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Lord Peston: My Lords, perhaps I may interrupt my noble friend. I hope that he fully appreciates what he is saying. He is saying that these major figures from each of the countries would find, if they had to express their views in public, that they could not behave honestly. That is the position. It is an appalling reflection on the behaviour of the ECB and the European Union if we have to live with that view. I am simply saying that I do not want to live with that view.

Lord Lea of Crondall: My Lords, I knew that that would be the counter argument. I do not think that it is quite as devastating as my noble friend said. After all, we could have a totally different kind of central bank--it could be run, like the Bank of England, through a monetary policy committee--but if we have this system we have this problem. We have a similar problem with the European Court of Auditors, which also consists of one member per country. This is a great step forward and we have to look at the issue in an objective way and not use emotive language about the motives of people. If we are not careful, that will be their behavioural response. I hope that it is now on the record that that is the logic, the reasoning, for the view expressed.

Perhaps I may now say a word about sovereignty. On page 103 of the report the German ambassador quotes the following remark of Paul Henri Spaak more than 50 years ago:

Some may think that is pushing it a bit, but it is an arresting and fundamentally accurate analysis. If one looks at a world of 5 billion or 6 billion people and at the accelerating development economically in China and elsewhere, one finds that Europe, with a population of some 500 million, has a maximum of 10 per cent of the world's population. In a world of globalisation, Europe is just about large enough to have some leverage in the WTO and elsewhere.

So what about the proposition that the euro is, to quote another phrase on page 46 of the report, "a currency without a country"--which is almost the

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converse of the previous question? That is one of a number of propositions which are somehow true ex hypothesi and do not enter into other than a definitional state. The same is to some extent true of "one size fits all" rate of interest, an issue to which I will return in a moment.

We can agree that it is a great leap forward--if I may quote Chou en-Lai twice in one speech. Future historians will probably see it as an act of faith at least as great as the establishment of the EEC in the first place.

As to the rate of interest, the objection that different degrees of capacity utilisation require different interest rates is, of course, as my noble friend Lord Barnett, pointed out, as arguable between London and Cardiff as between London and Brussels. The greater difference is, of course, between London and Cardiff. Indeed, typically there are far more variations of capacity utilisation within countries than between countries.

Noble Lords will be interested to know that we spent a lot of time considering the issue of so-called asymmetrical shocks, whereby a particular member state is affected quite differently from the others by an external shock. The more we looked at this the more we found it to be, in practice, overstated. Finland was cited as an example of where such circumstances may be a factor because of its proximity to Russia. We heard about an interesting innovation in Finland--the social security buffer fund, which is referred to on page 23--whereby the flexibility in labour costs of any asymmetrical shock does not have to be in wage costs per se but in total labour costs. I was very pleased that my former trade union colleague in Helsinki gave that evidence.

Other noble Lords have dealt more than adequately with the questions of the euro's value against the dollar and Ireland, so I should like to skip those issues and say a few words about the problem of public opinion. We perhaps did not say enough about this in the report, although it is mentioned on page 48.

Here I should say a word of caution about the reaction on the streets of Dusseldorf--and this goes also for the streets of Burton-on-Trent. It is not axiomatic that we can visualise, as the noble Lord, Lord Renton of Mount Harry, said, the deregulation of labour markets as a general proposition. At a time of accelerating structural change, we need more labour consultation and protection on some matters as well as updating technology and working practices in other respects.

The difficulties of convincing public opinion, the man and woman in the street, are exacerbated if there is loose talk about deregulating labour markets. For example, deregulating pensions? No. The opposite is required on the agenda. Deregulating holidays? No. We have now agreed a minimum of four weeks holiday and that has massive advantages. What about deregulating standards of training? No. Everyone who has studied the matter in any detail knows that the opposite is true. Deregulating European works councils? No. They are rightly about to be

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strengthened to help with the restructuring of the European economy. What about deregulating maternity leave? No. That is part of an active labour market. I could go on.

Of course, there are structural changes that require changes in arrangements in the labour market. But the man and woman in the street, in Dusseldorf and in Burton-on-Trent want a prosperous Europe that is also seen to protect their welfare--and if there is an increase in welfare to be had out of all this, why not?

