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The noble Lord, Lord Lamont, had sat down when I intervened on him-we all know about the problems with whether you have sat down or not in this place-but I would have asked him a key question. He said that the people of Greece were suffering an enormous cut in their living standard and asked whether they would not be better off outside the euro-I think that that is a reasonable précis of what he said. My question was going to be: what devaluation would not make them even worse off? If the devaluation was by 30 or 40 per cent, would they not be even worse off? Now is not the time for the noble Lord to wish to answer-he looks as if he might spring up, but I think not-but what the living standard of the Greeks will be if they leave the euro is the question. Why they got there in the first place and why we were so tolerant in those days was down to some falsification-although it was not on the scale that the noble Lord, Lord James of Blackheath, referred to-of the accounts in Athens. One reason for the Germans perhaps being over-intrusive now is that we were led by the nose by the Greeks those years ago.

I was intrigued by a remark made by the noble Lord, Lord Risby, who said that the single interest rate was never going to work. That is so often said. I disagree and I will say why. If you join at 50 per cent of the average GNI and you remain at 50 per cent of the average GNI, your real wages are 50 per cent of the average GNI. In what sense is it prima facie obvious that you cannot live with that position? Naturally, we hope that countries will improve their relative positions and not deteriorate in terms of their competitiveness and productivity. But I do not think that that has anything to do with the interest rate.

As regards falling behind generally, a lot of inaccurate things have been said. I will not personalise this, but there has been so much loose talk about the EU falling behind somebody here or somebody there. We must be consistent in our language. Are we talking about per capita or gross product? In Europe, we are three times bigger than China. If people mean by falling behind that when your children are aged 10 you have fallen behind when they reach 15, well of course you have in relative terms if you are the parents. But it is a ridiculous way of describing falling behind. We have been growing at a lower rate than China and India: that is true. But that is what we spent donkeys' years trying to do in the international development movement in Africa and Latin America-to make them grow faster. It is a ridiculous objection to make to what has been happening.

As regards divergence within the EU, here are all the statistics for 10 years and 20 years, where the median equals 100. It is not as simple as saying that there is the north and the south. There is obviously the

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east and the west apart from anything else. I will read out some numbers. We begin with 1995 and we cut off at 2010. The median in every year is 100. In 1995, Denmark was 131: the 2010 figure is 127. Germany was 129: the latest figure is 118. Estonia was 36: the latest figure is 64. Ireland was 103: the latest figure is 128. Greece was 84: the latest figure is 90. Those are 2010 figures, which we all know are the latest figures. Spain was 91: the latest figure is 100. France was 116: the latest figure is 108. Italy was 121: the latest figure is 101. I will not go through them all.

Noble Lords: Oh!

Lord Lea of Crondall: Okay I will. The UK was 113: the latest figure is 112. This will read much more easily in Hansard. Switzerland was 152: the latest figure is 147. Those are all relative to the EU median which equals 100. The United States was 159 in 1995 and 148 in 2010. Those are the GNI figures. I may be in an eccentric minority in thinking that numbers are the only way to debate these matters, but there we are.

I go along with those people who do not like the fiscal pact. We cannot, if we are Keynesians, ignore international trade imbalances, which is where the analysis of the 1930s was begun by Keynes at Bretton Woods. These trade imbalances put the eurozone on the road to macroeconomic difficulty. External imbalances led to high indebtedness, excessive borrowings and sudden stops in lending. Co-ordinated adjustment, which spreads the burden of adjustment on deficit in surplus countries, is the only way out. That would mean demand expansion in surplus countries to match demand contraction in deficit ones, thus sustaining aggregate demand and growth for the eurozone as a whole. In saying that, I think I am agreeing with the noble Lord, Lord Tugendhat, but he may not agree.

In my last one and a half minutes I must say that I very much agree with what the very noble Lord, Lord Grenfell, said about young people. We see so much of the opposite claptrap in our newspapers, but it is worth saying that many young people want more Europe rather than less. They are fed up with paying 10 per cent, 8 per cent or 6 per cent depending on how you measure it when you change your money at Heathrow Airport and all the rest of it. Having a single market and single money is pretty obvious. At a popular level-people say that you cannot get anywhere near the demotic in this debate but of course you can- I think that will be a growing trend of public opinion.

One very specific point I wanted to challenge-if I have got his ear-was that made by the noble Lord, Lord Kakkar, when he complained about the effect of the working time directive on the hours of doctors, surgeons and consultants. He mentioned two fatalities. I was very disappointed that he chose those statistics so selectively. I have already given this quote to the Minister, but the noble Lord, Lord Darzi, a very distinguished surgeon, said in this House that in the United States, which has no restrictions on working hours:

"The evidence is quite clear ... In 1999, between 44,000 and 98,000 people died in hospitals from adverse effects. The single and most important contributor is sleep deprivation and fatigue".

