HC Deb 15 June 1990 vol 174 cc592-656 9.35 am
Brian Sedgemore (Hackney, South and Shoreditch)

I beg to move, That this House considers that Britain's entry into the exchange rate machanism of the European Monetary System must be seen as a stepping stone towards the early creation of a single European currency; regrets that the Prime Minister has encouraged Her Majesty's Government to adopt a far too shrivelled and isolationist approach towards changes in the European Community; and believes that the interests of the British people will be served best in the future by the positive approach contained in Labour's new policies on economic and political developments in the European Community. My father died on 20 November 1939 when the German battleship, the Scharnhorst, sunk HMS Rawalpindi. Churchill spoke about it in the House. As a result of the ravages of this Europe "des patries" torn apart by war and prey to nationalism and race, I knew little about my father, but from what I have been able to glean from my mother I am sure that he would have been pleased that I am moving the motion today and seeking to set out a framework for a Europe that is prosperous, peaceful and free in which my son and his grandson can grow up. That Europe will be produced not by new weapon systems, nuclear devices on German soil or NATO reborn but by the interplay, and to some extent the interweaving, of cultural and social life inside a stable political framework.

That framework can be provided only by the European Community. Accordingly, it is time that Left-wing Members regarded the European Community as a stunning opportunity rather than a upas tree of woe. Nothing is for ever, but I have no doubt that Britain's future in the next century will be ultimately bound up with economic and political developments in the European Community. As we awaken from our isolationist slumber and are released from our imperial past, there must be exciting prospects ahead and young people in Europe certainly expect us to seize the major opportunities for political and cultural changes that are opening up.

Young people in Britain today have no interest in Labour's post-war corporatist approach or the callowness of modern Thatcherism. Europe is the arena in which a new kind of politics can emerge. Yes, there will be battles, some ideological; yes, it will sometimes be difficult to keep up with the pace of change; but only politicians of the past will want to opt out.

Often in politics there is a natural dynamic that is critical to the development of ideas and actions. The politicians who serve the people of their country and parties best are those who can harness that dynamic. The others end up whistling in the wind, fumbling in the dark, or whatever metaphor one wants to use.

In the 21st century the dynamic for Britain as regards the development of ideas and action will, I expect, be European, and within Europe the European Community is the only institution that can make the thing work. Of course, there are those who disagree and those who are afraid, particularly in the Conservative party, where the old certainties have given way to doubt and scepticism. Thus, the right hon. Member for Chingford (Mr. Tebbit), a recent chairman of the Conservative party, told us that the Deutsches Bundesbank is the monetary successor to the Panzer". Tory historian A. L. Rowse tells us to turn our back on Europe because the British are a practical people— not theoretical like the Germans nor arrogant like the French". Lord Denning, a high Tory judge in despair of the European Community and the Delors report, even quotes John of Gaunt: This land of such dear souls, this dear, dear land, Dear for her reputation through the world Is now leas'd out … Hath made a shameful conquest of itself. I refer to this soporific phoney Tory romanticism, not to begin on a contentious note, because that is not my nature, but to enable the Minister to repudiate, on behalf of the Government, the views of this distinguished, if unholy, trinity. It is not as though the right hon. Member for Chingford is alone in his isolationist views. They seem to be shared to some extent by the Prime Minister. I do not want to turn this into a contentious debate, but I must say that I think that an aura of arrogance clings to the Prime Minister's shrivelled view, as she blocks progress time and again in the European Community. Like a tiny minority of Labour Members, she preaches a 17th century version of sovereignty which is unhelpful if only because it preceded the rise of both socialism and capitalism. As the Prime Minister moves from false premises to false conclusions by a logic that is somewhat suspect, is it any wonder that the Government dither about when Britain will join the ERM, fulminate against plans for monetary union, or the idea of a single European currency and believe that proposals for political integration threaten the very existence of the only version of democracy that they seem to understand?

I am sorry that my right hon. Friend the Leader of the Opposition is not in his place today. In contrast to the Prime Minister's negative approach, my right hon. Friend is to be congratulated on his support for a new European idealism. Both history and the moment, as well as perceptions of youth, are on his side. Anyone who has read Labour's policy document, "Looking to the Future"—I am sure that that means everyone here—will know that my right hon. Friend, backed by the shadow Chancellor, my right hon. and learned Friend the Member for Monklands, East (Mr. Smith), considers that joining the ERM is but a part of a developing economic and political process that should be pursued with enthusiasm.

The Prime Minister and the Government are worried that Labour's non-misty-eyed and practical approach to the European Community nevertheless carries with it a certain amount of political glamour. Realising that, the Government are anxious to steal Labour's clothes and get Britain into the ERM, preferably later this year—I am told that the preferred date is November—and certainly before the next general election.

I think that the Government are right to press ahead, even though they may be doing it for the wrong reasons, and until this week pressing ahead was what was being talked about, until we discovered that the Government's guru, Sir Alan Walters, had returned. Even as I speak, he may be in that study in Downing street with the Prime Minister's political advisers determining Britain's economic future. We all know that Sir Alan is opposed to entry into the ERM, and I should like the Minister to tell us whether his presence back in Britain means that entry will be delayed, or even permanently postponed. What is the Government's position?

It is possible that I have totally misread the situation. I do not know how many hon. Members have studied the works of Alan Walters, but I have read quite a bit of what he has written. Although he says that the ERM is a half-baked proposal, he believes that monetary union and a single European currency are valid theoretical and practical options. Perhaps he has been brought in to push on faster with stages 2 and 3 of the Delors report. There are signs that there has been a significant sea change in the Government's view, and perhaps I shall return to that in a moment.

The fact that Britain will be in the ERM by the time of the next general election presents a challenge to those Back-Bench Members on both sides of the House who oppose entry. Will any of them seriously go to the electorate calling for Britain to leave the ERM?

I hope that today we can bury the argument against Britain joining the ERM. Certainly there could be no question of the Labour party fighting the next general election on the basis of Britain leaving the ERM. To do so would be an act of supreme folly; it would be electoral suicide—akin to inviting my right hon. Friend the Leader of the Opposition to take a cyanide pill on the opening day of the next general election campaign.

Mr. John Maples (Lewisham, West)

It is refreshing to hear the hon. Gentleman talk so enthusiastically about European institutions. He said that the Labour party's policy is not ideological but practical. I do not think that anyone would have any difficulty in accepting that: the Labour party has changed its policy so many times in the past 10 years that it could not be described as anything other than pragmatic.

A year ago, when the Opposition first cottoned on to the idea of joining the ERM as part of their policy—not so long ago Labour was campaigning, not to leave the ERM, but to leave the EEC—one of the conditions laid down by the right hon. and learned Member for Monklands, East (Mr. Smith) was that the ERM should get rid of its deflationary bias. For most of us, the purpose of joining the ERM is that it is an anti-inflationary mechanism, involving a commitment to maintaining low inflation. Can the hon. Gentleman tell us why that shift in Labour party policy has taken place and whether he still thinks that the ERM has a deflationary bias that ought to be cured?

Mr. Sedgemore

The hon. Gentleman implies that there is something wrong with politicians changing their minds. I remember, as a barrister, appearing before the Lord Chief Justice, who said to me, "That's your bad point, Mr. Sedgemore; what's your good one?" I am all in favour of politicians dropping their bad points and developing their good points.

I shall go into technical economics later, but one of the technical matters that I do not want to go into in great detail is the enormous difference between an anti-inflationary policy and a deflationary policy. I shall deal specifically with the question of how much deflation must be or might be involved in entering the ERM and how much would be involved in entry at any given rate. If the hon. Gentleman is unhappy with what I say, I am sure that he will intervene again.

I admit that in the past I have been bitterly critical of the EEC. The reason why I believe that we must take a firm stand now is that the idea of national economies controlled by national Governments is dead, and the electorate knows that. The argument today should be not about whether we should join the ERM but about when and on what terms and about what comes next.

Big bang and the development of global markets have inevitably caused some of us to rethink our positions. I grew up in the world of theories of comparative advantage in which exchange rates were driven by current account surpluses or deficits. I now live in a world where exchange rates are often driven by capital flows and where $200 billion crosses the foreign exchange markets every day, although 90 per cent. of that money is not used to finance foreign trade but represents speculative capital flows or hedging against currency changes. The power of exchange speculators is awesome. It is not constrained by, nor does it recognise, notions of political sovereignty. It can, and does, throw Governments off course. The joining of the ERM could prove critical in helping both Labour and Conservative Governments to deal with the damaging effects of currency speculation.

Some of my hon. Friends do not appear to accept that there is something heroically absurd in fighting currency speculators with political slogans and moral lectures. The unreconstructed Keynesians who met at the socialist conference in Sheffield told us that they were against Britain joining the ERM because they regard devaluation as part of the ark of the socialist covenant. I do not. Morever, I am aware—as they should be aware—that successful devaluations are often accompanied by deflation. That is usually the way in which a devaluation shifts resources from imports to exports. I am also aware that membership of the ERM could be a way of preventing sterling from rising too high as a result of forces beyond the control of the Government.

We also need to tackle the problem of inflation, which is caused partly by too much money chasing too few goods but is also part of the problem of income distribution. The public believe that the current high levels of inflation created by the Government are unacceptable. People want Tory Britain to stop leading the world in sustaining high levels of inflation. My fear—it is a real fear—is that, although there are several steps that the next Labour Government could take to reduce inflation, particularly Government-induced inflation, they will find themselves forced back into a statutory prices and incomes policy if we are not in the ERM. The political consequences of a return to such a policy would be disastrous and wholly unacceptable to the general public.

Last year I was asked at what rate Britain should enter the ERM. Answering intuitively and off the cuff, I said that we should enter at DM2.60 to the pound. I was interested to read over the weekend a discussion document by the National Institute of Economic and Social Research which came to a similar conclusion after using rather more sophisticated economic analyses.

One wants a real exchange rate which in the medium term generates a sustainable current account on the balance of payments. In theory, it is possible to use purchasing power parities using the cost of a basket of goods in different countries. But that would throw up results that were inconsistent with the colossal balance of payments difficulties created by the Government.

I conclude that the only feasible solution is to use the concept of the fundamental equilibrium exchange rate. I am sure that all hon. Members are even more familiar with that concept than me. On that basis sterling could enter the ERM in 1991 at about DM2.60 to the pound on either a narrow band of DM2.50 to DM2.70 to the pound or a wider band of DM2.45 to DM2.75 to the pound. In the transitional period—this is the point that the hon. Member for Lewisham, West (Mr. Maples) made—during which the performance of the British economy adjusts to that of our European partners, there would almost certainly have to be one realignment if we are to avoid excessive deflation. I do not believe that sterling could enter the ERM next year as a strong currency unless we are prepared to accept deflation. The blame for that state of affairs rests entirely with the Government, who have made such a terrible mess of the economy resulting in both soaring inflation and a colossal balance of payment deficit.

I hope that the Government will reject the hillbilly, wild west advice of those who argue that we should enter the ERM at an even higher rate than exists at present. Perhaps the most ludicrous suggestion has come from Credit Suisse First Boston where Giles Keating has suggested that Britain should enter the ERM at DM3.25 to the pound. That would surely be a recipe for disaster and a recession such as we experienced in the early 1980s.

Undoubtedly, the really big decision for the Government is one which effectively they have already taken. It is the decision about joining the ERM. Thereafter the development of monetary union, the best form of which is the creation of a single European currency, should be relatively easy. If Britain joined the ERM in 1991, a single European currency could be in place by 1997. The ecu would be the currency. We would be paid in ecu, shop in ecu and business transactions would take place in ecu. Foreign exchange transactions in Europe would disappear. The Queen's head would be dropped from the currency; but no one who takes these matters seriously will worry about that. Perhaps—I should welcome it—we shall see the heads of Rembrandt, Botticelli, Voltaire, Goethe and Helen of Troy on our bank notes.

The symbolic value for European unity in the creation of a single European currency would be incalculable. It would portend Tennyson's The Parliament of man, the federation of the world. It would be an act of political affirmation as well as a sensible economic step to take.

I agreed with professor David Mayes when he argued in a recent publication called "The Ecu" that the creation of a single European currency would do more to expand trade in Europe than all the other modest changes now being introduced under the title '1992'". I would go on to argue that the creation of a single European currency would change our very way of thinking about Europe and alter the horizons of the British people. It would be a dynamo for social and political change. It could offer hope of a cultural renaissance for this little, backward, fractious island off the coast of north-west Europe with a culture close to irreversible decline.

In more prosaic economic terms, the main advantage of a single European currency would be, first, the expansion of trade in Europe; secondly, the elimination of exchange rate risks in currency transactions within Europe and, therefore, victory over the currency speculators; thirdly, the improved stabilisation of the European economy with pooled reserves used more effectively; fourthly, improved macro-economic management as a result of co-operation with our European partners; and, fifthly, currency movement in the international market would neither make British industry uncompetitive relative to Europe nor stimulate British inflation.

The attitude of the Government is somewhat negative. It is based on the argument that macro-economic policy would be surrendered to European institutions. But a move to create a single European currency need not involve the British Government or other European Governments giving up the right to borrow and repay debts at their own risk. It need not involve economic union or the control of fiscal policy by centralised European institutions.

Jacques Delors, perhaps the greatest living European, got this part of his report completely wrong because of his federal bias. I am sure that Professor Alan Budd and Professor Goodhart are right to assert that in both theory and practice neither monetary union nor the creation of a single European currency requires a transfer of control of national fiscal policy from individual countries to a central Community authority. Binding rules over budget deficits would be neither necessary nor desirable.

Professor Goodhart in particular, drawing on the experience of the operation of the gold standard, has shown that the creation of a single European currency would not require the transfer of more executive powers to the European Commission in Brussels. The EC could evolve flexibly allowing other European countries such as Hungary or Czechoslovakia to join a single currency entirely free to choose whether they integrated economically or politically with the EC. For political reasons, I should like to see that integration, but the choice would be theirs. The Chancellor and I seem to be agreed on that point because we have discussed it in the Treasury Select Committee.

Of course, the creation of a single European currency would probably necessitate the establishment of a European central bank. Such a bank would need a degree of independence in its operation, but in my view it must ultimately come under the political scrutiny of the Finance Ministers of the member states of the European Community. A delicate balance would need to be struck between a central bank maintaining monetary integrity and ultimate political accountability. I see no inherent difficulties in resolving that problem. One could say that the same problem exists between the Treasury and the Bank of England now, with a legislative backstop. Moreover, those who are worried about the growing power of the Bundesbank over economic policy in Europe ought to welcome the creation of a central European bank which would clip the wings of the Bundesbank.

Only this week, on the issue of monetary union, Karl Otto Pal, the socialist president of Budesbank, expressed his support for the establishment of a European central bank. I see Conservative Members look at each other with unease. Karl Otto Pöhl is a socialist.

Mr. Nigel Forman (Carshalton and Wallington)

He was.

Mr. Sedgemore

Was? Once a socialist always a socialist.

Ominously for Britain, Mr. Pöal suggested the possibility of a two-speed system for joining the ERM, with Britain in the slow lane. Surely that would be disastrous for Britain. We should throw sterling to the speculators, as the Christians of old were thrown to the lions.

What is the Government's position on the two-track approach on the creation of a central European bank? That is a serious question because the Secretary of State for Trade and Industry has suggested that we might be in the slow lane and that other European countries might go ahead with the creation of a central European Bank and Britain will be left behind. Is that view shared by the Treasury?

Of equal concern is the worry, shared I am sure by many of my hon. Friends, that intolerable regional disparities in the level of unemployment, output and living standards might arise. To meet that possibility there would be a need for a larger Community budget—at present it is between 0.5 and 1 per cent. of Community GDP—a substantial proportion of which should be devoted to regional policies to reduce those disparities.

I doubt whether many of my hon. Friends would cavil at the idea of regional planning inside the Community. I suspect that the economist Sir Donald MacDougall, who chaired the Marjolin group which considered the problem, massively overstated the extent to which the Community budget would have to be increased.

Until now the Government have made it clear that they are opposed to the type of plan I have outlined. Instead they have brought forward plans for competing currencies or currency competition in the run-up to the intergovernmental conference. In the Government's scenario, strong currencies such as the deutschmark would be attractive to lenders and weak currencies to borrowers because of the differences in their rates of interest. Currency competition would almost certainly favour low inflation currencies such as the deutschmark, not high inflation currencies such as the lira or sterling. The deutschmark is already the most widely used currency, and the unification of East and West Germany could reinforce that. Under a system of competing currencies, the common currency in the long run would almost certainly be the deutschmark and Europe would become a deutschmark zone. Unless the Government drop their competing currency idea, that is where they are leading us.

I doubt whether it is politically desirable or acceptable to other countries in the Community that we should become a deutschmark zone. The Bundesbank may not even welcome that because it would make the conduct of monetary policy in Germay even more difficult. Similarly, if sterling became the main currency, the Bank of England might not like it because the bank would have to worry first about the foreign holdings of sterling that affect interest rates and the exchange rate and, secondly, domestic holdings of sterling that affect monetary growth and domestic demand. From the point of view of the Bundesbank and the Bank of England, it would be far better to have the ecu as the single European currency.

Mr. Nigel Spearing (Newham, South)

I am following what my hon. Friend is saying with great interest and, surprisingly enough, with some agreement as to his prognostications. Whatever one calls the currency—deutschmark, sterling, ecu or some alternative yet to be suggested—does he not agree that the engine for that and the economy that would probably dominate would be the German one? Although most of us—with the exception of a few backward people on the Conservative Benches—would agree on the idea of regional planning, where that regional planning takes place and of what it consists should not, according to most hon. Members, be centralised in a European capital across the water.

Mr. Sedgemore

I am pleased that I am swinging my hon. Friend slowly round to some of my arguments. He must live in the world as it is; he cannot stop it and get off. My hon. Friend has said that Germany will be the engine of economic growth in Europe, but that will happen whether or not Britain joins the ERM or a single European currency is adopted. Why does he state that as though stating some fundamental objection to my idea? My hon. Friend is a man of tenacity and perspicacity on this issue the like of which I have never seen and I look forward to his speech.

Regional policy will be about political argument and the transfer of powers in the Community—one can transfer them up or down. If my hon. Friend wants the Commission to give some of the money to the British Government and allow them to allocate it, he must use his powers of argument. He must think of new ways in which to sort out the problems, but he should not adopt the negative attitude that somehow, because Germany has a powerful economy—that is undoubted—therefore every suggestion on the Community is flawed because of that. Surely that dominance is one of the reasons for taking some of the powers away from the Bundesbank and sharing sovereignty in Europe.

Mr. Michael Latham (Rutland and Melton)

Can the hon. Gentleman take us more into his confidence on the question of democratic control? He has said that his proposals would not affect sovereignty. Is he in favour of strengthening the powers of the European Parliament? If so, his hon. Friend the Member for Newham, South (Mr. Spearing) will have a heart attack.

Mr. Sedgemore

The short answer is, yes, I am, and I hope that my hon. Friend does not have a heart attack. I believe that some other hon. Members may develop that point, but I must limit the length of my speech.

Under the Government's competing currency proposals the situation is such that life becomes most difficult for the currency that wins the competition. It is an amazing proposal that the winner becomes the loser. The Government are apparently prepared to let sterling take the strain of that competition.

There is, of course, one other overwhelming objection to the Government's competing currency proposals: it is hard to find anyone in Europe who thinks that they are credible or desirable. In effect, Britain risks entering the intergovernmental conference naked on this issue.

