My intention in agreeing to the Protocol on Social Policy at Maastricht was to ensure that social legislation which placed unnecessary burdens on businesses and damaged competitiveness could not be imposed on the United Kingdom. The other Heads of State and Government also agreed that arrangement. without which there would have been no agreement at Maastricht"—
I am sorry, it reads,
no agreement at all at Maastricht".
It could not be clearer than that. Mr. Major continued:
However, in its judgement today, the European Court of Justice has ruled that the scope of Article 118a is much broader than the United Kingdom envisaged when the article was originally agreed, as part of the Single European Act. This appears to mean that legislation which the United Kingdom had expected would be dealt with under the Protocol can in fact be adopted under Article 118a.
That is contrary to the clear and express wishes of the United Kingdom Government, and goes directly counter to the spirit of what we agreed at Maastricht. It is unacceptable and must be remedied.
The United Kingdom will therefore table amendments in the Intergovernmental Conference to restore the position to that which the United Kingdom Government intended following the Maastricht agreement. Those amendments will be aimed at both ensuring that Article 118a cannot in future be used in ways contrary to the United Kingdom's expectation, and dealing with the specific problem of the Working Time Directive.
I attach the utmost importance to these amendments and I shall insist that they form part of the outcome of the Intergovernmental Conference. I do not see how new agreements can be reached if earlier agreements are being undermined.
Meanwhile, I urge the Commission to refrain from making proposals under Article I I8a which properly belong under the other Member States' Agreement on Social Policy.
I am sending copies of this letter to Heads of State or Government of European Union Member States.
§ Well, as your Lordships will be aware, the previous government failed to make any headway towards ensuring what they regarded as an honest interpretation of the treaty, and the saga was laid to rest when they lost the general election in May last year. Labour promptly signed the social chapter as part of its charm offensive in Brussels, and we have yet to see how much good or bad it will do us.
§ Be that as it may, this vignette is very helpful to an understanding as to whether we really do have an opt-out from EMU, especially when we come to consider the other five articles which remain in the treaty, to which I referred earlier. Again, to spare your Lordships as much pain from Euro-speak as possible, I shall extract the more relevant parts, but one really should read all of the articles concerned to appreciate their full meaning.
So, first, we have the old Article C, now Article 3, and I quote,
The Union shall in particular ensure the consistency of its external activities as a whole in the context of its external relations, security, economic and development policies".
Well, one might think that there is perhaps not too much to worry about there, just a spot of forced economic collaboration in the EU's external activities, whatever the Luxembourg Court may eventually decide those to be.
But the plot thickens. We come to the big one, which is Article 2. I quote,
The Community shall have as its task, by establishing a common market and an economic and monetary union x2026;to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States".
My three remaining articles clarify and add weight to Article 2. First, there is Article 4, which includes the following words:
For the purposes set out in Article 2, the activities of the Member States and the Community shall include … the adoption of an economic policy which is based on the close co-ordination of Member States economic policies, on the internal market and on the definition of common objectives".
Then there is Article 98 which decrees, and I quote:
Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2".
Lastly, there is Article 99, which is similarly clear. It goes as follows:
Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of Article 98".
§ Now, it seems to me that the main reason for the Government to avail themselves of what they regard as their predecessor's opt-out from EMU is because they too do not yet wish to join EMU, and therefore, for instance, to pool our interest rate with that of EMU's 345 participants. In other words, the reason for staying out of EMU is so that we can continue to run our economy ourselves, and the presumption must be that we hope to be able to do so more successfully than if we joined EMU. But what if we do just that? What if our economy remains more successful than those in the EMU zone? What if our unemployment stays lower than theirs? What if our unemployment goes on down and theirs goes on up? What if we wish to pursue different policies on taxation and social matters (pace the Social Chapter)? What if sterling continues to perform alongside the US dollar and the yen but the euro weakens, perhaps to the point of collapse? What, in short, if staying out turns out to be a thoroughly good deal for us and EMU turns out to be most uncomfortable for its participants but manages to survive because of the political will behind it?
§ Articles 226 to 229 of the treaty (with the wording of which your Lordships will be pleased to hear I shall not weary the Committee) allow us to be taken for unlimited fines to the Luxembourg Court if either the Commission or one other member state considers that we have failed to fulfil an obligation under the treaty.
§ I would have thought that the clauses that I have just identified place the clearest possible obligation on us to run our economy on strictly communautaire lines at least. So, it does not take a great leap of imagination, if we prosper by staying out, to see us being taken to the Luxembourg Court for unlimited fines for such anti-communautaire crimes as, for instance, "exporting unemployment", "unfair taxation" or—perhaps a better one—"competitive devaluation". Nor does it take much imagination, especially in view of the saga of our opt-out from the social chapter, to foresee how the Luxembourg Court will behave.
§ Our economy may already have been more constrained than most people realise. To clarify this doubt, could I put one question to the Minister about the stability pact into which the previous government entered on our behalf? Although I appreciate that the Chancellor of the Exchequer at the time, my right honourable friend Mr. Kenneth Clarke, may have wanted to join the pact in any case given his well known affection for the whole European adventure including EMU, can I ask the Minister whether the UK could have stayed out of that pact if it had wanted to do so, or would the clauses that I have just mentioned and perhaps others, and the fact that we are committed to stages 1 and 2 of EMU, have been enough to force us to join that pact anyway? I would be most grateful if the Minister could enlighten us on this point when he comes to reply.
§ I also hope, in a rather forlorn sort of way, that the Government will accept this amendment for the reasons given by the noble Lord, Lord Shore, and others who support it, and also for the reasons I have given above, and no doubt many other good reasons about which we shall be hearing from other noble Lords. If the Government were able to do so, the signatories to the Amsterdam Treaty would be forced back to the negotiating table and Europe might have one last chance of avoiding the impending catastrophe which is EMU.346
§ If this does not happen—I speak as a good European with friends and business associates in every European country—I fear that the future is bleak indeed.
§ 6 p.m.
§ Lord Peston
I assure my noble friend, and indeed other noble Lords, that I do not regard him as barking mad. I do not think that the Committee wishes the subject of asperity of speech to be raised a second time this week, but in a slightly choleric mood perhaps I may return to Amendment No. 1. I am sure that the noble Lord in moving that amendment—I am sorry that he is not now in his seat—did so with the best of intentions, but the Committee appears to have interpreted what was said then as opening the gates under the rubric of this Bill to discuss any subject it likes as long as the word "Europe" appears in it. To take an obvious example, if I wished to table an amendment that the World Cup in 2006 rightly belongs to our country rather than our European partners in Germany on the basis of the way that the Committee is currently proceeding I believe that that would be an acceptable amendment. Many noble Lords would rather be debating that than the present rather peculiar amendment.
Cholerically, two matters trouble me. First, I believe that we should debate the Bill before us. We have the highest ratio of amendments to size of Bill that I have seen in all my years in this Chamber. The noble Lord, Lord Moynihan, promised us many more amendments. That is bad enough. Secondly, we have two amendments grouped, neither of which has been spoken to by the people in whose names those amendments appear. Not a word has been said about Amendment No. 27. I do not intend to speak to it either, although it is not uninteresting. Even in relation to Amendment No. 1, the only noble Lord who spoke to Amendment No. 2 was the noble Lord, Lord Taverne, who tried to interpret the amendment. In introducing the amendment, my noble friend did not offer any explanation of it. No one else has offered any explanation from that moment to this. I hope that this does not set a precedent for how we shall proceed with this Bill. I fervently hope that my noble friends on the Front Bench have no intention of extending the number of days to discuss this little Bill beyond those to which we are already committed. Those are my acerbic remarks and now sweetness and light will follow.
My general position has been that, starting from scratch, the economics of EMU have always been well balanced. I have great respect for those who are doubtful, even though I believe that on balance the case is better made for entry, but I have never been apocalyptic on this matter. However, starting from scratch is not a decision that confronts this country at the moment. As the noble Lord. Lord Howell of Guildford, has pointed out, the question at the present time is what we should do given that it will go ahead. If it were my choice—it is not—I would go in at this stage. I can well understand why my right honourable friend the Prime Minister feels that that is not possible, but I am sorry that we have reached such a position. As someone who is proud of the greatness of our country, to wait and see does not inspire me with the notion that 347 we are terribly courageous. I wish we were. But there is no point in arguing the point, because it will not happen. What happens in due course depends on the practicalities. However, I am concerned that because of that the people of our country are very doubtful and bewildered. Until our leaders to whom the public listen—I do not include myself among them—speak out in favour of it, the people of this country will remain bewildered and doubtful. I do not believe that is good, certainly not as we enter the next millennium.
Having said that, I should like to deal with one or two technical matters. Noble Lords have referred to optimum currency areas. This always fills me with despair. It is the standard comment. Elementary economics is turned into serious policy-making in ways which suggest that those who do it have not quite grasped what the subject is all about. I take an obvious example. Almost all the evidence of which I am Aware shows that the United States of America is not an optimum currency area. When I taught in that country, one of the favourite exam questions to be set was whether it would be advantageous for West Virginia, which at that time had serious economic difficulties, to have its own currency so that it could devalue. One was easily able to demonstrate that the incredibly successful United States—perhaps the most successful economy in the history of the world—was not an optimum currency area. The moment one understands that, one realises how preposterous are the economists as against people who live in the real world. I am not even convinced that the United Kingdom is an optimum currency area, or has been for a long period of time. I utter a word of warning in relation to those who refer to an optimum currency area against EMU.
I was very puzzled by one matter referred to by the noble Lord, Lord Howell of Guildford. He thought that our interest rates were higher than those of the Germans as part of the present cyclical position. But he well knows that our interest rates have been higher than those of the Germans for 17 of the past 18 years. It is impossible that our interest rates should be higher than those of the Germans because of the present cyclical position. Our interest rates are higher than the Germans' because of the failure of our monetary policy, acting alone for the past couple of decades, as our central bank is a good deal less credible than the Bundesbank, not least with regard to inflation, but also with regard to other matters.
Perhaps I might put to the Committee the point which I have put before paradoxically: my judgment is that the one country that would benefit from EMU is our own. The real puzzle is why the Germans think that they would benefit, but that is their problem, it is not mine. The one country in terms of the history of policy that should be grasping the chance of going into EMU is ours.
On convergence, much of the earlier debate was about financial convergence, about which my noble friend Lord Grenfell spoke. My view is that financial convergence is sensible. The 3 per cent. criterion in terms of average budgets over the cycle makes good sense, and I speak as a Keynesian economist. It is not saying a zero budget; it is referring to the cycle. I should 348 have thought that that was not a bad policy, broadly speaking. I am not generally so certain about the 60 per cent., but that is another matter.
