anti-European, some of the so-called Eurosceptics who pronounced sentiments of that kind at the time remind me very much of something that Friedrich Engels, Karl Marx's companion, once said:
- "An agnostic is really a shamefaced atheist".
I want to deal briefly with the three main issues with which this report is concerned. I shall not dwell at any length on the legal and institutional aspects of the creation of a single currency of the euro and on the operation of the European Central Bank. These are obviously matters of very great importance to those who plan to be members and to ourselves, if we ever become a member; but they are also of very great importance to those outside. After all, even today the constitution and practice of the Fed and what Mr. Alan Greenspan does, and the constitution and the practice of the Bundesbank and what Mr. Tietmeyer does are matters of great concern to us, and I say that with the utmost respect for the outstanding authority of our own Governor. We cannot ignore these matters and if we are outside the European monetary union we must also be very fully aware of the way in which the European Central Bank works and how far an independent Bank of England still outside monetary union can co-operate with it.
The only other remark I would make is to repeat what the report of the committee of the noble Lord, Lord Barnett, says; namely, to deplore the degree of secrecy that surrounds the preparations on this score by the European Monetary Institute. I very much hope that there will be much more openness. I am afraid that bankers have developed a tradition of secretiveness, which the central bankers possess in an even greater degree than their mundane colleagues in the private banking world. I think in this particular instance that ought to be lifted to a very large degree.
The heart and core of these three aspects of preparation is the question of the principles of financial and general macro-economic policy once the monetary union has been created: that is to say, in terms of either a continuation or a revision of the convergence criteria which determine the conditions for initial entry. This is a subject which to my mind eminently deserves very solid discussion, as indeed it is beginning to get in
ECOFIN and no doubt in the summit meeting and also in public and in our own legislature. It is of great importance and it is a little surprising that there should be doubts on all sides of the political spectrum about the validity and worthwhileness of the principles which have now been set up to guide the macro-economic policy of a monetary union and indeed of those outside. As our committee's report last July and the present report made clear, we believe--and I hope that broadly speaking your Lordships will agree with this--that even if we are outside, the principles of policy are equally applicable to us. I stress the word "principles".The term "sound financial policy" acquired a bad name in the late 1920s and early 1930s and, if I may say so, the speech of the noble Lord, Lord Bruce of Donington, was a very clear example of the memories left by "sound financial policies" as practised at that time. I am old enough--I am a good deal older than he is--to have lived through that period and to remember what consequences flowed from the so-called sound financial policy, which caused a great deal of economic misery and indeed devastation in certain parts of Europe and the rest of the world. Many people believe, and I share their view, that they made a contribution of some importance to the social and political consequences which ultimately led to the tragedy of the Second World War.
Therefore many people, including the noble Lord, Lord Bruce of Donington, believe that a great liberation took place, to which we should now very much adhere, through the work of Keynes. I am second to none in my admiration and respect for the work of that great man, but he was a man for all seasons--so much so indeed that he was often accused of inconsistency. That produced the celebrated riposte of one of his American disciples:
- "There is nothing inconsistent in wearing a straw hat in the summer and a fur coat in the winter".
I remind your Lordships that when he spoke in this House on the post-war settlements--a speech which is well worth re-reading now--he made the remark, "We have come to implement and not to destroy the wisdom of Adam Smith". That may sound strange to some people who regard Keynes as the absolute antithesis of Adam Smith. Therefore, I urge the noble Lords, Lord Bruce of Donington and Lord Peston, who also expressed considerable doubt on this score, to look very carefully at the principles of sound financial policy and macro-economic policy, which are to be applied within the monetary union and also by those outside, but which have to be formulated in more precise guidelines.
The report of the committee of the noble Lord, Lord Barnett, makes it very clear that we are very doubtful, if not opposed, to mechanistic formulae. It may well be that we should try very hard to avoid repeating the formulation of the convergence criteria in the formulation of the guidelines for conduct after monetary
union has been established, if it is established. In any event, these judgments will have to be based on flexibility, as the committee quite rightly emphasised, especially in times of recession and should possibly avoid mechanistic formulae.I believe, from what the Chancellor has reported on the discussions at ECOFIN last Monday--and I believe that he will be supported by quite a number of members of the European Union including, perhaps, in the end the French and the Germans, but certainly by many others who may not immediately be members of the monetary union--that he is seeking to have the right sort of formulation for principles which are themselves probably right and proper.