I ask the noble Lord, Lord Northbrook, whether he is aware, when criticising the framework agreement on part-time working and on fixed-time contracts, that this was done by means of a collective framework agreement with the BDI, the German employers, and with the CBI in London as the alternative to a detailed directive. The reason they signed the agreement was that they want to see an agreed role for part-time work and fixed-term contracts as part of the modernisation of the European labour market.

What was the issue in Denmark? The first point was the clear gender gap--with a 10 per cent deficit among women, mainly motivated by anxieties about the future of the welfare state, maternity benefits and so on. To use traditional trade union rhetoric for once, is this a project for bankers, or a project for the people? I say that, if we have to choose, it is a project for the people. But I say to noble Lords: please do not let the issue be posed in such a way. The art of politics is surely to give people an acceptable vision of their role in society. European trade unions have been working hard to adjust to EMU, recognising that European benchmarks for pay and productivity are now more transparent; they will be more so with the introduction of notes and coin. We refer to the matter on page 22 of the report.

So let us maintain a sense of balance on the question of labour markets. It is an important area so far as public opinion is concerned. We shall be negotiating pay in euros. We shall need confidence in the prices index, and in the price tags in the shops. We shall hear a great deal more about this matter in the coming months.

I have the impression that the fashion in what is said about Europe is changing once again in a more positive way. Few now deny that the introduction of the euro is creating the most radical and far-reaching shake-up since the immediate post-war period. We see mergers and all that is associated with this type of restructuring, and we see the extra transparency of the currency itself with the notes and coin at the end of the year.

In conclusion, I ask my noble friend Lord McIntosh this question. Does he agree that there is scope to explain all these matters more adequately in this country--not at a level of high polemics, but systematically, possibly under the 10 headings that we have set out? Perhaps I may make a suggestion to my noble friend. As some recompense for the sins of omission of the Treasury, should not the Government publish a popular version of our report, with a joint foreword written by the noble Lords, Lord Bruce of Donington and Lord Tomlinson?

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5.33 p.m.

Lord Hooson: My Lords, I agree with the noble Lord, Lord Lea of Crondall, who disagreed with the noble Lord, Lord Peston, over the idea that the European Central Bank should publish the minutes, and therefore the voting pattern, of its members. I never thought I should live to see the day when I should accuse the noble Lord, Lord Peston, of being naive. But if ever there were a recipe for disagreement in Europe, it is to publish the minutes of the bank's decision. It would invite pressure on individual members, no doubt from the nationalistic elements within their own country.

I have no expertise in this subject; however, I have a great deal of interest in it. The report is very important, and for this reason. I have often been dubious about certain values in this House--for example, whether Question Time is really valuable. But when a committee of this kind goes into a subject in depth, it makes one of the most valuable contributions that this House can ever make. The report is important in that respect.

The report gives those of us who do not have the expertise an appreciation of the attendant progress and problems of the euro. That progress greatly affects our political and economic outlook for the future. I read the report first; then read the evidence, which I found fascinating. An enthusiasm on the part of the witnesses came across, even in detached witnesses, such as the Governor of the Bank of England, who gave a correct appreciation of the benefits of the euro, the problems involved, and so on. The noble Lord, Lord Bruce of Donington, who is not in his place, referred to the costs of the report and said that very few people had read it. He said that the press had not taken it up the following day. Like so many people in this country, I am fed information on the euro which is entirely misleading. The press barons working from America who largely control our press have very little interest in presenting a detached report such as this. That is also why it is so important.

Previous speakers have indicated their approach. I make no bones about the fact--and here I agree with the noble Lord, Lord Bruce--that my approach is political. I think that the whole movement towards a European Union is political. It will be a remarkable achievement, after the wars of the last century--a united Europe, with a population of between 300 million and 500 million depending on which countries join. To achieve that objective, which would bring such security to the world and make an enormous contribution, requires a successful economy. The way to achieve a successful economy is through free trade throughout Europe, and through the organisation within Europe of a sound economy. That is essential. Also, for a single market, a stable and dependable common currency is an obvious must.

In political terms my view is that the Government, when they were elected and when the Prime Minister's popularity was at its height, should have taken the plunge and entered the euro then. I think that it was a

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rather mean approach to say that we shall join the euro only when the other countries have proven to us that it is a success. Obviously, this country could have made a great contribution to its being a success. I well understand the argument that the time when we should join the euro is largely governed by economic considerations. But the question of whether to join cannot depend simply on an economic assessment. It depends on a political assessment.