The Financial Secretary to the Treasury (Mr. Peter Lilley)

Has not the hon. Gentleman read the report of the committee of advisers to the German Ministry of Finance, consisting of 30 of the most distinguished economists in Germany, which broadly endorsed the attitude expressed in the Government's evolutionary approach?

Mr. Sedgemore

I spend most of my time trying to contact European politicians. I have not read that report, but I have heard of it. I shall willingly give way to the Minister if he can name some leading European politicians in favour of the competing currency proposals.

Mr. Lilley

Mr. Balladur, to name but one, France's distinguished Minister of State for finances.

Mr. Sedgemore

Would the Minister like to mention two?

As the Minister has enticed me, let us consider the details behind this issue. It would be an unhappy state of affairs if we went to the intergovernmental conference supporting the competing currency proposals. I understand that the Government must present their proposals shortly, possibly next week. The Minister seems to be suggesting that the policy is still intact, but it' that is true, that is not the message in the Chancellor's speech to the German chamber of industry and commerce on Tuesday.

That speech made no mention of competing currency proposals. Conservative Back Benchers, having read that speech, have been gob-smacked. He spoke about monetary union, the ecu and everything else except competing currency proposals. He spoke about moving on from stage 1 of Delors, but the only way to do that is to move to stage 2, which is a staging post for stage 3. The Chancellor seems to be talking about moving on to stages 2 and 3, and in paragraph 21 of his speech he spoke about the arrangements for stage 2 of Delors. In paragraph 24 he spoke about the ecu and said: The third element might be to promote the use of the ecu. Can we help familiarise people more with the ecu? Can we develop ecu financial markets and techniques for central bank intervention in those markets? Let me repeat a question put to me by a Conservative Back Bencher this morning: what conceivable reason can there be for the Chancellor talking about the development of the ecu unless he is talking about monetary union and irretrievably locked exchange rates? I cannot understand his speech unless it is considered in that way. Having spoken about stage 2 and the ecu, in paragraph 25 of his speech the Chancellor said: I think that these questions and others like them must be addressed in any rational discussion on how to progress to any form of EMU. It should be possible to devise solutions that are useful in themselves, whatever the outcome of our longer term debates. That was a critical speech and I am sure that the Minister will wish to comment on it. There are two way of interpreting that speech. One is to accept the words for what they say, which is that there is a significant change in the Government's policy, that stages 2 and 3 are being thought about more seriously, and that the competing currency idea has been dropped. The other is the idea of the cynics. It is to say that it is classic British diplomacy—a stalling device—that it is the British trying to avoid the odium and opprobrium of our European partners at the intergovernmental conference.

There may be some rationale in that because some Treasury civil servants are now briefing journalists fast to the effect that the Chancellor is really a big stateman and that that is what it is all about. It is a stalling device. I ask the Minister to say whether we should accept the words used by the Chancellor or accept the briefing that Treasury civil servants are giving.

Many people will be pleased if we must accept the words that the Chancellor used in that speech because 83 per cent. of European business men questioned in a survey said that they were in favour of a common currency and would like to see the ecu adopt that role. Many Governments want it, but apparently not Her Majesty's Government.

Having taken up a lot of the time of the House, I will conclude with a political thought. When I began to rethink my views on Europe just over two years ago my starting point was economics. I was worried about the fact that the freeing up of global capital markets as well as changing trade patterns meant that some of the positions that I was taking were no longer credible. Nagging at the back of my mind was also a concern about where isolationism in Britain might take us. I concluded that the European Community had to be seen as an opportunity rather than as a threat. "A blinding flash of the obvious," some will snort. "An act of surrender," others will say.

In the past year, events have moved on dramatically. For anyone who has been awake, the politics, more than the economics, of Europe call on us to reassess our perspectives. I have no intention today of trying to set out a blueprint for Europe. Events change so quickly that most of what one says is out of date before the breath with which it is said dries in the air. But I will end by setting out a few guiding principles and my own general philosophical approach.

I do not want to see the people of Eastern Europe, who are enjoying new-found political freedoms, exploited by western capitalists, although I accept that they will need western capital. I do not want to see the countries of Eastern Europe become second-class Europeans and end up as associated members of the European Community, denied seats at the top table where the critical decisions are taken.

I do want to see the countries of Eastern Europe become part of a more democratic and accountable European Community which develops new ideas on social and economic integration. I want to see them join a European Community which links global economic and environmental problems to the condition of working people in their homes and workplaces.

Proceeding by way of economic collaboration, it should be possible to create a Europe, east and west, where wealth can be shared. It is not so much that socialists and environmentalists can join together to hijack the European Community as that the EC, despite being based on laissez faire economic principles, has a natural interventionist social and political dynamic.

That, if one likes, is the contradiction of the EC. That, if one likes, is where the dialectic of the 21st century will be fought out. I do not see that dialectic ending up in crisis. Rather, it will be a way of dealing with practical problems that go beyond the boundaries of the nation state and the solutions of which therefore must be international.

The task of politicians is to bring a sense of idealism and purpose to the opportunism and utilitarianism that might otherwise dominate, to widen horizons for minorities and the disadvantaged and to protect the interests of working people.

I end where I started. Kundera once said that the struggle of the people was the struggle of memory against forgetting. Today is a day for not forgetting the awfulness of nationalism, mysticism and race—the awfulness of the Europe "des patries" followed by the awfulness of Stalinism in the east. Today is a day for remembering that the future does not have to be like the past. It can be better, as Tennyson proclaimed joyously: For I dipt into the Future, far as human eye could see, Saw the Vision of the world, and all the wonder that would be.

10.13 am
Mr. John Bowis (Battersea)

I congratulate the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) on his good fortune in the ballot and on the way in which, using his usual elegant wit, he entertained us and on occasions persuaded us to agree with the odd bon mot, to borrow a European phrase, that he came up with.

The hon. Gentleman said that once a socialist, always a socialist. I presume that that will be the motto on the frontispiece of the Labour party's manifesto at the next general election. He drew out a soupcon of debate from his hon. Friends, which persuades me rather of the truth of the adage that old socialists never die, they just feud away.

I look forward to later contributions from the Front Benches, and I apologise to the hon. Member for Islington, South and Finsbury (Mr. Smith) that I shall not be present to hear his summing up as I must attend a constituency engagement. Also, I fear that I shall not be present to witness the seamless robe way in which the debate moves on to deal with the Church and state in the next motion.

I perceive a few inconsistencies in the motion, no doubt not because of any failing on the part of the hon. Member for Hackney, South and Shoreditch but perhaps because of a failing on the part of his hon. Friend the Member for Islington, South and Finsbury. When I saw the reference in the motion to a single European currency and the claim that the interests of the British people will be served best in the future by the positive approach contained in Labour's new policies I went hot foot to examine what Labour's new policies, as contained in "Back to the Future", or whatever it is called, actually said. In that document I found not quite the hon. Gentleman's hopes as expressed in his motion. It said, in more hesitant terms: Joining the ERM is no panacea for Britain's economic problems … a Labour Government will negotiate Britain's entry at the earliest opportunity on the basis of the prudent and reasonable conditions which we have frequently outlined. Presumably as part of wanting a European currency, the hon. Gentleman would have to have a central bank and so on, but the document continued: we would oppose the proposals for an all-powerful, but unaccountable, European Central Bank, as outlined in the Delors plan … we would not advocate an independent Bank of England. The speech of the hon. Member for Islington, South and Finsbury should be worth waiting for, to see how he reconciles Labour's policy with the speech of the hon. Member for Hackney, South and Shoreditch, whom I congratulate on bringing this subject forward for debate, for we must examine where the European Community is going in its politics and economics.

Those of us who have long supported the Community believe that its aims are the preservation of peace in western Europe, the bringing together of former warring nations and the furthering and advancing of prosperity through economic co-operation and harmony. I have always believed, further, that, at least in the past—perhaps this is changing in the way that the hon. Member for Hackney, South and Shoreditch said—we have had the Community to protect us from some of the more expansionist threats from the east and some of the cultural threats from the west—from Moscow or from across the Atlantic. But the hon. Gentleman is right to say that Europe has been changing and that we must adapt, as must Europe and the Community also adapt.

I am with the hon. Gentleman in his references to the ERM. I have long believed that it would be right for Britain to join as soon as possible, and for me that is sooner rather than later. The experience of France and Italy shows that it has been helpful in reducing their inflation rates to the levels of Germany. The other side of the coin, Spain, proves that such a step is not always a panacea. That country's inflation and interest rates have gone up. But on balance it would be right for us to join as soon as possible and to benefit from the stability that that would give us.

I part company with the hon. Gentleman on the question of a single currency. I see its advantages in being simpler to manage and to trade, but the only time a single currency would be worth while would be when it was less inflationary than the strongest currency in its bounds. The strongest currency is obviously the deutschmark, as the hon. Member for Hackney, South and Shoreditch conceded. I do not believe that a single European currency would be as strong and stable as the deutschmark.

Delors said that his system would be committed to price stability. In that, he mirrors the German experience and law, but he also reflects the fact that the German psyche has always, because of its history, been anti-inflation. That is not true of many other countries that would join that single currency and come within its control. Each country's representative would have a view on what the central policy of a central, single currency should be. Just as we have seen the trade-offs that come from the political PR systems of countries in Europe, we would inevitably see trade-offs in terms of the currency's direction rather than the benefits from the competition that exists in a multi-currency system which seeks to meet the achievements of the strongest currency, rather than drag that currency downwards.

I wonder how much the independence of banks is a mirage. Even when the Bundesbank in Germany was considering exchange rates with the ostmark, Dr. Otto Pöhl's determination not to have parity was soon overridden by the political will of the German Government. I do not blame them for that, but I doubt whether independence really exists.

I am looking for a Europe that is flexible. The hon. Member for Hackney, South and Shoreditch was right to raise the issue of a new and widening Europe. We have a sort of Europe of "Jeux sans frontiers". Unfortunately, that phase is too often translated not just as, "It's a knockout" but "It's a lockout" in the British view, and perhaps the socialist view, of Europe. We must ensure that we are without frontiers in our ambitions to bring in other countries when they qualify and meet our requirements of democracy and stability. We must not allow economic or political obstacles to stand in the way of that wider membership.

We hope that East Germany will soon be within our Community. However, it is not just the Germans within the German-speaking community that we want to see in our Community. Why are we not doing more to encourage Austria to meet our requirements—followed perhaps by Hungary and Norway, which might be followed by Sweden, and perhaps even Iceland and Finland? When we look further we see other countries that might one day seek to join, such as Yugoslavia, which is beginning to disintegrate as a single nation. The Boznias, Cirotias and Slovenias may all become capable of joining us, with separate seats at the table. Then we start to see the implications for the currency, the economy and the political stability of our Community.

Sir Russell Johnston (Inverness, Nairn and Lochaber)

I thank the hon. Gentleman for giving way, and perhaps I should have stood up a little earlier when he referred to Austria because I want to ask about that. Does he agree that Austria could enter almost forthwith, and that it is wrong for the Government to seek to couple Austria and Turkey?

Mr. Bowis

The hon. Gentleman slipped in Turkey. I hope that Austria will be ready to come in sooner rather than later. I expect Austria to qualify very soon. Turkey is a different matter. We must ensure not only that it is economically stable, but that its human rights record and other democratic factors continue to improve to meet our requirements.

Mr. Forman

Before my hon. Friend gets carried away with his largesse in opening up the Community to all and sundry, does he realise that the Community has recently decided at Foreign Minister level not to enlarge itself until 1993? That must be wise when one considers the extent of the problems and opportunities that must be dealt with between now and then.

Mr. Bowis

I accept that 1993 may be a sensible date, but 1994 follows it. We want to ensure that we are developing a Community that enables us to look outwards and onward beyond short-term dates and the German reunification issue to how Europe's stability can be helped by that Community. It will be helped not by a closed door policy, but by being ready to be flexible and considering political structures.

If we are to have a representive from every country in the Community, the Council of Ministers' decision-making will begin to look unwieldy. Inevitably, the European Parliament, as the hon. Member for Hackney, South and Shorditch hinted, will become more important in the supra-national decisions and debates. At the same time, because many countries that would be joining and many countries in the Community are increasingly concerned about nationalist rights and identities, so it will become inevitable that the question, "What is a supra-national issue?" will become less clear than it was a few years ago. We must continue to consider that. Europe will find its equilibrium and future if its structures are not too rigid and we do not rush into making such structures permanent.

We must look for ways of increasing harmony and co-operation. Where it is sensible we should pool sovereignty, as we have been doing over the years. But we should not make the pooled sovereignty the goal in itself. If we bear that in mind, we shall be moving towards the right sort of equilibrium.

I am concerned about the Commission's powers. It is the civil service of Europe, and all too often it has turned out to be the policy initiator of Europe. I would much rather see policy initiation by the Council, while that is still the appropriate forum, and by the Parliaments, both of the national Governments and the European Community, rather than by the civil service—the Commission. I hope that we can consider that as we adjust the political structures.

I question whether some of the decisions that are emerging are realistic. The present issue of the eight-hour shift being the limit right across the Community is one such decision. An eight-hour shift may be perfectly sensible for some work, but those working in mines and on buses and those on night guard patrol all have different requirements—[HON. MEMBERS: "What about here?"] I think that some of my hon. Friends are suggesting there should perhaps be an eight-hour shift for hon. Members. Perhaps, in the light of that, I should withdraw all my opposition and say that there is something in the eight-hour shift. But, in reality, it is nonsense. We can laugh about that, but the public stop laughing when they see some of the harmonisation such as the height in hands for the export of ponies and horses. The sensitivities of people in this country mean that they do not want young horses or ponies from Exmoor and the New Forest disappearing off to the dinner tables of Europe. We must bear that in mind.

It has been suggested that there should be a veterinary check on every game bird and animal that is shot to ensure that it is fit for human consumption. The mind boggles. I believe that 3.5 million birds are shot each year—the idea of 3.5 million veterinary checks begins to make the suggestion look absurd.

Frontier checks are being challenged. The more we can remove frontiers the better. But we should remove them only when it makes sense. Certainly, Interpol, Dutch border controls and our own police and customs are worried. Recent figures from Customs and Excise for example show that 40 per cent. of the drugs seized are found at routine customs checks, not by spot checks. That shows the importance of greater national common sense coming into some of those decisions.

In the great debates on pollution we hear criticisms of Britain, British pollution in the North sea and the way we pollute, from people who are themselves polluters. We do not seem to have the power in our Community to adjust and sift the balance of criticism so that the countries through which the three great polluting rivers of Europe—the Rhine, the Elbe and the Meuse—flow, and which criticise Britain, are highlighted as the real polluters and that action is taken. That is largely because the Community is strong on rhetoric and weak on enforcement.

Britain can be proud of its commitment to European initiatives. The part of the motion that refers to Britain's narrow-mindedness and isolationism is wrong. After all, Britain has been moving forward. We were the last to be criticised for our water and we were the last bar Portugal to be criticised for our beaches. Of the 79 or so directives only one has not been completely fulfilled by Britain, compared with some 50 by Italy. Sometimes also the Commission should be told, "Physician, heal thyself". I understand that the Commission has been polluting a local river in Brussels and that it is now before the Belgian courts for a breach of safety and pollution because of the asbestos in its buildings, but that is not often publicised. So perhaps there should be some humility from that great building.

Enforcement is ineffectual and we need to tighten up and make sanctions which can stick against countries that breach the agreed directives. The recent beef issue was a classic example. The only ultimate way in which Britain could achieve justice was through the European Court, but that would have been far too slow, so we had to resort to the old way of international political pressure to achieve that result. While we are on the subject of beef and the reactions of some of our colleagues in Europe, perhaps we should not be so slow to criticise some of their practices. If Italy wishes to stop our beef coming in, I suggest that we look most carefully at what goes into Italian salami. Recently it was revealed to me that at least some Italian salami contains donkey meat and the British housewife might want to know that before she dashes down the supermarket for some slices of donkey salami. Perhaps the beaches of Blackpool are threatened not only by pollution from the sea but by donkey rustlers who would collect the donkeys of Britain to put them on the dinner tables of Italy.

Beyond the donkey, there are many ways in which the Commission has been sensible, but all too often it has not been so sensible, and that gives Europe a bad name. However, that is the downside and I do not agree with the hon. Member for Hackney, South and Shoreditch that Britain is nit-picking when it challenges some of the absurdities. Britain, the Government and the Conservative party are dedicated to membership of Europe and to forwarding the concept of Europe in a way which is to the benefit of all European peoples. After all, we are leading the way on the single market and competition policy. Our Government are promoting the global and environmental protection policies. We are leading Europe on matters such as police co-operation and the war against drugs. We have more ecu bond initiatives than any other country in the Community, we are far ahead in financial services deregulation and, most recently, we established the European bank for development and reconstruction, looking outwards beyond our borders.

There is so much that Britain can contribute to the leadership of Europe. We need to do that in the knowledge that Europe is a dynamic community. It has not closed doors and there are opportunities for countries to join it and to develop within it. I believe in Europe as I believe in one nation. I believe in the community of nations and peoples which we have joined and are seeking to assist to develop. It is a Community which is creative, co-operative, harmonious and tolerant. If we get those concepts through, it will be a Europe that I will continue to support.

I conclude with a note of agreement with the hon. Member for Hackney, South and Shoreditch, not in terms of his criticisms of the Government which were unfair, or in terms of his support for his party's policies, as that would be irrational, but I agree with him that we are an island and we have never been and should never be insular. We are a community which must never be isolationist. On that concordat I congratulate the hon. Gentleman on his good fortune and his choice of debate and I support little bits of what he said.

10.34 am
Mr. Nigel Spearing (Newham, South)

The hon. Member for Battersea (Mr. Bowis) has made a speech of generalisation and abstraction which will appeal to many in the House and in the country. It is typical of the case that we hear time and again. Let me immediately draw his attention to two bits of nitty-gritty which show that his aspirations are not always as helpful as they appear.

The right hon. Member for Old Bexley and Sidcup (Mr. Heath) told us that when we joined the Community the effects on our balance of payments would be substantial and positive. Of course, they have been substantial and negative to the extent of £15 billion in manufactured goods alone. The hon. Gentleman mentioned Dartmoor ponies. Is he aware that so far neither the Commission nor the Council has agreed to the maintenance of our minimum value export order? Therefore, all the fears which many of us have expressed on that humane instrument which the House passed may be swept aside.

I congratulate my hon. Friend the Member for Hackney South and Shoreditch (Mr. Sedgemore), a fellow London Member, on his choice of topic, which demonstrates the extent to which the House is not properly dealing with these matters. My hon. Friend's motion advocates European monetary union, which is, in effect, a single currency. To my knowledge, the House has never approved such a proposal, yet when the Prime Minister went to Madrid she committed the Government, and, in effect, the House and all the citizens of the United Kingdom, to that very step. I congratulate my hon. Friend on bringing up the topic again.

Often attendance in the House is inversely proportional to the importance of the topic, and today is an example of that. One may ask why the House has never debated such a fundamental issue—perhaps one of the most important and fundamental issues that the House has neglected to debate this century. The answer lies in the inhibiting effects of free debate of the treaty of Rome. It could have been up to the official Opposition to initiate a debate, but they did not do so, although two Committees in the House suggested that they should raise the matter.

My hon. Friend has more in common with me than he might suppose. He referred to his father and the tragedy of the Rawalpindi. Rawalpindi house is in my constituency. It was established as a memorial to that sad event. Those of us who remember the events of 1935–36 and who survived, either in active service or as civilians, the bombardment of our towns and cities—I know that you are one, Mr. Deputy Speaker; we are a diminishing number but we are still around—join with all who want to ensure that that never happens again.