I come finally to the question of the exchange rate mechanism. On that I have very little to add to what the noble Lord, Lord Haslam, has said, with whom I agree a great deal on this point. There are two points. There is the question of whether participation in an exchange rate mechanism for two years is an essential condition for entry into monetary union. I believe that the evidence on that is still not absolutely clear. I know that we have had quoted to us this afternoon the words of the treaty itself, but we have also heard the interpretation given to those words by the Irish Finance Minister and many others. I believe, as the committee does in its report, that, were we to want to join and fulfil all the other convergence criteria, including that of exchange rate stability, but were prevented from doing so because we had not formerly been members of the mechanism, that really would be straining at a gnat. That is a pretty popular pastime in international negotiations, especially in Brussels, but it is a topic on which we perhaps need say no more at this stage.
The other question about the exchange rate mechanism is what happened to the last one, and on that I believe that the noble Lord, Lord Haslam, is absolutely right. It seems to me quite wrong to judge the system on the ground that, after many many years of not belonging to it when it worked reasonably well for all its members, we finally joined--apparently without adequate consultation with our partners--at an exchange rate which was manifestly too high and which finally broke up the system as a whole, not only causing ourselves a good deal of discomfort at the time. Even today, after the pound has risen a great deal (although that has abated somewhat in the past two days) and perhaps become uncomfortably high, the exchange rate in the market is still well over 10 per cent. below what it was when we went into the exchange rate mechanism. So I believe that it would be quite wrong to judge the desirability of belonging to it simply on the ground that we had a vexed experience before.
We asked Mr. O'Donnell, the excellent Treasury official who gave evidence to us, about it and what the reasons were for this reluctance on the part of the Chancellor and the Treasury to join an exchange rate mechanism. We were told, "We believe that the true basis and way of supporting exchange rate stability is to have the right financial and macro-economic policies". To that we all said, "Hear, hear". Obviously, that is taken up in the committee's report. We entirely agree
with that because it is the basis of exchange rate stability. But that does not dispose of the question of the exchange rate mechanism.So perhaps I may conclude with this observation. We have reached a point where we are in favour of exchange rate stability, as we jolly well ought to be, because the history of our exchange rate policy over the past two thirds of a century is by no means the most glorious chapter of our economic history. We are in favour of stability in exchange rates and of the basic financial and macro-economic policies that can alone in the long run sustain exchange rate stability. Yet we refuse to join the mechanism.
I must tell the House that some of us on the committee went away with the perhaps unworthy suspicion that in the minds of the Chancellor and the Treasury there are no strong economic arguments against joining an exchange rate mechanism, but rather, shall I say, the fear that it might give the wrong political signal at a time when anything to do with EMU tends to be suspect and to excite opposition. But if that is really so, it is a most bizarre situation because to belong to an exchange rate mechanism can only be of practical significance to us if we are outside the EMU. If we are inside, the question disappears.
6.56 p.m.
Lord Pearson of Rannoch: My Lords, before I descend into some of the murky details of these preparations for European economic and monetary union, it is worth remembering part of the background against which our debate takes place.
Several noble Lords have rightly reminded us that EMU is proposed largely as the mechanism by which European political union will become irreversible. If any noble Lord doubts that he should reflect on what M. Yves Thibault de Silguy, the Economic and Monetary Affairs Commissioner, said a few weeks ago. He said,
- "The inability of Europe to respect its agreement for building economic and monetary union would surely affect other areas, the common foreign and security policy ... and institutional reform first of all. In what trap would we then find ourselves? Where would we be going? There would be a great danger of seeing Europe drift progressively towards a free-trade zone--precisely what we have tried to avoid for the last 25 years".
That surely confirms that EMU is not primarily an economic or monetary venture, as other noble Lords have said. Its inspiration and aim is political. So, as with the whole European venture, the square-wheeled political cart is again being put firmly in front of the nervous commercial horse.
This is not the time to dwell on the general folly of trying to follow M. de Silguy and his allies beyond the free trade zone which the British people have been deceived into thinking they were joining. But, since the usual channels steadfastly refuse to allow us to debate that folly, I trust that your Lordships will forgive me if I remind noble Lords of two of the principal raisons d'etre of the European Common Market, which begat the European Economic Communities, which begat the
European Communities, which begat the disfigured and dangerous infant we observe today in the shape of the European Union.After the last war those two raisons d'etre were, first, to dilute Germany into a new-fangled cocktail, disguised as a market, to prevent her going to war yet again with her neighbours; and, secondly, to create a bloc capable of standing up to the growing menace of the Soviet Union. At the time both those aims were entirely honourable, but neither of them makes sense today, although Herr Kohl and others of his generation are clearly worried that Germany still cannot be trusted.
