Orders of the Day — The Economy

Part of the debate – in the House of Commons at 5:31 pm on 13 May 1992.

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Photo of Mr Matthew Carrington Mr Matthew Carrington , Fulham 5:31, 13 May 1992

The most important part of the Queen's Speech is the commitment to bring other countries into the European Community. Many of us have been concerned about the Commission's tendency to centralise decision making, concentrating power on itself and removing some of the rights and privileges of the House.

That worrying trend will be altered only by expanding the Community. The best way of doing so is to bring in those European Free Trade Association countries that wish to join the Community and they are the countries that will find it easiest to make the adjustment. The most important challenge will be to bring in the fledgling democracies of eastern Europe, which are so fragile and economically backward. The assistance that they will need from the European Community will make the unification of Germany seem extremely easy.

We should not be the least surprised that bringing in those countries will be difficult, because their economies are in a poor state. East Germany was by far and away the most developed of the east European countries, yet the unification of Germany has cost four or five times more than even the most pessimistic estimates. That massive change will not be brought about quickly, but it must be done as rapidly as possible.

An expanded EC has two ways of proceeding. First, the decision-making power of the Community may override the wishes of national Governments because the Community will become too large to be able to take decisions on the basis of negotiation and co-operation, as they are taken at the moment. The alternative is to define more precisely what decisions—and only what decisions —can be taken by the European Community centrally, and then to ensure that the decisions that are not taken centrally are reserved to the component countries.

The second way of unifying the Community is the only method that will be practical once the European Community is larger than the Twelve and consists of 20 or 24 members. Subsidiarity will have to apply to monetary policy and monetary union. There is no way of avoiding that. The only way forward is to set up, as the Maastricht agreement proposes, a central bank to deal with monetary policy on a Europe-wide basis. Monetary union will be important to the development of the Community, but it must be clearly defined. It will be of much benefit to business. Getting away from floating exchange rates or exchange rates that vary will remove uncertainty for business and trade across Europe, and that will be vital in enabling the European Community to develop.

One of the benefits of German unification is that it will ensure that the German dominance of monetary policy will begin to diminish. In the past few years, the Bundesbank has dictated monetary policy across European economies. Without unification, European monetary union would increasingly have been dictated by the Germans and we would have had to accept their interest rate decisions and other decisions that would have affected our economy. With the weakness of the German economy, however temporary, the Germans may start to recognise that they will have to transfer a lot of the effective decision-taking power of the Bundesbank to the European central bank. The Germans will not have the same control as they would otherwise have had.

It is important that the decision on the location of the European central bank rules in London. London must remain the major centre for the financial markets of Europe. If the central bank were located in one of the European financial centres—either Frankfurt or Paris—London would experience serious difficulty in retaining its dominance as the time zone financial centre for our part of the hemisphere, which is so important.

The central bank must be located in London, but if it is not possible to persuade the French or the Germans to agree to that, it must be located somewhere other than Frankfurt or Paris—it does not matter where—and somewhere which is not likely to be the nucleus of a financial centre.