My hon. Friend was kind enough to refer to my tenacity. I make no apology whatsoever for telling him that tenacity on this particular issue arises from an equal concern. After that terrible conflict I had the privilege of going to Hamburg and helping the Hamburg international club rebuild the Gestapo headquarters into a youth theatre. For 40 years I have had exchanges with a family in that city as a result of a school exchange.

I hope that no hon. Member will again accuse me of being a little Englander or of operating from the wrong motives. As I hope to demonstrate, I do not think that the treaty of Rome is the way to achieve the objectives about which we often hear from my hon. Friend the Member for Hackney, South and Shoreditch, the hon. Member for Battersea and even the right hon. Member for Old Bexley and Sidcup. It is not constructive in that mould.

My hon. Friend the Member for Hackney, South and Shoreditch spoke about matters in which we share tremendous unanimity, and then he suddenly talked about the exchange rate mechanism. He says that we shall not achieve security for Europe or for the rest of the world through weaponry or threats. That is absolutely right. He rejects the tools of war and adopts the tools of finance. He is an expert in financial matters in the City and I and my hon. Friends all look to him for facts, leadership and analysis in such matters.

When it comes to world security, partnership and real internationalism, we should not look primarily to the tools of finance or the market. That is the flaw in the treaty of Rome. It is an economic treaty which moves into political realms and places its faith in mechanisms, first in finance and the market, and automatically calls for an expansion of political institutions based on those flawed and transient foundations. That is why I oppose the treaty. It seeks international results on a foundation of sand. It is not international at all: it is supranational, and always wanted to be.

Hon. Members who speak as individals have a great privilege. Those on the Front Bench who are constrained by corporate teamwork often have to speak in other capacities. Politicians, commentators and party members often forget that a person speaking as an individual and, quite properly, as a citizen can feel relatively unconstrained. An hon. Member who holds office or shadow office or who is the Chairman of a Committee speaks with another label. My right hon. Friend the Member for Chesterfield (Mr. Benn) often accuses people of reneging, but he should remember that people often have to speak in a corporate capacity.

I am Chairman of the Select Committee on European Legislation and in that corporate capacity I should like to put in a footnote about the recently published White Paper dealing with scrutiny by the House of EEC legislation. That is universally criticised, and it always will be, because our debates on it are advisory only whereas many of our other debates, thank goodness, are still definitive and we have power. That automatically puts them in a different category.

Yesterday the Leader of the House was asked whether the debate that we are expecting on this very important topic would be subject to a single vote to approve the Government's proposals en bloc. I suggested that that would not be a good procedure because Government proposals are many and varied: some are excellent and some are questionable. We should have an opportunity to debate them at large so that the Leader of the House can reflect on them. If we cannot do that, we are not proceeding in a proper and democratic manner, even when debating how to deal with advisory matters.

I shall give a couple of examples. There is a proposal for a number of special Committees to replace the occasional Committees that now examine European documents. There are 10 motions on the remaining Order of the Day. In the proposed Committees Members should be able to question Ministers; I do not think that anybody would disagree with that principle. More questionable is the fact that the power to decide whether to have a debate on the Floor of the House at a convenient hour or upstairs is to be removed from the House where Standing Orders presently place it.

I shall now revert to my persona as an individual Member and speak on the subject that is before me. I agree with my hon. Friend the Member for Hackney, South and Shoreditch about the approach of some Conservative Members, some of whom he named. The Prime Minister's approach to international matters is to be regretted. In the right hon. Lady's past performances in defending the rights of Parliament I did not detect a great deal of concern about parliamentary democracy. I know that she was catapulted to the Front Bench at a relatively early age and perhaps that has something to do with it. However, the right hon. Lady is not the first person to come to mind when one thinks about the champions of parliamentary democracy and especially of its procedures.

One might think differently about the right hon. Member for Old Bexley and Sidcup, and in a sense that illustrates the other side of the polarity of the Conservative party. However, even the right hon. Gentleman exhibits flaws or illogicalities when dealing with this matter. When we debated the referendum in 1975 the right hon. Gentleman assured the nation on a number of occasions that the Queen would not be affected. I had some correspondence wth the right hon. Gentleman a few months ago and dropped him a line to say that I would mention the matter again this morning. I thought that he would be here. We hear him a great deal on radio and television, and he makes great statements, but he does not always come here for debates on this topic.

The Queen is affected, but not personally or physically. Any legislation passed in Brussels by the Council of Ministers as a directive requires this House, and perhaps another place and therefore the Queen in Parliament—because Parliament takes the powers of the monarch through our revolutions—to comply, thereby passing legislation at the behest of another legislative body. That affects the power of the monarch which resides in the Mace in this place. The regulation does not even come before us as such. It is self-enacting and does not need to be translated into a statutory instrument or an Act, although consequential legislation may be necessary. Therefore, the power of the Crown in Parliament—which is a better term than the King or Queen in Parliament—is entirely bypassed.

For a Prime Minister of the United Kingdom to claim, albeit 15 years ago, that the position of the Queen is not affected is quite wrong. I do not know how the right hon. Gentleman gets out of that. In his reply to me, he said something about matters coming before the House in the usual way. As I have illustrated, the documents that come before us for discussion prior to decision in Brussels are for discussion only.

In the context of the treaty of Rome and the European Community, we are talking not about co-operation, which we all want, but about the constitution and rules or order. We have to go back to the rites of any state to see how such things work. We all know that the four features of legislation, taxation, administration and adjudication are to be found in any modern state in some form or another, even in dictatorships. In our tradition we have said that representative parliamentary democracy, which was achieved as recently as 1928, shall provide the House with power over all matters in statute and power to call any Government to account. Such power comes from votes and from the free citizens of this country to those of us who are here. The way in which the EEC works and some of the proposals that are now before us do not follow in that tradition.

Let us take the question of a common currency, which should be at the centre of the debate and of economic and monetary union, to which we are apparently now committed. The power of currency is an ancient one, as it authenticates the unit of account—the head on the coin, as my hon. Friend said. In modern economies, it goes much further—for example, to the authentication of banks. I was recently talking to some City gentlemen and I asked them who decides what is a bank. They said, "The Bank of England." So, I asked, "If we get European monetary union, who will it be?", and their faces dropped.

There are other matters, such as the control of credit institutions and the laws relating to that, the rules of exchange and the management of the currency through inflation. In other words, when one has a currency, whether it be a coinage or authentication of credit, there must be some form of central authority. In the United Kingdom, such control is, by statute, in the hands of the Bank of England, which is publicly owned, although it may not be publicly controlled. If we expand our currency into an international or supranational currency, we must transfer that authority with it. That includes authority not only for the nitty-gritty of economic exchange and the authentication of institutions and currency, but the control and management of the economy of which that currency is part. That is the two halves of the job of the Treasury, and if I am wrong, the Minister will correct me. There is much debate about both aspects, and often the Budget debates are not as good as they might be because the two get mixed up.

On Monday, my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) made a powerful speech about a Eurofed, because a Eurofed is on the cards and in the documents. Mr. Christophersen, the Finance Commissioner, has issued a document that should be more publicly known in which he advocates that step, which will probably be debated in the intergovernmental conference in the autumn. If there is to be a Eurofed that fulfils that regulatory and management function, as it must, to whom is it to be accountable?

My hon. Friend the Member for Hamilton (Mr. Robertson) who is the Front-Bench spokesman responsible for these matters, said in reply to my right hon. Friend the Member for Bethnal Green and Stepney that the majority of the Labour party would be in favour of a Eurofed provided that it was accountable. But it cannot be accountable to the House, so is it to be accountable to the Commissioner, to the Council or to the European Parliament? The latter was one of Mr. Christophersen's suggestions. What does "accountable" mean? Does it mean only that one can ask questions and get a reply, good or bad, or can one be dissatisfied with those answers and do something about it? Accountability means a whole range of things.

It might be thought that this is all rather theoretical, but it is not because these are the questions being debated inside the Council of Ministers and the working parties and they will surely arise when those conferences become semi-public, at least in Italy in the autumn. Whether we like it or not—the hon. Member for Battersea and my hon. Friend the Member for Hackney, South and Shoreditch appeared to like it—we are in the middle of a basic change in the management of our currency and economy. I agree with my hon. Friend that, even if these formal mechanisms do not come into play, there is the informal fact of the deutschmark and our £20,000 million deficit.

The Prime Minister, in advocating the single market, 1992 Cockfield version, to which the hon. Member for Battersea alluded, has unknowingly added another and vital dimension. When she advocated the single market and the primacy of competition, which is part of her political philosphy and, paradoxically, the philosophy of Tory Members who most object to the treaty of Rome and who would prefer a treaty of Bruges, she forgot that the free market does not mean complete freedom. Indeed, it means almost the opposite. The concept of a market includes rules. It is like a version of a football game. It is competition within given rules—the level playing field, the flat table. Somebody has to decide what those rules are—the specifications, what happens and so on. If the rules about commerce, money and markets are to be harmonised over the whole of the European Community, one has to go into many nitty-gritty matters.

We are concerned here not just with the money market but with specifications for many matters, from the design of a bus to the speed limits on our road and how much alcohol one is allowed to consume before driving, because without that there cannot be complete and perfect competition. So, rather than the state not being interventionist—a concept in which many Tory Members believe, as they would not have been elected as Tory Members of Parliament without that basic belief—the 1992 package, which will become more and more difficult as we go along, provides an enormous amount of intervention just to create the theoretical markets to which the Prime Minister is so much attached.

Like the right hon. Member for Old Bexley and Sidcup, who signed the treaty of accession, the Prime Minister and her friends took us through the Single European Act into the single market and the 1992 package under majority voting without any mandate. How is that for parliamentary democracy, which she claims to defend? Can any Tory Member who was elected in 1983 say that he had a mandate for the Single European Act and majority voting on this mass of legislation? I asked the Attorney-General to tell me what the limit on majority voting on article 101A was, and he told me that we do not know. Who is the authority to decide that limit? It is not this Parliament but the Court of the European Community, so the function of adjudication is therefore of fundamental importance.

Under the treaty of Rome, power in the European Community descends from on high. My hon. Friend the Member for Hackney, South and Shoreditch said that Jacques Delors was the greatest living European. In some curious way, he is. He bestrides the Community like a prince and his Commissioners around him are something of a court. One has only to read the speeches made in the debate on this subject last week in the other place to understand that. There is a gaggle of retired princes along the Corridor. They act out of patronage.

Last week I was speaking to a senior industrialist—I shall not mention the industry or his company, which is a well-known household name that represents about 10 per cent. of our gross national product—and he asked me whether I was familiar with what the Commission was doing about such and such, and I said, "Yes, it is drafting regulations." He told me that he had tried to see the Commissioner but that he saw only the chap who is writing it out, who is the equivalent of a senior principal—my hon. Friend the hon. Member for Hackney, South and Shoreditch will understand what that is. He said "I am not listening to you—you must wait for the draft regulations." That is almost unbelievable, but it is how the Community works.

The right hon. Member for Old Bexley and Sidcup has said that the Commission is less important than the Scottish civil service, but the Commission alone has the power to promote legislation. We can promote legislation in the House as individuals, but even the Prime Minister cannot write a proposition for legislation in the European Community.

Not only is the structure mistaken in terms of putting our faith primarily in financial mechanisms and, secondly, in the markets, but most of the characteristics of the political machine work not upwards from the citizen, but downwards from an emperor-like position of superiority. We are told that if we are good boys we can engage in discussion late at night, but the European Parliament may take the view that ultimately the Commission and the Council must decide. It is through Ministers alone that we have the last remaining channel of accountability to the Council of Ministers—hence the importance of both the House and the Council.

The treaty of Rome is a unique constitution. Although at first sight it does not resemble a super-state, it expands its competence bit by bit, and becomes a unitary state stage by stage. Its powers over the economy, legislation, taxation and administration expand to match.

My hon. Friend the Member for Hackney, South and Shoreditch described our shared wartime experiences, and he was right to do so. I, too, had relatives who were killed in the war, although they were not such close relatives as my hon. Friend's; indeed, my hon. Friend and I could also have been killed. My right hon. Friend the Member for Bethnal Green and Stepney has encapsulated today's debate in an early-day motion. What better vehicle could there be than the Order Paper of the House? The motion was tabled in a truly international spirit, recognising that the rest of the world does not stop at Europe. There is now talk of a world economy and a world society. We want to end in the rest of the world what the French and Germans between them—thank God—have largely ended in Europe.

I shall close on a constitutional note by reading early-day motion 1052, which states That this House believes that the most effective method of obtaining success in transnational endeavours is through co-operation between governments, parliaments and peoples, whether such be within the European Community, in wider Europe, or the rest of the world; and therefore calls on Her Majesty's Government to support and initiate actions that promote higher standards of environmental protection, improved standards of health and safety of employed persons and their conditions of employment by treaties and agreements that achieve their objectives without further prejudice to the rights of the House of Commons in respect of jurisdiction, legislation, and taxation which are the foundations of representative democracy in the United Kingdom. I do not believe that any hon. Member can dissent from such a motion without telling us why, especially my hon. Friends, because our party was formed to fulfil its objectives in, by and through the House of Commons.

11.3 am

Sir Richard Body (Holland with Boston)

The hon. Member for Newham, South (Mr. Spearing) was right to emphasise that the question is not whether we should play a part in Europe, but whether we should do so supranationally or internationally.

The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) made a magnificent speech. All hon. Members who heard it enjoyed it enormously, but I warn my hon. Friends that I have known the hon. Gentleman for a long time—we were friends before we came into the House. There is only one thing wrong with him: he is a full-blooded socialist. On any issue, we can be sure that his objective is to ensure that this country becomes socialist. Although he argued attractively and persuasively for a common currency and more power for the European Parliament, my hon. Friends can be sure what his reasons were. Now that the socialist party is the largest in the European Parliament, he believes that there is a chance that power will be transferred from the House of Commons to Strasbourg. He wishes Britain to be locked inside a socialist union, and I fear that he will have his way unless my hon. Friends pay heed to what he is about.

The hon. Member for Hackney, South and Shoreditch began his speech movingly by referring to his father. I thought then that we should prepare ourselves for an idealistic speech, but he galloped off to talk about tatty monetary matters—there is socialism for you. He spoke for some time about the exchange rate mechanism: of course, he wants monetary union. Let me remind him what Ralf Dahrendorf said a few weeks ago. No one can argue that he is not a good European—although perhaps not as good as Mr. Delors, the Prince of Europe—as he worked industriously to bring together 12 countries. He said that we should pause a while before considering monetary union in the 12—that we should wait to see how it works between East and West Germany. If it works there, he said, perhaps we can go on to consider something more ambitious. He reminded his audience that monetary unions have come and gone many times in Europe and that most have collapsed in crisis, causing great hardship to many people.

On the question of a common currency, we are merely dealing with intrinsically worthless bits of paper until whoever creates the currency gives it authority and makes it worth something. How can that be done in a monetary union embracing 12 countries—or, indeed, 13, as Austria is in the European monetary system—unless there is a supranational authority to decide the quantity of paper to bear the symbol, that makes it the currency of the European union? It has been recognised for a long time that there must be something far superior to our own Treasury or Bank of England to make the decision.

I suspect that the hon. Member for Hackney, South and Shoreditch has dipped into a book that came out in 1962. I recommend that all hon. Members read it during the current debates on monetary union. It is called "Britain and the New Europe", and was written by two distinguished federalists in this country. Although the book was written almost 30 years ago, the argument is still valid. They explain that we shall never achieve a united states of Europe except by stealth. They did not use that word, but that is what they mean when they went on to say that it would be necessary to take four steps. We have already taken three of them. The fourth step is a common currency. As the authors of the book explain, once there is a common currency there must be a common form of government which is responsible for every decision of any consequence that is taken throughout the member states of the monetary union.

If we on the Conservative side are honest about it, we know why our party became enthusiastic about entering the Community some 20 years ago. It was born almost entirely of fear of the Soviet Union. We feared the invasion politically, if not militarily, of western Europe. It was important, therefore, that the countries of Europe should be knitted together in some kind of union of self-protection. Nobody, mercifully, can advance that argument now. The events of the last 12 months have been exciting and have put our minds at rest. Although that threat has gone, another has taken its place. The threat that Europe as a whole now faces is potentially greater than any threat that Europe has known in the past.

The term "environmental security" has entered the political lexicon. Our continent, and the planet as a whole, is a less secure place than it was. In the 21st century it will become a very insecure place unless this generation does something about it. We must take action now if we are to prevent the catastrophes that most certainly threaten us. Individual European countries cannot act alone to overcome the problems that face us—global warming, acid rain, pollution or any of the other issues that add up to environmental insecurity.

We have to ask ourselves how the countries of Europe can deal with these problems. We need urgently some kind of institutional structure that will enable the countries of Europe to work together on environmental issues. We need to ask ourselves whether the European Community as it is is now constituted is sufficiently well equipped to fulfil that task. There are three reasons why I fear that the Community as it is now constituted is ill-equipped to fulfil it.

First, the European Community has decided to admit no new members until 1993. Even then, only Austria and Turkey may be admitted; the others will have a long and tedious wait before they can be admitted. We cannot refer just to 12 countries as, by themselves, constituting Europe and able to cope with issues of staggering importance for future generations. We can no longer speak of the European Community as Europe. Some of us like to call it Europe. Even the hon. Member for Hackney, South and Shoreditch made a slip when he referred to the European Community as Europe. The European Community consists of only 12 out of some 35 European countries. Therefore it is too small, too narrow, too isolationist even, to fulfil that task.

Secondly, the European Community insists upon regarding the Twelve as a homogeneous entity, yet the environmental problems that we face are not one and the same throughout the Community. My hon. Friend the Member for Battersea (Mr. Bovis) referred to the pollution of the rivers. He will agree that the Rhine flows through one country that is not a member of the European Community. No one, I hope would suggest that Greece or Portugal should make a financial contribution towards the cost of cleaning up the pollution of the Rhine. Why should the countries of southern Europe be called upon to pay the vast sums of money that will be needed to deal with the problem caused by acid rain? The European Community, consisting of 12 countries, is the wrong shape and the wrong size to cope on its own with the environmental problems. There is not just one circle of interest; there are a number of overlapping interests. It would be harsh and unfair to expect each Community country to make a financial conribution towards solving the problems within each of those circles of interest and therefore to be part of the same common policy and the same common programme of action.

The third defect—

Mr. Ivan Lawrence (Burton)

My hon. Friend speaks with enormous authority on these matters. He referred, tantalisingly, to the federalising effect of taking monetary union to its logical conclusion. Then he moved on to talk about other matters. He is now about to go even further away, and out of orbit. is not monetary union the central problem that we ought to be addressing? How does one stop the de facto centralisaton of monetary control around the most powerful monetary force in Europe, the Federal Republic of Germany, from slipping into a formalised structure of monetary union that will lead to the federalising effects against which my hon. Friend so rightly warns? What is my hon. Friend's solution to that problem? I am interested in his answers because I share his anti-federalist feelings.

We need to come to grips with the alternative of formalisation along monetary union lines when we are faced with the stark reality that when the Bundesbank says today that interest rates must go up by 1 per cent. we have to fall overselves and follow, or our own monetary systems fall into decline.

Sir Richard Body

As Nye Bevan said, why ask the monkey when the organ grinder himself is here? The Financial Secretary to the Treasury is to reply to the debate. He, I suspect, will give a valid, coherent and persuasive explanation in answer to my hon. and learned Friend's question.

Mr. Lawrence

No, he will not.

Sir Richard Body

Oh yes, he will. He gave us a little soupcon of it earlier this morning.

