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I am glad to see that the City of London is convinced of the importance of London’s success in the financial services industry, but what is sauce for the goose is sauce for the gander. The fundamental position in the Labour Party is that it was the Social Chapter, following the Delors visit in 1988, that convinced people to turn to workers’ rights coming out of Europe. That is still as important as support in the City of London, and both those constituencies must be borne in mind. I shall be interested in the Minister’s comments, particularly on how we are going to lead the campaign and on how a legitimate resource can be used to explain these hugely important matters. They are negotiated in Brussels but there is no way of telling the British people anything about them. I hope that, this time next week, we will have some clarity.

2.37 pm

Lord Taverne: My Lords, it is a long time since I have spoken in a debate about Europe, and I am as impressed as ever by the quality of the contributions in this debate.

I want to make some brief remarks about a subject which most people avoid. It is almost a forgotten subject but it remains an important issue; namely, the pound and the euro. I start with a confession. My original enthusiasm for joining the euro on economic grounds has somewhat cooled. By and large, as acknowledged by most outside observers, the euro has been a success. Its capital markets are now bigger than those of the United States; the circulation of its bank notes in the world is greater than that of dollar notes; and the European Union is setting the pace in the globalisation of finance. The productivity per hour of its leading countries is about as high as that of the United States. Many leading countries in the euro-zone—notably Spain and Ireland—have enjoyed a high rate of growth, and indeed Germany, too, now seems to be recovering. The euro-zone is an area of stability and, for all those reasons, it is right to say that the euro is a success. However, it has been a somewhat qualified success and, on the other hand, many fears about our failure to join have not proved justified. I shall start by mentioning the disasters that have never happened and the fears that have not been realised.

It was feared that we would never master inflation without linking our currency to an area, dominated by Germany, which had been much more successful than we had in the past in controlling inflation. However, by making the Bank of England independent, the Government, to their credit, succeeded in controlling inflation, and the Bank’s management of monetary policy has, on the whole, been exemplary. The City has benefited from the euro despite our self-exclusion from the euro-zone. Foreign direct investment has held up. Outside the euro-zone our economy has prospered. We have had a more sustained and higher rate of growth than the other major members of the euro-zone and, assisted by our more flexible labour market, we have had lower unemployment.

At the same time, although overall the euro has been a success, there have been hiccups in the workings of the euro. Fiscal policy and monetary policy have not always been in step. The targets for budget deficits were not met and the stability and growth pact was ignored by the EU’s largest members. They acted in what seemed to be their own short-term national interest, to their own longer-term disadvantage. As a result, the monetary policy of the European Central Bank was probably more restrictive than it might have been. Further, labour market reform in the euro-zone and progress in following up the Lisbon agenda has been sluggish and unemployment has been high. On the face of it, on economic grounds it could be plausibly argued that we were right not to join. Perhaps so. Perhaps, however, the issue is less cut and dried.

There is, I fear, an element of smugness about our success. Our sustained growth rate has been admirable, but it has been financed by increasing public and private debt. It has been based on increased consumption, not improvement in productivity. Our interest rates and our present rate of inflation are relatively high; our productivity is relatively low. Let us not forget that our economic success has been achieved at a price of much continuing child poverty, increased inequality and many social problems and conditions in the United Kingdom that other EU countries would not find tolerable.

On balance: so far, mostly good. But what if there is a major slide in the dollar? I am not predicting that there will be—that would be rash. On the other hand, given the size of the American deficit, surely it cannot be ruled out. Which major currency would then become most vulnerable? Of course, it would be the pound sterling. We, too, have serious deficits. Our growth has had many of the same features and causes for concern, as that of the United States. If the pound did come under heavy pressure, and if the Bank of England were forced to prevent a major depreciation in its value to prevent higher inflation and raised interest rates substantially, consumers, who are already heavily into debt, would be seriously hurt. Economic growth and employment would also suffer.

It is not difficult to imagine circumstances in which we would be much better off if we were members of a powerful currency zone that would not leave us vulnerable to the chill winds of international financial instability that are likely to blow throughout the world if the dollar tumbled. Life outside the shelter of the euro-zone may not always be as comfortable as it has been in the past 10 years.

2.44 pm

Lord Watson of Invergowrie: My Lords, I, too, commend the noble Lord, Lord McNally, for introducing this debate—and very timely it is, just a week before the summit.

Despite having entered its second half century, the European Union continues to excite as much debate as ever within the UK—much of it ill-informed. It seems that we either love it or loathe it; there is very little in terms of a centre ground. I have never been able to discern much logic associated with that dichotomy, but I am pleased that not much of it has been in evidence in the debate this afternoon.

