Foreign Affairs and Defence

Part of Orders of the Day — Debate on the Address – in the House of Commons at 3:47 pm on 28th June 1983.

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Photo of Mr Denis Healey Mr Denis Healey , Leeds East 3:47 pm, 28th June 1983

All will be made plain to the hon. Gentleman as my speech proceeds.

There are other matters of perhaps equal importance with the three that we have singled out. There is the crisis in southern Africa, where Western failure to persuade Pretoria to accept independence for Namibia could plunge half a continent into war. The Government's decision to rely on South Africa to provide a base for building a military airport in the Falklands is bound to be seen by the friends of apartheid throughout the world as a signal of support, if not surrender.

There are grave problems in the Middle East, where the breakdown of the so-called Reagan plan has gravely damaged Western influence in the whole of the Arab world and given the Soviet Union a key role in negotiations for a lasting settlement—to be played whenever Moscow judges the time to be right.

There are problems, too, in central America, where Washington is drifting, consciously or unconsciously, into a Vietnam type of military intervention which could ruin half a hemisphere and could impose strains on American society that would fatally weaken the ability of Washington to play a constructive role in world affairs in the coming years.

All these are vital issues to which the House will have to return time and again in the next few years. It is clear from even a cursory look at them, however, that at a time when the prospect of helpful initiatives from Washington is clouded it is highly desirable that western Europe should play a more coherent and constructive role in the world. Yet western Europe has been paralysed in recent years by the growing impossibility of making sense of the Rome treaty in its present form. As the Prime Minister reminded us last week, the whole financial structure of the Common Market will break down within a year with the exhaustion of the resources available to finance an ever more voracious common agricultural policy and to meet the legitimate needs of the Mediterranean countries which are already members, or are soon to become members.

My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) will deal in more detail with the problems of the Community, but I wish to say a word about the Stuttgart summit, about which the Prime Minister grossly misled the House last week when she said: The arrangement that we reached on this year's refund is separate from the long-term arrangement."—[Official Report, 23 June 1983; Vol. 44, c. 149.] I do not accuse the Prime Minister of wilfully misleading the House but merely of the failing to which she is so prone —selective amnesia, or the refusal to read or to notice anything disagreeable to her. That trait was well described in an interview which she gave during the election campaign to Miss Jean Rook. I wonder, incidentally, what became of that lady's peerage, but perhaps it will come up next time.

Chancellor Kohl, chairman of the Stuttgart meeting, said that the proposal for a British rebate, which itself was barely half what the Prime Minister was promising a few months ago, was "indissolubly linked" with that of Community financing as a whole. As he made clear, that means in practice an increase in own resources which will be essential once Spain and Portugal join and even more essential if there is not a draconic cut in spending on the common agricultural policy.

Prime Minister Mauroy of France was even more specific. The statement reads: Mr. Mauroy said that enlargement and development of the Community must go hand in hand. He regards the compromise concerning the British problem as conditional, which is to say that it is connected with the search for a long-term solution. On this matter the French delegation made a statement which had been included in the minutes, stating that the sum on which agreement was finally able to be reached was a one-off sum, invariable, with no reference to the past or the future, the actual payment of which is linked to the results of the negotiation on the future financing and the associated problems. That statement was supported at a press conference the same day by the Belgian Prime Minister.

In other words, nothing has yet been finally decided about the British rebate this year. All these matters will come up again in Athens in December and if there is then no solution to all the financial problems—the problems of increasing own resources, of the common agricultural policy and of enlargement to include Spain and Portugal—as the President of the European Assembly made clear publicly in London last week, it is likely that whatever Governments may then agree the European Assembly will block the budget in which the United Kingdom rebate is included.

In the light of those facts, no Member could regard the Prime Minister's statement in answer to questions last week as in any sense wholly candid. She was wrong time and again in saying that the agreement on the rebate was unconditional when it is clearly tied to agreement of all those other matters which will be extremely difficult to reach in the next six months and perhaps most difficult to reach at the meeting to be held in Athens just before Christmas, to be followed a few days later by a meeting of the European Assembly.

Meanwhile, the idiocies of the common agricultural policy continue. The Minister of Agriculture, Fisheries and Food announced yesterday that the European Commission is now selling 30,000 tonnes of butter, including British butter, to the Soviet Union with a subsidy of 47p per pound. The Russians will thus pay half the price that British housewives have to pay in British shops. I am forced once again to the conclusion that the common agricultural policy is a device invented by the Central Intelligence Agency of the United States of America to undermine the red army by pumping its veins full of cholesterol from cheap Common Market butter. It is impossible to find any other rational explanation for what Western Governments are tolerating.

Yesterday the Minister told us that 62 per cent. of CAP spending goes on export subsidies and internal dispersal subsidies, compared with only 46 per cent. six years ago. In other words, the position has grown worse and not better under the Conservative Government's policies.