Mr. Lawrence

All he will say is that monetary union is not federalization.

Sir Richard Body

Despite being tempted by my hon. and learned Friend, I repeat what Ralf Dahrendorf said—that is wise advice which this country ought to take.

The third reason why I believe that the European Community, as it is constituted now, is ill-equipped to deal with these environmental issues that are of such huge and growing importance for the whole of Europe is its supranational nature. Every common policy or programme of action that it adopts is supported by laws and taxation—because invariably, both are required—that are supranationally decided. We know that they are decided in accordance with a democratic deficit, as it is commonly called, by the Council of Ministers. If all the countries of Europe are to accept and enforce the laws that will be required to make the necessary environmental changes, those laws must be welcomed, understood and wholeheartedly supported.

Unfortunately, some parts of the Community take a rather cavalier view of Community legislation. A friend of mine, the editor of the New European, was recently in Italy and found himself talking to a distinguished Italian politician. My friend asked, "Why do you like so many of your laws being made in Brussels?" The politician replied, "It's excellent. The further away from Italy our Government is, the better it is for us." That is the attitude taken by a large part of Europe. Other countries do not take the Community's laws quite so seriously as we do.

The sad part is that if laws are made supranationally and not by national Parliaments, they will not be taken so seriously. When laws are made by national Parliaments, the Governments of those countries have a direct interest in making sure that they are enforced, because they have the imprimatur of the people concerned and are supported by their will. Sadly, that is not the case in the Community, and that is why there is a desperate need to reconstitute it.

I believe, as I am sure does the hon. Member for Newham, South, that all laws should be made by national Parliaments, and taxes likewise levied by them and not supranationally. As long as we hold fast to the supranational approach, we cannot have democracy. The hon. Member for Hackney, South and Shoreditch had a vision of western Europe embracing central and eastern Europe, as we would want to see the Community do—but how can he then argue that that will be democratic?

I do not know whether the hon. Member for Hackney, South and Shoreditch agrees with Abraham Lincoln's three elements of democracy, but I have no doubt that he tries very hard to understand the hopes and fears of the people in Hackney. I do not doubt either that he does that very well—up to a point, anyway. But how on earth can any man or woman represent half a million people? How can any man or women be accountable to half a million people? If one imagines a European Parliament as a supranational authority over some 500 million people throughout all Europe, how many Members of Parliament would it have? It would have one Member of Parliament for every 1 million people. How could that be democratic? How could there be any sense of accountability? How could there be any real communion between a Member and an electorate as vast as that? We talk of a democratic deficit, but that would be the real democratic deficit—a European Parliment making 80 per cent. of our laws, yet with representation as inadequate as that.

Sir Russell Johnston

Does the hon. Gentleman agree that the President of the United States is democratically accountable?

Sir Richard Body

I wish that the hon. Gentleman would have a word with someone who knows rather a lot about that matter, who is seated only a few feet behind him. I refer to the hon. Member for Newham, South. I must try not to be patronising, but I must explain that we are moving towards a unitary megastate, not a federal union. The United States has a constitution with numerous checks and balances, but even then, how many people vote when there is a presidential election? It is less than half the electorate. Even in the United States there is a feeling among millions of people that it does not matter very much whom they vote for. It is sad that in a great democracy such as the United States, with all its checks and balances, and with a well thought-out and constructed constitution, there is a feeling that it does not matter much who is elected to the White House.

Those are the reasons why I believe we must urgently reconstitute the European Community, to make it an international not supranational body.

Assuming that we are concerned about environmental issues, why is not greater use made of the one institution of Europe that was the first by many years to raise the important issues that concern us all now? As long ago as 1957, the Economic Commission for Europe, which now has 35 member states, was bringing together the countries of eastern and western Europe to deal with issues such as the environment, trade, agriculture, and so on. It dealt with some 14 different issues. It is sad that our Government have for some years not put their weight behind the commission. It is well-equipped to formulate common policies and programmes of action for the nations of Europe that feel that they have a problem in common and want to act together to overcome it.

The Economic Commission has proved its ability to fulfil that role. A long list of conventions has been prepared as a result of intergovernmental conferences and have been put into effect in this country, as in others throughout Europe. They have not necessarily been implemented in every country, because even if one supports the Economic Commission, one is not bound by every convention but can choose to adopt or not adopt according to whether one's interests coincide with those of one's neighbours. That is a more sensible approach to some of the issues that confront us.

I am all in favour of the European Community dealing with a wide range of issues, provided that it drops its supranational pretensions. The lesson of the past 30 years is that there have been very few occasions when agreements have been reached without friction and disharmony. Those of us who have studied the machinations of the common agricultural policy over many years know that a great deal of fraud has also been involved. In any event, I hope that the hon. Member for Hackney, South and Shoreditch will yet come round to the view that the supranational approach is undesirable. He should be a good internationalist like the hon. Member for Newham, South and help to make progress towards genuine co-operation throughout the whole of Europe, not just with part of it.

11.29 am
Sir Russell Johnston (Inverness, Nairn and Lochaber)

The hon. Member for Holland with Boston (Sir R. Body) is a decent and fair-minded man, but my disagreement with him is so wide that if I were to attempt a rebuttal I would not have time to say anything else.

Mr. Spearing

Have a little go.

Sir Russell Johnston

I will have a little go on the way.

Like other hon. Members, I welcome the initiative of the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) in introducing the motion, and I very much welcome the way in which he did so. If I am too fulsome about it, he may regard it as an unfriendly act. As a Liberal, I found many of his words and phrases old familiar friends. Nevertheless, it was pleasing to hear them falling from his lips.

When I joined the Liberal party in 1954—it was not exactly a high time; in fact, there have not been many high times—the party's commitment to developing European integration was a major factor in my decision. I thought that liberalism was an individually based philosophical concept and that one's responsibilities did not stop at the national borders. I remember being proud when the small parliamentary Liberal party divided this House in 1959 on whether Britain should apply forthwith for membership of the European Community.

Strangely and sadly, the arguments against such a course of action that were paraded 31 years ago are still to be heard. It was most welcome to hear them so effectively and fluently debunked from the left of the Labour party. Many of them are atavistic and emotional and have little to do with economic disputation. Although we are supposed to be talking about economics and alternative economic theories, many of the views come much more from the guts than the head. They rest on a complex of beliefs which are held, I say to the hon. Member for Holland with Boston, almost as a matter of religious faith by many in the United Kingdom. They believe that we are better and more efficient and that we have better laws. The hon. Member for Holland with Boston said that the Italians are good at making ice cream but not at keeping the law.

Mr. John Marshall (Hendon, South)

Does the hon. Gentleman agree that Italy has had to be taken to the European Court more frequently than the United Kingdom and that it is not particularly good at implementing its judgments? The record shows that the United Kingdom is speedy in implementing judgments that are adverse to it.

Sir Russell Johnston

There are differences between one country and another in the European Community, but I would not generalise about that.

I do not accept the idea we are better than everybody else, but nor do I say that we are worse than everybody else. [Interruption.] The Minister is muttering into his non-existent beard; I did not catch what he said.

Listening to the right hon. Member for Bethnal Green and Stepney (Mr. Shore) on Monday, when he spoke of exchange control as though it were a holy object, one realised that his basic objections were not economic objections but were based on the belief that we can do things better within our own borders. I no longer accept that argument. The hon. Member for Hackney, South and Shoreditch dispensed with part of it when he talked simply of the plain fact that so many economic matters cannot be confined within borders.

The hon. Member for Newham, South (Mr. Spearing) delivered a passionate defence of the Bank of England, the the Treasury, my God, as if they were the last bastions of civilisation about to be overwhelmed by the visigoths of Brussles and Frankfurt.

Mr. Spearing

Will the hon. Gentleman give way?

Sir Russell Johnston

I thought that might excite him.

Mr. Spearing

It is not accurate or fair to attribute words to me that I did not utter. I was not endorsing the attitudes, policies or habits of the Bank of England and the Treasury but illustrating the fact that, because of Ministers' accountability to the House, we have some influence or control over what they do, right or wrong, wise or unwise.

Mr. Sedgemore

Over the Bank of England?

Mr. Spearing

I said attitudes. If my hon. Friend becomes Chancellor of the Exchequer, he may have a good go at that. The transfer of powers and responsibility to Eurofed would diminish or extinguish the House's powers.

Sir Russell Johnston

The hon. Gentleman's intervention was effectively dealt with from a sedentary position by the hon. Member for Hackney, South and Shoreditch. I shall deal with Eurofed in a minute and say how in practice—although democratic control of such matters is somewhat attenuated—we can exercise as much, if not more, control over it as we currently exercise over the Bank of England.

The Community was established in 1957. It is most interesting to read the discussions that took place at that time at the top of the Conservative party and within the Foreign Office. They were profoundly wrong because they believed that the European Community would not last a year or two. Since that time, Britain has not prospered comparatively. We have improved many things, but comparing the indicators with countries such as France Germany and even Italy, whose individual gross national product now exceeds ours, shows that we have not done well. I was too young to be in the war, but I was not too young for national service. In Berlin in 1958 I was getting DM12.5 to the pound. What is the rate now? That is a comparative example. The Government took office dedicated to conquering inflation, and 10 years later they are still dedicated to doing so. The comparative decline makes me doubt whether we have the capacity to conquer the problems, and I am quite prepared to consider other ways of doing so.

Mr. James Hill (Southampton, Test)

The hon. Gentleman has noticed that the mere rumour that we may be joining the European regulatory mechanism has not only boosted the pound but has been welcomed by the City—the engine room of the economy—because it redirects investment, which is what we all want to see. From my understanding, by the end of the year we may be a member of the European monetary system and the regulatory system. That will help to deal with the problem of inflation and perhaps will help interest rates.

Sir Russell Johnston

I do not propose to become involved in arguments about engine rooms, although I entirely agree with the hon. Gentleman's basic argument that the rumours of imminent entry—how imminent is a matter for dispute; the hon. Member for Hackney, South and Shoreditch suggested that November is now the preferred time—have had their effect. Experience of the operation of the EMS has shown that, in other countries, it has introduced an external discipline that has produced significant reductions in inflation. It has moved countries away from stop-go economic policies and, in some cases, pulled down interest rates.

Mr. John Marshall


Sir Russell Johnston

No doubt the hon. Gentleman wishes to intervene to give the classic opposite argument, but I do not think that it would get us very far if we became involved in a tennis match. The effects of the EMS can be observed, and although what I have said may not yet be true for Spain and certain other countries, it is certainly demonstrably so in France, the Federal Republic of Germany and even in the Republic of Ireland.

I propose to deal now with the political aspects of the motion. The words "federal" and "federalism" cause many people to experience a frisson. I am not sure why people are so afraid of the words. Contrary to what the hon. Member for Holland with Boston said, federalism does not mean a unitary state or a centralised system; it means a decentralised system, a tiered system. It accepts the concept of subsidiarity in which activities are pushed downwards. The nature of a federation is established and written down in a constitution that entrenches the powers not only of the federal government but of the state components of the federation. The erosion of power of our local administrative structure of government in the United Kingdom would not be possible in a federation because the law would prevent it.

Sir Richard Body

I agree wholeheartedly with what the hon. Gentleman has just said. But we are not moving towards a federal union. That is perhaps our complaint. We are moving towards a unitary megastate, which is essentially different.

Sir Russell Johnston

All that I can say to the hon. Gentleman is that I see no evidence of moves towards a unitary megastate. All the politicians whom I meet in the European Community—not just Liberals but Socialists, and I do talk to Socialists from time to time—are in favour of a federal solution of some kind.

Mr. Spearing

It is not federal.

Sir Russell Johnston

They are in favour of a federal solution of some kind—in other words, a division of powers. There are many different ways in which that can be achieved, but that is what they are about—collecting at the centre only those matters that are best dealt with at the centre. There is no general proposal from Socialists, Christian Democrats or Liberals in the Community that power should be concentrated for matters that can be dealt with effectively by the existing nation state components of the Community.

Mr. William Cash (Stafford)

The hon. Gentleman and I have crossed swords on these matters on a number of occasions. Is he aware of the platform of the European People's party? Is he aware that Alber and Egon Klepsch have continuously and repeatedly called for a single Government and a single Parliament in Europe? He knows that that is so. Would he be good enough to tell me how he can claim that they are not asking for the inclusion of such ingredients in a new Europe?

Sir Russell Johnston

A European federation would certainly have a Government and a Parliament which would cover the whole of the Community, but that does not mean that all power would be concentrated in those institutions any more than it would in any other federation. Of course, a federation has a central federal authority. I do not think that Egon Klepsch, whom I used to know reasonably well when I was in the European Parliament, would argue for a unitary state. All the Germans whom I have met, of all political persuasions, are much attached to their own federal system, which works exceedingly well and avoids the undue concentration of power that exists in countries such as ours, which have a less dispersed form of government.

Mr. Hill

Let me bring hon. Members, up to date. The political strategy of Europe is now shifting to the CSCE, and America and Canada are part of that process and the concept has gained tremendous credence over the past few months. Does not the hon. Gentleman realise that Europe is moving towards centralised political union in the CSCE and will move further and further away from EEC trading practices, which I suppose we shall have to have but which will slowly diminish in importance?

Sir Russell Johnston

The hon. Gentleman is right in saying that in most federations the federal Government deal with foreign affairs and international relations and with defence matters. That would also be inevitable in a federation of the European Community. But that is very much a question for the future.

I regard the European Community as more of a friend to the regions than the existing national Governments. Many of Europe's regions are neglected because their national Governments have neglected them. While I was in the European Parliament, I felt that there was as much concern in Brussels as in London about the highlands of Scotland, Scotland generally and the regions of England. There was a general concern to disperse—

Mr. Hill

indicated assent.

Sir Russell Johnston

The hon. Gentleman is nodding. When he and I were in the European Parliament, he was the chairman of its regional committee. He did the job very effectively. I think that he would agree that there was a common view that the wealth of the Community should not be allowed to become concentrated at the centre but should be fairly dispersed. I suppose that it is inevitable that a centralised country such as ours should fear centralisation, but, in my view, our fear is misplaced.

While we are discussing political democratic models, I must refer briefly to our electoral system, which is unique in Europe and which is not often thought about. It profoundly affects our political style and the way in which we do things. Let me cite one statistic to illustrate my point. When there was a presidential election in Chile [Interruption.] The hon. Member for Holland with Boston does not look very keen on presidential elections, but they had such an election in Chile. When Mr. Pinochet was roundly defeated, everyone thought that it was a good demonstration of democracy. But Mr. Pinochet got 42 per cent. of the vote, which is exactly the percentage of the vote that the Government received at the last general election, which gave them a majority of 100. They are two rather different concepts of democracy. Is the Minister muttering again?

Mr. Lilley

Can the hon. Gentleman tell us any country which runs its presidential elections on anything other than the first-past-the-post system? It is hard to envisage proportional representation in a presidental election.

Sir Russell Johnston

The Minister has completely missed my point. Of course, one cannot have a presidential election on anything other than a first-past-the-post system. I was simply saying that the failed candidate in Chile received the same proportion of the vote as the Government of the United Kingdom, who have a majority of 100. That is not an encouraging comparison. Every other country in the Community has some form of proportional representation, and all of them use it in the European elections. The unrepresentative nature of the system is not the only important thing; it produces in British politics a profoundly non-consensual approach. Perhaps that is one reason why, although everyone says that the British are good at compromise, we are not, in fact, very good at it and are often out-manoeuvred in the Community councils.

Most of the speech of the hon. Member for Hackney, South and Shoreditch was on economic matters, and, to conclude, I should like to make a few remarks on economics. He spoke. about the development of the ecu. I hope that the ecu will become a common currency in time. As I said on Monday, that would be welcomed by ordinary individuals when changing money because at present they pay 12 or 15 per cent. commission every time to no point. Also it would unquestionably give the Community much greater weight in international monetary discussions and place us collectively on a par with the dollar and the yen. As a single European currency, the ecu would be in heavy international demand as a medium of exchange and a unit of account. It would be a financial asset for the private sector and a reserve asset for foreign central banks.

Developments in eastern Europe increase the pressure for a common European currency to be established quickly. Otherwise eastern European countries will use the deutschmark or the dollar. As 1992 approaches, we should ponder the fact, and perhaps the Minister should do so, that there are no examples in the world of open internal markets which are not also monetary unions.

Mr. Lilley

What about the United States and Canada?

Sir Russell Johnston

One could argue in that way, but I do not accept that those countries act absolutely as one open internal market, despite recent changes introduced by Mr. Mulroney.

The arguments for the United Kingdom joining the ERM have been subsumed in the matter of currency union because unless we join the ERM—I believe that we shall—we shall not become party to economy monetary union.

The hon. Member for Hackney, South and Shoreditch also mentioned the question of a European central bank. The great attraction of that would be its independence from both national and community authorities. The Bundesbank model is necessary, in political terms, to secure the agreement of Germany to the proposition. But it is also an objective requirement in itself.

As many hon. Members have said already, one cannot have an independent institution with such vast powers completely outside democratic control. That would be against the general thrust of making the Community more democratic—despite what some hon. Members have said, democracy does exist in the EEC—and it would be dangerous in itself. Therefore, the answer might be to distinguish between the operation of the bank and its overall accountability, to refer back to what the hon. Member for Newham, South said.

The bank should conduct its operations on its own responsibility without interference, and be seen so to do. However, it should be accountable for its actions to the Community's only democratic body, the European Parliament. In practical terms, that would mean that the Governor of the bank would have to present an annual report to Parliament and submit to questioning in debates.

In addition, members of the governing body who are not governors of the national central bank and the president of the bank should be elected by Parliament or, following the United States model, be confirmed by Parliament.

I finish by again congratulating the hon. Member for Hackney, South and Shoreditch on tabling the motion. Against a background of a much more hopeful, but still highly unpredictable, world situation, it is essential not only for our several advantages of belonging to the European Community but for the stability of the world that the EC quickly comes together more effectively. I welcome the debate and the terms in which it has been introduced.

11.53 am
Sir David Mitchell (Hampshire, North-West)

Like other hon. Members, I congratulate the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) on his well-timed selection of this subject. I wish to cover three matters—political developments, the exchange rate mechanism, and communications within the European Community, with particular reference to the statements made by my right hon. Friend the Secretary of State for Transport yesterday on the high-speed link.

On political developments, when we had the referendum on our membership of the EEC, the case that I put to my constituents was that our standard of living depended on Britain having markets with which to trade. That is a clear factor and one with which few would argue.

In the past we had a privileged trading position in the Empire and Commonwealth. Our competitors were locked out and Empire preference gave us a huge advantage. We then moved to a disprivileged position in which the Empire and Commonwealth markets increasingly locked us out by various forms of protectionism in order to protect their local industries, local employment and other factors.

The European Community provided us with an opportunity for a fair and equal trading position in which we were neither disprivileged nor especially privileged. That was certainly a substantial advantage over our disprivileged position resulting from the loss of priority within our Empire markets.

I wholly support taking the necessary steps to ensure continuity of equality and fairness in our trading opportunities in the marketplace of the EEC. I accept the need for wider EEC control over matters that extend beyond national boundaries, such as pollution. I agree with what my hon. Friend the Member for Holland with Boston (Sir R. Body) said. He put his finger on the importance of that factor.

I do not accept that to secure the benefits of a wider free market for our people we need to submerge the United Kingdom in a United States of Europe. I do not accept the concept of a unitary state in Europe and I do not accept that the EEC should decide matters that can properly be decided within the internal institutions of EEC member states.