In opening the debate, the noble Lord, Lord McNally, was right to highlight the fact that one of the aims of the EU’s founders—maintaining peace between nations—stands as a pillar of their vision, and is by any standards a major achievement. I would add that as the Union has grown, it has drawn to it states, or in some instances constituent parts of states, that were formerly under fascist or communist control. Now as democracies, they play a full part in the enlarged EU, and next year, for example, Slovenia will assume the presidency.

Another major achievement of the EU is the fact that we live in the world’s largest single market, which is an example of Europe working at its best. The result is that today more than half of all UK trade is within the EU. But there is more to EU membership than shared wealth. It has opened up new opportunities for employment, travel and cultural exchange. We can now live, work and vote across Europe, owing to a legal framework which guarantees our shared right to the free movement of goods, services, capital and people. Many EU laws and directives affect key aspects of our lives: from food safety standards to employment rights; from mobile phone charges to how clean our beaches are. The UK at the same time has become increasingly influential over the policy agenda of the EU: from the development of the single market—a dynamic and continuing process—to enlargement; from regulatory reform to climate change and energy.

Many UK local authorities, and all of the devolved Administrations, now have a presence in Brussels, as do many businesses and business associations. That is the case, too, with the larger trade unions. My noble friend Lord Lea referred to the trade unions and what they can do in terms of Europe. My own union, Amicus/Unite, has a Brussels office and a European forum of MSPs which projects the union’s policies at all levels in Europe. Perhaps the best example of its effectiveness is the input the union had on the intensive drafting and re-drafting before the services directive was finally agreed towards the end of last year.

That kind of activity is merely a reflection of the fact that much of the EU’s current work programme is firmly focused on issues that affect our everyday lives—right now, such as cheaper energy, or in the near future, such as tackling climate change. Climate change has been referred to by many noble Lords this afternoon. The noble Baroness, Lady Miller of Chilthorne Domer, eloquently outlined what needs to be done. But meaningful action cannot be contemplated on a national basis; it must involve co-operation on a much wider basis than just Europe. The role that the EU can play in combating climate change is understood and is evidenced by the fact that the issue was designated as the leading EU priority for British nationals, in the Euro-barometer poll undertaken in December 2006 when 43 per cent of respondents cited it as their main concern.

It seems that EU leaders have got the message because the European Council in March agreed an ambitious target to reduce greenhouse gas emissions by 20 per cent by 2020. Of course, there are other environmental challenges that require attention, such as the EU emissions trading scheme being widened and deepened, and greater urgency being given to building agreement on a post-Kyoto settlement, but we should be prepared to acknowledge that what progress there has been on these global issues would have been much less were it not for the EU.

Next week’s EU Council in Brussels marks the end of what has been a positive German presidency, but it will inevitably be dominated by attempts to find an alternative to the EU constitution. Eighteen member states have now ratified it in one form or another, but the constitution has been dead in the water since the people of France and the Netherlands rejected it two years ago. I believe that we need a treaty in some form because deepening, widening and strengthening the institutions should go together.

Chancellor Merkel said that she is seeking the adoption of what she terms a “road map” for a revised treaty, but believes that the main stumbling block is Poland. The noble Lord, Lord Kerr, referred to the issues with which that country is most concerned. Certainly that country has threatened to veto a deal without changes to the voting system envisaged under the draft treaty. It seems that the Czech Republic, among others, may also prevent agreement being reached, but what will be the UK’s role in this crucial issue for the EU’s immediate future?

Perhaps more pertinently for the UK’s immediate future, where does the incoming Prime Minister stand on the constitution? According to today’s newspapers—again my noble friend Lord Lea mentioned this—Gordon Brown, along with Tony Blair, is to meet President Sarkozy in London on Tuesday in an attempt to find common ground on a simplified treaty. I hope that they have success. But what is Gordon Brown’s policy on Europe? We do not know to any significant extent what attitude Prime Minister Brown will adopt, although we were perhaps provided with a glimpse of its likely shape in the recent Centre for European Reform pamphlet, already referred to by noble Lords, published by the Economic Secretary to the Treasury, Ed Balls. In it, he spelt out what he termed “hard-headed pro-Europeanism”, in which Britain co-operates more closely in areas of shared European concern, but says no to proposals deemed contrary to the national interest. He also seemed to be stressing inter-governmental co-operation rather than a stronger role for Brussels. The danger is that, should the new Prime Minister be seen to have an influence in a manner that leads to the blocking of a revised, slimmed-down treaty, that could be damaging to the UK, diminishing the voice that this country might have in future negotiations such as those on reform of the EU budget and the common agricultural policy.

