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Lord Pearson of Rannoch: I wonder whether the noble Lord would give way. It is actually the third time this afternoon that a noble Lord has referred to EMU as "European and monetary union". The fact is that it refers to "European economic and monetary union", and it is the economic bit which will do the damage.

Lord Grenfell: I stand corrected and thank the noble Lord for pointing that out. I am afraid I was using a type of mental shorthand, and should have kept it mental rather than vocal. I agree with him: it is economic and monetary union. I shall turn to that in just a moment.

Another point raised was that EMU--economic and monetary union--would be divisive. I am afraid that I part company here with the noble Lord, Lord Dahrendorf. I am sorry not to see him in his place today. I read his article with enormous interest; it was important but I am afraid that I was not persuaded by it. If anything is divisive, it is a situation where there will be as many people outside the single currency as inside it. The guarantee or the best hope that a single currency will work well will be to have the maximum number of countries participating in it. That will take a long time. It will take the new candidate countries from east and central Europe some time to achieve accession to the European Union and no one believes that they will immediately be able to join a single currency. That would be wishful thinking. Even they do not believe it, although some are looking forward to the day when they do so.

The point is that the divisiveness will arise as a result of the single currency, although not intrinsically in the single currency itself; it will arise because it is a limited single currency and would exclude other member states of the European Union. I look forward to the day when EMU will embrace the whole of the European Union, but that will take time. It is not monetary union itself which is divisive.

Finally, perhaps I may say a brief word about the remarks of the noble Lord, Lord Boardman. He spoke of the problems of having a monetary policy which was a single monetary policy and fiscal policies that were left to countries themselves to decide on. I do not take his gloomy view that that situation is calamitous. We hope that the member countries of the single currency zone will do their best to harmonise their fiscal policies because that is all part and parcel of a good and effective economic and monetary union. I do not say that it will be easy. I certainly do not believe that it means that, if there is an attempt at harmonisation of fiscal policy, we will end up with a binding single fiscal policy. I have never heard anyone but the most extreme federalists--and I do not share their views--say that the harmonisation of fiscal policies inevitably leads to

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the day when all countries will decide that harmonisation is not enough, that we must have a strict single fiscal policy. That has never been the intention of the architects of economic and monetary union. I do not believe that the governments would wear it and it is not necessary. So long as there are sufficient efforts at co-ordination and harmonisation, it is not necessary to have a binding single fiscal policy for the whole of Europe. It is not possible.

So that is a slight red herring. I know that it can be used by those who say that it is a stepping stone to a politically single federal state of Europe, but that is not what most sensible people are looking for. It is not the message we have been receiving when talking on the issue to people in various European countries. So it is a bit of a red herring and we should not be fearful of the fact that monetary policy should be a single monetary policy but fiscal policies should be left to member states. That provides a sensible and realistic flexibility that will help make economic and monetary union work and will not be a hindrance to it.

5.15 p.m.

Lord Tugendhat: It is a great pleasure to speak after the noble Lord, Lord Grenfell, because much of what he said was wise and apposite. I hope that the Committee will pay great attention to his insight. His point was that, whether or not we like it, whether or not we agree with it, the majority of member states will go ahead with economic and monetary union. Therefore, it is important to try to ensure that it works. That is the point on which we ought to concentrate our attention. It is true, whether we are in the economic and monetary union at the outset or at some future date or not at all, because our own economy is plainly much tied up with those of the participating countries.

My noble friend Lord Howell of Guildford produced some figures. Basically, 50 per cent. or slightly more of our exports of goods go to the 11 members who seem likely to make up the EMU. Some 36 per cent. of our services exports go to that group of countries. In all, it means that 15 per cent. of our GDP is tied up with them. It is therefore greatly to this country's advantage that EMU--whether or not we are in it--should succeed. It would be greatly to our disadvantage if it should fail. To concentrate, as some Members of the Committee have done, simply on all the dangers, without looking at any of the opportunities is in those circumstances a slightly negative approach to the subject.

Moreover, if 11 countries go ahead, it is clear that the important thing for us is not whether we doubt the viability of the enterprise or the wisdom of going ahead in the present form and at the present time. There are plenty of reasons to doubt whether now is the right time and whether the present form is the best one. If 11 countries go ahead, clearly we must take a view, on the balance of national advantage for this country, on whether or not, in those circumstances, it is in our interests to be associated with the project. We might prefer it not to go ahead; we might prefer it to go ahead at some future date. The fact is, as my noble friend Lord Howell said, it will go ahead in a few weeks. The

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decision we must take is whether, in those circumstances, it is to our national advantage to be associated with it.