It is a matter which the House should find curious that a Frenchman, Jacques Delors, is leading the concept of a more unitary state in Europe with the Delors plan. For France is the frontrunner in any competition for the most nationalistic state in Europe which applies and uses the EEC for its national advantage at every opportunity.

Mr. Lawrence

It is a socialist state.

Sir David Mitchell

My hon. and learned Friend refers to the political persuasions of those who are in a majority in the European Parliament and the EEC.

I agree with my hon. Friend the Member for Battersea (Mr. Bowis) that we should recognise the changes that have taken place in Europe and not become locked into yesterday's thinking at a time when Hungary and other east European countries are knocking on the door. We should not move to a unitary state approach which will result in those countries being locked out and unable to become early, full and effective members of the EEC.

I make two pleas. One is in connection with the various proposals that will be debated by Ministers through the autumn on the next stage of the Delors approach. The question of what powers, decisions and responsibilities move from this country to be settled elsewhere should be debated fully and clearly on the Floor of the House. We should have a clear blueprint of exactly what is proposed rather than find it dribbling out later in bits and pieces as the House comes to realise that we have let ourselves in for rather more than we anticipated. If we allow ourselves to push ahead at a pace that is unacceptable to our people there will be a backlash against the concept of European co-operation and progress.

The ERM is seen by many as a panacea. The National Farmers Union and manufacturers continually ask us to join it. Importers want us to join it. They would then be saved the forward purchase of currencies to cover purchases abroad. We should recognise, however, that there is a downside to joining the ERM. It does not provide an easy, soft option. In fact, it requires us to run our economy in such a way as to keep our currency in line with its given slot among other European currencies. The practical reality is that we could find a clash between what is in the interests of our internal economy and our commitment to maintaining that currency link.

The Treasury and the Government are walking a tightrope in their management of the economy as they try to get inflation under control without plunging us into a recession. Suppose that such fine tuning did not work as hoped and we moved into a recession more quickly than expected and unemployment rose dramatically in the next 12 months. If we were members of the ERM we might, because of inflationary reasons, be forced to increase interest rates at the very time that the internal economy required us to reduce that rate.

So we must recognise that the ERM is not a panacea and there is a downside to it. I believe, however, that the benefits of membership of the ERM will, on balance, outweigh the downside, but before we join we must ensure that our inflation and our economic growth is in line with other European countries. If we achieve that, the balance will be in favour of our joining the ERM.

The Conservative Government can live with the ERM, as they believe in the monetary disciplines that it would enforce, but what price would be paid if we had a Labour Government? The Opposition plan to give more resources to every pressure group in the country and that means that our rate of inflation would increase and the value of our currency would fall. In line with that, interest rates would have to soar. The threat of such soaring interest rates will hang over and discipline any future Government who want to indulge in a spending spree.

Mr. Hill

I know that my hon. Friend is a man of great honesty in politics and all else. He would be the first to say that there should have been some mechanisms to regulate some of the decisions taken by former Chancellors. For a while we ran out of control. My hon. Friend has already said that our inflation must be in line with that of other European countries before we join the ERM, but one of the problems is that we do not use the same index as other European countries to assess our inflation. Does my hon. Friend agree that a controlling mechanism on decisions reached and a similar index to measure inflation as that used by our European partners would also count towards the upside of joining the ERM?

Sir David Mitchell

I do not want to prolong the debate on that issue except to say that whatever form European co-operation may take, transport will be a key element in it.

I agree with Opposition Members who have said that we must not put Britain even more on the periphery of Europe than geography has already ensured. In that connection, it is important to consider the high-speed rail controversy which has arisen as a result of the statement by my right hon. Friend the Secretary of State for Transport yesterday. We need a rail link through the tunnel that will compete successfully with ferries and air travel as an alternative means of getting to and from Europe. For those who use the channel tunnel trains three criteria must be met—convenience, comfort and time.

If one goes from Waterloo to Paris or Brussels by train one does not have to fight through the traffic to get to Heathrow, stand around at the airport waiting for the plane, one's luggage and all the rest of it. Nor does one end up at Charles de Gaulle airport miles outside the centre of Paris. The rail connection is more convenient, comfortable and causes less harassment than travelling by air or by ferry.

Is it important to shave 20 minutes off the journey time when one can reach Brussels in two and three quarter hours and Paris in three hours under the proposed timetable? The important thing is not whether the journey is 20 minutes shorter or longer, but how the proposed British Rail timetable compares with the alternatives in terms of convenience, comfort and time. In competitive terms where does that timetable place the tunnel in the market? In terms of comfort, convenience and being faster than the competition, the proposals for a terminal at Waterloo and bypass services through Olympia to the north are perfectly adequate, without a high-speed link, to compete successfully for the pure rail share of traffic that the tunnel is designed to carry.

An important question relates to capacity. At some stage more capacity will be needed than can be provided by the services through Waterloo and Olympia on to the north. British Rail is satisfied that that additional capacity will not be needed until the end of the century. Where is that capacity? I had the privilege of chairing a committee in Kent made up of members of the county council and the district councils. It was known at one stage as the Mitchell committee, but it was a Kent consultation committee that looked into the problem of capacity.

That committee found not that there would be insufficent capacity to cope with the requirements of the channel tunnel trains, but that there would be a problem of capacity for the Kent commuter services running at the same time as those trains. If one examines the slots that will be required for the trains running to and from London and the tunnel, one discovers that slots will become available when, for example, there is no boat train going to Dover. In the morning there is no problem because the peak of trains arriving from the continent occurs after the rush hour has ended in London. The boot pinches in the afternoon services, when channel tunnel trains due to leave London coincide with the commuter pressure of afternoon trains for Kent.

There will be three to five trains in the afternoon about which real problems will arise. But those problems could be offset in part by longer commuter trains, longer platforms and faster commuter trains, and I welcome what the Secretary of State said about the investment of £400 million in commuter services to Kent, for which he has already given investment approval.

I agree, reluctantly, with the Secretary of State that it would not be right to spend not £190 million but £1,900 million of taxpayers' money on providing a high-speed link to cope with that relatively small level of dislocation to our Kent commuter services resulting from the afternoon trains.

The economics of a new fast rail link are at present a bridge too far. Just as in 1974 a channel tunnel could not be built commercially and viably by the private sector whereas 10 years later it could, and is being built, and will prove to be successful, so in 1989–90 it is not possible to build a fast link to that tunnel that is economically viable.

I have little doubt that by the end of the century it will be, and for that reason it is vital for the Government regularly to re-evaluate the likely level of revenue to come from the provision of a high-speed link, and on that basis to consider when it might be commercially viable for such a project to go ahead.

The subject of freight was raised in questions to the Secretary of State yesterday. The most important aspect arising from the channel tunnel from the point of view of the north of Britain is the need to ensure that freight links and terminals are scattered across the country in such a way that all the major freight requirements going to the continent can be met by the tunnel freight services. What the Secretary of State said yesterday about a high-speed link had nothing to do with freight, which was never intended to go on the high-speed link.

I am glad to have had the opportunity to make those comments, for I wanted at the earliest time to make a contribution to the debate on the communications and transport aspect of our European economic future in the light of what was said yesterday by the Secretary of State.

12.13 pm
Mr. Tom Cox (Tooting)

When, with great eloquence, my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) opened the debate, he could little have thought that the discussion would have included that speech—I do not dispute its importance—by the hon. Member for Hampshire, North-West (Sir D. Mitchell). That the hon. Gentleman was able to make that speech is to the credit of my hon. Friend, who framed his motion in such a way that we have opportunities to range wide and raise what are crucial issues affecting the economic and political development of the European Community.

It is clear from events in central and eastern Europe in the past year that many changes will continue to occur in the Community. Some of them are likely to be dramatic. I am a member of the Council of Europe and vice-chairman of the British group of the IPU. Hon. Members will be ware of the role that the British group is playing in meeting representatives from countries in eastern Europe. Many politicians from emerging parties in those countries are anxious to visit Britain and other western nations. Indeed, this week we received representatives of all the major parties in the new East German parliament, and later I will comment on the views that they expressed to us.

As a Council of Europe member and an officer of the British group of the IPU, I have been privileged to visit many eastern European countries and to meet their leading politicians. It is clear that they are anxious to have a closer association with the EC.

Members of the Council of Europe who are present this morning will recall the major speech made by Mr. Gorbachev to the council in Strasbourg in which he spoke of one Europe of the future. That is coming. Within the next five to 10 years there will be close, ongoing relationships between the countries of east and west Europe. That is clear, as members of the Council of Europe will be aware, from our contacts with representatives of central and eastern European countries. Regular delegations from those countries attend discussions in Strasbourg, and various committees of the Council of Europe hold meetings in their countries.

Much has been said about the single market in 1992 and the changes that that will bring about. In considering those changes, we must take into account—although a vital issue, it does not receive the media coverage of other, more immediate, issues—the future role of the United States and its trading opportunities in Europe. Those who attend meetings in Europe are aware of the regularity with which delegations of American senators and congressmen and women who visit Europe and—not forgetting the business interests that they represent—seek closer opportunities to trade in Europe. Likewise, the Japanese are making similar efforts in east and west Europe.

That aside, the newly emerging democracies of eastern Europe are vital in the long term for the development of the European Community. It is sad to witness events in Romania. Those who have visited that country recently must he filled with sorrow at the brutality that has occurred there in the last 48 hours. The heroic people of that country having thrown off one tyranny must now be questioning whether they are witnessing the birth of another evil tyranny.

Mr. Tony Banks (Newham, North-West)

None of us can view with comfort the events that are currently taking place in Romania, but perhaps my hon. Friend is taking it too far. After all, there was an election in Romania which was viewed by international observers and was adjudged, in terms of the mechanics of the election, to have been fair. Perhaps my hon. Friend should pause before he compares the current regime in Romania with the Ceausescu tyranny.

Mr. Cox

I take my hon. Friend's point. The British Inter-Parliamentary Union group sent two hon. Members to observe the elections in Romania, and I chaired the discussion of the report of those observers, which showed that there was not a great deal to complain about in in terms of the elections. However, there was a great deal to complain about in the run-up to them.

The point that I wish to make, as I believe would the people of this country of whatever political party, is that when there are elections, one hardly thinks that a few days later such brutality will take place on the streets of a country that says it believes in democracy. Who are those people and what support have they, and from whom, for the brutality in which they have been involved? We shall watch developments during the next two or three weeks. What I have seen on the television and read in the press fills me with concern.

Sir Russell Johnston

Does the hon. Gentleman accept that both the Romanian Liberal party and the Peasants party offices have been sacked and gutted by a group of people who were called into central Bucharest by President Iliescu?

Mr. Deputy Speaker (Sir Paul Dean)

Order. I hope that the hon. Member for Tooting (Mr. Cox) will remember that it would not be in order to go in detail into the internal affairs of east European countries. But as long as his answer is linked to the EEC it will be perfectly in order.

Mr. Cox

I take your point, Mr. Deputy Speaker. As we are talking about a wider Europe and, in time, one Europe, it was appropriate to have made such comments, and I shall leave it at that.

We know that, sadly, countries in eastern and central Europe have little going for them economically at present. At a recent meeting I was told that there were only two countries in that part of Europe—Hungary and Czechoslovakia—that seemed to have a reasonably bright future and hopes of making fairly quick economic progress. The general feeling among the rest of them was that the road to change and improvement would be difficult.

Therefore, in this Chamber, and in the wider EC context, we must start to ask what the role of the Community or its member states will be in those changes. Earlier in this debate, reference was made, I think by the hon. Member for Battersea, to Austria. What will be the role of the general agreement on tariffs and trade? Austria, one of its leading members, has clearly stated that it is seeking membership of the European Economic Community. All the political parties in Austria support that and the general feeling is that it will happen around 1993.

However, what will be GATT's future after that? Does it have a long-term future? If not, what will be the involvement of those countries that are presently GATT members from Europe? They will look for a much closer association with, and possible membership of, the Community. Therefore, we are looking at a Community in 10 or certainly 20 years' time with many more members than the present 12. Today, we have the chance to start to discuss that.

I shall confine my remarks to the role of the countries of eastern Europe.

Mr. Cash

The hon. Member has referred to GATT several times. I have just the slightest suspicion that he perhaps meant the European Free Trade Association, but I am not certain. Will the hon. Gentleman enlighten me?

Mr. Cox

I was talking about those members that belong to GATT from within EFTA.

I and others see the trade, currency, finance and general industrial developments in central and eastern Europe. Surely, at this early stage of development in those countries, we cannot believe that there can be industrial, economic development in one part of Europe that will in no way affect another part of Europe with which we are becoming more closely associated. We must give closer consideration to that.

We all realise that when economic change occurs, there are problems. We have suffered problems as economic changes have taken place. Many areas of this country have been depressed and still suffer severely from the industrial changes that took place. The changes that some eastern European countries face are starting to cause problems.

In Poland there have been high price rises and increased unemployment, with the social unrest that that will cause. The same sort of problems are starting to occur in the Soviet Union. When the Minister replies, will he say how this country, as one of the leading members of the European Economic Community, can work alongside those countries of central and eastern Europe that will have to face those changes? At the same time, I want to know how we are going to help them to overcome the changes without causing the sort of social unrest that I mentioned.

There has been some comment in this debate about future exchange rates between East and West Germany, and there is much concern about their possible effects. There is also much concern about a united Germany which includes eastern Germany. One goal of West German politicians in the months since the wall came down was to try to keep as many East German people as possible living and remaining in East Germany. We know of the social unrest and unemployment that could be caused. What will happen as a united German comes into being?

What will be the position of guest workers who, at present, work in West Germany, and have been there for many years? Under West German laws, their status is often open to much question. It is interesting that in this country this week, under the auspices of the British IPU, we have received a group from East Germany. One of their fears was that they were going to be swallowed up in that united Germany. They have concerns about some of the developments in their country. They expressed one fear that, despite the appalling conditions under which they have had to live, they would be used as a cheap labour force. They were concerned that West German industrialists would come into East Germany buying up plant that is no longer productive and turning it into means of production that will have a dramatic effect on East Germany. If it has a dramatic effect there, the repercussions will be felt in other parts of eastern and central Europe.

I know that other Members wish to speak so I shall make only two more brief points. I and other hon. Members have commented on the changes in central and eastern Europe. Those countries urgently need help in developing their education systems. I and other hon. Members who are present today know about the know-how fund, but education stretches much wider than that. It would be interesting to know—if the Minister cannot tell us today perhaps he will think about it and possibly write to me—the Government's thinking on developing educational opportunities in Britain for talented men and women from central and eastern European countries who could benefit from a knowledge of our education system which might help the development of their countries. In some countries people know little about trade, marketing and the pricing of goods. We in Britain have a great deal of knowledge about those skills which people taking responsibility in those countries need. The Government cannot stand on the sidelines and say that it is up to the respective business organisations to develop contacts and bring interested groups together. The Government must have an up-front on-going involvement in that. I shall be interested to hear the Minister's comments.

I support the changes that will inevitably come about. They will be difficult, and we need to have the will and the understanding that we as a developed country must help those countries that are not so far away—we can get anywhere in central and eastern Europe in a couple of hours, so we are not talking about vast travelling distances Britain and other countries the Community must commit ourselves to helping those countries to a future within a wider Europe.

Finally, I congratulate my hon. Friend the Member for Hackney, South and Shoreditch on introducing the debate and on the wideness of his motion which allowed us to raise these issues today.

12.31 pm
The Financial Secretary to the Treasury (Mr. Peter Lilley)

I join other hon. Members in congratulating the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) on securing today's debate and choosing the subject. It is a particular pleasure for me to respond to the hon. Gentleman because when I made my maiden speech he had the misfortune to speak immediately after me and, as is the custom in the House, he was kind enough to make gracious and flattering remarks, and I am always susceptible to flattery. This is the first opportunity that I have had to tell him that I have enjoyed every speech that he has made in the House that I have heard, and none more so than today, when he was characteristically lucid, robust, poetic and idiosyncratic.

The hon. Gentleman spoke movingly of his father. We all join in paying tribute to his father, who was lost in the war and to all those who sacrificed their lives in preserving the freedom of Britain to govern itself. Like the hon. Gentleman, we are determined that Europe should never be riven by war again.

However, I do not believe that Britain's retention of the right to govern itself through its own institutions constitutes a threat to peace in Europe. That is the implication of all those who say that we must abandon it for that reason. On the contrary, I believe that the peace of Europe is being built not by subordinating our institutions to others, but by freeing our people to have greater intercourse in trade, travel, living, exchanging and moving around our continent, building up a network of friendships and common interests that is surely the basis of freedom and prosperity throughout our continent.

Before I return to the hon. Gentleman's motion and his speech, let me mention some of the excellent speeches by my hon. Friends and by Opposition Members. My hon. Friend the Member for Battersea (Mr. Bowis) who has apologised to the House and to me for having to leave, spoke with measured wisdom that I am sure will carry him far. I was struck by his remark that we should not make the pooling of sovereignty an end in itself. There is a danger that some people see that as an end rather than as occasionally a necessary means.

The hon. Member for Newham, South (Mr. Spearing) was right to re-emphasise the role of the House in exercising scrutiny and ensuring accountability. In so doing he is being thoroughly European and running with the tide of current European thought. In some countries, such as France, Spain and Greece, the Parliaments are taking measures to re-establish their powers and to re-examine the way in which they exercise scrutiny over Community affairs. It is right for us to do likewise.

My hon. Friend the Member for Holland with Boston (Sir R. Body)—I do not normally think of him as associated with any country but this one—was right to distinguish between the pursuit of a unitary megastate and what is called federalism. I drop the word federalism when I remember to do so and talk more of Euro-nationalism as the ambition of some and Euro-co-operation as the ambition of the Government and, I think, of the House. My hon. Friend was also right to say that supranational-ism or Euro-nationalism appeals to the hon. Member for Hackney, South and Shoreditch because it provides an opportunity for the hon. Gentleman to breathe life back into socialism. As the hon. Gentleman said, once a socialist always a socialist.

The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) said that some hon. Members and some of our people think of themselves as superior and criticise foreigners. There is no danger of the hon. Gentleman ever being accused of doing anything such as that. In his speech, as in all his speeches, when he drew a comparison between the British people and foreigners, the advantage went to the foreigners. When he drew a comparison between British institutions and those abroad, the British institutions came out worse and ought to be swept aside. When he compared the Government's policies with those of our partners he concluded that we were to abandon ours and adopt those of our partners. I imagine that that is the sort of thing that people in the Liberal party think.

My hon. Friend the Member for Hampshire, North-West (Sir D. Mitchell) was right to point to the incompatibility of Labour's policies with membership of the exchange rate mechanism. A Government who are committed, as the Labour party is committed, to increasing public expenditure and to the higher taxes that would follow from that, to resorting to borrowing as Labour has promised to do and to a premature reduction in interest rates, would be unable to stick by the discipline of the exchange rate mechanism, whatever prior conditions were attached to membership. My hon. Friend the Member for Hampshire, North-West made a valuable contribution, as he is well able to do, on communications. His judgment that the balance of advantage is not yet in favour of a fast link with the continent, although he said that we should keep it under review, carries great weight. No doubt my right hon. Friend the Secretary of State for Transport will attach weight to his words, which I shall draw to his attention.

The hon. Member for Tooting (Mr. Cox) made a valuable contribution when he emphasised the importance of countries in central and eastern Europe and in the European Free Trade Association that are not yet part of the European Community. He asked about the help that the Government were giving to those countries. I was in Warsaw last week and it was volunteered to me that the help that we were giving through the know-how fund was better, more speedily delivered and better targeted than that of any other Government. I was told that they were still waiting after a year for help from the Community. I shall ask my colleagues in Government to look at the point about the use of the know-how fund for education.