I should like to comment on two or three points that emerged clearly in this fascinating report. First, I have the impression that everyone generally was pleased with the progress of the euro and the performance of the European Central Bank. The gentleman from the Economist said in evidence that it was held in reasonably high esteem. That is a fair assessment. But all the witnesses conceded that the real test as regards assessing confidence in the euro was when it demonstrated how it would deal with a recession, especially one with high unemployment--in other words, when the euro economies had been through a bad period.

Secondly, there was considerable emphasis on the strong performance of the US economy. There was little thought then on the part of the witnesses that there would be a downturn in the United States economy. Therefore, already, to a degree, the evidence given and the assessments made by the committee need to be qualified by what is happening now in the United States. The one exception was, I believe, Professor Fitzgerald who gave evidence on behalf of the Irish Government with the Irish Ambassador. The professor laid great emphasis on the relationship between the Republic of Ireland and the United States of America and between the Republic of Ireland and this country, with regard to the proportion of trade that they enjoyed. He appeared to be scared of a sudden decline in the value of the dollar and a sudden increase in the value of the euro and of the problems that that could cause for the European Union generally and for the Republic of Ireland in particular. That is a possibility. One hopes that, as a result of combined efforts on both sides of the Atlantic, the rapid changes in value which he feared will not occur.

Professor Fitzgerald pointed out that sterling very much shadows the dollar and that if there was a sudden decline in the dollar it would hit sterling hard, just as it would hit the Irish economy pretty hard. He dealt with the problem of a possible decline in the global economy. Everyone will be affected if the measures taken in the United States do not prevent a decline in the American economy descending into depression.

I have friends in, and a fair knowledge of, the two peripheral countries of the 12 that are mentioned, Ireland and Finland. The problem of inflation in Ireland largely comprises asset inflation. Property has risen in price enormously. I had a friend in Ireland who died two years ago. He had been a friend since the war. His children phoned me to say that they had to put the house on the market. They mentioned an asking price which I considered would be high for the South East

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of England. I was told that within two days of it being put on the market it had been snapped up by an American. There is so much direct investment in Ireland for a number of reasons.

Ireland has joined the euro and is a wholehearted member of the European Union. It is the only other English speaking country in the European Union and it is a pleasant country in which to live. American businessmen have discovered that they can run a business in Europe just as well from the Republic of Ireland as from the South East of England. That has added to the boom in the Irish economy. That boom incidentally has probably contributed more than anything else to the change of atmosphere in Northern Ireland that makes a political settlement there a possibility.

I refer to a problem which will lead to great political difficulties in the coming election. Labour is imported from Wales into the Republic of Ireland on a weekly basis. Irish firms must constantly increase their wages to attract people to work in Ireland in the many jobs that are available there. I do not have to remind your Lordships of the great decline in the prospects for the Welsh economy. The contrast between the prosperity of Ireland and the lack of prosperity of Wales will become a real political issue in the coming general election. I imagine that the same thing will happen with regard to Scotland. It appears to me that the Government sometimes do not fully appreciate how close our country and the Republic of Ireland are.

Until I retired last year I was the chairman of Severn River Crossing Plc, which is one of the main arteries from the Republic of Ireland into England through Wales. That company has already made arrangements to accept the euro in payment of tolls from the start of next year. Many other businesses have also already made such arrangements. By 1st January next year when the coins and notes are in circulation we shall see a tremendous change in the attitude towards the euro in this country. I believe that the Republic of Ireland will have a soft economic landing from its inflation problem for a variety of reasons which I shall not go into now.

Like the Republic of Ireland, Finland worries about the American economy. If the American economy went into decline, and Nokia, the big electronics company in Finland, which is now entirely owned by Americans, were closed down or manufacturing moved elsewhere, that would be a great blow to the Finnish economy, irrespective of its position with regard to the euro. For we are really talking about a global economy in which the dollar is an important ingredient and the euro is an increasingly important ingredient. Looking ahead, people surely will one day talk of the merger of the dollar and the euro.

5.49 p.m.

Lord Plumb: My Lords, as another non-member of the committee chaired by the noble Lord, Lord Tomlinson, I congratulate him and his team on a positive report on the working of the euro. For the first time ever in this Chamber I congratulate the noble

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Lord, Lord Bruce of Donington, on his comment that the report should receive much wider publicity. I should like to think that from today that publicity may be received as the report is positive and thoughtful in its entirety.

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