—which was purely inflationary in its nature and which we had not earned, as my hon. Friend says. This was the crisis of confidence. The Government have been relearning once again—for the third time within our experience—the value of confidence to a country which is circumstanced as ours is economically.
Now we have been forced to abject surrender to the international bankers, whom the party opposite called the gnomes of Zurich, but who have treated us with great generosity. The gnomes of Zurich have been rather good to this Government—good beyond what they had a right to expect. But the gnomes and the international bankers generally remain unconvinced even now of the efficacy of the measures which the Government have instituted. As my right hon. Friend the Leader of the Opposition has pointed out, the Chancellor's calculations about the surcharge are about £190 million adrift at the moment. This is very serious. Of course, it also alarms our friends on the Continent. They must also look, I suppose, to various other projects which we have, and, in particular, to the projected very large expenditure of dollars for aircraft and other weapons from the United States, which will undoubtedly form a very heavy burden in the next year or so, combined as they will be with the repayment of the loans which we are now spending.
So we find that, in spite of the efforts and the loans, forward sterling is still weak and almost all the loans have been used up. It is true that our true reserves are no larger than they were and the deflationary measures which the Government have been forced to take may well cause a slowdown in production, which will have its cumulative effect once again. The Chancellor said this afternoon that he undertook that if, and I quote, "a reasonable increase in the rate of growth was achieved", he would guarantee that all the essential services envisaged in the Labour Party policy would be honoured in the years 1966 onwards. I hope that growth will improve, but, at the moment, it is down to 1½ per cent., which is far below what is necessary to implement those programmes. This is a very serious situation for us all.
Therefore, we find ourselves in a sterile position and, even if the measures which the Government are now taking are successful, it appears that we can look forward only to a dreary return to "stop-go", such as, I admit, we have had in the past and which has always been so heartily condemned by right hon. and hon. Gentlemen opposite and said to be so out of date.
What else can be done? We might resort to loan once again, but, on the question of going to the I.M.F. and trying with them to reorganise international liquidity, I am absolutely certain, as are all hon. Members, that nothing can be done quickly at present. We are, at any rate, almost at the limit of the money which we can borrow from them, and any increase would be very unlikely.
We might resort once again, if it were merely a matter of cash, to the United States. It has been assumed in the past that the United States would do almost anything to prevent devaluation of the £, because they would anticipate that the result would be very harmful to world trade and would bring down the dollar after it. I doubt whether those considerations are as strong as before. The dollar is steadily increasing its own power so that it may well be able to maintain its position even if sterling were well below it in value. The United States must also be thinking that it is about time she had a viable ally who is not always running to her for help. If devaluation is necessary—I do not think so—she might not rush to our rescue again in the way that she has done in the past.
Furthermore, as has been pointed out this afternoon, more loans are not the answer to the problem. The time is long past when the country could think of borrowing money in order to get itself out of this position. It would be possible—it has been done by Governments over and over again—fairly quickly to reduce the pressure on the labour market and to reduce the personal expenditure of the citizens. The Government have shrunk from this. I do not wholly blame them for that. It is a disagreeable necessity with so small a majority. It is politically very difficult to do and it is, perhaps, politically rather more difficult for a Labour Government than for a Conservative or any other Government. Whilst condemning therefore the results of their action, I have some sympathy with their attitude.
Apart from that, nothing has been done to sharpen the competitive position of our industry in general. I refer to the sluggardly approach to tax matters which we have seen in the Budget and which gives no incentive to younger people or to companies to improve themselves or to invest, and the sluggardly approach also to the problems of trade unions, whose influence is vital to our economy and which has been referred to a Royal Commission which may report sometime and may report never. There is no obligation to carry out anything which the Commission reports when we know what it is.
One way in which some progress could be made is by a more positive approach to the European problem. It is not solely or even mainly, an economic problem of working more closely with Europe, although this, in our present juncture, is extremely important. I agree with the hon. Member for Pembroke (Mr. Donnelly), to whose speech I listened with enjoyment, that the exposure of ourselves to a wider environment than just these islands, to a world environment in which our industry may operate is very imporant in our thinking and in our industrial approach to our problems. If our industry were able to shape its operations in a much wider sphere and consider a much larger home sales area, I am quite certain that we would get very much better response than we are getting at present.