The debate follows a major debate on the subject that we had in the autumn. In the same way, this debate emphasises that with few exceptions this is a consensus subject. Although the hon. Member for Hackney, South and Shoreditch seems to be unaware of it, the Government and Opposition, although they disagree profoundly on many things, are united on many aspects of the approach to European monetary union. Both parties support stage 1 of the Delors proposals, which begins formally on 1 July. Both parties support entry into the exchange rate mechanism during stage 1, albeit on different conditions. Both parties reject stage 3 of Delors, with its proposals for an unaccountable single central bank and currency, and centralised control of economic policy. Both parties reject them for essentially the same reasons—that they rely on an unaccountable bureaucracy, that they reflect abstract blueprints rather than a practical approach that is congenial to the British approach to politics and that, on the central issues of economic and monetary policy, they would deprive this country of the ability to govern itself through this Parliament.

I was struck by the similarity of our approaches when I read through the latest policy document produced by the Labour party and the document that we produced on the evolutionary approach to European monetary union. I ask the House to guess which of the following phrases came from which document. The first is: we would oppose the proposals for an all-powerful, but unaccountable European Central Bank, as outlined in the Delors plan for Economic and Monetary Union. The second states that the authors strongly criticised the proposal that the European Commission in Brussels should control the budgetary policies of member countries. The third is: Instead of trying to impose blueprints on the economic and monetary development of Europe, we should build on the experience of the Single Market process and on the operation of the Exchange Rate Mechanism. The fourth is: the EC is not a unitary state and we do not believe that further progress towards European unity will or should, lead to a European superstate. Those quotations all come from the Labour party document, but none of my hon. Friends would have any difficulty with them.

None the less, there are differences between the two parties even within the topics covered by the motion. For example, on the European exchange rate mechanism, we differ as to conditions. Last year, in Madrid, my right hon. Friend the Prime Minister agreed that Britain would join the ERM as part 1 of stage 1 of EMU. She also set out clearly the conditions that must be satisfied before we join. We have stood by those conditions and we have not wavered, and we shall join when they are met.

In "Looking to the Future", the Labour party document, we are told that a Labour Government would negotiate Britain's entry into the ERM at the earliest opportunity, on the basis of prudent and reasonable conditions, which Labour has previously outlined. The Labour party is rather coy about repeating those conditions and at a recent hearing of the Select Committee on Treasury and Civil Service, the hon. Member for Hackney, South and Shoreditch is reported as claiming that he was told by the shadow Chancellor that three of the four conditions laid down by the Labour party were either irrelevant or idiotic. Inasmuch as they seem to involve devaluation and reflation, they would undermine the basis of the ERM. I should be grateful if the hon. Gentleman elaborated on that conversation. Which of the conditions are idiotic and which are irrelevant? Has he followed up that matter?

Mr. Sedgemore

If the hon. Gentleman read my questioning of the Chancellor in that Select Committee, he would know that the main thrust of it was that most of the conditions put forward by the Government and the Opposition are artificial political hurdles, and that there are no real economic reasons why Britian should not have an early entry into the ERM. The Chancellor did not agree with that, but I am sure that I am right.

Mr. Lilley

I hope to hear more about this famous conversation, but the hon. Gentleman is too canny to be drawn. The central thesis of his motion is that Britain's entry into the ERM must be seen as a stepping stone towards creation of a single European currency. I know that some of my hon. Friends who are opposed to entry into the ERM—wrongly, in my view—are opposed because they see that inevitable progress towards a single currency, but I believe that both are mistaken.

Pegged exchange rates do not automatically lead to currency union. There have been other fixed rate systems—Bretton Woods, the gold standard and the sterling area to mention but three—and none led to a single currency. That is not the inevitable consequence. Nor does a fixed exchange rate involve the loss of sovereignty. The decision that it is desirable—both for the stability of exchange rates and as an anti-inflationary discipline and framework—to fix a country's exchange rate is a sovereign decision for each state to take or not to take, as it chooses.

However, such decisions cannot be taken wholly unilaterally. If one country wants to fix its exchange rate at I to 1 with its neighbour while that neighbour wants to fix the rate at 1.1 to 1, the two are incompatible. An agreement must be reached. The purpose of the EMS and the ERM is to provide a way to establish a compatible system of exchange rates and build a framework in which monetary and exchange policies can be operated. That is sensible, and should not cause my hon. Friends concern.

By contrast, the proposal to establish a single currency and a single central bank goes to the heart of sovereignty and self-government. Virtually every state has, and has always had, its own currency. There are clear reasons why states have found it essential to issue and control their own currencies. First, a currency is a symbol of the state's authority. Secondly, it is a source of revenue, because of the seigniorage that results from issuing a currency whose value exceeds the cost of production. After all, it costs far less than £5 to print a £5 note, and the right to print it is therefore valuable. Thirdly, it is necessary to have the ability to issue money in order to act as lender of last resort to the banking system—which requires Government regulation to maintain its stability, as the hon. Member for Newham, South pointed out. Fourthly, monetary policy has a profound effect—at least in the short term—on economic activity. For all those reasons, states have found the benefits of having their own currency to exceed any disadvantages that their citizens may face through not being able to do business in the same currency when they trade or travel abroad.

From time to time, currencies have been merged into a single currency when states have merged into a single state: we see that happening as the two German states merge into one state with a single currency. With the arguable excepion of Belgium and Luxembourg—and, possibly, west Africa, with the CFA—two or more states have never successfully shared a currency. In the foreseeable future, there is not the remotest possibility of all the European states merging into a single state under a single Government, and without a single Government it is almost inconceivable that they will be able or willing to manage a single currency. None the less, there is every reason why we should co-operate to manage our monetary policies in the most beneficial and mutually compatible way.

The hon. Member for Hackney, South and Shoreditch asked me whether the Government's views had any counterparts on the continent. I am surprised at the extent to which my remarks were mirrored in a speech that Mr. Balladur sent me. He said: Let us be clear, a single currency … presupposes a level of political integration and abandonment of sovereignty on the part of the member states which is incompatible with the present situation of Europe, and, in my view, unacceptable to France … Both symbolically, and at a practical level, currency is an essential attribute of sovereignty. There is no example of sovereign countries which have given up their currencies. Let us leave this dream world! Who thinks for a moment that Germany is ready to abandon the deutschmark, or Britain the pound sterling? No one says so, but everybody knows. In these circumstances, it makes more sense to put aside these illusions, and instead think of solutions which have a chance of coming to something.

Mr. Cash

My hon. Friend has given us an interesting insight into his own thinking—and, therefore, the Government's thinking—on such matters. Can he tell us what is going on in the mind of the other member states on the question of defining terms such as economic, monetary and political union? He has just given us an insight from France; would it be possible for him to give us an idea of what is happening in the other countries?

Mr. Lilley

My hon. Friend is as well informed as any hon. Member about what is happening in other countries. I hope that he will excuse me if I do not take up his invitation to digress from my speech and give a dissertation on what they are doing. I hope that Europe will reach a consensus on the practical way forward.

There are already good signs that it is possible to reach agreement on those issues. For example, the original Delors report on the economic arrangements within Europe stated that it would be necessary to have control over the budgetary policies of the member states. We pointed out that even close-knit federal states such as the United States and Canada exercise no central control over state budgets, so there can be no reason for leaving less power in the hands of the sovereign Parliaments of the European states.

I am happy to say that the argument has swung in our direction. The Commission has published a new paper that appears to accept our point of view. Britain's proposal—that market forces should be reinforced by members agreeing not to bail out profligate member states and to abstain from the monetary financing of deficits—is becoming common ground. I hope that my hon. Friend welcomes the fact that we are joining constructively in the discussions and that we are having success in certain areas.

The recently published Labour party policy document goes so far as to claim that the result of that change of thinking in Europe is due to the arguments that it has advanced. That is a little bit of hyperbole, but in essence the Labour party is putting forward much the same case as we are.

The hon. Member for Hackney, South and Shoreditch refers at the end of his motion to wider issues. Division re-emerges as soon as we leave the question of economic and monetary union and consider the position of the two parties in the House. The Labour party backs wholeheartedly the social charter. I understand why the Opposition may find that some of the policies outlined in the social charter are congenial to them as socialists. If so, they should seek a majority for those policies in the House and in the country.

Mr. Tony Banks

What the Minister says is true up to a point, but the social charter also seems to be attractive to capitalists in France, West Germany and other parts of the European Community. How does he square that with what he has just said?

Mr. Lilley

I did not say that the social charter does not appeal to other people; what I say is that it appeals to socialists. Therefore, the socialists in the House, who believe in the importance of this House, should seek a majority in the House and in the country for those policies. What I cannot understand is why they feel that those policies must be imposed by central diktat—possibly by means of a majority in the rest of the continent against a minority in this country. I do not see the point of that. The document argues implicitly for that point of view: that if the country were to pursue those policies unilaterally, they would make our industries uncompetitive, so we should follow them only on a Europe-wide basis and then all of us would be equally uncompetitive. That is an unattractive argument. Europe is not the world. If Europe makes its industries and economies uncompetitive, it will lose out against its competitors elsewhere in the world. If those policies do not stand up in their own right and are incompatible with competitive industry, we should not pursue them, either unilaterally or collectively.

Mr. Banks

That argument will not be lost on the industrialists of West Germany, France and Italy. They are as acutely aware of the need for competitiveness as the Minister and the British Government. Does he not accept, however, that the social charter is the obverse of the Single European Act and that the two must be taken together?

Mr. Lilley

No, I do not accept that argument. A number of countries believe that it would be attractive to apply those measures throughout Europe. They have already introduced them and found that they have made their industries less competitive than they would otherwise be; therefore they would like the industries of other countries to be burdened by them as well. Therefore, we did not sign the social charter, but we look constructively at any proposals for specific measures that are well argued and justified.

This has been a first-rate debate, and I refer again to the opening contribution made by the hon. Member for Hackney, South and Shoreditch, which set a high standard and provided an opportunity to raise many important issues. I thank him for that, and I look forward to the contributions of other hon. Members as the debate proceeds.

12.54 pm
Mr. Chris Smith (Islington, South and Finsbury)

I join other right hon. and hon. Members on congratulating my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) on his choice of an extremely important topic, and on the eloquence with which he made his case. Sadly, the same degree of clarity cannot be said to have emerged from the speech of the Financial Secretary to the Treasury. On the question of where precisely the Government stand on Britain's potential membership of the exchange rate mechanism, we are as confused now as we were before the Minister's speech began.

The most recent definitive statement from the Government came in the speech made by the Chancellor of the Exchequer to the German Chamber of Industry and Commerce in the United Kingdom on 12 June, when he said: I think no one has any doubt now that the Government is committed to joining the exchange rate mechanism; and we have set out the conditions under which that will be possible. A good deal of progress has been made on a number of these conditions, but they have not yet all been met. That is the most definitive recent statement by a Minister on the Government's intentions concerning sterling's participation in the ERM. However, it provides no guidance as to when the Government intend to take that step and in what circumstances they are prepared to commence discussions with our European partners.

Today, the Minister reiterated the Madrid conditions, which are freedom of capital movement throughout the European Community, restrictions on free competition to be lifted—the completion of stage 1 of the Delors process—and that Britain's rate of inflation must fall to the European average.

Which of those conditions do the Government regard as having now been fulfilled? I shall address inflation in a moment. As to the others, there were two interesting exchanges during the consideration by the Treasury Select Committee of this year's Budget. When the Governor of the Bank of England appeared before that Committee on 28 March, he was asked by the hon. Member for Berwick-upon-Tweed (Mr. Beith): Would it be your advice to us and the Government that all the Government's conditions except that relating to inflation have now been largely satisfied? The Governor of the Bank of England replied unequivocally: Yes, I think so. He went on to identify one or two minor issues of free capital movement that remain to be resolved, but said that they were not important.

On 3 April, the hon. Member for Berwick-upon-Tweed, who is tenacious in these matters, asked the Chancellor the same question: Have the conditions, other than inflation" for British membership of the Exchange Rate Mechanism been met, apart from the details? The Chancellor's answer was in sharp contrast with the Governor's: No, but they are moving towards being met. Within six days, the Governor of the Bank of England said that the conditions, other than inflation has been met, but the Chancellor said that they had not. We are entitled to ask the Government which of those views represents the considered view of the Government.

Sir Richard Body

I thought that the hon. Member for Berwick-upon-Tweed (Mr. Beith) asked whether the conditions had largely been met, which is different from "having been met". It was not inconsistent with what the Chancellor said.

Mr. Smith

The hon. Gentleman ignores the question that the Chancellor was asked: Have the conditions, other than inflation for British membership of the Exchange Rate Mechanism been met. The Chancellor's answer—no—was a clear answer to that question.

Mr. Cash

The hon. Gentleman will be aware that the Governor of the Bank of England signed the Delors report. It therefore perhaps would not be entirely surprising, given that the Opposition do not agree with stages two and three of the Delors report, for there to be a considerable difference in emphasis between the answers given by the Bank of England, the Chancellor and hon. Members.

Mr. Smith

As the Government have asserted clearly several times in the House the accountability of the Governor of the Bank of England to the Government, the hon. Gentleman's comment is somewhat surprising. Of course there may be differences of view between the Governor and Chancellor, but we are entitled to know exactly what is the Government's position. Every time I have asked the Government whether the conditions, apart from inflation, have been met, I have received no answer.

Mr. Maples

At some length, the hon. Gentleman has taken us through the Government's conditions for entering the exchange rate mechanism, which at least have stayed the same for about 18 months, whereas the Opposition's views are constantly changing. It would be helpful to know a little more about them. Last year, the right hon. and learned Member for Monklands, East (Mr. Smith) laid down the condition that the exchange rate mechanism should lose its deflationary bias, which for our purposes is almost the sole reason for its existence. In an interview in The Daily Telegraph in January he is quoted as talking about a competitive exchange rate, but the deflationary bias has been dropped. Will the hon. Gentleman enlighten us about the importance of the delationary bias of the exchange rate mechanism, as his party sees it, and what did the right hon. and learned Gentleman mean by a competitive exchange rate?

Mr. Smith

The hon. Gentleman is a little over-eager. I shall deal with those points in a moment, but I wish first to finish dealing with the Government.

Leaving aside the conditions other than inflation, let us consider inflation itself. We know from the answer that the Chancellor gave during Treasury questions recently that, as their measure of whether inflation has been reduced sufficiently to allow British entry, the Government are using what they like to call the underlying rate of inflation, rather than the retail prices index. We know that, because that was the answer that the Chancellor gave. But we have had no guidance from the Government on the meaning of the strange word "proximate", which has been used frequently by the Chancellor in relation to the gap between our level of inflation and the European average when the Government come to make up their mind. What precisely does "proximate" mean? It could mean anything from a very considerable gap between the two rates of inflation to an identical convergence. But when we have pressed the Government on the issue or asked them precisely what "proximate" means, they have refused to tell us. The picture that is emerging is one of continuing confusion and the Government have not told us exactly when and in what circumstances they envisage the Madrid conditions being met.

There are sound economic reasons for Britain to join the exchange rate mechanism—on that I entirely concur with my hon. Friend the Member for Hackney, South and Shoreditch. A number of advantages flow from ERM membership. First the ERM will provide stability of planning for British industry, which will then be able to assume a stable exchange rate policy in relation to its overseas trade. It is significant that in January, when Financial Weekly conducted a survey of businesses in Britain, 97.2 per cent., of the companies polled in terms of market capitalisation, and 91.8 per cent., in terms of the number of companies, said that they believed that Britain would benefit by ERM membership. Many of those companies gave as their reason the benefits of a stable exchange rate. They found sterling's volatility against the deutschmark and the dollar to be one of the most telling problems facing British firms abroad. The stability brought to our exchange rate policy by ERM membership would be a significant benefit.

Secondly, we must realise that much of our supposed independence of action as a country has already gone. When, last October, the Bundesbank raised its interest rate, it took the British Chancellor and Prime Minister half a hour to decide that they had to do the same. We must realise that the economies of Europe are becoming increasingly interlinked and interconnected, whether we like it or not. It is surely important for us to be part of a forum—that is what the exchange rate mechanism is—which will make joint collective decisions about the future of Europe, rather than having to respond unilaterally to decisions that are made elsewhere.

Thirdly, exchange rate mechanism membership provides protection from excessive speculation against any individual currency in the mechanism.

Fourthly, exchange rate mechanism membership provides a counter-inflationary discipline within the domestic economy. Clearly it is not an easy ride. It does not have benefits without potential disadvantages, but the counter-inflationary discipline that it could bring would act on balance for the benefit of the British economy.

On all the points that I have raised, we urge the Government to commence discussions with our European partners to join the ERM immediately. We do not urge the Government to wait until some unspecified rate of inflation or fulfilment of the Madrid conditions is attained. We urge them to commence discussions now.

Of course, we want the Government to discuss with the members of the ERM the issues which the Opposition have consistently urged the Government to discuss. Here I can answer the hon. Member for Lewisham, West (Mr. Maples). Those issues include the rate at which we should join—any Government would have to engage in a discussion about that—the swap arrangements between the central banks to protect against speculation, the need for an enhanced regional policy to counter the imbalances which already exist within the European Community and the need for co-ordinated policies for growth across the European Community.

Mr. Lilley

Can the hon. Gentleman estimate how long it would take to negotiate a strengthening of the regional support system as in the document, and which he referred to, as a necessary precondition of entry to the ERM? How long would it take to negotiate? The document says: Entry to the ERM must also be accompanied by effective collaboration between the central banks of the EC countries. It says that that would involve further development of the Basle-Nyborg agreement on swaps.

How long will it take to negotiate a system involving closer monetary and fiscal co-operation designed to maintain steady economic growth? Are we talking about this century or the next?

Mr. Smith

I am afraid that the Minister is grossly out of step with current thinking in Europe on the matter. I shall come to regional policy in a moment. The one Government in Europe who do not believe in strengthening regional policy across the EC is the British Government. Other countries and Governments in Europe are keen to see regional policy develop, including the Government and the political parties of West Germany. As East Germany comes in to join with West Germany, that argument will become even more powerful for the German Government and people.

Sir Richard Body

Is not there an obvious reason for this? Who will pay for the regional fund? There are only two paymasters in the Community—Britain and West Germany. It is easy for the Greeks, Italians and others to clamour for a regional fund because they will pull the money out. Who will put the money in?

Mr. Smith

The hon. Gentleman ignores the fact that while Britain has done reasonably badly—I entirely accept that—out of the agricultural support mechanism of the EEC, we have done well out of other EC structural funds which give support to British regions. The hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) is well aware of that. The point made by the hon. Member for Holland with Boston (Sir R. Body) does not hold good.

This debate is about not just Britain's membership of the ERM, important though that is, but the possibility of a wider process of monetary integration and ultimate monetary union. On two points alone we are on all fours with the Government. First, we do not accept the Delors proposal for central European determination of the fiscal policies and budgetary deficits or surpluses of individual member states. There is no necessity why such central control should exist even if the process of monetary integration proceeds apace. Secondly, we do not accept Jacques Delors' vision of a totally independent central bank determining, in an unelected fashion, the monetary policies of Europe. We do not believe in unelected bankers exercising an independent control over the major items of economic policy.

Mr. Cash

Does the hon. Gentleman appreciate that that contradicts exactly the point he was making earlier about the significance and importance that he attaches to the statement on the ERM by the Governor of the Bank of England before the Treasury Select Committee? The hon. Gentleman should take that into account, as that was the burden of my earlier intervention.