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This is what we are talking about, among surgeons-human error by doctors. He went on to say:

"The reduction to 48 hours a week is to enhance patient safety".-[Official Report, 29/6/09; col. 2.]

That is why we have a much better and safer set of hospital arrangements in this country. Perhaps at some point the noble Lord, Lord Kakkar, will look at that and not be so selective.

Finally, I mentioned to the Minister yesterday that I wanted to mention the EU's role in Madagascar. I am the chairman of the All-Party Parliamentary Group on Madagascar, where there has been a very bad cyclone in the past two days. The EU co-ordinator has done a good job in Antananarivo and I would be very happy if the Minister could tell us what the EU mission there has been able to do to help.

5.42 pm

Lord Pearson of Rannoch: My Lords, I hesitated to put my name down to speak today because I have already said most of what I have to say about the European Union-some of it several times, thanks to your Lordships' enormous patience over the last few years. Most recently, I addressed the crippling economic costs of our EU membership on 25 November last year, at the Second Reading of my Bill to secure an impartial cost-benefit analysis. I dealt then with the Europhile propaganda, which confuses our membership of the EU with our access to the single market by claiming that we need to be in the EU to trade in the single market and by claiming that by being in the EU we influence its policies and benefit from its negotiating strength in the World Trade Organisation. As I tried to explain then, none of this stands up to rational examination and I regret that we have heard so much of it again today from noble and Europhile Lords.

Lord Lea of Crondall: Noble and Europhile.

Lord Pearson of Rannoch: Yes, I would not remove their nobility. That Bill passed through your Lordships' House unamended and was killed off in the House of Commons by the Government, presumably because they do not want the British people to understand that we can no longer afford our membership. Nowadays of course, all eyes are focused on the euro and the suffering it-and it alone-is causing to the people of Greece and, soon, elsewhere. Much has been said about that today, so I will say no more, except that I am with those who favour Greece's orderly return to the drachma, after which it could be supported by the IMF and return to growth with its own interest and exchange rates.

However, I will have another try at getting your Lordships and the Government to see that it is not just the euro that is designed for disaster. It is the whole project of European integration. I repeat, yet again, the big idea that launched it all: that the nation states of Europe had caused two world wars and much bloodshed over the centuries, so they and their unreliable democracies had to be emasculated and diluted into a new form of supranational government run by technocrats. That was the big idea that underpins the whole project.

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This well meaning but misguided experiment was supposed to bring peace and prosperity to Europe. Indeed, the Eurocrats still airbrush NATO out of history, and even have the nerve to justify their expensive and unaccountable existence by claiming that the EU has brought peace to Europe since 1945 and still does so today.

Surely, though, we can all now see that that big idea has gone wrong. The EU has instead brought austerity, slump and civil unrest, and will go on doing so. Apart from the tragedy of the euro, the debate in this country focuses on whether we should stay in the European Union, or on whether there should be a referendum to decide that question. However, I want to take the debate one stage further to its logical conclusion, as I have tried to do in Oral Questions without getting a satisfactory Answer: now that the idea that spawned it has failed, what is the point of the European Union at all? We clearly do not need it for our trade or jobs, it has been irrelevant for peace and it is now causing violent unrest. Can the Government tell us why the planet needs it?

For instance, do the Government think that the EU's vast new foreign service is a help or a hindrance? Did we not have an adequate Foreign Office before? Why do we need the EU's common agricultural and fisheries policies, with the immense suffering that the CAP has inflicted on the developing world? Why does Brussels need to have overall supervision of our vital financial services? Could we not do all these things, and much more, better by ourselves?

Why do we need the 70,000 expensive and unaccountable bureaucrats in Brussels with little to do but misspend our billions and strangle the European economies with their endless overregulation? Why should they blight the democracies of Europe with their interference in our immigration, rubbish collection, post offices, light bulbs, herbal medicines, car premiums, pension funds and working times? I think noble Lords know that I could go on with that list for a very long time; it now includes every aspect of our lives. Are the democracies of Europe not perfectly capable of deciding these things for themselves in friendly collaboration and free trade?

I ask the Government again: would Europe not be a happier and more prosperous place if the EU simply were not there-if we got rid of it altogether? What is the EU now for? I look forward to the Minister's reply.

5.48 pm

Lord Cormack: My Lords, at the end of such a long debate, the last speaker can only take some consolation, especially as a right reverend Prelate is here, from the parable of the labourers in the vineyard. We have had a number of extremely distinguished speeches and many indistinguishable ones. I will not usurp the Minister's role by seeking to answer the noble Lord, Lord Pearson of Rannoch, save to say that by his very presence in this House he goes a long way to justifying its existence.