If I could ask Herr Kohl one question it would be: "When did a democratic nation such as the modern Germany last cause a war?" But, alas, I fear that he and his army of bureaucrats and politicians in Brussels are in too much of a hurry to pause for such thoughts. Hence their headlong dash for political union, mounted on the crippled horse of EMU, which, upon closer inspection, turns out to be just as incapable of flight as the bird from which it obviously takes its name. Let us have a closer look at some of this animal's teeth.
One of the most obvious problems is that the weaker economies of Europe do not have the faintest hope of achieving genuine convergence with that of Germany in the timescale involved before Stage 3 of EMU, and they do not have the faintest chance of maintaining any bogus convergence which they may have been allowed to fudge thereafter. The latest assurance that we have on this came yesterday from Mr. Prodi, the Prime Minister of Italy, who promised his people that the special euro tax which they are being forced to pay to get into the fools' paradise of EMU will be reimbursed as soon as Italy is safely inside.
So for a very long time--longer than their peoples will tolerate--the richer countries will have to subsidise the poorer countries. Alternatively, the federal European budget necessary to sustain the inevitable national imbalances has been estimated at between 5 and 7 per cent. of Community GDP, as opposed to 1.2 per cent. now, which is unlikely to be accepted by the donor national parliaments.
I remind your Lordships that although half the present budget is spent unwisely on agriculture most of the rest goes on so-called "structural" support to the poorer economies. Greece, Spain, Portugal and Ireland between them get some £25 million per day until 1st January 1999. But then this largesse stops, and unanimity among the 15 countries of the EU is required before new funding can be agreed. If, as seems almost certain, new funding is not so agreed, that will make the "four poor", as they are known, even poorer and less able to maintain any reasonable criteria within EMU. It is perfectly clear, too, that with these kinds of strains on it the euro will be a weak currency, which would do enormous damage were it ever to fall apart. I hope that the noble Lord, Lord Peston, will not mind my joining in his complaint that the convergence criteria do not contain any criterion for unemployment. When one considers the pain which the convergence criteria are causing across Europe, surely this must be a serious worry.
There is much more that can be said to show why the EMU is quite simply not designed to fly in spite of all the disciplinary measures before us, but time does not permit. Most of the arguments are clearly set out in the recent publication by my right honourable friend David Heathcoat-Amory, A Single European Currency--Why the United Kingdom must say "no", which I have recommended to your Lordships before. I should remind your Lordships that Mr. Heathcoat-Amory was the Minister for Europe before moving to the Treasury where he was closely involved in the preparations for EMU. His views are, therefore, based on experience which I submit cannot simply be ignored. There are copies of that publication in the Library. I would be happy to obtain a free copy of it for my noble and learned friend Lord Howe (who I regret to see has left us) and any other noble Lord who would like one. I mention this publication again because, as far as I know, no one--least of all the Government--has been able to refute its conclusions. These are that we should refuse to join a single currency, and that we should do so now. We should therefore have nothing to do with the papers in front of us, except to veto anything which might tie us to the ill-fated project of EMU in any way.
This leaves me with the question of how much we may already be committed to EMU through our unfortunate adherence to the Treaty of Rome. Paragraph 2 of Protocol 11 of that treaty says that,
- "Paragraphs 3 to 9 shall have effect if the UK notifies the Council that it does not intend to move to the third stage [of EMU]".
My first question to my noble friend the Minister, of which I have given notice, is this. For how long will any agreements that we make before we say that we do not want to move to the third stage last? Will they last until we say that we do not want to be part of EMU, or will we be stuck with them thereafter? My second question is more difficult. When one looks at the actual articles that will not apply to us--even assuming that we have said that we do not want to move to stage 3--they do not give much comfort, especially when we consider the way in which the Luxembourg court has just behaved over the 48-hour week. I have time to give your Lordships only one example of the kind of wording in the treaty which would apply to us even after we had opted out. I refer to Articles 103, 102a and 109m, in that order. To render them vaguely intelligible, I should paraphrase these articles as follows. I quote Article 103:
- "Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of Article 102a".
- "conduct their economic policies with a view to contributing to the achievement of the objectives of the Community".
