Orders of the Day — European Monetary Co-Operation Fund

Part of the debate – in the House of Commons at 12:00 am on 12th March 1975.

Alert me about debates like this

Photo of Sir Brandon Rhys Williams Sir Brandon Rhys Williams , Kensington and Chelsea Kensington 12:00 am, 12th March 1975

I join the hon. Member for Newham, South (Mr. Spearing) in his protest about the time at which we have to consider this important subject. It is wrong that the House should be expected to begin a debate of this kind after half-past two in the morning. It is difficult to take a sparkling or favourable view of the document which has been put before us at such a time.

I must also express a criticism of the Minister of State. He poured a great deal of cold water on the Commission's proposals. What he said on the way in which he would prefer the Commission to be proceeding was so vague as to be meaningless. I must also protest, as did the hon. Member for Farnworth (Mr. Roper), about the phraseology of the motion. It does not just ask the House to take note but includes some vaguely disparaging indications without being at all specific.

What we are considering is a very small proposal. As it is clearly common knowledge that it is unlikely to make headway, perhaps we need not concern ourselves too much with the details. However, the important issue is raised of economic and monetary union. One has only to say those words to find the vultures circling round looking for signs of carrion to pick over. The concept of economic and monetary union seems to frighten some people so much that they work themselves into a pitiful state of the terrors at the very thought of what it means. Perhaps it might help them to calm themselves if they asked what a country like Britain, which depends on trade and investment, could hope to gain from economic and monetary disunion. Surely, it must be to the benefit of our traders and investors that we should work towards conditions of greater stability and greater predictability in the world economy. Although we may differ whether we should move forward in the direction of unity or possibly through still greater freedom, we cannot want to lapse into a state of anarchy.

Many people may wonder whether in the last few years democratic economies have been going forward at all in their relationships with each other. Within the Community we have passed resolutions on economic convergence, but in setting up the European Fund in 1973 without a fund and without even any staff the Council merely, in the famous phrase, legalised anarchy and called it a constitution.

Many people who feel that in going forward with floating rates we achieved something useful— and I have been one of them— may not agree that what we are suffering at the moment is anarchy in the exchanges but, if not anarchy, the floating rate system we have enjoyed since the Nixon shock of August 1971 has brought dangerous instability. It has brought loss of confidence, lower investment and the almost uninsurable risks of the currency markets which make inflation harder to control. It is certain that we have to admit that we are not managing the floating rate system as well as we might.

Central banks have done much by their co-operation with each other. The Bank for International Settlements has covered itself in glory, and the IMF has done what it can. But, although things might have been much worse, they could have been much better. The democratic countries, in spite of returning to freer markets for their currencies, are slipping away from freer movement of capital and are risking the loss of wide and relatively undistorted markets for the exchange of goods and services built up under the Bretton Woods system. The oil crisis has not made matters any easier.

Without the political will to keep their currencies together, without gold, without a single dominating financial centre and without any effective monetary institution, the democracies cannot keep their economies in line and, as a result, confidence of trade and investment are suffering. The system has, worked better than many experts feared when we had to abandon the Bretton Woods system, because informal co-operation has reached a much higher level than many people realise.

The new proposals from the Commission merely give a formal nature to procedures of co-operation and consultation which are already well established although not publicised. That was recognised by the Minister of State in his speech and in his evidence to the Scrutiny Committee.

No doubt the monetary authorities of the Community and of the democratic countries have learned a lot in the course of practice of the floating rate system. We have abandoned the false start of economic and monetary union achieved in stages by a monetary sleight of hand without either political or economic union having first been achieved.

It is instructive to compare the text of the new proposals from the Commission with those that were adopted in 1973. The new text is generally weaker. The references are to be deleted to the progressive narrowing of margins which was the heart of the Werner concept. Intervention by the fund in Community currencies perforce had to be abandoned because the fund does not have any funds, and the new text abandons the idea of a concerted policy of reserves.

In effect we are seeing in this document the end of the old snake concept which frightened people so much when they started to study the implementation of economic and monetary union, and although we still retain in the text the idea of the total and irreversible convertibility, at irrevocable parities ", no one who has been associated closely with the thinking of the Commission or other monetary authorities closely concerned with the policy of the Community believes that there is now even a dim idea of economic and monetary union by 1980. It is simply not spoken of any more. But the alternative remains of the introduction of a common currency. In this area much more thought needs to be given. We have here only half a document, and that gives some reasons for anxiety.

There is no mention of a Community unit of account. It remains in Article 5 of the Statutes in terms of gold. Whatever or may think about the desirability of that one has to agree that for the time being, at all events, the gold basis is out of fashion, if not obsolete. The Commission has come down in favour of the snake in the basket, a new concept, with the basket containing unfortunately in the case of the Community, some bananas as well as some hard nuts. I am afraid of what will happen if the unit of account is revised on the basi of a basket of currencies because the. will then always be one unit of currency which is stronger than the unit of account. That does not seem too good a basis.

Some other questions have to be asked. What is to happen as regards the relationship of the Fund— and to the funds of the Investment Bank too— to the Council, the Commission, the Economic and Social Committee and the Contact Committee, apparently a new body referred to in this document. Where does the European Fund fit in? And do we want the fund to be subject to political influence like the Bank of England or the Federal Reserve Board, or relatively independent like the Bundesbank and sited away from a political centre? As regards the premises in Luxembourg, I believe a single room has been taken so that the Fund appears to be sited within the Community, but it is operated in fact from the Bank for International Settlements in Basle.

What sort of man will be chosen to be the first Director-General? What have the Commission in mind? Will he be the embodiment of the elusive European monetary personality of whom President Giscard d'Estaing has spoken or just a faceless man at the end of a Telex machine from Basle? The latter seems more likely.

It seems to be the general opinion in the Commission and the expectation of those who are well-informed that this draft will make little progress, and therefore inevitably our debate is rather academic. The hon. Member for Farnworth (Mr. Roper) in taking the trouble to ascertain what happened in the committee where I have the honour to be vice-chairman, was simply confirming the obvious fact which, in the committee we had to recognise, that these are modest proposals and that, even if carried through as they are, they carry us only a short stride to economic and monetary union and much remains to be done. Only when we have settled the basic policies will the practical aspects begin to take care of themselves. It is futile to try to take care of practicalities without settling basic policies.

As Rapporteur in the European Parliament for questions of Economic and Monetary Union, I welcome the Commission's initiative. It is what I have pressed it repeatedly to do. But it must advance on a broader front if it is to achieve anything of value.

In the Conservative Party at Westminster, we recall the success of the European Payments Union, launched 25 years ago. We would like the European Monetary Co-operation Fund to enjoy a similar success as a practical but not over-ambitious project. But we treat the Commission's proposals with some caution. On the road to economic and monetary union, we do not want another false start.