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Lord Shore of Stepney moved Amendment No. 2:

Page 1, line 12, at end insert--
("( ) Article 1, other than the provisions of paragraph 5 (objectives of the Union) relating to economic and monetary union and the establishment of a single currency,").

The noble Lord said: As the Committee will readily recognise, the amendments that I have tabled in this group concentrate upon EMU and the single currency. The clauses in the Amsterdam treaty which largely repeat that have already, as it were, been accepted in the Maastricht Treaty some nine years ago. I think that it was in 1989 that the Maastricht Treaty and those sections were debated and agreed.

I want to say straightaway that I feel a great sense of disappointment about the Amsterdam Treaty, but not perhaps for the conventional reasons put forward by the noble Baroness, Lady Williams. My disappointment is centred much more on the failure of the Amsterdam Treaty to carry out its first duty and function; that is, to be a revision treaty of the Maastricht Treaty. As those who know the text of the Maastricht Treaty will recognise, Articles B and N most unusually contain a formal commitment to have a further intergovernmental conference not later than 1996 in order to examine the arrangements and policies agreed in the Maastricht Treaty.

To some extent, that examination has taken place--and not necessarily to my satisfaction or that of other noble Lords. I refer in particular to the attempt to bring

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Pillar III into the compass of Pillar I and all the machinery of the European Community together with the ECJ. However, it is extraordinary that no attempt was made to revise or reconsider the most important part of the Maastricht Treaty. I refer, of course, to the single currency and economic and monetary union. Not a clause of that vast section and its protocols was raised again either in the informal prolonged discussions which took place before the formal IGC or during the IGC itself.

Curiously, and it adds to the surprise and disappointment, there was an addition to economic and monetary union and to the proposals for a single currency. Oddly enough, the addition was agreed formally at Amsterdam on 7th July 1997 in the form of two council regulations. They are now the law of Europe and if we abandon our opt-outs they would affect us, too. They appear in the form of the so-called growth and stability pact, which is a most extraordinary document.

Perhaps I can demonstrate that by referring to Section 4, Article 12, which follows up the Maastricht Treaty's infamous Article 104c(11) which allows for fines to be imposed upon member states. It follows up the doctrine of imposing fines on a sovereign state with a precise mathematical formula as to how much shall be paid. I will not bother your Lordships with the details, but the mathematical formula has two components. If a state exceeds the EU's limit of excess expenditure as calculated as more than 3 per cent. of GDP, it is immediately fined 0.2 per cent. of its gross domestic product. In addition, the EU calculates that the difference between the state's borrowing requirement for that year and the 3 per cent. limit shall be subject to a further fine of one-tenth of the amount. Your Lordships will be glad to know that there is a maximum; a state needs to pay out only 0.5 per cent. of its GDP in any one year. I have calculated that if those provisions had been in force and applied to the United Kingdom during the five-year period of the previous Conservative Government Britain would have been fined £16 billion because it exceeded the 3 per cent. limit. That requires some thought and comment.

Furthermore, it has been said in many places, not only in this House and in the other place, and by many individuals, including, I regret to say, my right honourable friend the Chancellor of the Exchequer, that the Bill and the treaty do not involve constitutional matters and they are not worried. They are not sufficiently important and it will all be judged in a few years' time, whether or not we join, by economic criteria. I do not know, but I would have thought that the imposition of fines on a sovereign state was a matter of profound constitutional and political importance. Indeed, I know of no case in history where such a step has been agreed and allowed by any state. I know of no state which has such a lack of confidence in itself and trust in its politicians that it needs to be disciplined by the external authority of a treaty manned by other people representing other countries. I have heard of reparations, but I have never heard of fines imposed upon a sovereign state. To tell me that this Bill has no constitutional implications on this one matter alone is, frankly, to talk absolute nonsense and I reject it entirely.