Mr. Smith

The hon. Gentleman clearly does not appreciate that the structure of the Bank of England is more heavily controlled and more accountable than that of most of the central banks in Europe. Because of that, the words of the Governor of the Bank of England must be deemed to carry some governmental authority.

The Government seem to be somewhat confused and unclear about the potential process of monetary union. My hon. Friend the Member for Hackney, South and Shoreditch was right to point out that, on 12 June, the Chancellor made no reference to the idea, supposedly all the rage just six months ago, of a system of competing currencies—the so-called evolutionary approach to monetary union. Is the competing currency idea still Government policy? On 12 June the Chancellor spoke about the possibility of the parallel use of the ecu alongside existing currencies—a different mechanism towards achieving monetary union. Is that new Government policy? We simply do not know, because neither the Government nor the Financial Secretary have told us. What is the Government's policy on competing currencies or the parallel use of the ecu? What will the Government argue when they go to the intergovernmental conference later this year?

If we are to move towards closer monetary integration in Europe three points must be emphasised about the shape that such union may take. First, it must retain the essential principle of democratic accountability for the making of monetary policy. Any system of central banks that might emerge must be democratically accountable.

Secondly, in such circumstances, the crucial question will concern the remit of any such central bank. If a central bank is told to concentrate—without any other factors being taken into consideration—only on the issue of price stability, one set of decisions will come from that central bank. But if it is told, as it should be told, to concentrate on the need for price stability but to do that within the context of the need for balanced sustainable growth across the overall European economy, a different set of decisions will emerge. The latter would be a more sensible remit to achieve.

Thirdly, any moves towards European monetary union must be seen in the context of improved regional policy, a subject to which I have referred. If there is to be monetary union—if individual nations are to find that the levers of exchange rate mechanism and interest rate decisions are removed from their armoury—there must be other and wider mechanisms to ensure that imbalances within the overall European economy can be addressed, and regional policy presents that opportunity.

Mr. Peter Shore (Bethnal Green and Stepney)

The House is listening with interest to my hon. Friend's elaboration of the conditions that he thinks are reasonable for further moves towards economic and monetary union. He has not commented on proposals for the permanent fixing or locking of exchange rates. That, after all, is the essential feature of stage 3 of the Delors report and is an important component of stage 2, when any changes in exchange rates are virtually outlawed, or are to be taken only in the most exceptional circumstances. Has my hon. Friend considered that, and may we be assured that in no way are we prepared to accept permanently fixed and locked exchange rates?

Mr. Smith

My right hon. Friend speaks with authority on matters relating to the European Community. I do not always agree 100 per cent. with what he says on these issues, but there is always a good amount worth considering in what he says, and the point he raises is extremely important in relation to any prospects for economic and monetary union. The whole idea of monetary union that some people are advocating would entail a common currency and a central monetary authority, and inevitably that would include a gridlocked exchange rate system.

As I have been explaining, our view is that if steps are to be taken in that direction, we must ensure that a number of extremely strong protective measures are taken, including the three that I outlined—democratic accountability, a remit that includes economic growth and a much stronger regional policy. Those must be part of any steps that may be taken in the direction that my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) suggested.

By contrast, the Government have not outlined their view on this issue with anything like the same clarity. There has been a lack of any truly constructive approach from the Government on the exchange rate mechanism membership and any developments towards monetary integration between the countries of Europe.

We should be discussing constructively and in detail with our European partners, helping to shape the nature of those discussions, and then making judgments about what part we should like to play in any such process. The Government are not doing that; they are sitting on the sidelines. There is a danger that a two-track Europe will be created that will leave us in the second, rather than the first, league of economic development, growth and prosperity in the European Community.

Mr. Spearing

I am grateful to my hon. Friend for giving way because in answer to my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) he said—with his label as Front-Bench spokesman on his forehead—that we would not rule out fixed exchange rates given certain conditions. My hon. Friend nods his head. One such condition was regional policy. Nobody is against regional policy, but I am sure that he agrees that where regional distress is caused by competition—competition is one of the aims of the treaty of Rome—it is difficult to accept that relief of that distress should be given in hand-outs decided in Brussels. Is the regional policy to which my hon. Friend referred that sort of policy or the dispersal-of-industry policy engaged in by the post-war Labour Government?

Mr. Smith

Truly effective regional policy can be achieved only on a democratic and decentralised basis. My hon. Friend is right to identify that as an issue. The ways in which regional policy funding decisions are arrived at is an important issue for us to discuss, as is the size of the regional fund.

My hon. Friend has correctly identified our view that we would not for ever rule out in principle the possibility of a common currency, a common monetary policy and a gridlock of exchange rates in the European Community. But we want to know the exact nature of the animal before we accept it without question. That is why it is absolutely essential that the conditions that I outlined are met, the issues addressed and discussions held with our European partners before we make any unqualified commitment to European monetary integration.

Sir Russell Johnston

I wish to make a quick intervention while the hon. Gentleman is talking about regional policy. Is the Labour party committed to the principle of additionality?

Mr. Smith

The hon. Gentleman will have to content himself with my answer that it depends on the circumstances. It entirely depends on the purposes of the principle of additionality in any particular respect. That is the best response that I can give the hon. Gentleman.

There is a danger at present because the Government are not committing themselves in a constructive spirit to the discussions now taking place, whether the Government like it or not, between our European partners about movements towards closer integration. Because the Government are taking such a stand-offish attitude, there is a real danger that the rest of Europe will go charging ahead without us in years to come. That danger is inherent in the Government's dithering approach to joining the exchange rate mechanism and to any wider discussion that may be taking place in Europe.

That danger will certainly be visited upon us if the Government continue to evince the confusion and doubt that currently persist in their policy on our entry into the exchange rate mechanism. They have got it wrong and they ought to think long and hard about the need to get it right.

1.30 pm
Mr. Nigel Forman (Carshalton and Wallington)

We have just listened to a long and rather engaging speech from the hon. Member for Islington, South and Finsbury (Mr. Smith), containing metres, or perhaps even kilometres, of Front-Bench flannel. I sympathise with him in his difficulties, but a slightly more succinct presentation of his party's position might have stood him in better stead. He can be sure that in future weeks and months we shall be studying closely what he said and using it effectively against him and his party. On the EMU and the ERM the hon. Gentleman was making a valiant but hopeless attempt to square the circle.

Like other hon. Members, I congratulate the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) on his good fortune in being able to introduce the debate and on his elegant and amusing speech, which was full of thoughtful and almost revolutionary points and which will repay reading. I was amused by his references to Sir Alan Walters. The way in which Sir Alan Walters seems to crop up time and again probably means that any Ministers choosing to resign in future may well have to come to the House and say that they wish to spend more time with friends of the family. That is probably the way in which British politics is moving.

I was also interested to hear the hon. Gentleman concede that the age of socialism is over. That is a realistic statement on which I commend him. He also said that the age of Labour corporatism is over and is inappropriate to modern conditions. It is clear that, although his colleagues on the Labour Front Bench may not have learnt a great deal about the changing conditions of the 1980s and 1990s, he at least has put his time to good use. I agreed with him when he said that the European Community is now the most appropriate framework for so much of our economic policy in Britain.

We have had a useful debate—and I have listened to it all—as it has given the House another opportunity to explore and examine much of Labour's policy on the European Community. As my hon. Friend the Member for Lewisham, West (Mr. Maples) said in an intervention, there is no doubt that the Labour party has come a long way towards common sense in the development of its European policy. However, it is clear from the drift of the debate and the speeches by Opposition Members that there is a terrific amount of inherent inconsistency in the position that they would take. It is not at all clear whether the hon. Member for Hackney South and Shoreditch speaks for his party, but I suspect that I know the answer to my own rhetorical question.

For example, one wonders whether a future Labour Government—if there were to be one—would be prepared to follow the necessary supporting policies in the conduct of economic and monetary union of monetary discipline and a balanced budget in order to make a system based on fixed exchange rates really work as intended. I very much doubt whether a future Labour Government would be able to do that. Equally, I wonder whether a future Labour Government would accept the need for real operational and institutional independence for a central bank or a European system of central banks. It is clear not only from the quotations of my hon. Friend the Financial Secretary to the Treasury from the Labour party document, but from the speech of the hon. Member for Islington, South and Finsbury that the Opposition are not enthusiastic about the idea of statutory accountability or independence of any kind for our central bank.

If the crunch came, and if we had a Labour Government formed by the modern new-look Labour party, a Labour Chancellor and Prime Minister would fall back upon the old protectionist socialist impulses of the Labour party. The hon. Member for Hackney, South and Shoreditch rightly criticised the whole idea of socialism in one country. Those socialist impulses would be largely in response to the defensive pressures that would be put upon that party by its trade union supporters and others behind the party who would feel unable to cope in the new world of super-competition, which is undoubtedly the world into which we are moving in the 1990s.

I agree with the hon. Member for Hackney, South and Shoreditch that Britain should join the exchange rate mechanism. As the Government have frequently made clear, we shall do so as soon as the Madrid conditions have been met. That bland familiar phrase will entail important political judgments about the appropriate timing. I stress the words "political judgments" because the matter is not capable of resolution with some fine econometric calculations. It is important to join in circumstances and conditions which can be defended in the markets and sustained in terms of market credibility.

The hon. Member for Hackney, South and Shoreditch was also right to say that, once in the mechanism, Britain should stay in it. That means following all the appropriate supporting policies on monetary discipline and responsible tax financing of our public expenditure commitments. If Britain's public expenditure commitments were financed to any significant degree by public borrowing, it would undermine not only the integrity of the policy but, more important, in a world without exchange controls—and I understand that the Opposition have no intention of returning to exchange controls—the flight of capital which would ensue and which is all too easy to effect, would change a future Labour Government's policy whether they liked it or not.

I hope that my right hon. Friend the Chancellor, who is not here today, will be able to take the decision to go into the exchange rate mechanism towards the end of this year or perhaps early next year at a time of a relatively strong exchange rate in relation to the deutschmark. That is where I disagree with the hon. Member for Hackney, South and Shoreditch. It should be done in wide bands initially, because the experience of Italy and Spain suggests that that is a good phased way to do it.

I hope that Britain's approach to the future development of the Community will be positive and will recognise that it is now an anachronism to try to practise either conservatism or socialism in one country. Those days are gone. We should recognise that our partners—and that means critically the French and the Germans—are now determined to press ahead on a fairly speedy time scale towards economic and monetary union. We should deal with that reality, and our policies should take full account of the facts.

I use the word "facts" deliberately, because in an important speech on Monday my right hon. Friend the Foreign Secretary said that there would always be tension inside the Community between the Europe of phrases and the Europe of facts. He said that we, and he suspected most of our people, have a strong preference for the Europe of facts. I agree with that view. Of course it is one thing to say that we prefer the Europe of facts and another to act in the light of that preference and to be absolutely honest about it. Let us take an unblinkered look at some of these facts.

First, the most critical fact is that it is the private, not the public, sector that is leading the process of European integration, notably via the decisions of large multinationals, based here, in Holland or anywhere else. and the decisions of leading financial institutions. Many of these have their headquarters in Tokyo or New York, but are treating the single market and the opportunities that it gives much more positively than those based in European countries.

Secondly, our partners in the Community are determined to press ahead quickly towards economic and monetary union, if necessary leaving behind those member states that cannot or will not join in. This should be a warning to my right hon. and hon. Friends on the Front Bench. I hope that they will bear this in mind over the coming months, so that we do not repeat the errors of previous British Governments, notably in 1950 with the Schuman plan and 1956 with the Messina conference. It would be a case not of third time lucky but of third time fatal. It is vital that my right hon. and hon. Friends understand that.

The third reality, which occurs to all of us, is that the single market is being constructed even as we speak, day by day and week by week. It is essentially a process of ever-closer economic integration, driven by the private sector and now driven, ever more decisively and speedily, by the recent introduction of qualified majority voting under the Single European Act. Even Ministers have made it clear that this has been of assistance to us in knocking down the unnecessary and indefensible barriers that still exist in some of the countries that preach most about free trade—for example, the Federal Republic of Germany—but practise a degree of protectionism.

I shall give an outline of the policy approach that we should take to these realities and facts. The first principle of our policy should be to take the necessary decisions to enable us to participate fully in every aspect of the future development of the Community. In the immediate future, this must mean deciding to join the ERM in time for us to have a real influence on the deliberations of the intergovernmental conference due to start in December.

Secondly, we should continue to throw our full weight behind all those in the Community—there are not yet enough of them—who wish to maintain an open trading Community in relation to the opening up of the combined market of 320 million people, especially in air travel, insurance and road transport, which are inexcusably still protected by some of our Community parners. This should apply also to the trade and investment flows between the Community and the rest of the world, from which this country has benefited disproportionately as compared with other Community member states, notably in attracting inward investment from Japan.

Thirdly, we should give our support to the development of a much more effective central banking and supervisory role for the Bank of England and later on for the emerging European system of central banks. The best way for us to contribute to this process would be to legislate, probably not in this Parliament but in the first Session of the new Parliament, to put the Bank of England on a new basis of statutory accountability to Parliament, just as in future there will be a Eurofed, which will have to be statutorily accountable to a more powerful and more competent European Parliament.

I do not have time to go in detail into the advantages of such a structure, but I shall perhaps be able to do so on another occasion. Briefly, they would be, first, much greater market credibility for the monetary policy both of such a national central bank and, ultimately, of a European system of central banks, and, secondly, more effective day-to-day management of monetary policy, thanks to such an institution being given a clear overriding statutory mission to counter inflation above everything else. That relates to the point made earlier by the hon. Member for Islington, South and Finsbury.

Thirdly, and importantly, there must be some institutional compatibility between the arrangements that we put in place and those emerging in other European countries. It is significant that even Holland, France and Spain, all of which have had central banks that were, in varying degrees, close to their Ministries of Finance, are now moving quite deliberately towards a more independent role for their central banks because they have learnt from the experience of the Bundesbank and from the Federal Reserve in Washingon.

Fourthly, we should try to establish a more logical division of labour between national Parliaments—such as ours—and the emerging European Parliament, which must supervise and hold to account the activities of the Commission and the Council of Ministers.

Mr. Cash

May I take up my hon. Friend's point about the independence of the central bank? Does he agree that, according to articles 3 and 12 of the basic law, although the Bundesbank exercises a degree of significant independence in regard to currency stability, that independence is nevertheless subject to the overall political control of the Federal Government? That is vital to the argument, as it shows that the bank is not really independent, as it is often alleged to be.

Mr. Forman

I welcome my hon. Friend's intervention, which gives the opportunity to make some more general observations. It has been a characteristic of today's debate, and of debates in previous years, that both sides have put up straw men and then knocked them down. That is not helpful to a mature and quiet understanding of the truth.

My hon. Friend is right to say that there are clauses in the Grundgesetz in Germany which mean that ultimately the Federal Government, rather than Mr. Pöhl, exercise the authority. The key point is the degree of independence that any central bank has, and the market perception of that independence. That is why I stress market credibility as an agreement for the course that I favour.

Much has been said about the principle of subsidiarity, and that principle will help us to establish an effective division of labour between the institutions of government.

It should, however, apply equally to all levels of government. That is the shape of the future: in time the Community will go in that direction. Those things that can most appropriately be done at supranational level such as environmental and trade matters, should be dealt with by the Community institutions, acting in the traditional manner. Equally, taxation and bugetary policy should be kept at a national level, and should be decided and voted upon in this House and other national Parliaments. There is, of course, one notable exception—the VAT revenues for the European Community.

Increasingly, in the European Community of the future, the sub-national level of government—local government in all its forms—will come into its own much more, and rightly so. That is the basis on which the Germans have encountered such success in the Federal Republic, and views in the Community—including a great deal of political opinion in France—are moving in that direction. Britain is now the last bastion in the Community of the idea of the unitary state. One day, politicians on both sides of the House will realise the error of their ways in that respect.

There is a vital difference between the notions of competence, sovereignty and identity, although they are invariably merged, rather sloppily. They have vital but distinctive parts to play. Competence in governmental matters should be allocated to the level at which it can be most effectively exercised. I have given examples: trade policy at Community level, taxation policy at national level and perhaps education policy at local level.

Sovereignty, on the other hand, is a legal and constitutional idea which is both theoretical and practical. We should be unsentimental and clear-eyed when thinking about it.

The United Kingdom Parliament has a well-established claim to what we choose to call parliamentary sovereignty, but I ask the House to ponder what that means in practice in the 1990s. Essentially, it is the right to be informed, although we are not always informed first. Invariably the gentlemen in the Press Gallery get to know things before we do. It is also the right to criticise and the right to influence the Government of the day and seek to hold them to account. That is an aspect of power, but it is not brutal power or the real core of power. Increasingly in the modern world the real core of power is passing from this House to—

Sir Richard Body

My hon. Friend describes sovereignty in exactly the same way as our continental friends, but the English-speaking world looks upon sovereignty in a rather different way. If my hon. Friend were to read "Dicey", he would realise that that famous book homes in on two essential principles that are at the core of sovereignty: the making of laws, and the levying of taxation. Neither applies to what my hon. Friend has said.

Mr. Deputy Speaker (Mr. Harold Walker)

Order. I remind hon. Members that interventions are made at the expense of the time of other hon. Members who are waiting to contribute to the debate.

Mr. Forman

I do not dispute the two points that my hon. Friend has just made. I, too, have read "Dicey", albeit when I was much younger. My hon. Friend is absolutely right when he says that those are two essential attributes of the traditional view of parliamentary sovereignty. However, "Dicey" was writing in the latter part of the 19th century and reflected parliamentary circumstances that were more applicable to the period between 1832 and 1867 than to the 1990s.

If we consider again the extent of the powers of national Parliaments, we must remember that the right to dismiss Governments lies not with us, except in the most exceptional circumstances of a hung Parliament, but with the electorate. The right to create the decisive facts of life lies increasingly not with national Governments but with other political actors, with transnational pressure groups and, critically, with the private sector, such as the large financial institutions. I suggest that today Nomura has more power than many a nation state. We have to wake up to that reality, otherwise we shall find that events pass us by.

Identity is a feeling in the hearts of people throughout, the world. It is a balance of feeling that is capable of change, according to political and psychological circumstances. If I were a Scot, like the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston), I have no doubt that I should be greatly tempted to feel Scottish first in my sense of national identity, European second, and, maybe, British third. That may be uncongenial to many hon. Members, but that is the way things are moving and that is the way a sense of identity is formed. If one visits Bavaria, Brittany or Catalonia, one finds exactly the same kind of feeling in the air.

That is the direction in which the European Community is moving. That does not alarm me. Some hon. Members may be terrified by the prospect, but I do not feel threatened by it. I suggest that other hon. Members should not feel threatened by developments of that kind. The ultimate human objective of European unity—institutions exist only to serve human purposes—is, as Sir Winston Churchill once said, that we as European citizens should be able to move freely throughout our community of proud European nations and, wherever we go in that community, should be able to say that"

here we truly feel at home.

1.53 pm
Mr. Tony Banks (Newham North-West)

I wholly agree with much of what was said by the hon. Member for Carshalton and Wallington (Mr. Forman). He caught the imaginative mood of my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore). I join other hon. Members in congratulating my hon. Friend on tabling his motion and providing us with an opportunity for a wide-ranging and interesting debate. That is not a mere genuflection in the direction of parliamentary politeness. I, too, am beginning to adopt a somewhat different attitude towards the European Community. That is not to say that the view that I held in the past was wrong, but it was formed in the circumstances that existed at that time.

