[Relevant documents: The White Paper on Developments in the European Union, January to June 1996 (Cm 3469); Presidency General Outline for a draft revision of the Treaties; The Commission's Work Programme for 1997: New Legislative Proposals (SEC(96)1819); The Commission's Work Programme for 1997: Political Priorities (COM(96)507); European Community Document No. 10867/96 on the introduction of the euro; European Community Document No. 10893/96 on reinforced convergence procedures and a new exchange rate mechanism; European Community Document No. 10892/96 on a stability pact for ensuring budgetary discipline in stage 3 of EMU; Second and Third Reports from the Select Committee on European Legislation of Session 1996–97 (HC 36-ii and 36-iii); Sixth Report from the Select Committee on European Legislation of Session 1996–97, European Documents on Economic and Monetary Union: the Scrutiny Process (HC 36-vi); Eighth Report from the Treasury Committee of Session 1995–96, The Prognosis for Stage Three of Economic and Monetary Union (HC 283-I and II); Minutes of Evidence taken before the Select Committee on European Legislation on 3rd December (HC 136-i); and Minutes of Evidence taken before the Foreign Affairs Committee on 5th and 9th December (HC 148-i and 148-ii).]
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Anthony Coombs.]
Before we begin, let me inform the House that it has been indicated to me that, today alone, more than 46 Back Benchers wish to speak, and in my judgment a similar number will wish to speak tomorrow. I ask all hon. Members to stay in the House for the remainder of the day and see what their chances are. In such circumstances, I have had to impose a 10-minute limit for Back-Bench speeches.
On a point of order, Madam Speaker. Would it be in order for me to ask you whether you would be prepared to refer the situation that has now arisen to the Procedure Committee for further consideration, or whether you would require a Member of Parliament to do that? In a two-day debate, only Front Benchers will be able to develop the argument or answer questions asked by other Members; the rest of us will have no time to develop the argument properly. Moreover, if there are interruptions, we shall not be able to give the information that is requested. I think that the Procedure Committee ought to consider the matter again.
The right hon. Gentleman will be aware that it is only recently that the Procedure Committee has given me authority to impose 10-minute limits on speeches throughout a debate. Perhaps the right hon. Gentleman would consider asking the Procedure Committee to look into the matter. I take his point very much to heart. I am concerned with the high quality of debate in the House, and I appreciate that, when I have to limit speeches to 10 minutes, we do not get the debate to which we are accustomed here.
Out of deference to the intervention of my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath), I shall probably give way rather less than I sometimes do. The temptation will be for hon. Members to interrupt me, my temptation will be to give way and I should probably use a disproportionate amount of time, but I should like to cover a lot of ground.
This is an important debate, because it comes on the eve of the European summit in Dublin, where the British team—my right hon. Friend the Prime Minister, my right hon. and learned Friend the Foreign Secretary and I—will be defending and advancing British interests in Europe. Our overriding aim at Dublin will be to ensure that the United Kingdom continues to benefit from our membership of the European Union and that we continue to play a major role in moulding that European Union as it evolves as a partnership of nation states. The key issue in addressing those objectives is, where does the national interest lie?
In recent weeks, we have debated the details of the arrangements for economic and monetary union—important details, such as regulations relating to article 1091(4) or the public accounting conventions of France—but those details are symbols, and they are a focus for more deep-rooted anxieties about Britain's future political and economic identity. The real core of the debate is the much wider and more important issue of the United Kingdom's national identity and our future role in the modern world. In my experience, this country returns to agonising about its national identity every few years or so when important occasions arise.
In the light of what I said earlier, I may give way later, when I get to more specific points.
I hope that, during the next two days of debate, the House can address and allay some of the anxieties about our relationship with Europe. I want to explain how, in my judgment, our political and economic future is bound up with the future of the European Union, and how our negotiations at Dublin and thereafter will be pursuing our national interest.
I hope that we can avoid irrelevancies. There is no Conservative politician in the House who is a federalist; no Conservative politician would accept a European super-state. Every Conservative opposes any suggestion of the creation of a united states of Europe. Treating the debate about economic and monetary union as if it were a debate about the creation of a super-state arouses public fears and deprives the public of sensible information about the issue. [Interruption.] We may return to this, but we last debated the matter when we debated the Maastricht treaty, and I responded then to several hon. Friends who intervened.
In my view, fewer and fewer people on the continent see economic and monetary union as a tool for political integration—[Interruption.] Well, if they do, we do not agree with them. If they do, I do not think that most of the younger generation of politicians on the continent agree with them either—by "younger", I mean people of my age and below. We have to judge the discussions on economic and monetary union in terms of British economic interests and Britain's role in the European Union.
The United Kingdom is and must continue to be an extremely influential player on the world stage, but our future national identity and future international influence will be secured and strengthened by our retaining our position as a major European power.