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I now wish to turn to other matters. It is more than eight years since we had the Maastricht Treaty. The great debate on the single currency and EMU has taken place in a helpful way. Although the matter is by no means settled, there has been great concentration of thought and much radical rethinking about the whole enterprise. I do not wish to go into it in too great a detail, but three things have persuaded many people that the whole enterprise needs rethinking and abandoning. The first is the clear effects of the monetary convergence criteria on the economies of western Europe and on the countries which have attempted to meet the convergence criteria.

A great deflationary policy has been pursued across the whole continent of Europe. Desperate attempts have been made to reduce government borrowing to 3 per cent. of GDP. We have seen as an immediate result unemployment on the continent of Europe--its greatest economic and political problem--rise during the eight years since the signing of the Maastricht Treaty from about 13.5 million to almost 19 million during the past year. The economies of western Europe have virtually ceased to grow. That is a slight exaggeration, but the growth is well below the level necessary even to maintain jobs at the previous level. That was the first point that was registered by people across Europe.

In a sense, the second point is more fundamental and is of particular relevance to the thinking of those noble Lords who are trained economists or who follow these issues closely. I refer in particular to the fundamental economic objection that a single currency and a monetary policy which is effective need genuine and continuing convergence of the real economies of the member states within that zone. It requires genuine convergence--equality, as it were--of performance, and we are not getting it. Frankly, it would be absurd to assume that we will.

Of course, if a state does not have such convergence and goes ahead with a single currency and a Frankfurt central bank it has lost its main means of adjustment between the weaker and stronger economies. If it totally gives up depreciation of its currency it has lost a major way of trying to compensate for the superior performance in productivity and output of the stronger economies. Similarly, if it cannot adjust its own bank rate it is at a double disadvantage.

The consequences of that have been spelt out, fascinatingly, not necessarily by people one would have thought would be the first to bring them to public attention. I refer to the Governor of the Bank of England, who not on one but on many occasions has properly pointed out that if one gets into that position and loses the capacity to adjust for differential productivity and output, what is one left with? As he rightly says, one is left with either high level stagnation and unemployment in weaker countries or the mass movement of people to those parts of the European Union where the jobs are to be found. There are well-understood reasons--culture, language and so on why we cannot and shall not have that large movement of people from one part of the Union to another.

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In addition, it is well known that the only other way to deal with those problems is vastly to increase the European Union's budget and transfer financial resources from the areas of strength to the areas of weakness. I need not tell noble Lords that at present that is a pipe dream. There is not that degree of solidarity and it will not take place.

Therefore, it is a very damaging enterprise indeed. I claim that speeches made by the Governor of the Bank of England, and, for that matter, most recently, by the President of the Bundesbank, Professor Tietmeyer, making almost exactly the same points have alerted people to the dangers which are involved.

I have concluded from that, from the authorities and from my own studies that the economic case for monetary union is very feeble indeed. However, there is of course a political case. The covert federalists and those who believe in ever-closer union in Europe are only too pleased to envisage a situation in which the nation states are disarmed and rendered impotent in their pursuit of appropriate economic policies for their own people. The pressure and demand switches then to Europe and its institutions to do at the European level what we have abandoned and can do no longer at national level.

That is it. That is the argument. I shall now quote as authority that admirable and entirely objective US observer of the whole scene, Professor Martin Feldstein. In a lecture which he gave last year, he said:

    "There is no doubt that the real rationale for EMU is political and not economic ... The 1992 Maastricht Treaty that created the EMU calls explicitly for the evolution to a future political union. But even without that specific treaty language, the shift to a single currency would be a dramatic and irreversible step towards that goal. There is no sizeable country anywhere in the world that does not have its own currency. A national currency is both a symbol of sovereignty and the key to the pursuit of an independent monetary and budget policy".

Those words should be borne in mind as we consider those matters. I should also like to quote the noble Lord, Lord Dahrendorf, who I am sorry is not in his place. He speaks with all the authority of a former commissioner and as a man of great intelligence and integrity. He wrote an article last month which ends with the words:

    "EMU will disunite Europe like no other act since the end of the war".

That is a warning of which we should take very serious note. I beg to move.

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