As all right hon. and hon. Members have acknowledged, and although it may be a humdrum observation, the world has changed dramatically very recently. Any politician must re-examine the position and decide whether current attitudes and policies are fitting for today's changed circumstances. That is a sign not of weakness but of strength.

The only residual dread that I have in making such remarks is that they will eventually reach the ears of Bolsover. I might at an early stage seek the security of the greater bulk of my hon. Friend the Member for Hackney, South and Shoreditch when my very good hon. Friend the Member for Bolsover (Mr. Skinner) gets round to reading Hansard next week.

I am under no illusions about the original aims and objectives of the European Community, which was essentially devised as a political entity based on western capitalism confronting the east, both politically and economically. For many, that remains the EEC's central tenet. However, the events that are changing the map of eastern Europe are altering also the role of the EEC, and with them must go changes in the attitudes of people such as myself.

As to negative attitudes towards those changes, the Prime Minister has done wonders in heightening the attraction of the EEC, although I suspect that that was not her original intention. It is also true that progressive capitalists in Europe now recognise the need for market regulation. I exchanged a few words on that issue with the Financial Secretary during his speech. As we see more regulation within the market, we hear verbal opposition from the Prime Minister—but the deregulation pursued by the Government, and the attacks made on the rights of workers in the workplace, have enhanced the appeal of the social charter. That charter remains a fairly mundane document. It contains a lot of wishful thinking and does not go half way far enough, but given the backward steps made in workplace rights in this country since 1979, the charter is looking remarkably progressive. Everything must be judged in the context of its own time.

The attitudes held in this country stem largely from the petty nationalism of the Prime Minister, who in my opinion—which is shared by many people in this country—is out of sympathy with sentiment both here and abroad. She almost makes any supranational institution seem very attractive. As has been said by right hon. and hon. Members in this debate and on other occasions. 'there is a grave danger that we shall be politically isolated and on the margin of events, and left standing on the sidelines whingeing and observing—incapable of making any major changes ourselves but having to go along with them in the end. And go along with them we must.

When one is confronted by the inevitable, it is far better to go along with it willingly than wait to be dragged along unwillingly when any opportunity of helping to shape the future has been lost, as is happening in this country now. It would be foolish to be reactive, and, simply because the Prime Minister is taking a narrow and blinkered view, to take the opposition position in an unthinking and unfeeling way. That would be stupid and short-sighted.

We are watching the map not only of eastern Europe but eventually of all Europe being redrawn peacefully for the first time in living memory, not in the aftermath of victory or defeat but in a way that must encourage us all. The enabler of those historic events is President Gorbachev. We are watching the Warsaw pact and COMECON crumbling, but that does not give us the opportunity to say, as some Conservative Members do, "Ha, ha we have won the cold war and capitalism is winning," which is not happening. We are witnessing major historic events, which will cause realignment throughout east and west Europe.

That will give us a chance to break out from the narrow base of the EC in western Europe. We are no longer confronting the east. The vision of Europe stretching from the Atlantic to the Urals, the common European home of which Mr. Gorbachev spoke in a speech I heard at the Council of Europe in Strasbourg, has stopped being a wild dream and has started to become a realistic objective.

The excitment of what is going on is hard to grasp. Events have moved so fast, almost by the day, that everybody has been caught short. None of those great think tanks, expensive civil servants or university chairs predicted any of this. We are all starting equal again and everybody's judgment is as good as everybody else's. No hon. Member can predict what will happen with the certainty that politicians like to bring to their speeches.

German unification will undoubtedly add impetus to political and monetary union in Europe, and it will be very much encouraged by President Mitterrand and Chancellor Kohl. The United Kingdom cannot simply stand aside and watch that happen. We do not have the power to stop those developments and we have little ability to delay them. Political and monetary union is inevitable. We cannot ignore such inevitability.

We are not exerting our political potential in Europe or the wider world. The Prime Minister should have far more credibility on the world stage, given that she is the longest-serving political leader in the west. She is not doing so because she cannot match the events that are taking place. She cannot grasp the idea of the common European home that President Gorbachev has been discussing. She sits in Downing street, with gates covering the entrance to Downing street and to her mind. She is not responding to those enormous events with the same boldness as Gorbachev, Mitterrand or Kohl.

Mr. Lilley

The Prime Minister first voiced the sentiments that the hon. Gentleman so much admires from the mouth of President Gorbachev in her Bruges speech and did more to bring about the changes that he now welcomes in eastern Europe than any other western leader.

Mr. Banks

I realise that the Financial Secretary is a loyal Minister, but he has demonstrated that his contact with reality simply does not match his loylaty. He will say, almost like the Prime Minister herself, that she discovered Mikhail Gorbachev and that he is her creation. That is absolute nonsense. Of course the Prime Minister is prepared to say "These are exciting events." Everyone says that; one would have to be dead not to recognise that these are exciting events, but we should ask the Prime Minister what she intends to do, particularly on defence. Gorbachev is running risks that the Prime Minister cannot even contemplate. She is saying, "There are dangers here; he could fail." We all know that. But because he might fail, it is argued that we must remain tooled up to the chin. If the Prime Minister had her way on defence expenditure, she would not even melt down a bullet. I do not need lectures from the Financial Secretary about the Prime Minister's role because it has been a minor role indeed. Frankly, she does not have the wit, the imagination or the depth to match the events that are unfolding in eastern Europe.

Mr. Lilley

Will the hon. Gentleman give way?

Mr. Banks

I shall give way to the hon. Gentleman again.

Mr. Lilley

My speech was one of the shortest in the debate.

The Prime Minister certainly does not indulge in the personal abuse that the hon. Gentleman makes his speciality.

I was merely reiterating the views pressed on me from all sides when I was in eastern Europe. The eastern Europeans paid great tribute to the role of the Prime Minister in inspiring them, in standing up to the Communist regimes when they were in place and in offering the model on which many of them base their economic policies.

Mr. Banks

I have noticed that the Prime Minister is considerably more popular in Moscow than she is in London, and I am quite surprised that she did not stay there. [HON. MEMBERS: "What about Gorbachev?'] Yes. It is interesting to note that those two are far more popular abroad than they are in their own countries. I am surprised that they did not discuss a job swap when they last met; they might both have enjoyed it.

Clearly, the Financial Secretary does not share my opinion that the Prime Minister is not a major player. Of course she has to be taken into account because she is the leader of one of the major European powers but, in my view, she does not perform in the way that her position as a politician who has led a country for 11 years warrants or justifies. That is why she cannot match those events. The Financial Secretary may call it common abuse; I call it objective observation. It is all a matter of one's position and opinion.

I was about to say that I understand that there are great dangers in what is happening in the east at the moment. Realignment is causing an upsurge in very dangerous nationalism. There are two responses to nationalism. One can say, "Go your own way; let us have a Balkanisation of eastern Europe; let us fracture along old historic lines." That is the most dangerous option available and any rational or responsible politician must reject it. The other way of dealing with the upsurge in nationalism is to press ahead for a speedy and wider European unity based on the willingness of all the peoples involved. Such unity can dilute nationalism.

My hon. Friend the Member for Hackney, South and Shoreditch referred to the future of the nation states and I have heard him say some interesting things about that subject in the past. I happen to be one of those who believe that the days of the European nation state are as numbered as the days of the European city state once were. Historically, sovereignty moves towards the larger unit. The United Kingdom evolved from tribes, through kingdoms, towards a unitary state, and that process will continue across Europe as a whole. We shall be contemplating a federal Europe—a United States of Europe. I believe that that is inevitable and, like the hon. Member for Carshalton and Wallington, I am not frightened by the prospect. Already, economic and political power are haemorrhaging away from Britain and from this Parliament. That is why we need to find other ways of restoring power to the people of Britain and of Europe. We are talking not about a wider, larger bureaucracy but about a wider, accountable democracy. We are talking about finding institutions that can match the great events that surround us.

My hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) said that one of the conditions of European monetary union must be democratic accountability. That is absolutely true. Democratic accountability is rather lacking in the EEC today. As we move towards more integration in Europe, we need to strengthen and, in certain cases, to create, democratic institutions—especially over international capitalism. In some ways, I am glad that my hon. Friend the Member for Newham, South (Mr. Spearing) has departed to the Tea Room at this point because he will not like what I am about to say: I think that we should give far greater powers to the European Parliament and its Members. That does not frighten me either. The day is not far off when, rather than Members of the European Parliament seeking seats in this House, the process will be the other way round. Many hon. Members of this House will realise that power has inevitably left this place. It will reside in the Parliament in Europe and that will be the place to be, because if a politician wants to be at the centre of power he must always seek it out. We all recognise that this House is no longer the centre of power. That is why many hon. Members on both sides of the House will undoubtedly seek a seat in the European Parliament in future.

I look forward to a socialist United States of Europe. I realise that it will be a long and arduous journey to such a state of heavenly peace. But even the longest journey starts with a single step. Along with my hon. Friend the Member for Hackney, South and Shoreditch and many more in the Labour party, I am more than ready to take that step now.

2.10 pm
Mr. John Marshall (Hendon, South)

I congratulate the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) on his good luck in the ballot and his wisdom in choosing this subject for debate. I also congratulate the hon. Member for Newham, North-West (Mr. Banks) on his resignation speech. We all look forward to his standing for the European Parliament. Some of us might even be willing to canvass for him to get him out of our hair.

Mr. Tony Banks

You do not have much hair.

Mr. Marshall

I am not sure whether that remark was directed to you, Mr. Deputy Speaker, or to me, but it was unkind in whatever direction it was made.

It is clear that the hon. Member for Hackney, South and Shoreditch is a member of the new model Labour party. Unlike his hon. Friends the Members for Bradford, South (Mr. Cryer) and for Bolsover (Mr. Skinner), he is not an unreconstructed Bennite. He is willing to unsay most of the things that the Labour party has said historically. However, I was surprised to read in his motion about the positive approach of the Labour party towards Europe.

You will remember, Mr. Deputy Speaker, that the late Mr. Hugh Gaitskell said that he preferred a thousand years of history to the opportunities within the European Community. He was succeeded by Lord Wilson whose meanderings on Europe made the vicar of Bray appear a model of consistency. More recently, in 1983 the Labour party said that it would take Britain out of the European Community. Throughout the time that I was a Member of the European Parliament, the Labour group there was dominated by anti-marketeers. One of the most frequent speakers in the European Parliament was the hon. Member for Bradford, South, who never once said a kind word about the European Community.

Mr. Latham

He has not done so since he came back.

Mr. Marshall

Indeed, he repeats the record. All I can say about the record is that it sounded better through simultaneous interpretation than it sounds in the House.

There is no doubt that the Labour party is willing to score points when it feels that to be anti-European is worth a point or two in the opinion polls. The veneer of Europeanism is skin deep. The Labour party would quite happily revert to its previous posture if it thought that that would benefit it one iota. The Labour party merely acts as an unprincipled barometer of British public opinion. Labour Members currently stand forward in the House as supporters of the EEC, not out of conviction but because they believe that there is a modest vote or two to be won from doing so.

We heard a most interesting speech from the hon. Member for Islington, South and Finsbury (Mr. Smith). When he was asked a straight question by his hon. Friend the Member for Newham, South (Mr. Spearing), he would not say yes and he would not say no. He would not tell the House what the policy of the Labour party was. His speech was riddled with economic illiteracy. He told us, for example, that if we joined the ERM we would get rid of currency speculation. That is just not true. I suggest to the hon. Gentleman that he looks at the experience with the franc between 1981 and 1983. As he knows, the franc was devalued five times during that period. That happened because the then socialist Government were unwilling to follow sensible economic policies.

If the hon. Member for Islington, South and Finsbury was part of the Treasury team and he carried out a programme of spending an extra £19 billion—or is it £50 billion?—that would guarantee that, within the ERM, sterling would be the victim of massive speculation. A fixed rate exchange rate system encourages speculation as it presents a one-way bet—one knows that one cannot lose, but one also knows that one can win an awful lot if one gets it right. The hon. Gentleman looks surprised, but he does not realise that if we joined the ERM and followed the policies to which he is committed there would be immediate massive speculation against the pound. The hon. Gentleman would be forced either to raise interest rates far above their present or to devalue the pound. I suspect that the hon. Gentleman is intelligent enough to know that, but not honest enough to tell the country.

Mr. Chris Smith

The hon. Gentleman is speaking a great deal of economic nonsense. He said that a stable set of exchange rates encourages speculation, which was the point about which I was registering surprise. Quite the reverse is true.

Mr. Marshall

The hon. Gentleman has confirmed that what I said is correct. If one has a so-called fixed rate the risk in speculation is almost negligible, whereas the opportunities for profit out of such speculation may be substantial.

The hon. Gentleman should consider what happened in 1967 prior to the devaluation undertaken by Lord Callaghan. There was a great deal of speculation against sterling because the speculators knew that the risks they ran were almost negligible but that substantial profits could be gained. The same would happen under the ERM. If we joined that mechanism and followed the policies advocated by the hon. Gentleman, one could guarantee that the speculators would make a bomb against the pound.

We are being asked to join the ERM as though it were an easy option. The right hon. and learned Member for Monklands, East (Mr. Smith) has led us to believe that it would lead to lower inflation, lower interest rates and faster economic growth. That would happen only if we pursued the correct economic policies. If we did that we would secure those objectives without joining the ERM. To present the ERM as a panacea is a dangerous philosophy. Too often, we have thought that we could adopt a panacea and forget about the need to pursue correct economic policies. We all remember the days when indicative economic planning was the great panacea, but all it produced was disaster. We remember when we were told that the prices and incomes policy would solve all our problems, but it merely magnified them.

If we were to join the ERM and follow the spending policies of the Labour party we would suffer a devaluation in a short time. President Mitterrand had to devalue the franc five times within two years and I believe that the right hon. and learned Member for Monklands, East would be equally successful. Historically, we have seen the danger of subordinating monetary policy to exchange rate policy. If we joined the ERM the difficulites resulting from the 1988 policies would be magnified many times over.

We are told that if we joined the ERM somehow or other our growth rate would accelerate, but let us consider the growth rate of Britain in the 1980s. During that time, it was greater than that of Belgium, Germany, France, the Netherlands and the other member states. Surely that demonstrates how false it is to say that if we join the ERM that will guarantee us faster economic growth. Why, if that is the case, did we manage to grow more quickly than West Germany or France, which were within the ERM, when we were outside it?

Mr. Sedgemore

Under a Labour Government.

Mr. Marshall

The hon. Gentleman makes the shrewd observation that we had faster economic growth in the 1980s than socialist France and West Germany because of the Government. I congratulate him on that far-sighted intervention. He has left the Bennite group to join the new model Labour party. Soon he will leave that to join the Conservatives. We look forward to his imminent conversion.

We are told by some who support our joining the ERM that somehow it would automatically lead to lower interest rates. Those who hold that philosophy should examine the experience of Spain. Since joining the ERM, there has been in that country, according to one commentator: a generally rising trend in short-term interest rates. In other words, far from leading to lower interest rates, Spain's membership of the ERM has led to higher rates. So I warn those populist optimists who say, "If we join the ERM all our economic problems will disappear," to examine the records of other countries that have been within the mechanism and have found that without the right economic policies, there are high rates of inflation, high rates of interest, speculation against one's currency and devaluation.

To suggest that joining the ERM would be a guarantee of currency stability is naive in the extreme. In the foreign exchange markets one cannot buck the market for long. One may do so for a limited period but not for long, and it is misleading for the Labour party to suggest that joining the ERM would somehow enable us to afford Labour's expensive policies.

One must also examine the competitive position of British industry relative to industry in other countries. Were we to join the ERM now, with the current exchange rate situation, extreme pressure would be placed on some of our exporting industries. Relative costs between German and British industry in the last two years are not necessarily fully reflected in the exchange rate today between the deutschmark and the pound. To join now, with current exchange rates, could represent the same mistake as was made in 1926, when we rejoined the gold standard at the wrong rate of exchange.

Mr. Sedgemore

That was under Churchill.

Mr. Marshall

Even the great Churchill made the odd mistake. Were we to make the same mistake, unemployment would go up and our exporting industries would suffer.

Many people outside the United Kingdom who ask us to join do so not because of the alleged economic advantages of joining the ERM but because it is an act of political symbolism. But we have no need to indulge in such an act to show our commitment to the European Community. The use by the hon. Member for Hackney, South and Shoreditch of the phrase "shrivelled and isolationist" in his motion is offensive and inaccurate. Since 1979, the British Government have taken the lead in the European Community in many of the changes that have taken place.

In 1979 the Prime Minister started the campaign to secure an element of fairness in the European budget. Did she have any support from the Labour party? She received criticism and was told that she was looking at the affairs of Europe as if she were a housewife, not a Prime Minister. But as a result of her approach to the European Community the budget is fair and this country has received substantial refunds from the European Community.

One of the earliest speeches I made in the European Parliament related to the common agricultural policy. Someone came up to me at the end and said, "You must not say things like that. This is one of our common policies and you must not be critical of it." I replied that I criticised it because I thought that it was indefensible.

The cut in milk output occurred not because of the altruistic benevolence of the French or Germans, or because of the foresight of the Irish, but because of the determination of the British Government and Prime Minister. There has been a cut in the excessive production of cereals. No one can say that the cut occurred because the cereal farmers of the continent lobbied their farm Ministers and told them to cut the surpluses because they found them repugnant. The only reason those surpluses are being cut and we have enjoyed a sensible reform of the common agricultural policy is because of the leadership of this country and successive British Agriculture Ministers and the Prime Minister's determination. That is not being "shrivelled and isolationist".

The reform of the common agricultural policy was essential for the future of Europe. We heard from the hon. Member for Islington, South and Finsbury about the need for a greater regional policy. Until we reformed the common agricultural policy, there was no scope for greater regional or social policy. or greater expenditure on any of those desirable objectives. The common agricultural policy was simply eating up so much of the budget that no other policies could be usefully expanded. That great change is the result of the Prime Minister's determination. That was not a "shrivelled and isolationist" approach, but the approach of a Government and Prime Minister committed to the future development of the European Community.

The most exciting development in the European Community at present is the 1992 programme. Which Government and which Prime Minister made it an essential policy objective to ensure that the treaty of Rome became a reality? Were the German Government determined to ensure that German brewers faced competition? Did the German Government say that they must allow competition with the German insurance industry? Of course not. Once again, constant pressure from the British Government ensured that the 1992 programme became a reality. The Prime Minister's wisdom and foresight ensured that that was a major policy issue and that Lord Cockfield was the Commissioner in charge of starting that programme.

Our pressure for the liberalisation of the transport industry made a reality of the European idea that individuals should travel throughout Europe at more reasonable fares. All the pressure to make the transport industry of Europe more realistic, liberal and European has come from the British Government rather than the Governments of France or Italy. The desire to make the European air industry more competitive has come from British Airways rather than the overmanned and overpaid staff of Alitalia and Air France. Some of our colleagues in the European Community are terribly strong on rhetoric, but we in the United Kingdom have recognised the truth of Sir Walter Scott's phrase that Fine words butter no parsnips. We have adopted the old stock exchange adage, "Dictum meum pactum", which I shall define for those who received a comprehensive education, as meaning my word is my bond. When the British Government make a commitment within the European Community, they enter into that commitment with the intention of keeping it. Some of our European partners use very fine rhetoric, but when they are asked to keep a particular commitment they are not so European. We saw over the BSE issue how European the Germans and the Italians were. They were not concerned for a moment about the health of their fellow citizens; they were concerned only with sheer, naked, nationalistic protectionism. They were merely concerned to protect their own farmers.

It being half-past Two o'clock, the debate stood adjourned.