Unfortunately, the row about the British rebate and the CAP has completely blotted out European initiatives on world problems. However, I notice that the statement on central America by the summit meeting last week was encouraging. It said that the Heads of Government were convinced that the problems of Central America cannot be solved by military means, but only by a political solution springing from the region itself and respecting the principles of non-interference and inviolability of frontiers. They, therefore, fully support the current initiative of the Contadora Group. They underlined the need for the establishment of democratic conditions and for the strict observance of human rights throughout the region". There could be no more direct and blunt a rebuttal of the main elements of the United States' policy for central America than that statement. Will the Foreign Secretary tell us today what steps the Government are taking to further that approach, which was endorsed by the Prime Minister in Stuttgart last week? For the past four years the Prime Minister has acted as President Reagan's poodle in central American affairs. Britain was the only European country to vote against aid to Nicaragua. I hope that the Foreign Secretary will tell us now that he will withdraw the British objection to aid to Nicaragua and restore diplomatic representation there, and that he will explain what steps he plans to take to fulfil the commitments he made at the Stuttgart summit.

The second major issue that the Labour Opposition wish to raise involves the crisis in the Western economic and financial system and the refusal of the British Government to take or to support the initiatives necessary to overcome it. The Foreign Secretary will realise better than many of his predecessors how important the economic health of the Western world is for its efficiency and influence in world affairs. Will he tell the House how he sees the future on the issues that I shall describe?

The civil wars proceeding and the external intervention continuing in central America pose a re al risk of collapse of organised government in that important area. The problem is not confined to central America, but the whole of Latin America from Mexico in the north to Chile and Argentina in the south face the risk of economic and financial collapse with a consequent risk of political revolution. There are similar risks in many other important countries, especially in Nigeria in western Africa.

Barclays Bank pointed out that the main cause of the problems facing those countries was not the increase in oil prices brought about by OPEC but the action of the Western industrial countries, which in their pursuit of the holy grail of sado-monetarism have raised interest rates to unprecedented heights — there is no country in the Western world where interest rates are not far higher in relation to the rate of inflation than they have ever been over a sustained period—and the recession engendered in part by those stupendously high interest rates. Those interest rates have meant that, in 1982, 50 per cent. of the debt service of the developing countries that do not produce oil was devoted entirely to paying off interest, as against only one third in 1975. The recession in the Western world has produced a collapse in commodity prices to the lowest level for 30 years.

I was glad that the Prime Minister took credit for the word "patchy" in relation to present recovery in Britain. Recovery throughout the Western world at present is patchy and spasmodic. Most observers believe that it is likely to sputter out within 12 months unless interest rates can be drastically reduced. Unemployment in the OECD countries, according to the end year study by that organisation, is likely to reach 34 million human beings 12 months from now, which is an increase of 8·5 million in only three years. The human tragedy involved in figures of that magnitude does not need explanation. The political as well as the economic risks in continuing increases in mass unemployment should be equally obvious, but the risks to the world banking system are also great. If the world banking system were to collapse, all those problems would be grossly aggravated.

The Mexican crisis last summer exposed the fact that the failure of central banks to control lending by private banks, or even to monitor the complexities of the inter-bank market, have brought the entire financial system close to catastrophe. Castastrophe has so far been averted, thanks largely to the personal energy and professional skill of three men, all of whom I shall meet in Downing street this evening. They are the head of the International Monetary Fund, Jacques de Larosiére, the chairman of the New York Federal Reserve Bank, Paul Volcker, and the chairman of our central bank, Sir Gordon Richardson. The Prime Minister's personal prejudice has pushed Gordon Richardson from a continuing role in those affairs, and I wish to pay tribute here to a man who has been an outstanding central bank governer in Great Britain and who has made a major contribution in dealing with the economic and financial problems of the world during the past two or three years. He has been replaced by a personal favourite of the Prime Minister's, who told us within a week of his appointment that the banking crisis was over, if it had ever existed. I hope that the crash course that he has been undergoing during the past six months has taught him a little better.

Fortunately, President Reagan was finally persuaded to overcome his personal prejudice and to reappoint Mr. Volcker as chairman of the Federal Reserve Bank. Mr. de Larosiére has also been reappointed as managing director of the International Monetary Fund within the past few weeks. However, all that those men have been able to achieve with support from Governments and private banks all over the world is merely first aid. The central problems that risked producing catastrophe nine months ago are still there. None of the major debtors has any prospect of solving its problems during the coming years as a result of decisions already taken.

By 1987, only four years from now, Mexico's debt, even if it carries through all the policies urged on it by the International Monetary Fund and by the banks that are lending money to Mexico, could be $101 billion as against $86 billion this year and $80 billion last year. Brazil faces similar problems, and its central bank warned the world yesterday that the conditions imposed for the aid already given could produce revolution within 12 months.

In a week or two, Argentina will get another $1·5 billion from the private banks, including a significant proportion from British banks. That is on top of the $1·1 billion that the Argentine Government received earlier this year. But the British Government have sought to set no conditions on those loans. They have not insisted that the money should be spent on getting the Argentine economy right. They have not insisted that the money should not be poured down the drain in buying weapons of war to be used, according to our Prime Minister, for attacks on British forces in the Falklands. Exactly the same is true of the aid that is now going to Chile.

I see that the British Government are hoping to sell the carrier Hermes to Chile in the coming months. Chile will no doubt use the aircraft carrier to attack the Argentine, or perhaps to join the Argentine—one never knows in that part of the world—in an attack on the Falklands. The fact still remains that the Prime Minister authorised British firms such as Rolls-Royce and David Brown to put essential equipment into warships that are now sailing from Hamburg to the Argentine to be used, according to the Prime Minister, at will against British forces in the Falklands.