I have listened to almost all the speeches during this debate-I apologise to the noble Lord, Lord Grenfell, and the noble Earl, Lord Sandwich, that I dashed out to take some sustenance and missed their contributions-

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and there seem to have been three questions hanging in the air: who are we, what do we want and where are we going?

When I try to answer the question, "Who am I?", I say that my identity is English because I have spent virtually all my life in England, although my family comes from Scotland. I say emphatically that my nationality is British, and I do not want anything ever to take that away. However, I say with equal emphasis that the culture and civilisation of which I am a tiny part is European, and Christian European at that. I was very glad that that point came out in the admirable speech of the right reverend Prelate the Bishop of Guildford.

Over the past 40 or more years since I first entered the other place I have been a passionate believer in a Europe of nation states. I voted in 1971 for us to enter what was then the European Common Market. I campaigned alongside Labour colleagues-the late Sir Geoffrey de Freitas and David Marquand-in my constituency during the referendum campaign of 1975 when, as we were reminded earlier in this debate, the country voted emphatically for our remaining in Europe.

Of course, whether we like it or not, we are an integral part of Europe. I have been worried, over recent years in particular, that some in my party have behaved and spoken as if those across the Channel are aliens called "Europeans", and have seemed to believe that the other nations of the European Union were foes rather than friends. I deplore that. The Prime Minister was entirely justified in the decision that he took in December last year which many have criticised today, although I think that the noble Lord who said that he probably took this decision because he felt isolated was very close to the mark. I will say a bit more about that in a second or two.

However, although I believe that the Prime Minister was justified and that, in the building of the European Union, some hasty and wrong decisions have been made, that does not invalidate the whole system. The noble Lord, Lord Judd, in a very interesting speech, talked about people in this country feeling that it is all very remote. I spoke and voted against direct elections to the European Parliament in 1979. I thought that it was too soon, and that we ought to continue with the delegated assembly for a few more years so that there was a closer connection between the parliaments of the nation states and the assembly-I deliberately call it that-in Brussels and Strasbourg. It was a terrible mistake to go forward with the single currency, as was the way in which it was done.

I remind your Lordships of a distinguished former Member of this House, whom I was privileged to call a close friend: the late Lord Dahrendorf. There was no finer European anywhere within the continent of Europe. He was strongly opposed to our joining the single currency. He was very sceptical about the whole concept, believing that you could not really have it unless you had a degree of political union, which he himself did not warm to. He felt that it would be, in any event, far too premature to do anything along those lines. If people had listened a little more to Lord Dahrendorf, the European Union might be a better and saner institution than it is.

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We must now look at what is, specifically, our role. Where are we going? In his very interesting speech, the noble Lord, Lord Kerr, talked about the isolation that he felt that the Prime Minister had been under. He talked, although not specifically in these terms, of the importance of bilateral relationships. It is essential, as we have stepped aside from that treaty, that we do all that we can to build strong bilateral relationships within the European Union.

Many countries within the European Union look to this country not only with great affection-my noble friend Lord Bates talked movingly about that-but for leadership. I remember taking a group from the all-party heritage group to Greece way back in 1993. It was not, I hasten to say to your Lordships, a freebie; we all paid our own way. We had a wonderful tour of Greece and were marvellously received. It was clear that there was a palpable affection wherever we went. Therefore, I echo what the noble Lord, Lord Judd, said about our being sympathetic to Greece in its hour of need.

I agree with those who think that there is probably only one solution for Greece: to exit the eurozone. Nevertheless, if that is the painful solution-it will be painful for us all-the Greeks merit and deserve the friendship of the nation of Byron more than they have ever merited and deserved it since the days of Byron. I very much hope that we will all, individually as well as collectively, show Greece that we have sympathy with the perhaps slightly ill tempered remarks of the President yesterday. He was, in effect, asserting Greece's right to be a nation state and not to be dictated to.

It is crucial that in the difficult days ahead-there will be many of them-we spend great time on and devote infinite patience to developing our bilateral relations with the other nations of the European Union. Bearing in mind the extremely thoughtful, sobering speech of my noble friend Lord Tugendhat, we should have particular regard for the position of Germany. I do not believe that Germany has demonstrated the leadership-albeit reluctant leadership, as he said-that it perhaps could have done over the past couple of years. However, we have to remember that the Germany that we now talk of is a new nation, following reunification. Many were against reunification but it has worked. There has been great courage. Remember, the Chancellor herself comes from eastern Germany. One must have regard to all those facts and factors in seeking to understand why Germany is as it is at the moment.