One of the problems is that, too often, the negatives of EU membership are stressed, not least by some politicians and certain newspapers. They are usually described as Euro-sceptics when, in fact, they are often plain anti-EU, or even anti-European in the wider sense. Their negativism—through what the noble Lord, Lord Williamson, earlier described as the noise drowning out the reality—has the effect of distorting the debate on Europe. I hope that Prime Minister Brown will move that debate onto new ground, one that begins to rebuild support for the extent to which Europe has already helped to improve the lives of its citizens and is continuing to do so. I have already suggested some of the issues that could be highlighted, and Ed Balls did so in his pamphlet, particularly emphasising energy and the environment.

On a revised version of the European constitutional treaty, it is important that efforts are refocused on a conventional treaty where the aim is to make Europe more effective, rather than a document with the characteristics of a constitution. The major issues on which the UK will have difficulty are, of course, justice and home affairs, with the extension of majority voting and the inclusion of a Charter of Fundamental Rights. Should the former be agreed, it would cause difficulty to any UK Prime Minister, because we have already negotiated an opt-out. So if it were included in a redrafted treaty, it would become a constitutional issue, making a referendum in this country unavoidable. I make no apology for saying that I cannot foresee anything more damaging than a referendum on a new treaty, not just to the UK’s future role within the EU, but perhaps ultimately to our very continuation as an EU member. Some noble Lords have already highlighted the dangers inherent in a referendum. The prospect of a campaign around that is at best unattractive and at worst appalling to contemplate, with newspaper editors—not just those of the tabloids—having a field day by pandering to xenophobia and misrepresenting many aspects of what the EU stands for and what it can do for the people of the UK. It would be deeply divisive, possibly causing damaging splits within the political parties as happened with the 1975 referendum, as many will recall.

Should the revised document be described as, or perhaps even be capable of characterisation as, a constitution, or contain major changes that can be deemed to be of a constitutional nature to the UK, its ratification would require a referendum in line with the undertaking given by Tony Blair in 2005. An amending treaty, however, would involve something less dramatic and could be taken to Parliament for decision. That would be nothing unusual, because Europe has had a series of revisions and treaties revising its rules over a considerable time, from Maastricht to Nice. That is an accepted means of doing things and, in this case, would be much less damaging both for the UK’s reputation and influence in Europe and beyond.

I very much hope that the premiership of Gordon Brown, which I eagerly anticipate for many reasons, will be characterised in its early phase by a positive approach to the EU and to the UK’s role at the centre of it. While, on some political issues, a Brown/Merkel/Sarkozy triumvirate would not necessarily be appropriate, on the advancement of the EU I believe it would. It appears that Chancellor Merkel and President Sarkozy would welcome close collaboration between Berlin, London and Paris. It would benefit the immediate future of the EU were that allowed to take root and flower.

2.53 pm

Lord Inglewood: My Lords, when I was preparing my remarks for the debate of the noble Lord, Lord McNally—on which I congratulate him—it rather surprisingly occurred to me that if I am not the youngest speaker in the debate, I am certainly one of the youngest. At the same time, I am the Member taking part who has longest been a Member of this House.

Of course, that is because I am a hereditary Peer. Over that period, two constitutional topics have generally dominated the debate on this kind of occasion: the composition of this House and Europe. As I thought about it, it struck me that there was perhaps one interesting similarity which the two topics share. If I go back to the first 15 years or so of my membership of your Lordships’ House, the debate about composition was dominated by whether hereditary Peers should remain. From the perspective of the hereditary peerage, the position was pretty clear: the British constitution was such that if the peerage was conferred on one, it was conferred on one’s male heirs until they finally expired, enabling them by inheritance to legislate in your Lordships’ House. It was the constitutional position but, as we all know, the world has moved on. Of course, one of the problems with the European debate is that the world has moved on, but many parts of it are still hijacked by the argument over whether we in Britain should be in or out of Europe.

This was the issue at the start. I recall some of my first political activity, campaigning in the referendum. But we have now seen the evolution of that Europe into a new kind of sui generis system of decision-making by the European nations in an interdependent world. The issue is not now about sovereignty or loss of sovereignty, but how it is exercised. That involves a new mixture of European intergovernmental and community method systems. It is quite clear that what we have in place today will change. But what will not happen is some kind of big bang, and a return to the old intergovernmentalism of the immediate post-war period. To believe that is fantasy, and seems to be curiously addictive and delusory. Instead, we will have a kind of continuous state of evolution. The danger is that we will have permanent revolution rather than no change at all.

