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Lord Pearson of Rannoch: Hear, hear!
Lord Fairfax of Cameron: My Lords, I am grateful. As has been said by the commentators, no wonder the party opposite looks so happy. This is one issue in respect of which clear blue water could have been put between the parties. I understand that Sir James Goldsmith has rightly used the issue as a justification
for creating the apparatus of the Referendum Party and putting a question to the people. At present there is nothing to choose between the parties. At least the Liberal Democrats are open and honest in their point of view.There has been so much fudging. Of course, the party opposite is as divided as the party on this side of the House. It is unacceptable that the tail should wag the dog in this way. I fear that it is no way for a Government seeking re-election to behave.
7.25 p.m.
The Earl of Longford: My Lords, the noble Lord, Lord Fairfax, made an interesting speech. I read the Sun every morning and I would expect him to receive a very good reception in that newspaper. With any luck, he might even be on the front page. I believe that the noble Lord has a big future in the tabloid press. I suppose that his support for Sir James Goldsmith is what one might have expected from an extreme Euro-sceptic. Is that the right word? Someone disclaimed the title "Euro-sceptic"; but the noble Lord could be called a Euro-sceptic without offence--
Lord Fairfax of Cameron: My Lords, in answer to that question, I wish to make it plain that I travel widely on business and spend about three months of the year abroad. I consider myself to be an internationalist. To the extent that the description "Euro-sceptic" is pejorative, I would disclaim it. But, as was said by the noble Lord, Lord Owen, when asked whether one is in favour of Europe, one could ask what exactly is meant by Europe. I would answer the question in that way.
The Earl of Longford: My Lords, I believe that "Euro-sceptic" is a fair description of the noble Lord, and of Sir James Goldsmith almost equally fair. However, it is a free country and anyone can talk any kind of nonsense. I have done it in this House for 50 years so I do not see why the noble Lord should not carry on along the same lines.
For many years I have been what might be called a convinced but moderate pro-European. In 1948, I arranged for Dr. Adenauer to take part in a conference in The Haig. In those days such permission was not given automatically to a German leader. Dr. Adenauer met Winston Churchill. Afterwards I asked him how he got on with Winston. He said, "I knew that Winston Churchill had said that Germans are either at your throat or at your feet". During the hour of my country's humiliation, I was not going to humiliate myself by pressing myself on him. Winston Churchill came across and embraced him warmly, so all was well. Therefore, I have been involved with a friendly attitude towards Europe for many years.
As time went on the issue became more alive. In 1950 I was Minister for Civil Aviation and I called on Dr. Adenauer again. He misunderstood my importance. He begged me to beg the Labour leaders to join the coal and steel pact which was then being drawn. When I came back with that message it was brushed aside. Important documents from the Treasury renounced the
attempt to join Europe as tying ourselves to a corpse. That was in 1950, but the corpse has shown a few signs of life since then. No one disputes that today the standard of life in Germany and France is a good deal higher than it is in this country. I do not wish to make a party point but, after all, our Tory friends have been in power for most of the time. Let us realise that things have moved on a little since we missed the bus in 1950.We come to the present time and I back my noble friend Lord Peston. I am so out of touch with economic thought that I am a slavish follower of my noble friend in any matters economic. I am also out of touch with the City. For eight years I was chairman of a bank, but I would slavishly follow my noble friend Lord Chandos in matters of the City. However, in the last resort, one must offer a few thoughts of one's own.
My attitude is the same as that expressed by my noble friend Lord Peston on behalf of the party--and I understand that it is also the official attitude of the Government--namely, that we shall become involved in a single currency if it suits our interest at the time. I agree with that and would hardly have ventured to take up your Lordships' time if there were not one particular point that I wished to make with strong conviction. Every Labour Government since 1929 has been bedeviled by a run on the pound, actual or potential. I shall come to our Tory friends--and I seem to be in a very amicable mood tonight--in a few moments. They have had their own troubles. But I am dealing with the Labour Party.
Every school child knows about the bankers ramp of 1931, and I shall come onto the post-war period. The crises of 1937 and 1949 left their mark on two very gifted Chancellors of the Exchequer--Hugh Dalton and Stafford Cripps. In a way, neither ever recovered. Hugh Dalton collapsed in health and became involved in a minor indiscretion which certainly would not have occurred if there had not been that crisis some time earlier. Stafford Cripps, the most honourable of men, was led into what can only be called an economy of the truth in regard to the intention to devalue. He died soon after.