Therefore, behind the scenes and behind the photographs of the embraces of leaders, we have to do all we can to build trust between the nations of Europe. In a world that will be increasingly dominated by power blocs, and where it is by no means certain that the United States will not become more isolationist, we in Europe-here is a part-answer to the noble Lord, Lord Pearson of Rannoch-must work closely with our neighbours and friends, not only for our peace and prosperity but for the mutual peace and prosperity of the wider world.

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5.59 pm

Lord Liddle: My Lords, this has been a mammoth debate and a serious one, without any partisanship. In that spirit, I congratulate the noble Lord, Lord Howell, on his efforts to give a positive view of the Government's European policy. I also thank my noble and learned friend Lord Davidson of Glen Clova for his analysis of that policy's weaknesses. We have heard many excellent contributions and it is a privilege to listen to noble Lords with their vast experience as former commissioners, former diplomats and even as former Chancellors of the Exchequer, with their different perspectives from my own.

In particular, I pay tribute to the noble Lords who spoke up in favour of European unity. The noble Lord, Lord Bates, made an excellent argument for Europe. The noble Earl, Lord Sandwich, on the Cross Benches talked about his belief in a Europe of the peoples. From my own Benches, the noble Lord, Lord Grenfell, spoke about a federal Europe and the noble Lord, Lord Radice, said that it was not time to give up on the euro. The noble Lord, Lord Judd, talked about a social Europe, as did the noble Lords, Lord Monks and Lord Lea. These were inspiring contributions. Obviously, I cannot commit the Labour Party to every detail of what they said; none the less this is the case for Europe that needs to be made.

There have been two big themes in this debate: first, the trials of the eurozone; and, secondly, Britain's position in Europe. On the trials of the eurozone, I think we have heard rather too much of a flavour from the Benches opposite of how the euro is doomed, and too much of the view that it is impossible to restore competitiveness without the recreation of depreciating national currencies. An internal devaluation is, of course, painful but it can be done. You only have to look at what Germany has achieved from the mid-1990s until the middle of the previous decade to know that adjustments in competitiveness can be made within a fixed currency arrangement. Therefore, that can be done, but obviously I would like to see a stronger plan for growth. Like the IMF, I would like to see countries that have room for manoeuvre to expand their economies taking advantage of it. We would like to see-as the noble Lord, Lord Newby, proposed-a greater emphasis on the single market and trade to create more job opportunities. However, we also agree with the noble Lord, Lord Giddens, that that has to be done in the context of a much wider reform strategy to which we all need to give much deeper thought.

The noble Lord, Lord Tugendhat, made an excellent speech in which he expressed fears about German policy. I did not entirely agree with that aspect. I read an excellent speech that Helmut Schmidt made to the SPD congress in December in which, at the age of 93, he spoke to 2,000 people. It was a most inspiring speech about Germany's role in Europe which I recommend to all Members of the House. Like the noble Lord, Lord Monks, my own view is that we should never underestimate the political commitment to make the euro succeed. I suspect that the new Franco-German arrangements that come out of the French elections in May will result in a better balanced policy.

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However, on the more significant point of Britain's position in Europe, we on this side understand the inability of the noble Lords, Lord Kerr and Lord Hannay, to understand what the Government did in December, and why they did it. The noble Lord, Lord Howell, tried to explain that to us but I thought there was a fundamental contradiction in what he said between our objection to a fiscal union, which is a matter of principle, and the question of whether we would have signed up if certain safeguards had been met. However, I think that looking ahead is far more important. If we look ahead, there is a choice to be made for Britain between the view expressed by the noble Lord, Lord Lamont, that 20 years ago we made the choice not to be in the euro and we have to live with it, and the view expressed by my noble friend Lord Mandelson that in fact to make the euro work-which is going to happen-there is going to be a euro mark 2, which will have deep implications for the United Kingdom and its policies, and that we have to think through what those implications are. The noble Lord, Lord Brittan, made an excellent point in saying that he was not sure how deep integration had to go in fiscal terms to make the euro work. We need to think much more about these issues in our future discussions and debates.

I also agree with the noble Lord, Lord Cormack, that what the coalition seems to lack is a bigger-picture view of Britain's place in Europe and the world. The Churchill view on this at the end of the Second World War was of three circles: the maintenance of the British Empire, with the US relationship and Europe overlapping it, half a century later we know that the empire has become a Commonwealth. We know that there are a lot of good things about the Commonwealth but that it is not a trade bloc or a guarantee of economic benefits. We had a painful lesson on that with the Indian air force contract in the past few weeks.