Members of the Committee have referred to real convergence. Real convergence is an entirely different matter. I have to say two things about that. First, if real convergence is what is required, it is just not possible. There is no real convergence between the individual states of the USA. I doubt whether there is any real convergence between the individual parts of the German Federal Republic. Real convergence is not only impossible; for anyone who has any knowledge of the market economy, it is not even desirable. The whole point of a market economy is that it is dynamic and does not become stultified into something one would call real convergence. I hope that those Members of the Committee, whom I respect, who are doubtful about EMU do not go down that path, because I do not believe it makes any economic sense whatsoever.
We should not study the European Union and its economic policies as if somehow, as a result of this, they will be set in stone. We are doing something that I hope will last for a long time. We will learn from experience of what is happening in Europe. I do not doubt—I am sure that the noble Lord, Lord Pearson of Rannoch, is right—that the enterprise will run into difficulties. I have never known anything happening in the economy that did not run into difficulties. The question is whether those involved in taking decisions will be capable of learning from experience. Will they, on the basis of economic and monetary union, be capable of building upon it and developing methods which will deal with the problems that arise? I have no doubt that there will be regional problems and regional unemployment problems.
One of the matters that troubles me about the unemployment in our country is that we do not get rioting in the streets. I wish that we did have a bit of rioting in the streets so that politicians might be less anxious to create unemployment. I thought that the noble Lord, Lord Tugendhat, was right in what he said about his noble friends. He should know that I, at least, was not happy to pay the unemployment price of getting down inflation, for obvious reasons: I did not pay. I have never been a believer in advocating others to pay the costs when I get the benefit.
I do not believe for one moment that as Europe advances the relevant decision makers, whom I regard as still and continuing to be national leaders, will behave in the foolhardy, straitjacket way that the opponents of this new development have said that they will. One noble Lord—either the noble Lord, Lord Pearson of Rannoch, or my noble friend Lord Stoddart of Swindon, with whom I always want to agree—said that he hoped to have a great many more debates of this kind. I end by saying that I hope we do not.
§ 6.15 p.m.
§ Lord Beloff
Perhaps after that intervention by an economist, with the typical irresponsibility of that profession, I can bring the Committee back to considering the facts that we are discussing. One thing 349 that has struck me about previous speeches, especially those made by my noble friend Lord Tugendhat and the noble Lord, Lord Taverne, has been that there is this picture of a Europe—if you like 11 countries of Europe—determined on creating economic and monetary union, and about to achieve that within, I agree, a matter of weeks.
The fact that that may come about in a matter of weeks should not disguise what seems to me the most neglected part of the discussion hitherto, which is the fact that none of the 11 countries is doing it for the same reason or approaching it in the same frame of mind. There are exceptions. If nothing like this had come about, it is conceivable that the Netherlands, with its position as the output point for German industry, might have felt that it was happy having the same currency.
If we go outside the narrowest core, we find different approaches, and those are manifest to us through the discussions that go on. After all, we learn from the Bundesbank and various German statesmen that the ideal for which they are aiming is a European monetary system, controlled by a European bank which would be as like the Bundesbank as possible, and determined to make the curtailing of inflation its main purpose and objective.
On the other hand, the French—without a Franco-German combination, we should not be looking at a European Union at all—look at it differently. They have consistently said that there must be political input into these discussions, and even so great a Euro-enthusiast as the noble Lord, Lord Grenfell, admits that the stability pact will operate only under certain political controls; it will not be automatic.
They have not, as far as I know, been able to agree on who should hold the important post of president of this new bank, as though there were a contest in this country as to whether Mr. Eddie George, with his well-known opinion on various economic matters, or some other person, holding totally different views, should occupy the post at the Bank of England.
Should not we at least agree that it is a system which is constructed by different countries, for different reasons, with different measures of popular consent? It is well known, and has been referred to by various speakers, that a test of public opinion in, let us say, Germany will produce a negative, and a test of public opinion in Italy will produce an enthusiastic positive. Should not that be a warning?
My noble friend Lord Howell of Guildford referred to the case of Ireland, which has hitherto, of course, done very well out of being a sort of pensioner of the European Union, and obviously is enthusiastic for further immersion into that system. But what will happen if Ireland goes in and the UK stays out, as a great deal of Irish trade, and Irish economic relations, are with this country? They will be part of a euro which is likely, according to many respectable economists—perhaps not the noble Lord, Lord Peston—to be a rather weak currency, while it looks as though sterling will continue to be a rather strong currency. So they will find 350 themselves in a position which they do not share with other countries for which the UK is not of particular importance as an economic partner.
We must recollect that the idea of popular participation in decision, which some noble Lords seem to believe would be important because they want the country to be enlightened, is not and cannot be a feature in many European countries. I very much doubt whether walking around the streets of Seville or Granada one will find anyone who can explain in detail what is meant by a single European currency. In most countries, as with the other aspects of this European venture, a limited elite are enthusiastic since they occupy positions of power in government and in the economy and they see this as a way of increasing their positions of power.
It is not therefore a very hopeful prospect. We heard the metaphor about a train rushing along and we were told, "You cannot stop the train". I agree that we probably cannot stop the train; folly is endemic in the human condition. All I worry about is the maiden who is strapped to the sleepers—this country—and I should like to detach her. That is the only consideration which I believe should influence us. What worries me is that we have deciding this matter for our country a Chancellor of the Exchequer who takes the extraordinary view that politics is one thing and economics is another; that you can settle something on what he calls "purely economic criteria". I do not believe that Adam Smith would have had much sympathy with that point of view and therefore I worry for our maiden.
§ Lord Grantley
My Lords, it is only rarely that I seek to inflict my views on your Lordships' House. I am tempted to do so on this occasion owing to the quite extraordinary nature of the debate. In all other member states of the European Union the governments put forward the argument for joining the EMU as expressly political. In their minds, there is no pretence that one should join the EMU for purely economic reasons. For some reason, the United Kingdom appears to be the only member state in which the political aspect of EMU is ignored and arguments are put forward for purely economic reasons. Actually, so far as I can see, they are put forward for no reasons at all.
In today's debate, it has been remarkable how few arguments have been advanced for the idea that the economy of the United Kingdom will benefit through membership of the EMU. The nearest suggestion I heard came from the noble Lord, Lord Peston, that in the past economic policy in the United Kingdom, in particular monetary policy, was not well conducted, whereas in other European countries such policy has been better conducted. The noble Lord is right in saying so.
However, that is not an argument for saying that that relative comparison is bound to endure for the future. On the contrary, we see significant changes in the conduct of economic policy, specifically monetary policy, in this country as in other European countries. We in the United Kingdom are now enjoying the benefits of the lowest long-term interest rates on gilts for many a year, reflecting the fact that our economic policy is being well conducted. I congratulate Her 351 Majesty's Government on their role in this matter. It is due to the Government's abandonment of socialism in its economic form that we are currently enjoying such a high quality of economic, and specifically monetary, policy. There is no reason for pessimism or a belief that in the future if we stay out of EMU our economic policy will necessarily be conducted worse than that of the European Union as a whole.
However, because we are reluctant to acknowledge that the main motivation for EMU is the desire on the part of other member states to have a political union, its proponents in this country are forced to produce an ever increasingly fantastic series of assertions as to why it is in our interests to join. One of the assertions made by a speaker earlier today was that if the amendment were passed the markets would punish us. The situation happens to be precisely the opposite. Whenever during the past 12 months the Government looked as though they were tending towards joining the EMU, sterling fell in relation to other currencies. At moments when it looked as though the Government were backing off joining the EMU, sterling rose. That shows that the markets believe that sterling is a safe haven in comparison with a relatively weak euro. Generally, the markets believe that the euro will not work, and I very much share that opinion.
The other assertion which I thought was quite extraordinary was that the economies of the other member states of the European Union are converging as demonstrated by the cases which they put forward recently to suggest that they have all satisfied the Maastricht criteria. I do not know whether I am living in a different world, but what I thought was particularly noticeable about the cases which the countries recently advanced was that for the most part they were based on fudge. We heard fudge from the Germans, fudge from the French and fudge from the Italians—and they are only the best known instances. It is deplorable that the countries were able to go to the European Commission in advance in order to obtain pre-clearance of the basis upon which they fudged their figures.
That has been exposed most noticeably by the directors of the Bundesbank in relation to the fudge by Germany. If anyone is entitled to be listened to with credibility on the subject of the economic consequences of EMU, I suggest that it would be the directors, and in particular the former directors, of the Bundesbank. When it comes to talking about sound money, they have more credibility than any other set of authorities within Europe. We know very well that the opinion of the members of the Bundesbank board is that from an economic standpoint EMU would be a disaster.
Surely, the case against our joining the EMU is simple. It is that we would forgo the ability to set interest rates with reference to our own conditions. To be able to do that is merely one of the aspects of political independence. It is a pearl of great price. Why should we throw away that pearl of great price without any obvious reason for doing so? The noble Lord, Lord Tugendhat, introduced a red herring by saying that in today's global economy no country can operate economically independently of others. That is true, but the analogy is not precise. What we ought to have for 352 ourselves is the same degree of independence to set our own monetary policy with reference to our own conditions as, for example, the authorities of Switzerland have in setting interest rates to suit Swiss conditions or as the authorities of Singapore have in setting monetary policy to suit the interests of Singapore. Switzerland and Singapore happen to be relatively small countries, but the noble Lord's suggestion that small countries find it difficult to set suitable monetary policies to suit their own purposes is destroyed by the example of those small and successful countries which have set monetary policies to suit their own interests. There is no reason why we should not do the same.
If we were to join the EMU we would find that it would be the merest coincidence if the interest rates referrable to the European Union as a whole were appropriate for ourselves. It is almost certain that we would find that interest rates would be either too high or too low. The noble Lord, Lord Howell, mentioned the dangers for individual member states finding that the interest rates applicable to them post EMU are too high or too low. In the case of interest rates being too low there would be boom followed by bust and in the case of interest rates being too high there would be recession, followed by depression, followed by the possibility of a great deal worse.
I wish I were a prophet. I wish I could see through to what will be the ultimate consequences of EMU going ahead. But I believe that the apocalyptic scenario is not necessarily to be dismissed. I cannot see the stability pact working. The idea is fantastic that, when one is in a situation of depression, when one cannot keep the fiscal deficit below a stated proportion of GDP, then one will have to pay fines. By definition, in a state of depression one's fiscal deficit will be on the increase and one will need to reduce taxes to take up the strain of not having an independent monetary policy to suit one's own conditions.
§ 6.30 p.m.
§ Lord Grenfell
I am grateful to the noble Lord for giving way, but I do not know whether, by chance, he had in mind some remarks I made earlier. Once again, I should like to emphasise that there is no question of fines being imposed on a country which has gone deeply into depression—asymmetric shocks possibly produced by external factors. To me a deep depression would mean a loss of about 2 per cent., if not more, of output. It just will not happen. There will not be fines.
