European Monetary System

Part of the debate – in the House of Commons at 12:00 am on 29 November 1978.

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Photo of Mr Harold Lever Mr Harold Lever , Manchester Central 12:00, 29 November 1978

Not the least interesting of the speeches made in the debate was that of the right hon. and learned Member for Hexham (Mr. Rippon). I hope that, in view of his generosity of quotation of my own remarks, it does not sound churlish if I have some adverse as well as favourable comments to make on some of the points that he made.

Most right hon. Members look in vain for a Boswell who will chronicle their words of wisdom to the world at large, and often have to deputise in that role themselves. But the right hon. and learned Gentleman was kind enough to relieve me of that necessity.

There was so much of what the right hon. and learned Gentleman said that I liked that I wish he had not said some of the things that I disliked intensely. Above all, I liked the concept behind his argument which is at the heart of this matter—namely, that in these proceedings we start in an interdependent world with the realisation that it no longer is the rule that one man's gain is another man's loss. In fact, in an interdependent world the very opposite is true—that one man's loss can never be another man's gain. I liked that very much. I even liked the right hon. and learned Gentleman's suggestion of reviving goat sacrifice in the Treasury. It might represent possibilities of greater accuracy in prediction than we have so far had in the post-war period.

What I found very disturbing in the right hon. and learned Gentleman's argument was his indifference to the genuine differences of opinion and difficulties that exist on this very complex subject and on the question of Europe. These differences exist in the House and elsewhere among all parties and the media and to the very troubled hearts and contradictory impulses which are moving us all. I think he should have recognised that a little more than he did.

I certainly thought that the right hon. and learned Gentleman was very ungenerous to my right hon. Friends' role in the matter of currency stability and the European monetary system proposals in believing that they have been hampered in their formation of view by a fear of a group in the Labour Party which is anti-European, wishes that the referendum had gone the other way and is seeking to act as a court of appeal from the British people to reverse the decision that they so boldly and firmly took on that occasion. I thought that the right hon. and learned Gentleman was playing to part of his own gallery, at any rate, in making those allegations.

I hope that I shall not be claiming undue indulgence about certain aspects of the debate if I mention that I was asked to take the place of my right hon. Friend the Foreign Secretary in certain circumstances. I hope that I shall be able to satisfy the House not only on those areas of his expertise which are the constitutional legal matters, in which I am not quite as expert as he is, but on other points which have been made in the debate.

I am glad that we have had this debate because it has brought into the balance all the strands of difficulty and controversy about these proposals. What has troubled me a little is that some speak- ers have derived their attitude to the EMS—for or against—directly from their stance for or against the Community. I do not think that that is the best way to approach this issue. It is certainly not my own way. I think that we must assess these proposals on their merits against the background of the serious problems that we are trying to deal with, namely, the breakdown in the past seven years of the international monetary system as we knew it, with all the damaging consequences which that has had for confidence, trade, investment and inflation.

In saying that, I do not in any sense resile from my passionate conviction that we were right to join the European Community or from my passionate conviction that we should develop our role in the European Community firmly and progressively to make a great success of it.

This problem is one of the most serious faced by the world today, and the whole world now recognises that the present international monetary arrangements must be improved. The Government's view is that these are common problems, involving common responsibilities and demanding common action. If we are to achieve a greater degree of collective monetary and economic security—that is the Prime Minister's phrase—a greater degree of international co-operation and we should not retreat from international co-operation, as we did after Bretton Woods broke down.

My right hon. Friend the Prime Minister put forward a five-point international plan early this year, of which one of the key points was the need for greater monetary stability. This plan was adopted as the basis for discussion and decision at the economic summit in Bonn, and it was within this framework that the proposals for an EMS were made by Chancellor Schmidt and President Discard. For this reason, the Prime Minister made clear from the outset that the Government fully supported the objective of these proposals of Bremen. But he also made clear that the details of the scheme would be exceedingly important because these are bound up with the scheme's success.

If a scheme or system were set up and subsequently had to be dismantled or reduced in scope, the result could be the very thing the system was designed to avoid—a period of further currency instability.

We have negotiated from a consistent position throughout the discussions. There has been considerable progress. Subject to the final decision of the European Council, it is agreed that the EMS will be set up and will come into force on 1st January 1979. It is agreed that a new European currency unit will be created as the basis of the system. It is agreed that substantial new credit facilities will be set up within the Community, to an amount of 25 billion European units of account—£17½ On this point there has been progress since my right hon. Friend the Chancellor of the Exchequer laid his memorandum in the House. There is now unanimous agreement to this larger figure. The right hon. and learned Gentleman might have been generous enough to pay tribute to my right hon. Friend the Chancellor for having pressed for this increase and for having played a considerable part in achieving it.

It is agreed that a European Monetary Fund will be set up. This major European enterprise will take up to two years to put in place, and no doubt many problems will arise on the way. But the concept is agreed and the Government welcome it as a potentially major contribution to international stability.

It is also agreed that consultations on economic policy within the Community will be continued and perhaps intensified. We strongly welcome this. It is a generally accepted view that an exchange rate margin scheme will not of itself bring about the stability we want as the basis of more economic growth and greater welfare. There must also be efforts to achieve convergence of the present different economic trends among members of the Community. We all have to try to arrange our economies in a way which is compatible with securing this objective of stability and to continue to do this together as a concerted effort, as we have begun to do this year inside the Community with the plan of concerted action for growth—another matter in which my right hon. Friends the Chancellor of the Exchequer and the Prime Minister can claim very considerable credit and which has not only been to the advantage of this country and of Europe but has brought about political and economic co-operation in the world generally.

These efforts that have been made on growth certainly support the cause of exchange rate stability. They, in turn, have a better chance of success if they are associated with well constructed exchange rate arrangements. We have learnt by bitter experience in recent years that economic stagnation is no recipe for exchange rate stability. Nobody believes that we will get such stability out of economic stagnation—in fact, the very opposite has proved to be the case.

I do not know why some of my hon. Friends should suppose that Helmut Schmidt, Giscard d'Estaing and my right hon. Friends have not learnt this lesson and are going into a stabilisation scheme in order to achieve stagnation, in the hope of getting stabler rates in currency. All the bitter experience of the last year has been that economic stagnation is the enemy of exchange rate stability.

There remain areas of disagreement about the exchange rate regime itself, and discussions will continue right up to the time of the European Council. There has been considerable progress here too. All the discussions have taken place without commitment by those concerned and are subject to the final decision by Heads of Government at the European Council. The Government have contributed fully to these discussions, first, because we support the principle of trying to improve exchange rate stability in Europe and, second, because, whether we join fully or not, the existence of the EMS will affect our economy.

I cannot agree with those who argue that we should turn our backs and have nothing to do with it. That is not a realistic option. Equally, I cannot agree with those who have argued that we are paying too much attention to detail and even that we are being insincere in raising particular objections to the proposals. I repudiate any suggestion that our proposals have been put forward in bad faith. These have been legitimate and constructive proposals, designed to strengthen the scheme and to produce an optimum, effective and lasting European system.

My own assessment of the merits of our proposals, far from being that these were made in bad faith, is that it would have been to everyone's advantage if all participants had accepted the proposals. Some of our proposals have been accepted. The Prime Minister and the Chancellor of the Exchequer have been negotiating throughout in good faith and with good purpose. We intend to continue in that spirit. The Government have not yet taken a decision. As has been made clear, not all our proposals were accepted by our partners, though at no time have we been isolated. We must now assess the overall positon, and, if we decide not to join the exchange rate regime at the outset, we shall continue to act responsibly as we have done from the start.