As for our relationship with the United States, President Obama flattered us when he came to Westminster last year and talked about the special relationship. That was an easy compliment but the reality is rather different. It is of an America that is increasingly inward-focused, Pacific-facing, and cutting back on global engagement, and a Britain that, however much we may will the ends, can no longer financially bear the means of that kind of global role.

That leaves us with the third of Churchill's three circles: Europe. To rework inelegantly Dean Acheson's famous quote from the early 1960s, Great Britain exchanged an empire for a Commonwealth half a century ago, its relationship with America is no longer so special, but it has yet to find its confident European role. The idea of the European role has always been anathema to the anti-Europeans in this House such as the noble Lords, Lord Pearson and Lord Willoughby de Broke, but what I find worrying is the half-heartedness on the Benches opposite about the European commitment. It is the people who say, "Yes, we are in favour of political-".

Lord Pearson of Rannoch: My Lords, does the noble Lord accept that we Eurosceptics are not anti-European; we are merely against the ill-fated project of European integration?

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Lord Liddle: You are anti-European Union. I should have corrected myself-but you are anti.

Lord Deben: Given that the noble Lord has been interrupted, perhaps I may point out that there are some on these Benches who are in no way uncertain about the future of Britain in the European Union and support every word that he is saying.

Lord Liddle: That is a nice compliment from the noble Lord. What worries me is when people say, "Yes, we want Europe because it is good where we can have political co-operation on where we agree. Yes, of course the single market matters, but let us draw a clear line at that". Whereas in the post-war era it is said that we had the myth of Britain standing alone at Dunkirk, which kept us out of effective engagement with Europe for 30 years, we are now recreating a new myth about Britain's role in the world, whereby Britain alone in the new globalised world of the 21st century can thrive without the "shackles"-as the anti-European Union people put it-of engagement in Europe.

Of course Britain has global reach and global interests, and it can be an influential and effective networker in this new global world, but there is the idea of Europe as a shackle, that the single market is no more than a monster of bureaucratic regulation, that free movement of labour stops us having our own immigration policy, and that the things that people do not like-such as the rights culture and the health and safety culture-are all because of Europe.

I noticed that the noble Lord, Lord Flight, was almost cheering when my noble friend Lord Monks said that four weeks' statutory holiday for people would be scrapped if we were no longer part of Europe. That is a dangerous and seductive myth that may well seriously cloud our judgment as a nation as to where our future best interests lie. We must recognise that the health of the European Union is absolutely central to our global interests. British-based businesses sell a higher proportion of their exports into the single market than German exporters do of theirs. That is partly because, due to the single market, Britain has become such an attractive base for inward investment. It is because of the base of the single market that we can specialise and compete in world markets.

We do not strengthen our position in the single market by diplomatically putting ourselves out of the room when, for all the paper promises made, key economic questions affecting this country will be discussed. It is nonsense to think that the world will pay more heed to a Britain that accounts for-what?-2 per cent of world GDP than the European Union, which still represents the biggest economy in the world. People who think that Europe is putting us in shackles to meet the challenges of the global economy have to explain why Germany is one of the world's most successful exporters to China and the emerging economies.

The anti-Europeans have a vision of how Britain can make its living in the 21st-century that is deeply antipathetic to the instincts of those on our Benches. We believe in a European vision of a modern social market economy, a Europe that takes the high road to

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competitiveness and combines the opportunity for successful private enterprise with decent regulatory standards and essential public investment in low-carbon infrastructure, research, education, early years, a modern welfare state, and so on. The vision against that is essentially the vision of an offshore Britain, a deregulatory tax haven, a Hong Kong-type vision, which would be a disaster for most of our people but for the City of London as well.

The coalition would like to think that we can have the best of both worlds, to keep the benefits of the single market while avoiding most of Europe's obligations and political commitments. Of course, we should try to do our best to shape Europe in a British image, and there is a huge agenda of European reform that we need to pursue, but if we are saying that we will stay apart for ever from the single currency, we will have nothing to do with the fiscal stability union, we will be no longer in Schengen or part of the justice and home affairs parts of the treaties, what other nation in Europe shares that vision of Europe's future? Where are we looking for allies if we are trying to stay out of everything?

The European Union is an exercise in pooled sovereignty or it is nothing. If we are not prepared to join in and do our bit, we will ultimately make ourselves irrelevant. We cannot indefinitely achieve our objectives by staying out of the room when we do not like what is being discussed, and we cannot achieve them by opting out of so much that it begins to look as if we might as well not be in.

We have to resolve this issue as a country: is our future European or not? That is the lead that we are looking for from the Government.