I was a humble member of the Labour Cabinet of 1964 and I remember very clearly our first meeting. The decision had been taken three days earlier by the leaders of the Cabinet not to devalue but at the end of the first Cabinet meeting, I do not think that I am giving away a secret if I say that we were told that the pound had had a good day. Throughout the whole of that government, we were haunted by that wretched thing--the pound. The right policies, and even the policies which pleased the country, were in the end always affected by what the money men would do with the pound. That was the situation with that Labour Government.
The noble Lord, Lord Healey, would tell us about the troubles in 1976 and Tory leaders will recall very painfully what happened to them soon after they came into power in 1992. I think that most people would agree that the credit of the Tory Government never really recovered from the troubles which overtook them on that front.
There it is. That is a permanent danger overhanging this country. It is not easy to find an answer. We want the City to succeed. It is a great national asset and we do not want to shut down the whole place or to make it a fortress. We must have free movement of money. How is that to be secured? It is very difficult, as government after government have discovered.
That brings me to my central contention. I am placing before the House a very strong submission that the only way in which we shall ever avoid those destructive runs on the pound, which has destroyed government after government, is a single currency. There will not be runs on the pound under a single currency. That is a very strong argument in favour. I do not say that that is the only argument or that it out balances all other arguments; but if all the other arguments are balanced, then that argument should be decisive.
7.32 p.m.
Lord Taverne: My Lords, I start by adding my congratulations to the noble Lord, Lord Barnett, and his committee on their excellent report and, indeed, their earlier excellent report An EMU of "Ins" and "Outs". Unfortunately, I was not able to be present when that was debated; but in my view, that was a very good report.
I was planning to say something about the stability pact, but having listened to the very impressive speech of the noble Lord, Lord Grenfell, there is nothing more to be said. The noble Lord, Lord Grenfell, and the noble Lord, Lord Roll, have said it all. Therefore, that saves quite a bit of time.
There are two main points on which I wish to concentrate. The first is the question of timing. There have been different moods about the starting date of 1999. At one stage it was the fashion to say that the date was quite impossible. At other stages, it was the fashion to say that EMU in 1999 was absolutely inevitable. Throughout, I have always felt that there was always a very strong probability that it would happen in 1999; that there would be a core of member states which would then start monetary union.
On balance, I still believe that it is likely to happen but I must confess that I am now not as sure as I was. I very much agree with the article by Ian Davidson in the Financial Times today--he always seems to me to show very considerable insight when he writes about Europe--that the French lorry drivers' strike was a very dangerous development indeed. It is likely that at some stage in the future, further cuts have to be imposed by the French Government. After the lorry drivers' strike, it is extremely likely that there will be widespread social unrest to resist those cuts. Indeed, the social unrest may frustrate those cuts. The effect of that and the impact which further strikes may have on growth could play havoc with the French Government's plans to cut down their deficit within the limits imposed by the Maastricht Treaty.
Indeed, there may be some doubts too about the future of the German deficit. Forecasts of growth are always very difficult to make. They could easily be wrong in a year's time by 1 to 2 per cent., and that order of
difference to the German growth rate, if growth is 1 to 2 per cent. below the forecasts of the government, would have a very serious effect on the German deficit. If one were to find in a year's time that either Germany or France had a deficit which was, for example, 3.5 per cent. of GDP and rising, that would be quite different from a deficit of just over 3 per cent. and falling.Therefore, while I still believe that the likelihood is that a core group will start monetary union on 1st January 1999, we should be wise to start thinking about what we should do if EMU had to be postponed, because delay would be extremely serious and if one were in favour of monetary union, one would have to think about limiting the damage.
The best suggestion that I have heard was the one made by my noble friend Lord Dahrendorf that one should stick to the date of 2002 for the introduction of the euro but consider postponing for a year, or possibly 18 months, the locking of exchange rates.
However, the main point that I wish to make is that it is no good merely repeating like a mantra, "Yes, it will happen, it will happen; it will happen", when there must be some possibility that it will not happen or at least that it will have to be postponed.