My right hon. and learned Friend the Foreign Secretary will be debating the framework for political co-operation between European Union members in the House tomorrow. The Government remain firmly in favour of the approach taken in the Maastricht treaty, where co-operation over matters such as foreign and security policy and justice and home affairs is dealt with on an intergovernmental basis—the so-called pillared approach.
I have always said, and my hon. Friend has always said—I have said it in the House and outside—that that pillared approach is and was the best feature of the Maastricht treaty. I will not read out my own speech as reported in Hansard at column 1108 on 27 January 1993.
The pillared approach opens the way for closer co-operation between member states on issues such as foreign policy and home affairs, but on the basis of unanimous decision taking by independent nation states and without the involvement of Community institutions such as the European Parliament and the European court. I have always said in particular that the British armed forces would never be committed to any foreign policy initiative unless the British Parliament supported it. The Government will ensure that it stays that way.
On the other hand, I have always said that the weakest part of the Maastricht treaty was the artificial timetable for economic and monetary union. Those have always been my views, and they remain my views.
Our economic interests are inextricably linked to our position in Europe. British economic success is the result of a combination of three factors: first, the Government's successful macro-economic policies; secondly, the Government's supply-side reforms, which have given us some of the most flexible products and labour markets in the industrialised world; and, thirdly, our access to the European single market, which is our biggest marketplace and the largest open market in the world.
The combination of those three factors is crucial to our future prosperity and success. All three of them lead to job creation, and make Britain a magnet for overseas investors looking for a foothold in the European market.
No one has suggested that the single market is at risk. My right hon. and learned Friend said this morning that the single currency is no threat to nation states. Why does he think that the vast majority of the Conservative party is against the single currency? It is precisely because it would be the end of the nation state.
I know that my hon. Friend holds that belief firmly, so I realise that for him it is a straightforward question. If I shared his belief, I would be against economic and monetary union. We need to have a debate. I do not hold that belief, and I do not think that such a belief is the be-all and end-all of debate.
Other economic issues are involved, and we must consider the impact on the single market of the creation of a euro zone in the middle of it—I am glad that my hon. Friend and I agree on the importance of the single market. The Government's economic policy consists of getting right our macro-economic policy, our supply-side, micro-economic measures and the nature of the single market in which we operate and our influence on it.
The British Government played a leading role in creating the single market, and in seeking to complete it. When we signed the Single European Act, we entered into a single market that had institutions and rules. We have always accepted that a huge single market requires institutions and rules. We need to ensure that those rules are obeyed by every member state, and that the single market continues to provide the right climate for a competitive, free market economy such as ours to succeed.
That is one of the main reasons why I attend Economic and Finance Council and European Council meetings. It is in our national interest, and one of the key British objectives in our detailed negotiations on the euro zone as it emerges, to ensure that the right climate exists for our competitive position.
How do we display our influence in economic affairs if the European central bank makes the basic economic decisions, and under the Maastricht treaty we are not allowed even to make representations to the bank? Is that not a collapse of sovereignty and democracy?
The European central bank will be an independent bank, such as that which they have had for years in the United States of America and they had in the Federal Republic of Germany. It will be responsible for monetary policy decisions. Questions of taxation, public spending and priorities and budget setting of the kind that I presented to the House two weeks ago would remain the responsibility of the nation state. I shall return to that subject in a moment.
I do not believe that I said that. I support having the option. I am answering questions from those who believe that one of the options would rule out the existence of the nation state. I do not agree with that, but I have made it clear that I am sympathetic to the idea of economic and monetary union. I am trying to explain why I believe that the Government's policy of retaining the choice in both directions, and exercising it responsibly in the national interest, is what we are all about. I am seeking to define the national interest in relation to economic policy.
The Chancellor said this morning that he had no objection, in principle, to a single currency. Will he answer a second question? A number of Conservative Members have said that they will stand under a different manifesto, and that they will oppose a single currency in principle. Has the Cabinet agreed a dispensation for them?
I shall be deterred by that irrelevance for only a few moments. I have here a list of 50 members of the parliamentary Labour party who, in July this year, put out a document opposing the whole idea of a single European currency. When we discussed Maastricht, Labour was against having an opt-out. At the last election, the Labour party's policy was to bind ourselves by treaty without a choice to a single European currency. We have a clear policy, on which we shall stand at the next election. [Interruption.] The right hon. Gentleman has his answer, and he knows perfectly well what our policy is.
Let us consider the Government's economic aims, which, unlike those of the Opposition, are clear. All Conservatives want a deregulated market economy in Europe. We are all vehemently against the social chapter, no one more vehemently than me. We all want subsidiarity to be respected to the full in the single market. We can accept no question of Government or Parliament giving up control of either public spending or taxation. But we have many allies on those points in the European Councils that I attend. The Germans are probably our strongest supporters on deregulation, subsidiarity and national control of taxation.