6.15 pm

Lord Wallace of Saltaire: My Lords, at the end of a seven-hour debate in which a very wide range of points have been made and perspectives have been introduced, it is of course impossible to answer everything that has been raised, so I promise that either I or my noble friend Lord Howell will write to noble Lords to answer the points that I am not able to reach. In some ways, it has also been a debate on the just-published EU Committee report, The Euro Area Crisis. It is unusual to have a debate on a report that is close to publication, and I am sure that the noble Lord, Lord Harrison, is pleased about that. The Government are very pleased with the report and we will of course be responding in due course.

The coalition Government have no doubt that the UK is better off in the EU, not better off out of it. We support a prosperous and competitive Europe and a strong single market. These are good for Britain. It is therefore in Britain's interests that the eurozone sorts out its current serious problems. We want to see a reformed and strengthened European Union, better able to cope with the new international pattern of powers and influence. We want Europe to succeed not just as an economic force but as a political force-that is, as an association of countries with the political will, the shared values and the voice to make a difference in the world. European countries acting together pack a bigger punch in a changing world. To repeat what my

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noble friend Lord Howell said in opening this debate, Britain is part of the European Union not by default but by choice. It fundamentally reflects our national interest to be part of the single market on our doorstep and we have no intention of walking away.

The benefits of the single market are hard-wired into the UK economy. Half our trade is with Europe-not surprisingly, as this is our nearest and most open market. This trade has been growing faster than our overall trade without diverting British companies with global ambitions from trading more and more with the big emerging markets. There is an absurd view which I see when I look at some of the Eurosceptic blogs that somehow being in the European Union prevents us trading more with China and Brazil. They do not look at the figures which show that German trade with China and Brazil is four times as large as that of Britain and that currently French trade with China is twice that of Britain. These are not contradictions. The UK therefore continues to play an active role and to lead the way in the European Union, and the Government continue to act decisively to defend our national interests within it, as do other Governments within the European Union.

In October, the eurozone countries set out the package of measures that will be needed in the short term if the euro is to resolve its ongoing problems: Europe's banks need to be recapitalised properly; the uncertainty in Greece needs to be brought to an end; and the firewall must be big enough to deal with the full scale of the crisis. In the longer run, proper fiscal discipline in the eurozone is essential, and the question at the December European Council was on how this process should be taken forward. My right honourable friend the Prime Minister sought sensible and reasonable safeguards to protect the integrity of the single market, and my noble friend Lord Howell has spelt out what those safeguards were. The eurozone countries and others have since reached an intergovernmental agreement outside the European Union.

With the eurozone at the centre of the crisis, the UK is to some extent unavoidably at one side. Some say that we should have been more active, engaged and critical; others, such as the noble Lords, Lord Newby and Lord Kerr, say that we should not intervene too far-that unsolicited advice only irritates those who have to sort out the mess in which they find themselves. The Prime Minister, the Chancellor and the Foreign Secretary have all made it clear that the UK wants the eurozone to survive and prosper. However, we have also made it clear that the single market must not be threatened or sidelined, and there have been a number of noises from some other Governments who have suggested that they would not be unhappy to see aspects of the single market threatened. Europe needs economic recovery and growth, not the stability and no-growth pact of which the noble Lord, Lord Kerr, spoke. We are continuing to pursue that agenda in Brussels through active bilateral conversations as well as with groups of like-minded countries, with which the Government are fully engaged. We are neither isolated, nor ignored. There are many active exchanges in which all of us are fully engaged.

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In a rather underreported speech the other day in Berlin, Chancellor Merkel went out of her way to say:

"Britain is essential and also more pro-European than some other countries. We want to have Great Britain in the European Union. We need Britain, by the way. I want to say this emphatically, because Britain has always given us strong orientation in matters of competitiveness and freedom and in the development of the single European market".

This Government are actively engaged in close relations with Germany. After all, Germany is now the central power-the central economy-in the single market and therefore we all have to ensure that we are fully engaged with it.

Many noble Lords have quoted Keynes and said that they are already Keynesians. Halfway through the debate, I dashed out to find my copy of TheEconomic Consequences of the Peace, where on page 14 the young John Maynard Keynes argues against the very harsh reparations being imposed on Germany and that Germany was, after all, the natural centre of the European economy. I quote:

"Round Germany as a central support the rest of the European economic system grouped itself"-

it is talking about the 1890s and the 1910s-

We are back to that position and we need to ensure that we erect the complex political mechanisms and exchanges in which we can ensure that we all manage to return to growth together.

There are tremendous problems in the European political system in which we operate about rhetoric and practice. Part of the problem, including in the past two or three months, has been that what people say is very often different from what they mean. The fiscal pact itself is a good example of that. The noble Lord, Lord Kerr, argues that we should have signed after all because it would not make any difference, to which one has to say that, if it will not make any difference, then it is not worth signing.