The second point that I wish to make follows the speech of the noble Lord, Lord Haslam. The Government would be very wise to listen to the warnings which he gave in his speech. I believe that the case for monetary union is on balance a good one. There are definite risks but it seems to me that the benefit outweighs the risks. I quite agree with the noble Lord, Lord Owen, that it is quite possible for people to be pro European Union and yet to have doubts about, or to be against, monetary union itself. However, it does not help the case of those who wish to present a balanced view to misrepresent the case in favour.
I do not believe that the noble Lord, Lord Owen, was right to argue that the champions of monetary union are those committed to a federal Europe and, indeed to a country called Europe. He was quite rightly taken to task by my noble friend Lord Wallace of Saltaire and the noble Lord, Lord Grenfell, because that is a complete misrepresentation of opinion on the Continent. One does not find that feeling in France in any quarter of which I am aware.
But while it seems to me that the case in favour of joining a monetary union is on balance a case in favour, it seems to me also that the case against rejection of monetary union, if it is started, is enormously powerful. That is particularly true because of the position in which we now find ourselves in this country. We have a number of very important objectives to be obtained inside the European Union: we want to achieve enlargement; we want to achieve the completion of the single market, which is by no means complete; we want to ensure that Europe is a centre of free trade and that there is no growth of protectionism, and there are several forces in Europe which work towards protectionism; we wish to see an end of state subsidies which lead to unfair competition; we wish to see wider liberalisation; we
wish to see a further reform of the agricultural policy; and we want to see the right developments in the future negotiations about the budget.So we have many important objectives to achieve inside the European Union. Yet at the same time the Government boast of the fact that we are completely isolated in Europe. At the moment we have no friends left in the European Community. It is no way to win friends constantly to threaten the use of the veto, and to do so in a rather petty way. It is not as if the Prime Minister is a de Gaulle. The Prime Minister may have certain good qualities; but he certainly does not have the vision of a de Gaulle, or the personality of a de Gaulle, or the consistency of a de Gaulle. One has only to look at the disaster of the policy of non-co-operation over BSE. One has only to look at the way in which the Government are threatening to veto the whole of the intergovernmental conference, if we do not get our way regarding the 48 hours directive, which we did not vote against in the first place. It is a most extraordinary way to pursue our interests in Europe, which must depend on the building up of alliances. How can we possibly hope to achieve our objectives unless we have friends?
The reason for this extraordinary way of conducting foreign policy is not that there has been a careful evaluation of our interests; it is simply appeasement of those on the Conservative right who seem to suffer from, in Nico Henderson's phrase, a form of "Euro-scepticaemia". The Government have succeeded in creating an atmosphere in which the other countries in the European Union would now rather that we left. Let us suppose we qualify, and we then say no in this present atmosphere. We would not be like the other countries, such as Spain, or possibly Italy, which may or may not join because it was felt that they did not qualify. Let us suppose that we qualify, and then say no. We would be a ship in the convoy which has been holding others back in the past but is now determined to head off in a different direction. The rest would want to see that ship go. We would find ourselves in a position where we would be bitterly at odds with the other nations in Europe, and we would not be in a strong position to bargain.
Let us suppose there is a core Union in 1999. Evidence was given to the committee on its inquiry on "Ins" and "Outs" by Mr. Christopher Taylor and Mr. Arrowsmith. Let us assume for the moment that those who joined would be Germany, France, Austria, Luxembourg and the Netherlands, plus Belgium, Finland, Ireland and Denmark. Let us assume--which one by no means can do--that Spain and Italy are not part of the core. Therefore there would be nine participants and six non-participants. Italy, Portugal, Spain, Sweden, the United Kingdom, and Greece do not qualify or do not wish to join.
The nine participants would not only account for half the population of the Community, but also two-thirds of the Community's gross domestic product. I quote from the report:
- "Not only would the nine participants also account for about two thirds of the Community's total trade, they would be much less trade-dependent on the six non-participants than the six would be on the nine; 42 per cent. of the trade of the nine takes place between themselves while only 24 per cent. of their trade is with the six; conversely, only 16 per cent. of the trade of the six takes place between themselves, whereas 45 per cent. of their trade is with the nine".