§ Lord Grantley
I sincerely hope that the noble Lord is right. But I wonder whether there are any circumstances under which any member state in future will consent to paying a fine as required by the conditions of the stability pact. To me, it seems to be politically unreal. I know that the noble Lord has vast experience in those matters of the political and diplomatic realities or otherwise. But to my mind, it simply lacks credibility and I believe that the markets share that view.
353 I conclude by saying that if I were Her Majesty's Government, I should wish to make a commitment that we would never ever join EMU because it is completely contrary to both our political and economic interests. For that reason, I support the amendment.
§ Lord Ashbourne
I rise to support these amendments moved so ably and cogently by the noble Lord, Lord Shore of Stepney. I am not an economist and I shall not detain the Committee long. I wish to make one point and it is in relation to what I shall describe as the "pensions bombshell" or, put another way, what the House of Commons Social Security Committee, under the chairmanship of the right honourable Member for Birkenhead, Mr. Frank Field, described as the "pensions timebomb".
The UK has a massive private pension fund of £;600 billion, more than the combined total of all the other member states. In round figures, in the UK our pensions liabilities represent 19 per cent. of GDP; in France, they represent 98 per cent. of GDP; in Italy, they represent 113 per cent. of GDP; and in Germany, they represent 139 per cent. of GDP. A single currency will result in harmonisation of all taxes in the EU, so European Union pensions are likely to cost the UK taxpayer no less than £;1.2 trillion, increasing our national debt from £;5,000 per head of population to £;30,000 per head of population.
Jacques Delors has declared that,with a single currency, all members of EMU would become liable for debts of any single country of that union".Continental politicians seem to understand that, but we must ask whether Her Majesty's Government understand it. I ask the noble Baroness who is to reply on behalf of the Government whether she will explain to the Committee in the clearest possible terms how the Government intend to fund that enormous pensions deficit.
Lord Bruce of Donington
It is always a pleasure to follow the arguments of the noble Lord, Lord Ashbourne, with regard to convergence. Although I propose to touch on that matter lightly at a later stage, it is already clear—and I trust that my noble friend Lord Peston has taken note of it—that some rather creative accounting has been adopted by some of the member states in order to attain the required convergence criteria as laid down in the Maastricht treaty.
Be that as it may, I observed at an earlier stage in the debate that my noble friend Lord Randall suggested that this debate was redundant anyway; that there was no point in holding it; that the matter had been resolved already by the signature of the treaty itself; and he could not see what all the fuss was about. Perhaps after he has been in the House a little longer he will be aware of the traditional purpose of this House, which is, among other things, to give the other place the opportunity to think again about certain controversial matters.
It has been agreed generally in both Houses that your Lordships' House has frequently achieved an admirable purpose in securing that. According to our parliamentary 354 practice in this country, the assent of the other place and the assent of this House is required before a treaty is ratified. The treaty has not yet been ratified. I do not see any reason why we should shorten our parliamentary procedures in order to avoid a debate on it.
Perhaps a little unusually I propose to adopt the advice which this House very often gives to another place; to suggest that everybody thinks again about this, nothing more and nothing less. Matters are not quite as clear as they sometimes appear from the utterances of the more forthright advocates. This is one of those cases. I must plead guilty to not being backward in stating my views with some frankness. I believe that that is all to the good of Parliament.
Indeed, this discussion that we are holding this afternoon is not taking place in a vacuum. It is taking place within a current climate of opinion in our country. The matters that we are discussing receive the attention occasionally of the BBC and sometimes of the various broadsheets, yea even unto the Sun. Therefore, we are not talking about the whole question within a vacuum.
I venture to suggest to the Committee that perhaps there are some delusions about. They have been due mainly to people talking in terms of generalities. Such picturesque terms have been used as "missing the bus", "being late for the train", "being not at the core of Europe" and other such quite meaningless observations that have no relevance at all to what is in fact happening in the real world.
I suggest that by a combination of those factors and the massive propaganda that has been forthcoming, not entirely without the financial aid provided by the European Commission itself, there are three illusions or delusions that are current. The first delusion is the nature of the present European system, the EEC system itself. The second delusion is that it can work. The third delusion is that it is bound to work in the future because it could not possibly be a failure. Those views are expressed in very general terms.
I should like to examine each of them as impartially as I can—and there is some doubt about that, I am well aware. But what is the EEC system at the moment? Let us consider its characteristics. It is, of course, a competitive economy in general terms throughout the various countries in Europe and in varying degrees. But there is substantial deviation from that in the CAP itself, which propounds an economic method of conducting our farming affairs which is totally at variance with the basic concept of competition. Indeed, ever since 1975, when I first joined the European Parliament, its total reform has been under discussion. It is nearly a quarter of a century since everyone who articulated on it agreed that the CAP was a complete disaster.
What then is the system? It is simply that. But the other characteristic of the system is that its component parts, in terms of its institutions, are not accountable to anyone. The European Commission is not accountable to anyone. I have no doubt that it has many admirable people working in it; and, indeed, some of them are known to me. Some of them are distinguished; some of them are less distinguished. I would not presume to try to differentiate between any of them personally.
355 However, I invite Members of the Committee to consider that those organisations are not necessarily the last word in economic, financial or business affairs. I have not heard anyone say that they have any special claim to our affections on that ground. They are not accountable to anyone. Yet they are the principal engine of the policies. They are the principal authors and instigators of the various treaties that we are considering. But what special qualifications do they have for that? To whom are they accountable? Where is democracy?
I am a little old fashioned in that in my earlier political days, from 1935 onwards, I was a great believer in democracy—I still am. However, I do not see anything democratic there. I can see bureaucracy and it is clear that the bureaucracy has become enormously powerful. Nor can the possibility be excluded—I put it at its mildest—that they may possibly be considering their own interests, their own futures and their own professions rather than of necessity the welfare of the people whom they are seeking to influence.
The same applies to the European Central Bank. It is appointed; it is not responsible to anyone. There is no democracy there. The same also applies to the other institutions. There is the European Parliament itself. What claim do those involved have to be democratic other than having one Member of Parliament per half a million electors, most of whom they will never see? Certainly they have no claim in the ordinary sense to be "representative" as we understand the term. So there is a democratic deficit right from the beginning.
Lest it be said that the Council of Ministers is democratic, I should point out that it has no opportunity to be so. It can act only on the proposals coming from the Commission. That is enshrined in every presidential declaration. Every meeting of Ministers issues a communiqué afterwards. The democratic viability and the accountability of these very powerful organisations does not seem to be called into account.
I respectfully suggest to the Committee that you cannot try to determine policy downwards, without any consultation with people. Ultimately, policies in organisations must always be determined bottom upwards. What has been sought to be done is to impose from above a system to which we are required to conform. I do not believe that that is a very good precedent to follow. You cannot hurt institutions; you cannot even hurt countries: you can only hurt people or benefit them.
What has been happening? Has the system worked? From what I have heard this afternoon it seems that the policies which have been introduced throughout Europe over the past five to 10 years have produced a situation where we now have 20 million unemployed, and that figure is still rising. Since when has that been equated with economic success? I am a little surprised sometimes to note a sudden conversion, not least among those with whom I would normally regard myself to be politically associated, to the view that unemployment is at tolerable levels in this country; whereas the policy in the past has definitely been that unemployment is a price well worth paying. Yet, at present, we seem to be 356 accepting that unemployment at a real level of about 3 million here, which is on a comparable basis with unemployment when we left office in 1979, is somehow success.
Therefore, even on those grounds, the deflationary policies (that have been elaborated, once again, under the same auspices as the Treaty of Maastricht and the Treaty of Amsterdam) which we are now required to follow, not merely by argument but actually in a treaty, have proved to be completely disastrous for a large proportion of the population, not only of our country but of Europe as a whole.
It has not succeeded; on the contrary, it has failed. Yet the Euro-speak on the subject claims that it has all been a wonderful success. I hope that my Government will be able to convince me that the formal incorporation into the treaty and its confirmation under Amsterdam, subject to certain penal conditions, is the state of affairs that we should not only tolerate but also support. As noble Lords have pointed out, we live in a competitive society. Yet, when it comes to action in the monetary field, we find suddenly that competition is going to disappear.
Economic and monetary union—so far as Europe is concerned—is the financial form of the common agricultural policy. It tries to fix things by convergence; on what intellectual basis I do not have the remotest idea. I have always thought that competition, subject to restraints affecting the difference between capital and consumer goods, is a good thing. But now we propose to try to abolish it over 15 member states, and possibly even more. This surely is not the way to secure optimal results in the financial services field, any more than it is in the agricultural field which has once again turned out to be—as is well known—an abysmal failure.
I suggest that we have to think about these things again. We often hear observations from this non-accountable body on the effectiveness of the regulations that it brings forth from time to time and which are of course incorporated—now almost automatically—into English law. What sometimes it forgets is that the regulations have brought havoc to large numbers of small businesses that have proved quite incapable of dealing with the regulations as they are translated into action by our own civil servants here and by our own bureaucracy. Scores of small businesses have been ruined because of the meticulous enforcement of regulations issued from Brussels. Incidentally, when those regulations are received by other countries, there seems to be a curious reluctance to enforce them whenever that suits the particular country concerned.
I do not need to remind the Committee of the gendarmerie looking on in France while British sheep are slaughtered and burnt. There are many other cases. It is well known on the Continent that there is a general tendency to obey regulations only when it suits. We of course are brought up in an entirely different way. We are all law-abiding citizens—at least I hope so. I venture to suggest that my noble friend Lord Grenfell may have some illusions about the stability pact—the text of the resolutions of which I read carefully last night—together 357 with the origins of the treaty itself. He will find that the conditions of the stability pact, if he would care to re-read them, are not quite as inflexible as he may think.
§ The Earl of Longford
I do not think that anyone has ever dared to interrupt the noble Lord before but everything has to be done once. Is the noble Lord aware that when I was the Minister responsible for Germany 50 years ago the Germans were starving and, not long afterwards, the official view in the Treasury was that to tie ourselves to Europe would be to tie ourselves to a corpse? Does the noble Lord agree that the standard of living in Germany—in spite of recent troubles—is much higher than in this country?
Lord Bruce of Donington
I am sorry that I cannot answer the noble Earl as he did not articulate what he said sufficiently for me to hear him precisely. If he will try to use his nasal resonators, perhaps I can answer his question.
§ The Earl of Longford
I had better speak slowly. Is the noble Lord aware that when I was the Minister responsible for Germany 50 years ago, the Germans were starving, and that soon afterwards the official view in the Treasury was that to tie ourselves to Europe was to tie ourselves to a corpse? Does he not agree that the standard of living in Germany is still a good deal higher—in spite of recent difficulties—than it is here? How does he explain that?