There are some very large issues in that respect. Institutional construction has been too frequent an alternative to policy change. The rhetoric on political union is still with us. Years ago when I was a graduate student, I remember Karl Deutsche saying that the concept of political union was immensely attractive to politicians because it means so many different things-indeed contradictory things-to many different people. The French and German Governments often believe contradictory things about what they mean by political union. "The European project" and "ever closer union" are phrases that are very loosely defined. We started with the threat of a financial transactions tax which was thought to be, and puffed up in Paris to be, a threat to the City of London. We are now in the process of discovering that what the French will propose is a stamp tax on share transactions at a much lower rate than the British already have for the City of London. What appeared to be an enormous threat turns out to be a very small step forward and attacks on

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Anglo-Saxon capitalism from Governments whose banks have been very rash in how far they have overextended themselves in lending to Greece and Portugal.

We need to promote, among other things, a greater interchange among economists, or at least a dialogue among economists. When I taught at the London School of Economics, I used to say to my international relations students that, if they went to lectures in the economics department, they would discover that according to the economics taught in the London School of Economics the German economy should have collapsed about 25 years before. I fear, at present, that if one follows the economics taught in German universities, we are pushing the Greek economy into collapse. We need to learn from each other and begin to understand how interdependent our approaches to financial economics and real market economics need to be. We also need to recognise that passing regulations is not the same as implementing them. Part of what we discovered about Greece was the extent to which it had simply ignored the rules of the single market. The noble Lord, Lord Pearson of Rannoch, said absurdly that the euro alone brought down Greece. What we are now discovering about the extent to which the Greek economy was running, with a structure of expensive restrictive practices and very extensive tax evasion, demonstrates that there was always a very large and deep domestically oriented problem there.

Lord Pearson of Rannoch: My Lords, perhaps I may put the question slightly differently. Would the Greek people be suffering as they are today without the project of European integration and its euro?

Lord Wallace of Saltaire: My Lords, in the context of a global recession, the Greeks would be facing a very severe run on the drachma and quite possibly also a default. As a number of people have remarked, the Greeks defaulted on a number of occasions over the past 120 years.

People talk also about a common European foreign and defence policy. When I am in Germany, politicians there often tell me they are deeply committed to it-and to a European army. However, they cannot explain the strategy, funding, structure or command structure that it would have. In practice, the United Kingdom contributes a great deal to a European foreign policy and to European co-operation in defence. The UK/France defence relationship continues to move forward very well. We are working with others to cope with the immensely complicated problems of the Syrian crisis. In Libya, we flew missions with our French, Belgian, Danish, Swedish and Italian partners. We have been working in Helmand with Estonian troops embedded in British battalions. When I went some weeks ago to the joint command centre at Northwood, I was briefed by a Latvian naval officer on the anti-piracy patrol. In practice we are very deeply embedded in co-operative defence and foreign policy in Europe.

We will have to work hard to defend liberalism in a recession. I mean liberalism in the broader sense of liberal societies, open markets and international co-operation. The noble Lord, Lord Judd, made a wonderfully liberal and internationalist speech.

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Nationalism, populism and protectionism thrive when unemployment rises and incomes go down. The noble Lord, Lord Monks, mentioned the problems in Hungary. The Commission is now in active dialogue with the Hungarian Government about the extent to which some of their new laws will fit with EU rules. I was fascinated to hear from my Finnish friends that there is now a sort of Eurosceptic International across the European Union, with Eurosceptics in Britain working with their Danish, Finnish and other colleagues internationally against internationalism, so to speak.

The problem of popular opinion across Europe is very severe. I suggest to the noble Lord, Lord Grenfell, that young people in Europe are often not immensely committed to internationalism. They take what they have for granted and they do not support the distant co-operation of elites through international organisations, which is what the European Union provides. It would be easy for us to give way to similar forces in the United Kingdom, in the belief that leaving the European Union would relieve us of international regulation. The demonisation of Germany is part of the way in which one finds easy answers to very complicated problems.

A number of noble Lords said that the fundamental underlying issue was that of Britain's place in the world. On my blog this morning, I came across references to a speech by Daniel Hannan MEP to the Conservative Political Action Committee in the United States, in which he praised Newt Gingrich and was in turn praised by Fox News. He made all the obvious references to Churchill and the Nazi threat, and suggested that Britain should leave Europe and blindly follow wherever the next American Republican Administration might lead us. Others would like us to become Switzerland with nuclear missiles or Norway without having to pay the very substantial sums that Norway contributes on a "voluntary basis" to the European Union. Our political leadership over the past 25 years, including the previous Labour Government, has failed to make the case for active engagement in Europe.