I agree with my noble friend Lord Howell that the position taken by the present Government on the matter is basically right. However, I differ slightly in my interpretation of the present Government's position compared with his. He appeared to say that there was little difference between the present Government's position on the matter and that of the previous government. To me, the present Government's position looks a great deal more positive and as if the Government not only avowedly say they want the EMU to succeed, but they have made it clear that if certain conditions can be met, all things being equal, they would greatly prefer this country to be in rather than out. That is a correct assessment of the national interest.

It also brings me to the point made by the noble Lord, Lord Taverne. He drew attention to the fact that, in pursuit of their objective--which I applaud--the Government are urging commerce and industry to prepare as quickly as possible for the eventuality of joining. The Government are trying to persuade commerce and industry to be ready whenever the moment might come. That is true. There can be no major company in the country that is not spending large sums of money now in preparing for EMU, since it will affect us whether we are in or out. But it would make the task of commerce and industry a great deal easier. It would do much to encourage commerce and industry if the Government could be firmer in their commitment and clearer in some of the signs they give. If the Government want commerce and industry to spend money on preparing for EMU, it would be good if we could see some preparation on the part of Customs and Excise, the Inland Revenue and the social security system. If we are all being asked to spend money on preparing for EMU, it would be good to see government departments spending money on preparing for it. I very much hope that the points which the noble Lord, Lord Taverne, made on the matter will be noted by the Government.

I listened carefully to the noble Lord, Lord Shore of Stepney, whose position on European matters for many years has been consistent and, indeed, often courageous and disadvantageous to himself, and whose views therefore must always be worthy of attention. However, I felt that he was devoting a lot of time to telling other people that they were doing something foolish--which may or may not be right--but not much time to telling us what we should be doing in order to deal with the situation which is about to arise; namely, that EMU is going ahead.

I also felt that the noble Lord was less than fair in what he had to say on the subject of convergence. I agree that the level of convergence between participating states is by no means as great as I would wish and, in some respects, it is so recent as to cast doubt on its durability. But that said, one must pay attention to the extraordinary achievements of a number of European countries--Italy, Ireland, Spain and Portugal--which, a few years ago, would not have been expected to attain the levels of convergence that they

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have. As I say, they may be recent and in some respects one may doubt their durability, but when one looks at the Maastricht criteria (as those are the criteria being used for this purpose), all those countries have shown the most remarkable consistency in bringing themselves up to scratch.

We are pleased in this country about the level of inflation and how much better we are doing than in the past, and I applaud that. But our rate of inflation is around twice that of the average of the countries preparing to go into EMU. When one looks at our rate of inflation now, compared with our neighbours across the Irish Sea, one can see that, although some things are going much better in this country than in Ireland, by no means everything is and the degree of convergence that has been brought about as a result of those criteria is impressive.

As the noble Lord, Lord Grenfell, said, bringing one's public finances into order, bringing them into balance and reducing deficits are good objectives in themselves and they are certainly objectives which the party that I support always regarded as good (except some of my colleagues), when other people tried to pursue them in a European context. As the noble Lord, Lord Grenfell, said, those countries are to be congratulated on what they have done. We have often said, on this side of the Chamber, that we undertook certain reforms under the leadership of my noble friend Lady Thatcher which others have yet to take; and that is true. But some of our continental neighbours are undertaking similar reforms under the pressure of the Maastricht criteria. It would behove us therefore to congratulate them rather than to diminish their achievements.

I agree with the noble Lord, Lord Shore of Stepney, that a price has had to be paid in unemployment, as it was paid here. Many of my friends who are most Euro-sceptical applauded the price when it was being paid here, but criticised it when it was being paid in other countries. A price is being paid in terms of unemployment and I hope that, like us, those other countries will subsequently enjoy the fruits of lower unemployment as the reforms take effect.

However, I am struck by the fact that, even though the noble Lord, Lord Shore of Stepney, and other Members of the Committee believe that the price is too high and that those other countries are not pursuing their own national interest and so forth, in those countries EMU seems to be rather popular. There are a great many people in Germany among whom it is not popular, but when one looks at Ireland, Italy, Spain and Portugal--the countries which have really made progress towards meeting the criteria and which have also, in some ways, paid the biggest price to do so--the striking fact is that, whether or not we like it, they seem to believe that it is a good idea. Therefore, when we forecast failure and difficulty, we ought to bear in mind not only what they have achieved, but also the degree of support for the policies that have been secured.