- "From the beginning of the third stage and for as long as a Member State has a derogation"--
- "paragraph 1 shall apply by analogy to the exchange-rate policy of that Member State".
Paragraph 1 has already been referred to this afternoon by my noble friend Lord Tebbit. It commits us to treat our exchange rate policy as a matter of common interest and to respect "existing powers in this field".
There are many other articles from which we shall not be exempted even if we confirm our opt-out, which, like the ones I have mentioned, must make us very worried were they ever to be judged by the Luxembourg court. As far as I can see, the whole of Article 103, which goes on in much the same vein as the part that I have quoted, would be actionable before the court under the enforcement procedures of Articles 169, 170 and 171 of the treaty and would allow the court to fine us. Can my noble friend comment on this?
I turn to the problem of ERM2. If the UK wanted to join EMU and the Council found that it fulfilled the necessary conditions (whatever they may turn out to be) I do not imagine that anyone would let a small matter like the treaty wording get in our way. There might well be agreement with all parties to the contract to ignore Article 109j 1, third indent. But what may be more sinister about ERM2 is that it appears to be a different system from ERM1, which was in the Maastricht Treaty and as such was subject to heavy parliamentary scrutiny. We are told that ERM2 will work on a hub-and-spoke basis. This contrasts with the current ERM which uses a "parity grid". I confess that I am not enough of an economist to appreciate the finer points of the differences between the two systems, but the proposed system is being imported by intergovernmental agreement rather than parliamentary sanction. Would my noble friend care to comment on this?
I have three very brief and easy questions for my noble friend. First, we are told that submitting convergence programmes will be compulsory even for the "outs". Can he say what penalties there will be if we are held not to have submitted them? Secondly, we are told that the Government will want to consider whether the Commission's proposals on the stability pact on budgetary discipline in Stage 3 are fully consistent with the principle of subsidiarity. Does my noble friend accept that that would be a waste of time because subsidiarity has proved to be the sham that some of us forecast at the time of our Maastricht debates? If my noble friend can correct me on that I shall be much encouraged. My third and final question is the simplest. If my noble friend believes that my right honourable friend the Chancellor has copper-bottomed guarantees against the fears that I have expressed, can he tell me whether the "Titanic" was copper-bottomed?
7.9 p.m.
Baroness Ramsay of Cartvale: My Lords, I rise with great diffidence to speak in this debate among so many distinguished and experienced voices on this subject. I do so because it is a subject about which I care, and have worked with in my Foreign Office career, and because I strongly believe that it is important for there to be as wide as possible a participation in this discussion, both in your Lordships' House and indeed out in the country at large.
When I said recently in my maiden speech that I sometimes despaired of hearing a sensible public discussion of important European issues in this country, I should have of course realised that a shining exception would be your Lordships' House.
I congratulate the Select Committee on the outstanding quality of its work and its reports--both Preparations for EMU, with which we are dealing today, and the previous, inextricably linked, report An EMU of Ins and Outs. The evidence, reasoning and conclusions are all admirably cogent and detailed, yet clear. Of course the issues involved in considering the preparation for EMU do require intellectual rigour and detailed analysis. They cannot be reduced to facile generalisations or sweeping judgments, but that should not mean that the basic issues should not be capable of being presented straightforwardly so that even non-economists can participate in the discussions. The committee has succeeded admirably in achieving that.
Because--here I find myself in agreement, I think, at least partially, with my noble friend Lord Bruce of Donington--it is all too easy to become bemused by the statistics and the equally frightening and offputting jargon involved in all this, "Ins" and "Outs" are easily grasped, but "pre-ins" as opposed to "opt-outs" and "first wavers" and "second wavers" and so forth, leave most people "not waving, but drowning". And yet it is vital that the importance of this decision for us all is understood, along with the immediacy of the already decided timetable.
The basis for understanding why we are all engaged in this enterprise at all, is the answer to the question often posed: "Why when it is causing so much trouble do we need to have a single currency at all--why not continue trading in our national currencies in a common market?". I cannot do better than quote the answer of the President of the Commission, Jacques Santer, in his speech to the European Parliament just over a month ago. He said:
- "The single currency is of paramount importance for the Union. To round off the single market and secure a lasting stable basis for its competitiveness. To develop a monetary policy that is geared to the needs of the European economy. Finally to establish its place on the world financial markets".