Lord Bruce of Donington
Even conceding the point that the noble Earl makes that the standard of living in Germany is higher than our own—I gather that is a point that perhaps both the Government and the Opposition would wish to contest in view of their previous economic records—the noble Earl is probably equally aware that during his period of office as Minister responsible for Germany we in this country, at a time when we had suffered more than £;7 billion—at 1945 prices—worth of damage and destruction, rationed bread in order to feed the starving Germans. He might also remember that.
§ Lord Pearson of Rannoch
I hope I may go a little further than the noble Lord, Lord Bruce of Donington, in his answer to the noble Earl, Lord Longford. I am not sure that the picture that the noble Earl paints is quite as rosy as he thinks. At the moment unemployment in Germany is 11.6 per cent. and in this country it is only 5 per cent. Surely that is a reasonable yardstick of the well-being and standard of living of a country.
Lord Bruce of Donington
I agree with the noble Lord as regards the principle but not with his figures. The rate there is a good deal higher than ours; but ours is a good deal higher than 5 per cent. It is more in the region of 7 to 8 per cent. according to the method that was adopted in the 1979 parliament and by the previous Labour Government. But it is still to some extent immaterial.
358 One of the claims that is made for Maastricht—and which is still reiterated as being in operation—is the deregulation that was promised under the provisions of the original clause 3a which dealt with subsidiarity. The Committee may remember that Mr. Major returned waving a flag and saying that he had secured a degree of deregulation. I am not in possession of the current figures. I assume that they are in the possession of my noble friend on the Front Bench. However, I gather that the number of European regulations that have been repealed because of redundancy is small and is probably fewer than the number of fingers on one hand. So deregulation has been a complete farce.
Surely it is a little disingenuous to say that everything is going well within the European Community. That cannot possibly be so. If it were otherwise, the Government surely have a remedy within their hands. My noble friend has a remedy in his hands that the noble Lord, Lord Henley, declined when he was in government and was questioned by me upon the subject. If they are so sure that everything is going well and should continue to do so, why do they not publish a cost benefit analysis? It is quite easy. The noble Lord, Lord Henley, implied to me at the time that it was so obvious that the whole system was beneficial to the UK that any cost and benefit study would be redundant. If it is all that simple, it would not be difficult to publish the statistical justification, but that has not been done.
We must face the fact that the system is not working; that the system is not what we think it is, and that even though it is not working, we have to pretend that it is. This is not a satisfactory state for any government to be in. I do not have any particular prejudice against the system as such. The noble Lord, Lord Tugendhat, confirmed to the European Parliament that when there I had done my very best to further the interests of my country and of the Community. That is my position today. Nevertheless I think that we have to pause before we go further because as day follows night you cannot bring real convergence into all the countries concerned. You cannot by mathematical sleight of hand pretend that they all have converged when a good number of the so-called convergent countries do not converge at all.
It goes right to the root of the matter. Here we have an economic and monetary policy, determined by the Commission in conjunction with the European central bank, whose only virtue is that its representatives are bankers. They have no other qualifications. So far as I know they have no political qualifications. Yet we are going to insist upon our currency being aligned and lost within one single currency despite divergences which undoubtedly exist between each of the countries concerned, the nature of which will make themselves known within a very short time indeed.
Has not the time come to acknowledge that a democratic system has to be democratically constituted and democratically accountable? When we can reach that stage, the utmost collaboration between the member states of Europe is very desirable. It is a concept I have continually supported. But to pretend that non-democratic, appointed bodies, responsible to no one but themselves, can do that by diktat from on top, by a flood of regulations, some of which go into our law 359 without even touching down in Parliament and often without the knowledge of the Government, cannot be the right way forward for the peoples of Europe and of Britain. Why should it be?
There is the argument that there can be a financial distribution out of the European budget, financed of course by ourselves to a large degree. We have a deficit of £3 billion at the moment, which seems to have escaped everyone's attention among other priorities. That simply would not work. One cannot have the strains of economies within their own boundaries proceeding at different rates according to different traditions and languages without contemplating considerable diversion of funds.
How will one contemplate that? Even at present there seems to be a complete disregard in this country and in Europe as to the nature and extent of fraud in Europe. The latest figure for the past year is £2.5 billion. It will probably be exceeded this year. These matters at present have no democratic accountability even in this country. If one reads the Commons Hansard, as I do on a daily basis, one finds that most European matters go through on the nod at about 10.30 p.m. There is no accountability even here.
I suggest that we should be a little more cautious in giving blanket approval to matters that are against the best traditions of our country and against the most favourable developments. We should not give up these things lightly. Least of all should we allow the powers of our Parliament, and for the time being the Government representing it, to be subordinate to people who are appointed and have no accountability to anyone.
§ 7 p.m.
§ Lord Taverne
I apologised earlier for having to be absent. However, fortunately my noble friend Lady Williams has taken full notes.
First, I refer to the remarks made by the noble Lord, Lord Ashbourne, about the pensions issue. How often does one have to answer this hoary old canard? The provisions of the Treaty of Maastricht are absolutely clear. Article 104b states:A Member State shall not be liable for or assume the commitment of central governments … of another Member State".That is absolutely clear. Secondly, it is reinforced by the stability pact. It is then said that the countries will run into problems anyway. We were going to run into problems until the reforms of 1981. Why could we reform in a way which was rather harsh but was done nevertheless? Why could we get rid of our hidden liabilities without other European states being able to do so?
If one considers what has been done in other European countries, it is clear that this argument is a canard. The Germans have by their own laws to make sure that contributions match the benefits paid out. Of course those contributions are rising; they will have to change. The Germans are about to introduce a form of privately funded pensions. The French have made moves in this direction; they do not face a major problem until 2005. The Italians have made major 360 reforms: the Amato reforms, the Dini reforms and the Prodi reforms. They have a long-term viable system in place. They face a short-term crisis which they are beginning to tackle under Mr. Prodi.
The Earl of Clanwilliam
Did the noble Lord say that the stability pact will be used to enforce proper arrangements for pensions?
§ Lord Taverne
The stability pact prevents one country having to bale out another country for its debts.
I turn next to an interesting speech made by the noble Lord, Lord Grantley. However, he made some strange statements. First, he said that no arguments had been advanced in favour of monetary union. There is a certain weariness about these debates. The arguments have been repeated time after time. We do not want to fight all these old battles. The noble Lord, Lord Peston, disposed in a refreshing manner of the argument about a natural single currency area. I thought that his speech was extremely refreshing. But when the noble Lord, Lord Grantley, said that no economic reasons were given by any other state, I wonder where he has been.
One regularly hears the arguments advanced that of course this will bring better investment because it will bring stability—stability of currencies. It is regarded as inevitable that if one has a single market one completes it by having a single currency. Those are economic arguments constantly advanced by other member states. To say that they never advance economic arguments is nonsense.
§ Lord Taverne
I always like the humility with which the noble Lord expresses his opinions. I enjoy his speeches enormously, but he prevents this House being excessively polite. When he refers to Ireland, for example, as the pensioner of Europe, he is somewhat offhand in his appreciation of what has happened in different countries. Ireland has one of the best economic records of any of the European member states.
§ Lord Pearson of Rannoch
The noble Lord will agree that Ireland receives £2 million every day. It has been doing so for many years and will do so indefinitely until it agrees to vote against it. That has had an interesting effect on the Irish economy.
§ Lord Taverne
Ireland has had assistance, as indeed have other parts of the European Union. That is one of the reasons why countries such as Portugal have been able to move towards the average income of the European Union. Ireland has made extremely good use of those services. It has moved from 60 per cent. to 98 per cent. of the average income of the European Union. And the cohesion fund will stop being applied to Ireland because of the excellent use it has made of those services in the past.
There have been many references to the fudging of criteria. Again there is a certain arrogance about that. By remarkable efforts countries have achieved the criteria. 361 People say that Italy has not done so, but even without the special Europe tax Italy would still be comfortably within the 3 per cent. deficit criteria. One should also remember that those criteria are not written in tablets of stone. They are not the be all and end all of tests as to whether a country is fit to join a monetary union. They are guidelines to indicate whether the country can comply with what really matters; that is, whether a country can sustain a low rate of inflation. That is the requirement—and it is one which countries have looked very much like achieving.
Of course dealing with inflation is not enough. One is looking for growth. It is remarkable that the countries of Europe have stuck to their plans regarding monetary union when going through a very bad patch and a deflationary period. Germany in particular has suffered from macro-economic deflation, largely as a result of unification. But the predictions of doom are somewhat misplaced. If one examines the scene in Europe at present, one finds that Germany and France are heading for a faster rate of growth than the United Kingdom. One should not adopt a somewhat patronising attitude to other countries which, according to some, seem to have managed their affairs rather less effectively than we have.
One thing that surprises me about the case put by the opponents of monetary union is that they totally disregard the enthusiasm for it that is shown in other countries. It is true that, so far as Germany is concerned, public opinion is hostile. It is also noteworthy that every time people in Germany have the chance to vote for a sceptic, they do not do so; the voting is very different from the way in which people express themselves in opinion polls.
Seeing the enthusiasm of other countries and their determination to make monetary union succeed, the question arises: are they all mad? According to the anti-Europeans, all those countries are absolutely mad to want to go for monetary union. An examination of their record shows it to be on the whole rather better than ours. We are not in a very strong position to lecture others about what is a sane economic approach. The political will is there; and there is therefore every reason to suppose that this venture will succeed.
§ Lord Mackay of Ardbrecknish
As I shall speak only once, perhaps it is the turn of this side. I do not intend to speak twice before the Minister replies, so I think I—
§ Viscount Massereene and Ferrard
What is always forgotten when we debate the EEC is that those countries need us a good deal more than we need them. We have an adverse balance of trade with them. The corrupt shambles of the CAP costs every family in this country around £20 per week on their food bill. And now we are contemplating joining a single currency, sending all our 362 gold reserves to Frankfurt and getting a whole lot of unelected bureaucrats in effect to run our economy. Are we mad?
§ Lord Mackay of Ardbrecknish
At the risk of contradicting myself, I do wish to speak. I have spoken only once—indeed I am speaking for the first time. The noble Lord has already spoken.
§ Lord Mackay of Ardbrecknish
With all due respect to the noble Lord, I think that he might wait until after the Minister replies; then he can speak again. That is the normal way in which a Committee stage is conducted as I recall. I do not want to argue with the noble Lord, but we cannot have people speaking a second time before the Minister has replied.
§ Lord Mackay of Ardbrecknish
The noble Lord, Lord Beloff, likened the European single currency to a railway train that was unstoppable and said there was a UK maiden strapped to the rails. I am beginning to think that this debate is unstoppable and I am the poor maiden strapped to the rails. That is why I decided to intervene.