My noble friend Lord Howell of Guildford made an important point when he drew attention to the lack of labour mobility in Europe as compared with North America. Undoubtedly, one of the reasons why one has

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cause for worry in regard to the outlook for EMU is the degree of labour mobility on this side of the Atlantic in participating countries, which is less than it is in North America. I agree with that. On the other hand, I know that my noble friend is connected with a great Swiss organisation and will therefore know that in Switzerland there is not much labour mobility at all between the French-speaking canton, the German-speaking canton and the Italian-speaking canton.

The situation in Switzerland is not unlike the situation in Canada, where there is a good deal of mobility between the English-speaking provinces, but not so much between the French-speaking province and the English-speaking provinces. Most of the people in Quebec do not move into English-speaking areas. Switzerland does not have much labour mobility. Indeed, there is not much French spoken in Zurich and not a lot of German spoken in Geneva. Nonetheless, it does not seem to have done too badly with a common monetary policy and, indeed, a great many other common policies over a long period. Therefore, while it is perfectly reasonable to draw attention to the problems of the lack of labour mobility in Europe--and that is something towards which countervailing measures will have to be taken--one can make too much of it. I mentioned Switzerland because of my noble friend's connection with it, but it is also a good example of how some of those problems can be overcome.

I turn finally to my noble friend Lord Boardman. I felt that, although he drew attention to an important problem in terms of the handling of monetary policy, he overlooked the fact that we do not start from a position of absolute independence now and will certainly not be in a position of absolute independence in the future, whether or not we join EMU.

There are many people in this country who give the impression that somehow we have unfettered and total control over our monetary policy. Would that we did, one might say; but we do not and we have not for goodness knows how long. Everybody knows perfectly well that what happens in the United States, in Germany and in other parts of the world has a profound and immediate impact on this country and that the parameters within which economic and monetary policy are made in this country are a great deal more circumscribed than they used to be and are likely to become more circumscribed in the future. They will certainly become more circumscribed if we do not join EMU and it goes ahead. If our principal trading partners are linked in one area and there is a dollar zone, a yen zone and a euro zone, the making of monetary policy--indeed, also the making of economic policy--if one is outside those zones will be quite difficult. One will be attempting to make those policies on one's own when one is a relatively small player surrounded by large players. It will place us in a very circumscribed position.

Members of the Committee drew attention to the fact that sterling is high at the moment, and indeed it is. The Swiss franc is also high, to take another non-participating currency. Whether it is in our interests that, as a result of what is happening in the putative "euroland", our currency should be driven so high, is

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another matter. Whether we will find, when EMU goes ahead and we are not in it, that the movement of sterling--which will be rather like a rowing boat in the wash of a much bigger vessel--is to our advantage, one can doubt. But being in the wash of a much larger vessel is not a position of independence. It is indeed a rather rough and difficult position to be in. So the choice is not between being independent out and being dependent in; the choice is between two different forms of involvement with one's neighbouring countries.

At the end of the day, whatever doubts one may have about whether it is wise of our partners to press ahead with EMU now and in the present form and whether it would not have been better for them to do so at some future date, the fact of the matter is that since we are so bound up with them, will we have a greater ability to influence the environment in which we live and to influence the environment in which we have to make policy if we are in or if we are out? I feel that national interests would be best served in the circumstances that have arisen by going in because I feel that this country would in those circumstances have a greater capacity to influence the environment in which it lives and the environment in which it has to make policy and that that would be to the benefit of the British economy and to the benefit of the people who work in the British economy.

5.30 p.m.

Lord Stoddart of Swindon: The noble Lord, Lord Tugendhat, who is an expert in these matters and a former Commissioner, talked about being uncomfortable in the wash of this great ship. But it will be considerably more uncomfortable if this great ship hits the rocks and sinks. That, I am sure he will agree, is a distinct possibility.

I was very pleased to add my name to this amendment which was moved by my noble friend Lord Shore. The Committee listened to him with great interest. I listened with great interest in relation to the fines of up to 0.5 per cent. which could be levied on countries which did not meet the Maastricht criteria. That a very important matter. It was raised at the time of our discussions on the Maastricht Treaty and, indeed, I discussed it myself. My noble friend Lord Grenfell said that this is a stick that will never be used. I took down his words and that is what he appeared to say.

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