Therefore there would be more and more acrimonious meetings of the Council of Ministers, and public opinion whipped up by a xenophobic press would turn more and more sour. If one starts to think about it, there is a real danger that we would find ourselves losing the benefits of a single market, and we might find ourselves eventually out of the European Union. It would be different if we were to say, "We shall join but not yet. We are very much in favour of joining in principle but at this particular time we cannot do so". If we were part of a government who were constructive in their approach to Europe that would be a different matter. We would then find ourselves very much in the same position as the "pre-ins" as they are sometimes called--the others who wish to join but do not yet qualify. That would be quite a different story. But if the background is the present attitude of the Government to the intergovernmental conference, which they are threatening to veto; our present attitude to the ERM, on which several noble Lords have spoken; our present attitude towards the European Court of Justice; and our constant abuse of the Commission; the danger I have mentioned would be very real.
It seems, unfortunately, that there are only two voices of sanity in the Government: those of the Chancellor of the Exchequer and the Deputy Prime Minister--and perhaps one might add--although it has not been publicly heard--the Secretary of State for the Environment. The least we can do is to express strong support for the Chancellor of the Exchequer in his firm stand. Long may he prosper in seeking to promote a constructive approach within a Cabinet that seems oblivious to our real interests in Europe.
7.47 p.m.
Viscount Chandos: My Lords, after a long and interesting debate I thank my noble friend Lord Barnett for his introduction of today's debate and for his clear and measured summary of the report on the preparations for economic and monetary union.
My noble friend Lord Peston suggested from these Benches in his opening remarks that his speech would be inordinately long. I believe that your Lordships will agree with me that it was not a moment too long. However, as the time is now quite late, and my noble friend has stated so effectively the views of those on these Benches, I shall attempt briefly to knit together a few themes of the debate.
I believe that the debate can be broken down into three topics. Noble Lords have addressed their remarks to different mixes of those points. First, there is the fundamental question of the prospective net benefits of economic and monetary union, as and when it is achieved. This broader question is, of course, the subject of the Select Committee's earlier report, An EMU of 'Ins' and 'Outs', to which my noble friend Lord Barnett and other noble Lords understandably referred. Some noble Lords, including the noble Lords, Lord Tebbit, Lord Pearson and Lord Fairfax of Cameron, have argued that these benefits would not be significant, or even that they would be negative. I do not believe that that is the case. I am heartened by the large majority of noble Lords today who seem to feel the same way. Shortly I shall advance my arguments as to why this is the case, where I feel that I can add anything to what other noble Lords have said.
The second topic is strictly the narrow subject of today's debate; namely, the preparations for economic and monetary union, which is the subject of the latest report by Sub-Committee A of the Select Committee. It was inevitable, and in my view correct, that today's debate should see its scope enlarged beyond this narrow topic as attitudes towards the preparations for EMU can only be considered in the context of where one wants to end up, as my noble friend Lord Peston again argued cogently.
It is clear that in the case of a number of noble Lords and others outside this House--those who may represent the bad company into which the noble Lord, Lord Owen, fears he will be thought to have fallen--their response to the issue of preparations for EMU is essentially part of the continuing campaign to resist the UK's membership of EMU or the establishment of EMU even without the UK's participation.
However, for the majority of your Lordships and, I believe, the country at large, the debate on preparation for EMU, the work of your Lordships' Select Committee, and the efforts of the Chancellor of the Exchequer--which, like my noble friend Lord Peston I generally support and applaud in this respect--are intended to maximise the chances that EMU will be established successfully and that it will in the end prove to be in the interests of the UK to join but to ensure that if EMU is established and the UK does not choose to opt in our interests and those of other "outs" are as well protected as possible.
The third theme--although related to the question of preparations for EMU it is nonetheless distinct--is that of tactics. By that I do not mean the tactics of how the Government keep their unruly factions in order but the tactics needed to achieve and exploit the strongest possible negotiating position with our European partners over the establishment of EMU; and hence, in the longer term, to return the UK to the centre of the development of the European Union. That is an objective in particular which sorts the constructively critical sheep from the determinedly destructive goats. I hope that my long friendship with the noble Lord, Lord Owen, will therefore survive my inclusion of him in the former category.
Like my noble friends Lord Peston, Lord Barnett and Lord Haskel, the noble and learned Lord, Lord Howe of Aberavon, and others, including the noble Lord, Lord Taverne, I believe that the arguments for eventual participation by the UK in EMU, if a little more than finely balanced, are nonetheless the aggregation of a number of benefits with comparable but currently lesser drawbacks. Just as the public sector borrowing requirement is the difference between two very large numbers, the case for EMU is a delicate balance between two substantial weights.