The first place to start increasing our influence in the wider world through the European Union is for this country to wean itself off the kind of addiction to the question of whether or not we should remain in Europe. If we concentrate on that, we are neo-Jacobites. As I said to your Lordships on a previous occasion, however much they drank to the king across the water, he never came back. If we move on, we can then collectively, as a nation, start to address the myriad real issues and abuses that we find in the European political process, in a manner likely to maximise our chances of actually putting things right in a way which we would like.

Over the next few weeks and months, we are obviously going to see a lot of debate about the ill fated constitutional treaty and the proposed new treaty. I do not really care what any new treaty might be called; what I care about is what it does. I do not want to have—and am not prepared to vote for—a treaty which in some way substitutes Europe for my own country. Maybe the name matters to other people. So be it. So it is quite right that the idea of calling the treaty “the constitutional treaty” has been set on one side. Equally, it seems to me that the concept of the rotating presidency is no longer appropriate for the contemporary world, and the EU therefore needs some sort of boss. I am not all that concerned about what that person may be called. What matters is what he does and how he does it. Equally, the role of the European Union in foreign policy can, on occasion, be constructive and helpful, but I do not want to see it become a replacement for our own foreign policy. If it needs somebody in charge of it—I dare say it does—I do not really mind what he is called. Again, we must find a name that is acceptable to other people and, therefore, acceptable to all.

In this debate, we must get behind the words. One of the problems across Europe is that words that sound very similar in different European languages sometimes have very different connotations and nuances of meaning in reality. We must try to find acceptable words to describe agreed and accepted functions, powers and policies. In doing this, in the context of proposals that may come from an intergovernmental conference, we must recognise that the policies will come forward in a package. We are moving from the a la carte menu to the table d’hote. It is a package, and it is self-indulgent at ratification stage to reverse engineer what is on the table and then attempt to cherry-pick the best bits. If we do not like it, we should vote against it and lose the lot.

This phenomenon poses particular difficulties for opposition parties in our country. Domestically, they perform precisely that kind of cherry-picking on a daily basis in this Parliament. In Britain, we have not yet got to grips with the problem of what domestic opposition parties should do when on a Europe-wide basis they may be the majority. I do not think my party in the late 1990s and the early part of this century or the Labour Party in the early 1990s managed to get to grips with this problem. By definition, some time—and like my noble and learned friend Lord Howe, I hope soon—the Conservative Party will be back in government. The problems that this can throw up are graphically illustrated by the debate in the Conservative Party about where its MEPs should sit in the European Parliament. It is not a question of whether a party should sit with party A or party B; it is a matter of the party positioning itself where the nation’s and its own best interests are served in the circumstances of the case, and that may change over time. The one thing that is absolutely certain is that if you want to get the wrong answer, you start by asking the wrong question.

The other trouble in this country is that debates about European issues tend to get exaggerated and polarised because of our two-party system. The advocates of what is on the table tend to overstate their case, and the Opposition, in opposition to the Government of the day, tend to overstate the criticisms and objections. We end up by distorting the implications of what is in front of us. Whatever the new treaty may be—I have no idea—the truth of the matter is that it will not be the precursor of the new Jerusalem, nor will it be the end of civilisation as we know it and the winding up of 1,000 years of British freedom. Equally, I share the concerns for parliamentary democracy that the increasing prevalence of and reliance on referendums poses. After all, they are invariably a plebiscite on the popularity of the Government of the day on the day of the poll.

We have to have a hard-nosed assessment of the crucial meaning of the changes that may be included in any treaty and what they mean for us in Britain in the real world. In the context of our foreign policy, it is important that what we do seems sensible and understandable to those outside these shores, be they on mainland Europe, across the Atlantic in Washington, in Moscow or in Beijing. I believe that the best way to further our nation’s best interests through the European Union is to be seen and recognised as sensible people furthering our national interests by doing sensible things for sensible reasons. That has the added advantage of being good domestic politics.

3.02 pm

Lord Bowness: My Lords, like other noble Lords, I thank the noble Lord, Lord McNally, for securing and introducing this debate and for presenting the achievements of the European Union and its forerunners in such an enthusiastic but balanced way.

I had to leave the Chamber to attend a meeting of the European Union Select Committee for a short time, and I hope that other noble Lords have not troubled the House with the article by the chief political commentator of the Financial Times that was published this month in Business Voice, the journal of the CBI. Among other things, he wrote:

He goes on in similar vein and concludes:

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