I always find these debates difficult. We have had a fair number, and the only thing that has changed is the geography of the Chamber—I was usually sitting on the other side and the noble Lord, Lord McIntosh, was here. The arguments were much the same. A few new players have emerged, but, frankly, the debate shows all the signs of never having moved on very much.
I have the same trouble as I had when I spoke from the Government Front Bench—I am "buffeted" by the Europhiles and Europhobes. The Europhiles come on—usually, it has to be said, from the Liberal Democrat Benches—with the attitude that almost everything in Europe is brilliant, everything in Britain is bad and we should do exactly what the foreigners want on every occasion and never think for ourselves at all. I then find myself being pushed into an anti-European position. Then, to counter that, along come some of the Europhobes, and I am very quickly pushed back. I sometimes feel like something of a yo-yo in these debates. Nevertheless, I maintain my position. I believe quite firmly in our membership of the European Union. It is thoroughly sound. I campaigned for it in the referendum. Just occasionally I think some of the policies are daft. But some UK policies are also daft, and therefore the European Union is no different from any other government. Just in case the Front Bench Opposite get any ideas that I am talking about the previous government, I am thinking of the ban on beef on the bone, for example, and matters of that nature.
As I have said on a considerable number of occasions, the fundamental point is that we have benefited from being in a market of something like 370 million rich (in terms of the rest of the world) consumers. Some of the 363 ideas put forward by those who would prefer us to leave the European Union are hugely out of date and we ought not to consider them too much. It does not do our country any service to be continually rehearsing arguments and battles long since gone, when the British people have decided in election after election that they want to remain inside the European Union.
There are many matters that the European Union ought to be getting down to, not just the single currency. It ought to be completing the single market. It irritates me slightly that the single market has not been completed. One example is the subsidies to the German coal industry. There are subsidies to state airlines, and British Airways is not being helped at all. Another example is the way in which financial services are still unable to penetrate the single market in the way they ought to. But those things will come about. A market requires, in the jargon, "a level playing field". It requires the rules and regulations to be made in such a way that they are fair to all countries and ensure that people can operate in every part of that single market. In addition, I should like to think that we can enlarge the Community and give to the people of central Europe the advantages that they were denied for 50 years when they were under the heel of the Soviet Empire.
The issue of the single currency has been introduced in a rather elegant way. The noble Lord, Lord Peston, complained about the first amendment, tabled by my noble friend Lord Moynihan. I think the real reason that my noble friend tabled the amendment was to allow the noble Baroness the Minister to come to the Dispatch Box and, so to speak, give an opening position regarding how she saw the Committee running, and also to introduce herself to the debate since she had inadvertently not been able to be present at Second Reading.
§ 7.15 p.m.
§ Lord Peston
I have no criticism to make of the noble Lord, Lord Moynihan. My concern was that noble Lords might have interpreted what was said then to mean that they could go on to debate any subject they fancied from now on. I was hoping to hear it stated that that was not the agreement between the two Front Benches, but that we should at some stage debate matters to do with the Amsterdam Treaty.
§ Lord Mackay of Ardbrecknish
I believe my noble friend's idea was to have a structured debate. I must tell the noble Lord, Lord Peston, that in my experience, if the word "Europe" comes into it, some of my noble friends, and some of his, have quite enough imagination to introduce almost any subject they wish.
This debate in particular allows us to talk about the single currency—although, as I understand it, the single currency does not play much of a part in any of the new texts in the Amsterdam Treaty, as the Minister will no doubt say. However, I cannot gainsay the fact that the single currency is a very important issue at this time. In a debate on Europe, even though it relates to the Amsterdam Treaty, it is probably fair that we should spend some time examining the issue of the single currency.
364 There are undoubtedly advantages in a single currency. Save for those who are entirely blinkered, most people see advantages. There are obvious advantages for those who travel about Europe and for business and commerce in Europe—there will be considerable savings in currency costs. I am not entirely sure why the banks should be in favour of a single currency. It seems to me that they will lose quite a lot of money. But there it is. I should not weep too much over the banks losing money.
We should be guarded about over-selling the business point. As noble Lords have pointed out, a fair amount of this country's business is not done in Europe. The ratio is roughly 50:50. It can be argued to he within a few points either way, but, roughly, 50 per cent. is with Europe and the other 50 per cent. is with other parts of the world. Currency transactions will continue to have to be done.
The problems which have been drawn to our attention fall into a number of categories. The first is the entrance criteria. There was considerable disagreement about whether some of the countries of Europe had fudged the entrance criteria. I have little doubt about this. Like other noble Lords, the noble Lord, Lord Taverne, pointed out in his usual heroic way that the countries had all done terribly well because they had grinned and borne all the difficulties and got there. I suspect it was a little of both. They have done quite well, but they have also fudged a bit and that seems to be the way in which they will all get into the single currency. As I have said on a number of occasions, undoubtedly the convergence criteria would be followed by any sensible government, whether or not the euro was there.
In the last parliament, speaking for the Treasury and the Government, I made clear that we would follow the convergence criteria. It had nothing to do with the euro but was because we believed it was a sensible economic policy. We have certainly done that.
Of course, as the noble Lord, Lord Grantley, said, the directors of the Bundesbank have pointed out their concern over some of the fudging going on and whether or not countries, including their own, have genuinely met the criteria.
The criteria are an important issue because, if a country is badly out of convergence, it will find it difficult to stay within what I would call the "corset" of the single currency. Once we move from the entrance criteria, we get into the territory of the stability pact. That pact is essential if the single currency is to work. Let there be no doubt in anyone's mind that if it is to work, there must be a stability pact to ensure that countries, having got into convergence, do not simply decide to ignore staying in convergence and blow the thing apart. It is important that the stability pact is not fudged and that people continue to meet the criteria which have been set down for entry into the euro.
I mentioned that one of the advantages of the euro would be that we would trade inside Europe on one currency. That would be a considerable saving. But there are two other aspects to the problem of the euro that cause me concern. First, the question of the rate at which we would go in and, secondly, what effect it would have. I know we are not going in right now, but one has to work 365 on some kind of basis in these discussions. If we were to go in now at the present value of sterling, it would be extremely damaging to our manufacturing industry.
The noble Lords, Lord Peston and Lord McIntosh and I are spending a few happy hours on the Bank of England Bill. One of the issues we are discussing is the level of the currency. Perhaps I can tempt the Minister—I doubt whether I can because I tried on the Bank of England Bill and failed miserably, but it is worth a try—to suggest, within parameters, the value of sterling the Government would like to see in order to keep it at that stable rate for six months, two years or whatever, prior to them entering in the next parliament. That is what I understand their policy to be.
The noble Lord, Lord Taverne, seemed to want the value of the pound to be reduced. I was not sure how he would achieve the reduction that he wanted but perhaps when he returns he can tell us. That is one problem—the rate at which we think our currency ought to be pitched if we join the Community.
The second problem is to do with interest rates. Interest rates are a difficult issue and again they are part of the debate we are having on the Bank of England Bill. The Government are setting up a monetary policy committee in order to remove from the Chancellor of the Exchequer control over monetary affairs—a subject which my noble friend Lord Boardman mentioned earlier in the debate.
I worry about an interest rate policy which will try to fix the same interest rate for the whole European Union, or that part of it which is inside the euro. There could be real difficulties about it. Inside this country, over my political lifetime, there have been difficulties in fixing an interest rate which is required to deal with the south east of England when, at the same time, the Scottish economy is not in the same overheated position as the south-east's economy. The Scottish economy may perhaps be beginning to experience a stuttering recovery; then all of a sudden interest rates have been increased in order to deal with the problem of overheating, largely in the south east of England. It has been said for many years that when the south east of England sneezes, Scotland catches a cold. I am happy to say that under the sensible economic policies of the last government, the position changed. The Scottish economy came out of the last recession much quicker and better than the economy of other parts of the UK. For a little while, our unemployment rate was below the UK average. It is not any more; it is marginally above it. But the position has not been as bad in the last decade as it was in the three or four previous decades. I worry about single interest rates. I draw the Government's attention to the experience we have had in this country on single interest rates.
The United States was mentioned, particularly by my noble friend Lord Howell. He rightly pointed out that there are two factors which do not apply in Europe. They have not applied to date and I do not see them applying, despite the example given by a noble Lord who said that Switzerland managed it, as well as another country which I cannot recall, in quite different places, with little or no labour mobility. The United States has labour mobility in a way that we do not in Europe. We have a little labour mobility in the United Kingdom, perhaps more now than 366 20 or 30 years ago because of the last government's successful sale of council housing. Council houses were one of the things that kept people immobile in this country, but the situation has changed and is better now. However, unlike in the United States, there is not much movement of the working population between one European country and another.
The second difference is that in the United States there are huge automatic transfers of money by the federal government from a more prosperous state to a less prosperous state. Those two points show that the United States is not a proper comparison with what the euro would be inside the European Community. We must be careful about looking at the United States as an example of a single currency which works well.
I am not an economist but I found the speech of the noble Lord, Lord Peston, very interesting, as I always do. It was not a lecture, it was an interesting speech about these matters; but it is a pretty uncertain science, if I may say so. I was intrigued to notice, when I read the Minutes of Monetary Policy Committee Meeting on 4th and 5th February, that Members of the Committee tied on the vote about whether or not to raise interest rates again or to keep them where they were. The Governor gave his casting vote in favour of keeping them where they were. There is a nice sentence which sums up my difficulties with listening to professors of economics:Uncertainty was a normal state of affairs in economic policy making and there was no particular reason to believe that uncertainty would he any less in a few months' time".I do not think that I can look to the economists for certain guidance, when I read that interesting sentence.
§ Lord Peston
I do not wish to interrupt as we are desperate to have dinner, but there is no more important proposition in economics than the one which the noble Lord has just read out.
§ 7.30 p.m.
§ Lord Mackay of Ardbrecknish
Clearly I am learning at the feet of the noble Lord some of the principles of economics. I thank him for that.
I shall not go on too long because I should not like to keep the noble Lord, Lord Peston, from his dinner. But perhaps I can shift to another aspect of a European single currency which worries me. I do not want to go on for too long about examples, but there are two essential common policies at the moment—there may be some minor ones, but there are two major ones. We have a common agricultural policy and a common fisheries policy. This evening we are discussing a third common policy—a common currency policy, if I can call it that.
I do not believe that many people will rush forward to dispute with me when I say that the common agricultural policy and the common fisheries policy leave a lot to be desired. Both contain some pretty mad aspects. For example, the common agricultural policy subsidises tobacco farmers for growing tobacco, whereas the rest of the European Union bans the advertising of the product that they are all being paid, heavily subsidised, to grow. That is one of a number of silly propositions. Storing vast 367 amounts of food beyond their sell-by date is another silly proposition, and actually taking into storage the best of the product makes it even sillier.