It is very difficult to know what the policy of the Labour Party is towards Europe at present. Prior to this afternoon, I had thought that five conditions had been laid down, and had been repeatedly affirmed by the Prime Minister and by the noble Lord, the Earl of Longford, in another place; and that the five conditions were absolutely inviolable. Everyone knows that those conditions make absolutely impossible our working with Europe at present.
At Question Time today, however, we had the Minister of State for Foreign Affairs, to the obvious surprise and dismay of some of his elderly supporters, saying something quite different. He said that the five conditions were all negotiable, that they might not apply in the future or in the present context, and that, therefore, the whole thing was likely to be very different. I think that we are entitled—though, perhaps, not in this debate—to a further explanation of what the policy of the party opposite is in regard to Europe, because it is fairly obvious that the Minister of State, who heard of Europe only a short time ago, cannot possibly have given that Answer except under instructions. It must have been written out for him—he read it out very carefully, and quite well—and he must know whether the party opposite has drastically shifted it position in relation to Europe or whether the assurances of the Prime Minister about the five conditions still apply.
Whatever the policy of the party opposite may be about shifting its ground now, the sort of tentative building of bridges and tunnelling of tunnels has not been an answer at all. Nor do I believe that joint works studies and joint work on aircraft and other things that have been undertaken between ourselves and France will be extremely helpful. As they work out on individual items, they seem to be a donation by us to French industry. I have nothing against that provided that, in the long run, the thing works out well. At present, however, the arrangements that have been made, particularly in the technological sphere, do not instil very great confidence that the project has been soundly based. The proposals made from time to time that the E.F.T.A. and the E.E.C. should in some way get together, that the E.E.C. should become part of the E.F.T.A., or of something extraordinary like that, would not work at all, and should be discarded at once.
I admit that the present opposition by General de Gaulle to us, or to any extension of the Common Market until he gets it settled in the mould he thinks is necessary, is a very great obstacle, but a little more initiative might now be used. We should by now have heard something from the Prime Minister about the internationalisation of nuclear weapons. I believe that there is a very fruitful line here by which we might establish a European defence force based on some sharing of resources, not only nuclear but others.
I am certain that the negotiation will be long and difficult, but I am rather dismayed that it has not been started yet; not quite as dismayed as I might be, because I am quite certain that the party opposite would make the most awful hash of it, and as I expect our own party to be back in Government before long it might be held over. Nevertheless, a little probing of the matter would be helpful. It would be helpful for the Prime Minister to tell us something about it, because then we could think of an all-party policy. As he is not very good at negotiation while my right hon. Friend the Leader of the Opposition is, my right hon. Friend could well use the ground so well prepared by the Prime Minister, who is extremely good at words, and let my right hon. Friend get down to deeds, and do the job.
Unfortunately, the position of the Government has made very difficult the idea of making a further approach to Europe, because the economic situation in which we find ourselves makes it impossible boldly to launch into the arena either in relation to Europe or, indeed, anything else. We ought to be in the process of reducing our tariffs in order to expose our industry to greater competition, but we dare not do it because the result would be to suck in imports for which we cannot pay. We ought to stimulate our industry, but we are utilising measures which will have the opposite effect for the time being. We ought to be increasing our educational investment especially in technical education, but unfortunately we have had to put a stop to that and are at the moment reversing the trend. There appears to be a paralysis of policy at the present time. It is our hope that these measures may do the trick, but they will work only very slowly, because the Government have adopted what they feel is the least unpopular way of doing it. We cannot expect very much effect for a year or so, and that may be too slow.
Nevertheless, even if those measures are effective, where do we go from there? We have no hint of any further steps that may be taken. It does not appear that those measures will regain the confidence which is the Achilles' heel of their economic policy. If they cannot regain the confidence of those who have to invest in this country and, unfortunately, at the moment have to support it, there is no solution that we can expect from them. The only solution they can provide is to make up their minds to go, and have a General Election as soon as possible.