We have heard a range of opinions but, as I have said, I, and I suspect the Minister, will be encouraged that a marked balance of today's speakers symbolises the current balance of arguments for EMU participation. As my noble friend Lord Peston said, we should be wary of overstatement and simplification of the argument by both sides. For instance, I read the following passage from the speech to the CBI conference in October by Sir John Hoskyns, a former adviser to the noble Baroness, Lady Thatcher, and currently chairman of Burton Group and EMAP. He said:
- "We are ... told that a Single Currency would save on transaction costs. But the best estimate for a developed economy is a one-time saving of about one-tenth of one per cent. of GDP. I have never heard transaction costs ever mentioned at a board meeting".
He also grossly underestimates the potential one-off benefits of eliminating intra-European foreign exchange transactions, with eminently cautious and independent economists estimating those at up to 15 times Sir John's alleged best estimates. As evidence for this, there was by chance an article in today's Financial Times about the preparation of major European banks for EMU and the systems and other costs likely to be incurred--running a little counter to the impression left on the noble Lord, Lord St. John of Bletso, from his ringing around the London financial institutions. The article included the following paragraph:
- "Revenue losses, on the other hand, now look likely to be much greater than initially expected. Emu will wipe out foreign exchange trading between member currencies, taking a huge slice out of revenues for some continental banks".
However, there are clear potential drawbacks, as we have acknowledged. The European Union's workings and the Commission's budget do not necessarily accommodate the sort of fiscal transfers that would be essential for the long term success of EMU, in particular in the context of constrained labour mobility which realistically we must assure will persist for the foreseeable future.
The institutions of the European Union, even if younger than the British constitution, have nonetheless grown over 40 years in a far from ideal way--in many cases from a less than perfect starting point. I commend to the Minister the remarks of my noble friend Lord Peston about the need to ensure the democratic accountability of the future European central bank. I hope that the noble Lord, Lord Tebbit, will take that at least as a sign that on these Benches the last thing we want to do is to remove the ultimate powers of decision making from the British people.
The big question of course is the one raised by the noble Lord, Lord Owen. Can substantial convergence, such as would allow a stable single currency and long-lasting EMU, be achieved within a union of nation states rather than a single European state? While that is obviously linked to the extent of the fiscal transfers and to the labour mobility to which I previously referred, and is even then arguably the most difficult of a host of difficult questions, I believe that on balance it can be, particularly in the context of the ever-increasing constraints applying to independent economic action by even the largest countries in the European Union as the markets continue their relentless globalisation.
The issues relating directly to the preparations for EMU--the stability pact, reinforced convergence, the legal framework for the use of the euro and ERM2--have all been fully discussed today and I have little to add. However, I, too, am puzzled by the interpretation of the Maastricht Treaty that says that compliance with a more lenient and flexible ERM is not bound by a treaty obligation to be a member of a more rigorous ERM. It may be straining at a gnat, but it certainly strains my powers of understanding. Perhaps it was an even better decision of mine not to follow a family tradition of following the law.
I should like to say a few words about negotiating tactics which are of paramount importance in preserving the value of the UK's opt-out and in protecting our self interest. Our European partners should have no doubt that we are committed to assisting in the creation of EMU if at all possible and to our own entry if we believe that, objectively, it is in the best interests of the country. The noble and learned Lord, Lord Howe of Aberavon, is justifiably regarded as the leading expert
on the difficulties of giving this sort of impression when, from above and below, support for that line is somewhat erratic. His comments today about the Chancellor's difficulties in this area should be carefully noted.I have suggested previously that President Teddy Roosevelt's advice to "talk softly and carry a big stick" can be well applied to European negotiations. We should not, on the other hand, regard the vigorous pursuit by other countries in these negotiations of their own self-interest as evidence of their aggressive, barbaric or bellicose national temperament; rather as an example of the determination needed--often subtly applied--to create a European Union or an EMU which best serves each country's interests.
I do not believe that the comments of the noble Lord, Lord Owen, displayed the nationalistic arrogance imputed to him by the noble Lord, Lord Wallace of Saltaire, and I am sorry that the noble Lord chose to revive long past disputes. When I look at where a number of noble Lords, including myself, now sit, I wonder whether the reforms by the noble Lord, Lord Tebbit, of labour market mobility can explain the wide diaspora of former allies.
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