I do not want to go too much into the common fisheries policy, but that is not a great success. It is not just a European policy. Many fisheries' policies around the world are based on some of the same principles and are equally failing in their objectives. But the common fisheries policy contains some silly aspects and there seems little chance of reform. I believe it was last July that "Dear Jacques" and "Dear Tony" letters on quota-hopping were exchanged and here we are in March, no further forward. Some letters have been exchanged; papers have gone to Brussels and we await, months later, some return. I give notice that I made a note in my diary to try to initiate a debate on the anniversary of "Dear Jacques" and "Dear Tony" if we still have not had a conclusion to that interesting exchange of correspondence.
My point is that those are two major common policies in the Community and here we are being asked to go into a third and—dare I say?—an even more important one than the other two; that is, the single currency. If it does not work or works in the same "iffy" manner as the CAP and the CFP, then all the economies of Europe could be in difficulty.
The interesting aspect of some of the debates we have had in this Chamber—unfortunately not today—is that we had the pleasure of hearing the noble Lord, Lord Dahrendorf. The first time I heard him I felt that he encapsulated better than I could exactly what I fear. It is simply this. As I said at the beginning of my contribution, I believe in Britain's membership of the European Union. I believe that the European Union has been a force for good for all the countries in Europe, including our own. My concern is that, if this common policy of having a single currency does not work or does not work well, then all the advantages that we have gained from our membership of the EU may begin to unravel, not just for us, but for all the people of Europe.
I hate the word, but in some ways I suppose I may be classified as a "Euro-enthusiast", though I am not a Euro-enthusiast in the way that most Members are on the Liberal Democrat Benches. I am certainly not a Euro-enthusiast when it comes to currency. My party has still to be persuaded that it is sensible for us to join. We took the view that we should judge joining when we felt that it was in the interests of the United Kingdom to do so. The Government have come round to agreeing with us that in this Parliament it is not in the interests of the United Kingdom to join. We doubt that it will be in the interests of the United Kingdom to join in the next Parliament because, frankly, we will still not know, well into the next Parliament, whether the project is working.
I do not know whether it is a Scottish phrase or a British one but I recall the words, "Suck it and see". I would prefer that "they" sucked it and "we" saw, and then we would be in a position to make a sensible judgment on behalf of the people of this country whether it is wise to join the single currency in the interests of this country and in the interests of Europe. As I said, my greatest fear is that we join it—or we do not join it; it does 368 not matter whether we are in or out—and, if it does not work, the results for all the people of Europe will be dramatic and catastrophic.
§ Lord Monson
Before the noble Lord, Lord Mackay, sits down, perhaps he will clarify one point made towards the beginning of his interesting speech. He said that the EU is no different from any other "government". Was that a Freudian slip or does he consciously believe that in due course the EU ought to be granted all the powers of a national government?
§ Lord Mackay of Ardbrecknish
It was not even a Freudian slip; it was just a slip. Perhaps it would have been better to say, "from any other bureaucracy." However, I shall be careful when the noble Lord is listening to me.
§ Lord McIntosh of Haringey
I could see the relief on the face of the Leader of the Opposition when the noble Lord, Lord Mackay of Ardbrecknish, after a very heterodox speech from his party's point of view, rejoined the party line in the last few seconds. I felt that, "With one jump, Jack was free"!
I do not resent the fact that we have had a debate of this length on this subject. I certainly do not intend to use the briefs which make fun of the wording of the two amendments we are in theory debating. I do not even object to the fact that we are debating something which is neither in the Amsterdam Treaty nor in this Bill, as my noble friend Lord Shore recognised. Of course, it could be argued—and he went on to attempt to argue—that the growth and stability pact was something new and that we had to reconsider EMU as a result of the growth and stability pact. I shall have to remind him in a few minutes that the changes only clarify the procedures in Maastricht and do not impose any new legal obligations.
The debate is about EMU because Members of the Committee want it to be about EMU. Fine. Let me set out the Government's position towards economic and monetary union. First, we want the single currency to succeed. We all have a strong vested interest in ensuring that EMU is a success and good for prosperity, jobs and stability. It is also in everyone's interests that EMU is built on a firm and sustainable basis. The treaty is clear. EMU must be based on a high degree of sustainable convergence. We will take our responsibilities of the presidency seriously. We will use our presidency constructively and supportively during the crucial decisions in May on which countries should join EMU. In saying that, I recognise the force of the point made by the noble Lord, Lord Howell of Guildford, supported by my noble friend Lord Grenfell, that the real decisions will be made in May rather than in January next year, if they have not already half been taken.
We and our European partners are committed to launching a successful EMU on schedule on 1st January 1999. But I shall not comment on the economic positions of other member states now, except to agree with the noble Lord, Lord Tugendhat, that much of the effort that has been made to achieve the degree of convergence that has been achieved, has been worthwhile, regardless of whether anybody is accused of fudge.
369 The Chancellor of the Exchequer said last October that in principle British membership of a successful single currency would be beneficial to Britain and to Europe. If the single currency is successful and the economic case for the UK to join is clear and unambiguous, then we believe that Britain should be part of it. We are pleased to have that confirmed by Members of the Committee from all sides of the House—Europhiles of all political persuasions—in the debate this afternoon.
The Chancellor set out five economic tests which must be met before the Government can recommend membership of EMU to Parliament and the British people. Those are: whether there can be sustainable convergence between Britain and the economies of a single currency; whether there is sufficient flexibility to cope with economic change; the effect on investment; the impact on our financial services industry, and whether it is good for employment. To share a common monetary policy with other member states represents a major pooling of economic sovereignty. The Government accept therefore that there are important constitutional considerations. That is why we are committed to a referendum—my noble friends should not be too pleased too soon—if we decide to join. However, we do not accept that there is a constitutional bar that outweighs the economic tests as the decisive reason why we might join EMU. The constitutional issue is a factor in the decision, not an overriding one. If the single currency would be good for British jobs, business and future prosperity, then it is right in principle to join.
The Government recognise the benefits of a single currency. A successful single currency will act as a complement to the single market. It will reduce transaction costs and exchange rate uncertainty on trade within the euro zone. It will make prices more transparent, boosting competition and providing new opportunities for companies to trade and invest. A successful single currency will deliver price stability, as a foundation for sustainable, non-inflationary growth. It will reduce the damaging effects of volatility on investment, employment and, ultimately, economic prosperity.
However, the Treasury's assessment of the Chancellor's five economic tests was that it is not in this country's interests to join the single currency in 1999. Neither flexibility nor convergence with the other European economies are sufficient at present to make joining EMU during the course of this Parliament in Britain's economic interests.
Barring some fundamental and unforeseen change in economic circumstances, there is no realistic prospect of Britain having demonstrated, during this Parliament, convergence which is sustainable and settled. So making a decision during this Parliament to join is not realistic. It is therefore sensible for business and the country to plan on the basis that, in this Parliament, we do not plan to enter a single currency. But in order to create a real option of joining early in the next Parliament, it is essential that the Government and business prepare intensively during the Parliament. In this way, we could join if the single currency is successful and if the people agree in the referendum we have promised.
370 The Government are committed to a programme which is in the national economic interest and which will help satisfy the five economic tests: achieving macro-economic stability through sound fiscal and monetary policies; setting in place the right framework for low inflation through our reforms to the Bank of England and our commitment to monitor the inflation target in the light of the practices of the European Central Bank; ensuring that our fiscal rules and deficit reduction plan continue to be consistent with the terms of the stability and growth pact, underlining our commitment to avoid an excessive deficit; promoting greater flexibility in the UK economy and in Europe through our Getting Europe to Work initiative and making product markets work better by introducing new competition legislation; and negotiating to secure the best interests of our financial sectors and to open up the single market in financial services.
It is clear that the euro will affect the entire European business environment from 1st January 1999. It will have implications for businesses trading or investing in those countries which adopt the euro. I was able to give figures at Question Time this afternoon which indicate that for goods and services the share of our exports to the 11 countries which are on course to join the euro is almost 50 per cent. of the total; as the noble Lord, Lord Tugendhat, said, 15 per cent. of our gross domestic product.
The Government have established three complementary organisations to help preparations for EMU. Together they will examine and advise on the preparations needed, whether we are in or out of the single currency. I make this point to the noble Lord, Lord Taverne, who in his first speech talked about the necessity for preparations, whether or not we join.
First, the Chancellor set up a standing committee in September 1997 to oversee and co-ordinate preparations across the economy, in the private and public sectors, and to identify areas of preparations not being addressed elsewhere. The committee will produce an outline changeover plan by the end of the year, setting out the steps involved in joining EMU.
Secondly, the Business Advisory Group was established in autumn 1997 to look at the crucial practical questions, such as what UK firms need to do to trade in and use the euro in 1999. A report was published in January summarising the group's findings and conclusions.
Thirdly, the Euro Preparations Unit was set up in the Treasury with help from the DTI to provide support and help to business and public authority programmes. I was asked whether we recognise the needs of the public sector as well. The unit aims to ensure that British business and public authorities are ready for the introduction of the euro in other countries next year. It will also complete the necessary planning and preparation required to enable UK entry early in the next Parliament, if appropriate. A network of euro co-ordinators has also been established, one in each government department. Individual departments are now considering the implications of EMU for their operations. The DETR is helping local authorities to prepare.
§ 7.45 p.m.
§ Lord Stoddart of Swindon
I thank my noble friend for giving way on this important point. The preparations which businesses have to make will be very expensive, particularly if we go into a single currency. While large corporations may be able to cover those expenses, smaller businesses may very well not be able to do so. Are the Government contemplating, and, if not, will they contemplate, some means whereby they can be assisted by public funds to do something which, after all, many of them do not want and which is powered by government here and indeed in the European Union?
§ Lord McIntosh of Haringey
I would tend to turn my noble friend's intervention on its head. I think it is in the interests of large and small business to prepare for economic and monetary union. Of course there will be expenses, but firms will be doing it because they plan to benefit from it. The help we will be giving to them will be because we want to advance the time when businesses, large and small, can benefit from EMU.
§ Lord Stoddart of Swindon
I am sorry to interrupt my noble friend again. He says that all businesses will benefit from the euro and the single currency. However, he has already said that only 15 per cent. of trade is done overseas. That means that 85 per cent. of trade is done within this country; and it is done largely by small businesses. I should like my noble friend to reconsider what he said because this will put a great burden on many businesses and they will get no benefit from it.
§ Lord McIntosh of Haringey
I am sorry if my poor articulation misled my noble friend. Fifty per cent. of our exports of goods and services are to the 11 countries which are on course to be applicants to become members of EMU. When I said 15 per cent., I was echoing the noble Lord, Lord Tugendhat, who reminded us that that represents 15 per cent. of gross domestic product. I repeat to my noble friend that the benefits for our businesses in working effectively with these 11 countries, which do receive almost 50 per cent. of our exports, are very great. We want to help them to achieve that.