The British Government insist that the European market must continue to be based on competitive free market principles and free trade. British membership of the EU was extremely important in shaping the European contribution to the successful completion of the last general agreement on tariffs and trade round. At this very moment, while we have this debate, at the first ministerial meeting of the World Trade Organisation in Singapore, we are pushing forward our free trade agenda. In Singapore, we the British are fending off the protectionist instincts that some of our trading partners would like to introduce into the European position.
It is against that background of the clarity on the Government Benches of our key interest in the nature of the single market that we have to consider our role in negotiations about a possible future single currency.
The European countries committed to joining a single currency are our nearest neighbours. They are the market for nearly 60 per cent. of our exports of goods. Our companies are big investors in their companies. When our continental neighbours do badly, we slow down. When they do well, we prosper. That is the economic reality. That is why we must do everything we can to ensure that, if economic and monetary union goes ahead with any member states in membership, it has to be a success.
The United Kingdom ought to punch its weight inside the EU. We have shaped the rules in the single market, to the benefit of everyone in Europe. We should have the self-confidence to believe that we can do the same on the single currency if we stay at the table.
I understand very well that the Chancellor is blind to all the evidence of the federal thrust on the continent of Europe, but he is at least, or so he tells us, concerned about the sustainability of any euro currency that emerges, and totally opposed to finagling with the criteria.
That being so, what has the Chancellor to say about the evidence of finagling on the other side, and in particular of the Commission accepting the French Government's transfer of the France Telecom pension fund into their account, so that they can reduce their borrowing requirement by half of 1 per cent.? The Chancellor knows that there are half a dozen other examples as well. According to his own criteria, he should be saying now that he will not join a fiddled currency.
I have been debating the fear of a European super-state with the right hon. Gentleman in one way or another for about 25 years now, and we have always disagreed on that. It has not happened yet, and I do not think that it will happen, either. For the umpteenth time, I am against it.
On the second point, I disapprove of the transfer to the French Government of payments for the pensions liabilities of France Telecom being regarded as acceptable—the only difference that it has made. As I shall explain, that one transfer, which everyone knows about, does not affect one's basic judgment about convergence. I, along with most other people, would disregard it when it came to making the key judgment in the end, and I am sure that all the other member states will as well.
With respect, I must be allowed to make a little progress. I should like to go on to the negotiations. I will return to convergence.
Our strongest card in the discussions on economic and monetary union is the British option that my right hon. Friend the Prime Minister negotiated at Maastricht. The House needs to debate how and when to exercise that option. Whenever the time for decision comes, the answer must depend on a balanced judgment of possible advantages and disadvantages. Nothing in this world is ever going to be black and white, but, when we do exercise our option, essentially it will be a judgment for the House to make about the upside and the downside, and we will probably find that they present themselves in a combination that we should begin to analyse at this stage of the debate.
I should be grateful if my right hon. Friend would allow me to move on.
I understand how strongly some Members feel about the federal united states of Europe and so on, and we all understand the difference of opinion on that issue, but I should like to move on to what might be the advantages and disadvantages of a single currency. It is time that, as a House, we debated what we perceive the arguments on both sides to be, because that is the balance that we are going to have to strike.
Let me first consider—I stress that I am coming to the possible disadvantages—what the possible advantages of a single currency are. Why are we going to Dublin at all and taking part in the discussion? Why did we leave an option open at all at Maastricht, and why did the Labour party say that it would sign up there and then, and enter into a treaty commitment to take advantage of economic and monetary union?
If EMU can be made to work, it would eradicate exchange rate movements, which can disrupt trade and have disrupted trade in our recent history. We have done well in the past two or three years partly because we have had a reasonably stable exchange rate, but our comparative success is tending to strengthen the pound. Exporting industrialists have already begun to voice concerns about strong upward movements, which obviously happen when we have a floating currency.
Against a weak euro of non-convergent economies, for example, the pound outside could strengthen a lot or it could simply fluctuate widely. Inside a strong EMU, countries would engage in straight competition, undistorted by the foreign exchange markets.
EMU would also reduce transaction costs, making it easier for smaller businesses to enter into and compete in the European market. The members of a strong euro zone would also expect to enjoy lower interest rates, both short and long term, based on the financial strength and reputation of the bloc. Countries with a history of devaluation or bursts of inflation pay a lasting premium in terms of higher interest rates, as we in Britain know only too well.
Let me finish the advantages, and then I will give way.
Finally, a single currency will make comparisons of prices and wages across member states direct and stark—they would all be denominated in the same terms. That will expose industry in member countries to more intense direct competition with one another, which could reinforce the desirable pressure on industry and commerce in all member states to become ever more efficient and competitive. It would speed up the drive towards competitiveness.