Lord Lamont of Lerwick: The noble Lord is enjoying himself attacking Eurosceptics right, left and centre. Is he going to answer some of the points in the debate? In particular, will he answer the questions asked by the noble Lord, Lord Kakkar, about the working time directive as it affects hospitals? Or will his answer be that it means different things to different people, or that it does not really mean what it says?

Lord Wallace of Saltaire: The coalition Government are clear that Europe is our firm base from which we look outwards. France, Germany, the Netherlands and Ireland are our closest neighbours and our natural partners, and with them we work to promote our shared values, economic and political, across the world.

Perhaps I may answer some of the points that have been made. The net British contribution to the EU budget was raised but, according to Treasury figures-which are, as always, entirely reliable-last year it was €7.4 billion and not the €10 billion that the noble Lord, Lord Pearson, suggested.

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Lord Pearson of Rannoch: I was going on Pink Book figures, which include a number of contributions which we make to the European Union that are outside the ambit of the Treasury. The Pink Book figure of €10.3 billion last year is the correct net figure.

Lord Wallace of Saltaire: We will continue to disagree.

The noble Lord, Lord Kakkar, raised the working time directive and asked a number of other questions. We are working to ensure that it retains a secure economy-wide opt-out. We would welcome more flexibility on the areas of on-call time and compensatory rest. On the General Medical Council and the overinterpretation of language testing, I am confident that that is also an issue on which the British Government are actively engaged. I will write to the noble Lord further about that.

Lord Lea of Crondall: It is not the case that we have a general opt-out on the working time directive. I do not know what the Minister is referring to.

Lord Wallace of Saltaire: As I understand it, there is an individual right to opt-out voluntarily from the working time directive. That is precisely what I was explaining. I am sorry that the noble Lord misheard.

On the clinical trials directive, we are working with the Commission on revising the directive, and the Commission will publish proposals this year.

On other matters, the noble Lord, Lord Willoughby de Broke, suggested that the European Union is forcing regulations on the UK. In terms of climate change, the coalition Government, like the previous Government, are committed to climate change and work through the European Union. It is not Brussels forcing that on the United Kingdom.

In other areas, noble Lords may well be aware that some of what comes back from Brussels-the zoo regulation, for example, and a lot of the animal welfare stuff-has been promoted in Brussels extremely actively by British lobbies and is intended to implement and enforce new rules on other Governments across the European Union. That is the way in which democratic politics takes place to some extent above the national level.

The noble Lord, Lord Monks, talked about rebalancing. There is a good case for rebalancing competences between the European Union and its member states, but this would require the agreement of all 27 member states on the basis of negotiation and agreement. It would not be achieved through a unilateral decision.

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The noble Earl, Lord Sandwich, asked a number of questions about the Balkans and Africa. Briefly, we are strongly in favour of Serbia finding its place within the European Union. We all understand the conditions which are required for that. We also support Kosovo coming into the European Union, but it will be a slow process for all the remaining Balkan countries. We have to make sure that they meet the criteria.

On the question of co-operation with China in Africa, the EU and the United Kingdom are working very closely on that. I hope the noble Lord noted Andrew Mitchell's visit to China, during which he persuaded the Chinese to take part in the conference in Korea on the quality of aid. That is the basis on which we hope to find a closer partnership with the Chinese.

The noble Lord, Lord Newby, raised the issue of procurement. In December 2011, the Commission published new proposals to modernise the procurement rules, and I will write to the noble Lord in more detail on that.

The noble Lord, Lord Lea, asked about the Madagascar cyclone. The European Commission humanitarian office has provided nearly €20 million over the past five years for humanitarian response and disaster risk reduction, including cyclone-related support. Any future UK support is likely to be through multilateral channels, notably the European Union, UNICEF and the International Committee of the Red Cross.

I recognise that I cannot have covered all the points raised, but I will conclude by saying that the European Union as a whole is not in an easy position, as we all recognise. We are caught in a financial crisis that is also partly a fiscal crisis and which has contributed to a wider economic recession. We have to work together to resolve these crises-each member state is hobbled by its own domestic politics and the myths that float through the different national debates. It is not at all easy, facing successive rounds of domestic elections, for Governments and political leaders to rise above immediate interests and provide enlightened European statesmanship. The noises coming out of the French presidential election campaign this week illustrate that well. All of us, in all political parties, need to navigate carefully and reasonably between the pressures of our own domestic opinion and the obstacles created by domestic opinion in other countries. That is the task we all face and must all share.

Motion agreed.

House adjourned at 6.38 pm.

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