I have been struck forcefully by a set of simple, straightforward figures. Europe creates one-third of the world's wealth. The USA creates only one-fifth, but its single currency (the dollar) is used as settlement currency in 40 per cent. of international transactions. That brings many advantages to American business, which a single currency could offer Europe and which individual European currencies could never hope to achieve. I am afraid that that includes sterling.
I am not for a moment pretending that the issues involved in joining EMU are at all simple, and even less that the timetable can necessarily be judged congenial for us, but two sentences quoted in the excellent paragraph 28 (the main recommendations) in the Select Committee's report An EMU of Ins and Outs leap off the page at me. They are:
- "The arguments about accession of the 1970s have no place in the 1990s. The current debate should be conducted in the language of progress not the rhetoric of the battlefield".
There have been many eloquent speakers in the debate, who have already covered so many aspects of the subject that I think a positive contribution from me would be to make a much shorter speech than I might otherwise have done. I shall conclude therefore with one final thought. Unlike a former President of the United States, we should have no difficulties with the vision thing. Surely we can raise our eyes up from the minutiae of convergence criteria and see the goal of increased economic stability and prosperity for our own country and the European Union, and surely we can devote our skills and energies to the preparations for achieving that.
7.16 p.m.
Lord Fairfax of Cameron: My Lords, I compliment the noble Lord, Lord Barnett, and the committee on the report. In particular, I compliment the noble Lord on his clear summary of it. When speaking No. 19 in the debate, there is some danger, as my noble and learned friend Lord Howe said, of self-repetition. I shall try not to repeat myself, and I shall try to avoid repeating what other speakers have said. I agree strongly with the powerful and balanced speech of the noble Lord, Lord Owen. On an issue such as this, which causes so much polarisation, that was a nice balanced presentation. As I believe the noble Lord, Lord Peston, said, there is a need for balance in this debate.
I shall comment upon the speech of the noble Baroness, Lady Ramsay. I cannot resist picking up what I see as the tremendous irony of her quoting M. Santer on the justification for EMU. I see that she is not listening at the moment, but he has a small interest in this matter. So I hardly think that he is the most dispassionate person to comment upon the rationale for it.
However, like the noble Baroness, the greatest service I can do after such a long debate is to make my comments as concise as possible, and I shall try to do that. I turn first to an important point which has attracted some heat during the past week. I welcome the statement made by the Chancellor yesterday that there is no possibility of the canard that the stability pact sanctions could apply to those countries, such as the UK, that might opt out of Stage 3 of EMU. If history proves his assurances to be correct, I welcome them.
My next comment is not particularly original, but I shall make it. I refer to the recent example of the working time directive which is of itself a controversial political issue. Ignoring that fact, it is hardly surprising that the people of this country have little or, in some cases, no faith in the equity of some of the decisions emanating from the institutions of the EU. If the Chancellor has obtained, as he said yesterday, an assurance on the face of the documents, then that at least is to be welcomed.
I shall make some comments directed more to this side of the House. I echo the comment of the noble Lord, Lord Owen, that there has been too much of saying one thing but doing another in relation to the European Union. There is too much code. In terms of the debate in this country, there is a need for more openness and honesty with the people. I am happy to say that several years ago I voted against the Government in favour of a referendum on the Maastricht Treaty. The suppression of debate and moves against a referendum have been repeated time and again. In the past couple of weeks considerable heat has been generated for similar reasons. I ask for more government openness on these issues.
We are talking about honesty, and I wish to compliment the noble Lord, Lord Hooson, on his honesty today. The noble Lord said that we are talking about a political and not an economic agenda as regards the EMU. The Government owe it to the people of this country to be a little more honest in their pronunciations in that regard.
Secondly, it is not comprehensible to the electorate that the Government apparently do not have an opinion on the EMU at this stage of the debate. During the debate on the Maastricht Treaty, and in relation to the development of the European Union institutions, my noble friend Lord Skidelsky took the analogy of the construction of a house and said that one blinks and it is built; it creeps up day by day. My noble friend Lord Pearson referred to some of the history and I shall not repeat that. The development from the original Coal and Steel Community, which originally started after the war, to where we are today is inexorable. We have reached the stage where the edifice is almost constructed and the electorate will find it unacceptable that the Government do not have a view on the issue. I refer in particular to the fact that in the past couple of days the Government should rule out going into the first wave of the EMU.
Finally--and the point is directed to the Government--the electorate and potential Conservative voters in particular will not understand that the tail--namely, a minority in the Cabinet and in the Conservative parliamentary party--should be seen to be wagging the dog as regards this issue.
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