§ Lord Pearson of Rannoch
I am not quite sure from where the noble Lord gets his figures. I have here an extract from the United Kingdom Balance of Payments—the Pink Book-1997 edition, produced by the Office for National Statistics and published by the Stationery Office in August 1997. That gives the proportion of UK world exports—visibles plus invisibles—as more than 50 per cent. going outside the 14 other countries of the European Union. In amplification of the point made by the noble Lord, Lord Stoddart, it seems that other statistics, which are not contested, show that about 80 per cent. of our economic activity takes place within the United Kingdom and that 20 per cent. of our economic activity goes to export. Of that, about 9 per cent. goes to the European Union altogether, which is reflected in the figures I gave the noble Lord earlier; and 11 per cent. goes outside the European Union. Therefore, the 80 per cent. figure that the noble Lord, Lord Stoddart, mentioned, is the percentage of economic activity that takes place in the 372 country and it is accurate. In particular it is the small businesses which trade entirely in this country which will have no benefit whatever from this project. That may be why the Federation of Small Businesses voted to leave the European Union two years ago.
§ Lord Peston
Before my noble friend feels obliged to answer that, perhaps I may say that that was about as blatant an example of a complete misunderstanding of economics and trade as I have ever heard. There can hardly be a firm in this country that does not directly or indirectly either use goods and services imported from abroad or which exports abroad. As the noble Lord was speaking, I was trying to think of an enterprise that had no connection directly or indirectly with foreign trade and I found it impossible to do so. Simply looking around your Lordships' House, where we do not think of ourselves as being engaged in foreign trade, we are wearing and doing things which have aspects connected with foreign trade. That is precisely what the noble Lord is saying. It is as good an example of the misuse and misunderstanding of statistics as I have ever heard in my life. I am now willing to have the asperity paragraph read out, if necessary.
§ Lord McIntosh of Haringey
If my noble friend could think of a firm which was insulated from the outside world, it would have no costs in preparing for the euro, so there would be no problem.
§ Lord Pearson of Rannoch
I never said that those firms were insulated from the outside world. My own firm trades entirely overseas and in most of the major currencies. I merely said that 80 per cent. of our economic activity takes place within this country and only 20 per cent. of it goes outside, less than half of which—and this is where I disagree with the Minister—takes place with the European Union, if one adds visibles and invisibles together.
§ Baroness Nicholson of Winterbourne
At the risk of adding to the statistical confusion that has already been offered, I suggest that we should compare our own export trade with the need of other people for exports. We should recognise that most of our competitors need only to export between 10 per cent. and 12 per cent. of their products in order to keep up their quality of life. We, in common with Japan, have to export well over 20 per cent. Surely, it is a question of comparison with our competitors. We have to export considerably more and it is that which we are debating tonight.
§ Lord McIntosh of Haringey
We are more of a trading nation than almost any other country in the world. Of all that trade in the export of goods and services, well over 50 per cent. goes to the other 14 countries, as the noble Lord, Lord Pearson, has rightly quoted, and almost 50 per cent. goes to the 11 countries who are applicants for European monetary union.
I now turn to some of the interventions of Members of the Committee. I cannot deal with all of them. I want to say something first about the stability and growth pact which, as I said, as regards Amsterdam, clarifies and extends the procedures of Maastricht, but it does not carry with it any new legal obligations.
373 Perhaps I may make clear that some of the fears which have been raised about fines are exaggerated. There are no fines whatsoever on any countries which are not within EMU. We believe in keeping to convergence because it is in our interests to do so and for no other reason. My noble friend Lord Grenfell has reminded us that fines are not automatic. That has been made very clear. I remind the Committee that fines would require unanimity in Council in order for them to be imposed. It is the members of EMU who submit stability programmes and it is others, including ourselves, who will submit convergence programmes because, as I have said, it is in our interests to do so.
§ Lord Shore of Stepney
I am worried about the noble Lord's statement that no additional legal obligation has been placed on us by the two regulations which were issued in July 1997 at Amsterdam in relation to the stability pact. My understanding was that if those regulations are flouted or disobeyed, that can be taken up with the European Court of Justice, whereas what was in the Maastricht Treaty, while being pretty nasty, was simply declaratory.
§ Lord McIntosh of Haringey
I am confident that I am right on this. I shall respond when I reply to the noble Lord, Lord Pearson of Rannoch. If I have left anything out I shall certainly write to my noble friend.
What is proposed here, very largely, is what is called multilateral surveillance, which is not binding on member states. The noble Lord, Lord Taverne, said that the Government will have left an enormous area of uncertainty. I hope that my re-statement of our policy will leave him clearer than he appears to have been before. Of course, it would be wonderful if I could respond to the noble Lord, Lord Mackay, by saying what exchange rates and interest rates are going to be in four to five years' time. If I could do that I would join Mr. George Soros rather than survive on a ministerial salary in this House.
The noble Lord, Lord Pearson of Rannoch, in a wonderful speech, weaves a complex but entirely illusory argument that the United Kingdom does not have an effective EMU opt-out. First, as he himself recited, Article B of the Treaty on European Union says clearly that the objectives of the EU, including EMU, shall be achieved in accordance with the provisions of the treaty. That includes the United Kingdom's clear and explicit opt-out contained in Protocol 25 in the new numbering of the treaty. Secondly, the United Kingdom is indeed party to Articles 98 and 99, which require, for example, that they shall treat their economies as a matter of common concern. But the treaty also sets out very clearly the way in which effect is given to that notion, for example, by the broad economic guidelines procedure in Article 99. That makes it clear that, although the Council can make recommendations to a member state, its recommendations are not binding.
Of course, it is possible to fantasise that the European Court of Justice will fall on a few words taken out of context from the treaty and conclude from them that the explicit UK opt-out from economic and monetary union is not valid. But no one who knows anything of the 374 European Court of Justice—in which the United Kingdom wins most of its cases anyway—could seriously believe that that is going to happen.
I was going to reply to the noble Lord, Lord Ashbourne, about what he called "the pensions bombshell", but the noble Lord, Lord Taverne, has done that for me. Article 104B is absolutely clear. Whether we join or not there is no bail-out. There is no provision that would require any member state to bail out any other member state for any shortfall in its debt recovery as a result of its pensions policy. There will, of course, be very valuable pressure on other countries to control their pension deficit and that must be to the benefit of all of us.
In view of the time I shall write to other noble Lords who asked me specific questions. Therefore I end by echoing what was said by the noble Lord, Lord Tugendhat. Economic and monetary union is going to go ahead. We shall be affected by it whether we join or not. It is not the case that we can be entirely independent of it out of EMU or in it. This Government want the single currency to succeed. If the economic case is clear and unambiguous we want Britain to be part of that success. In the meantime we are working together with British business so that we are ready for the launch of EMU on 1st January 1999.
§ Lord Stoddart of Swindon
I shall not keep the Committee very long. We have not discussed Amendment No. 27, which is unfortunate. I do not know whether it can be decoupled at this stage: presumably it cannot. I am given to understand that it can. In those circumstances I wonder whether when my noble friend winds up he might indicate that that is what he wants to do.
§ 8 p.m.
§ Lord Shore of Stepney
I understand that, unlike in the other place, in Committee in your Lordships' House one has the great advantage of being able to return to a subject which one has raised even if one made a speech on it only two or three hours ago—
§ Lord Shore of Stepney
Yes, four hours ago. Time flies!
I say first to my noble friend the Minister, for whom I have warm affection, that his speech disappointed me greatly. I find it almost incomprehensible that anyone speaking seriously about these issues can deny that there is a major constitutional issue involved in the abandonment of your national currency and the subjection of yourself, your people and your government to the rules of a treaty which you did not design, and to the rule of an unelected central bank based in Frankfurt. This is a disgraceful flight from self-government and from national responsibility. I shall not judge this matter wholly on economic grounds although I believe that, simply on economic grounds, the arguments are quite overwhelming. When it comes to the debate in the country we shall have seriously to address both sides of this great question as they are of almost equal importance.
375 What I liked most about my noble friend's speech was his opening sentence. When the noble Lord who spoke from the Opposition Front Bench gave his view of the matter, I thought, like my noble friend, that we might be witnessing a remarkable revolt from that Front Bench against what I had understood now to be the new policy of the Conservative Party. Right until the end of his speech, the noble Lord, Lord Mackay, put the balance of the argument so heavily in favour of Britain joining economic and monetary union and the single currency that, frankly, it was difficult to draw any other conclusion. Of course, the noble Lord rescued it right at the end and I was glad of that.
The noble Lord referred to the difficulty that Scotland has often had within the United Kingdom when economic policy has been good for the south but difficult for the north. Yes, and we have all the ability to transfer resources nationally to the assistance of Scotland when that part of the United Kingdom is in difficulty. Has the noble Lord imagined what the effects would be of having a single central interest rate for the whole of Europe? It would magnify the problem way beyond anything that we have experienced within our own country where we have command over national resources to help areas in distress.
§ Lord Mackay of Ardbrecknish
I am grateful to the noble Lord for giving way. Clearly, in moving from one side of the Chamber to the other I have lost some of my skills. In making that point about Scotland and about the United States, like my noble friend Lord Howell, I thought that I was illustrating what I believe to be the dangers of the euro and the other side of the argument that I had put initially. I am not one of those people in politics who think that all the arguments are inevitably on one side. There are a number of pro arguments; there are a number of con arguments, and one must then make a balanced judgment. I thought that I had made it clear what my balanced judgment was.
§ Lord Shore of Stepney
I am grateful to the noble Lord for that clarification—as far as it goes—but I shall rely upon my own judgment as to where his judgment tilts at present.
I must advise my noble friend the Minister that I have some further queries about the Government's position towards EMU and, above all, towards the major meeting and the decisions that have to be taken on 1st May. I shall come to that point a little later. First, however, I should like to refer to those noble Lords who have directly challenged me on one point or another. I shall then comment on those who broadly agree with me, and finally I should like to pick up on some of the major points referred to by my noble friend Lord McIntosh.
As I have said, I turn first to those who challenged me. The noble Lord, Lord Taverne, started with a challenge. I plead with the serious-minded advocates of ever-closer European union and now the single currency and economic and monetary union, "Don't dismiss the argument because it comes from a known Euro-sceptic". This is a serious argument. If I were a Euro-enthusiastI am not—I would be desperately worried by this particular development in the policies of the European Union. Like the noble Lord, Lord Dahrendorf, I think that 376 a more serious danger is now facing the whole European construction and Europe's prosperity than at any time since 1956. I ask the noble Lord, Lord Taverne, to take this argument seriously because if he does not, and if things go wrong, he will certainly live to regret it.
When the noble Lord, Lord Taverne, replied for the Lib-Dems, he gave me the first reason for mirth that I had experienced during the debate when he said that we were overlooking the "enthusiasm" of other countries for the single currency. The "enthusiasm"? There is no enthusiasm other than within the European political elite, within the classe politique, to which the noble Lord, Lord Beloff, referred in his short remarks. That is the group that wants EMU, but they dare not put it to their own peoples in a referendum. To pretend that the people of Sweden, Denmark or even of Germany are now in favour, by a majority, of the single currency is to misread the facts.
I know that the noble Lord is a serious student of these matters so I refer him to the last issue of Eurobarometer, which regularly carries out polling throughout the European Union, in which he will find that the latest poll shows that almost for the first time since the Maastricht Treaty the majority that always used to be in favour of a single currency has now become a minority. That is remarkable when one thinks of the extraordinary pressures that have been put upon people to persuade them of the merits of a single currency. Such pressures have been applied not only by national governments, but also by the Commission in its lead in the propaganda offensive. Think of the money that has been devoted to it and all the targeting of all the higher institutions of learning throughout the Community including, I gather, in the United Kingdom shortly, to persuade the people that all their worries and concerns should be forgotten because somehow, mystically, the single currency will bring about the great benefits of political union. Well, the situation is changing—and largely because, on their merits, the arguments simply do not stand up.
In dealing with those who rebutted what I said in moving the amendment, I turn now to my good friend, the noble Lord, Lord Randall, who is not in his place at the moment. He should not take too seriously what I confess is something more than a probing amendment, but which I tabled, above all, so that we could have a major discussion about a major issue which will affect our own people. This is part of the great debate because British democracy is real. We have a democracy and we must use it. We cannot simply just accept that governments do things on our behalf and that we hand over our powers to others and to other institutions that are no longer accountable to us. As my noble friend Lord Bruce stressed, this is about democracy and accountability.
I confess to the Committee my fears because I do not see how we can make our democracy work beyond the frontiers of our own country. Like sovereignty, it is confined within the territory of the United Kingdom. Democracy belongs here with us and cannot be shared with others; even less can it be claimed that sovereignty can be shared. We know that very well the moment we consider the European Parliament. That cannot be and is not a substitute for our democracy here. We have the 377 reality of a national community and the bogusness of a European Community contrived in Brussels and in its various institutions.
§ Lord Grenfell
I thank my noble friend for giving way. Would he include or extend his theory of internal sovereignty to our membership of NATO?
§ Lord Shore of Stepney
I am perfectly happy with NATO. NATO does not write the laws of my country. It is a defence organisation from which I can withdraw at will, as General de Gaulle did for France. I am willing to co-operate with other countries to the nth degree but I shall not let them write the laws of my country, decide the taxes in my land and so on. I shall not do that because I am a British citizen. I also hope that I am a world citizen. However, I have had Euro citizenship thrust upon me without my consent. It is meaningless, and I think I speak for very many who have had similar experiences.
The contribution of my noble friend Lord Grenfell on the stability pact was very direct. It must be answered, and I shall now attempt to do so. Certainly there is an area of discretion and the matter must be considered. The fines are not automatic but they are semi-automatic. Unless one can plead a convincing case why one should not be fined one will be fined. That is the law of the treaty which is enforced by the European Court of Justice.
My noble friend's other point was quite correct. One must experience a fall of 2 per cent. of GDP in a single year in order to relieve oneself of the liability to pay a fine if one has an excessive deficit, but a 2 per cent. drop in GDP in an advanced western country is a calamity. We have not had it. We have had ups and downs. Our unemployment has risen to 3 million. The French have had 3 million unemployed and the Germans have nearly 5 million unemployed. In not a single year have they or we suffered a collapse of output or GDP of 2 per cent. We have had a fall of perhaps nought to I per cent., or even an increase of 1 per cent., of GDP. My noble friend should be aware that advanced western countries require a growth of output, productivity and GNP of no less than 2 per cent. per annum if they are to keep employment at its existing level. If we fall below 2 per cent., unemployment begins to rise, but our rate of growth of productivity is higher than 2 per cent.
§ 8.15 p.m.
§ Lord Peston
Perhaps I might interrupt my noble friend since he made two erroneous remarks. GDP in this country fell by 2.2 per cent. in 1980 and 2 per cent. in 1990. It is simply not the case that that has never happened. It happened twice in this country under the leadership of the party opposite.
§ Lord Shore of Stepney
I should have said "since the signing of the Maastricht Treaty". In 1990 it was just over 2 per cent. In the remainder of those years we would have been eligible for a fine. Our fall in GDP was nothing like that; indeed, there was a modest growth. The point is that it is not much of a safeguard. I accept the minor corrections made by my noble friend.
378 I depart from that rebuttal to deal with one or two other matters. I was gratified by the extent of the support that my amendment attracted in different parts of the Chamber. I was particularly struck by a point made by the noble Lord, Lord Howell, in his broadly supportive speech. He referred to the problem that might be faced by Ireland if that country subjected itself to a common interest rate based in Frankfurt.
I was very sympathetic to the comments of the noble Lord, Lord Boardman. His prediction that the next stage after monetary union would be fiscal union is all too correct. They will be pressing for it the moment European monetary union is finally established. I believe that the quotations of the noble Lord, Lord Monson—who is in his place—were very well chosen and not without significance. That previous almost fanatical European, Adair Turner, director general of the CBI, has now begun to come to his senses and have second thoughts about the whole matter. The noble Lord, Lord Beloff, was so right to emphasise that this matter has the support of the political elite in Europe but not of the people.
I turn to two outstanding issues. The noble Lord, Lord Tugendhat, who I understand cannot be in his place, went to the heart of the problem of EMU and the present convergence criteria. For so many at the heart of the matter is the 3 per cent. of GDP. The absence of borrowing and an excess deficit and, above all, insistence on price stability are at the heart of the arrangements for a European central bank, fixed exchange rates and so on. Basically this is a matter of political judgment. Very properly, the noble Lord, Lord Tugendhat, said that there was a price to be paid in unemployment for the degree of convergence with monetary criteria to which European countries had subjected themselves to qualify for joining the single currency. They have paid a very heavy price. To me, it is interesting and welcome to have the frank admission that that is the major cause of the massive rise in unemployment in Europe since the Maastricht Treaty was signed. There has not been much honesty about that in previous debates up and down the country. It is good to have it on the record.
That is a price which politicians must always weigh up also against excess inflation, but it is a balance and a judgment. If one is not prepared to allow the Ministers of one's own elected Parliament to make that judgment from time to time, one does not know what other aspect of democracy one would not defend from external takeover.
I believe that the criteria and the central bank, with its terms of reference, are a great mistake in the development of the European Union. The one matter that worries me about Europe—I am reasonably content with many of the events that have occurred, if I may assure the noble Lord, Lord Taverne, as to that—is that it may face many great difficulties if it has a continuing slump of the kind that it experienced in the 1930s. A great slump of that kind leads people to believe that they can do nothing to improve their lives because their governments are no longer responsive to them. What do they do? They begin to take to the streets. In France taking to the streets is almost a tradition. But occupying social security offices and burning sheep and beef have happened here also, have they not? They happened recently.
379 Why are the farmers so enraged? It is because they no longer feel they can obtain any response from a British government. It is a not a British government who placed a world-wide ban on the sale of British beef. It is a European government who did that. There are many people in the farming community who, while they accept that other countries have an individual right to say, "We are not going to take your beef for our own good public health reasons", find unacceptable that someone is making that judgment for the rest of the world, as it were, against their industry.
If we find ourselves in the position where the economic policy and prosperity of our country, and, above all, unemployment, seem to be no longer in the hands of elected British governments, the traditional British belief in law and order, good behaviour and an acceptance of democratic decision-making will be eroded and may break down. It will be a great opportunity then for those who represent extreme points of view, an authoritarian government and chauvinism, as distinct from a decent regard for one's own country, to have their chance and their innings.
My last point takes up the question of the decision that has to be made on 1st May. My noble friend the Minister said that the British Government's attitude is: we want EMU to succeed. We want the single currency to succeed. We want it to succeed on a firm and sustainable basis. We shall be constructive in our approach on 1st May. Well, 1st May is not far away. Therefore it requires a bit more probing.
A firm and sustainable basis? That is what the convergence criteria were laid down to achieve. In Opposition my own party made a great deal of the fact that if the thing were to go ahead, it had to be on a firm and sustainable basis. The German Government have said the same, and the Dutch Government too. But what is the situation that has emerged in the past few weeks and months? Eleven nations in Europe have said that in their judgment they have converged and so they should be part of the single currency. Two of them have, indeed, fudged outrageously. The French have conscripted their telecommunications pension fund to close the gap in their borrowing requirements. The Germans have tried to monetarise their gold reserves in an attempt to close their gap. I am not sure whether, seriously considered, they have dipped below the 3 per cent., even taking account of those extraordinary manoeuvres, but if they have, the question arises: is it sustainable? When the pressure is off this year there is a considerable chance that the 3 per cent. GDP gap will re-emerge. That is not the only criterion, is it?
The other criterion built into the Maastricht Treaty is that one's national debt in relation to GDP should be not more than 60 per cent., but with the Italians at over 120 per cent., and the Belgians the same, they would seem to be self-evidently disqualified. Therefore the matter is quite a serious one. So who is to adjudicate? Eurostat, quite frankly, is corrupt—it is prepared to wave through the French pension fund without demur—the European Commission, which should perhaps sit in judgment and give a serious and objective report; Mr. Santer, the chief 380 propagandist of the whole thing, who has done his utmost in his presidency to cheer it along? Well, he is hardly the man to deliver an objective judgment.
So, a great responsibility falls upon the presidency, does it not? How is the presidency going to react and behave? Is it going to be just co-operative and let the 11 through, or is it going to raise the question of honesty, genuine convergence and sustainability? We need some more information about that.
There is one report from an institution which I have not mentioned before which could be important. The European Monetary Institute, which of course is the precursor of the European central hank, is also to make a report. That report will be published on 25th March. I wonder what it will say? If it delivers a judgment adverse to a number of the self-proclaimed, "We are eligible member states", will the Government back up the EMI? Will they really act in the interests of Europe, because a weak unconverged currency, a weak euro, would surely break up, sooner or later, and have disastrous economic effects on the whole of the European Union?
§ The Deputy Chairman of Committees (Lord Elton)
Does the noble Lord, Lord Shore of Stepney, wish to withdraw his amendment?
§ Lord Hoyle
I beg to move that the House do now resume. In moving this Motion, may I suggest that the Committee stage begin again not before 9.25 p.m.
§ Moved accordingly and, on Question. Motion agreed to.
§ House resumed