In that way, EMU could help member economies to rise to the real global challenges of the next 10 years. Every member state in Europe must contemplate the need to be able to compete with the economic might of Japan and of the United States of America, and with the increasing strength of the south-east Asian economies and Latin America. That is one of the European problems, and EMU could speed up that drive, making the core economies competitive.
Therefore, if a single currency could be made to work, it is even arguable—no more than that—that we might benefit more from it than most other aspiring member states. British business is already seriously competitive. Removing exchange rate risk would open up our markets further and provide tremendous opportunities for British business.
We in Britain have already taken the necessary steps to strengthen our private sector and to make our labour markets more flexible. Other countries in Europe are now realising that they must follow the lead that we have been giving for the past 15 years and more. If France and Germany were to fail to restructure their labour markets, for example, they would find it very difficult to compete with the British economy within a single currency and a euro zone.
Does my right hon. and learned Friend believe that it is better for France to close factories because she cannot compete within the current exchange rates? Does he believe that it is better to have massive Budget cuts and damaging cuts in public services than to have a flexible exchange rate? Is not part of the genius of the current British economic policy and recovery the fact that we have flexible exchange rates and interest rates suited to our needs?
I believe that it is in the interests of France to tackle her excessive fiscal deficit and bring public finances back under control. If my right hon. Friend were a Frenchman, he would agree with that. He has always agreed with me in that regard in respect of the British Government. I do not think that the French should go in for competitive devaluation or start believing that devaluation is a way out of making the necessary structural changes.
When my right hon. Friend and I were in government together, we never thought that we should duck structural changes or deliberately devalue the currency in order to avoid making those changes. The pace at which France tackles its fiscal problems is a matter for the French Government, who have to decide their own priorities. It is their duty as a sovereign nation state to tackle that. However, I do not think that comments on their methods are germane to today's debate.
Let me turn to the possible disadvantages of EMU and the reasons why that the question must be kept open. That is why we have adopted the most sensible policy. As I have just said, the intense competition which could be one of the key advantages of a single currency could also be its downfall. Countries that cannot be guaranteed to stay competitive or are not sufficiently flexible to respond to shocks in other ways than devaluation should not join EMU.
Any attempt to fudge the criteria to admit such countries would not be in the real interests of those countries, and could be disastrous for the rest of the EU, which would have to suffer the consequences. I have always acknowledged that there are possible disadvantages of membership of EMU. That is why I have always argued for the option. I may have admitted that I was attracted to it in principle, but I have also said that I could see myself being on the side of those who have argued that we should not join.
One of the key risks to the whole enterprise must be the possibility that it is set up on the basis of political compromise rather than economic judgments. The consequences of a euro zone which was badly put together, or which contained seriously non-convergent countries, would be extremely damaging to all member states of the European Union. No stability pact, no matter how strict, and no matter how dire the punishment for transgressions, could hold such a euro zone together.
If EMU is entered into by nation states that are not truly competitive with the others, or which are too inflexible in their economic structures to respond to pressures in other ways than by devaluation, it will set up insupportable and damaging strains.
When we get there, we shall also have to consider not only the economic arguments, but what EMU implies about the political future of the European Union. As I have said several times already, I do not believe EMU will lead to a European super-state. If I did, I would not contemplate Britain joining it. However, we need to satisfy ourselves about the intentions of our EU partners.
At the end of the day, even if the single currency system is well set up and we believe that it will work for Europe, even if the convergence criteria have been respected properly and in full, we can still ask whether it is right for Britain in economic and political terms. That is the value of our opt-out.
As my right hon. and learned Friend is so adamant that monetary union will not lead to political union, will he address the fact that most of our partners in Europe—certainly the Germans—seem to believe that? The chief economist of the Bundesbank has said:
there is no example in history of a lasting monetary union that was not linked to one state.
The president of the Bundesbank said:
A European currency will lead to member-nations transferring their sovereignty over financial and wage policy as well as in monetary affairs. It is an illusion to think that states can hold onto their autonomy over taxation policies.
Our partners believe that; surely it must be addressed.
Hans Tietmeyer does not speak for Germany. It is no good—[Interruption.] I agree with Hans Tietmeyer on large parts of the argument, but I do not believe him if he made that statement.
Putting together the comments of Hans Tietmeyer and one member of the Bundesbank council and saying that therefore all the Germans and all our partners believe such a thing is, with the greatest respect to my right hon. Friend, a non sequitur. There are a variety of opinions across western Europe. He has probably had the opportunities that I have had of hearing Helmut Kohl say frequently enough that he is not in favour of a united states of Europe or a federal super-state.
It is no good him shaking his head. No doubt we will find next that the state president of the Bank of Baden-Württemberg has said something different.
I said that some people who attend the Dublin summit may believe that EMU is primarily an instrument for achieving closer political integration, but I do not believe that the majority of politicians from the other states do. I do not believe that the Gaullists of France believe that they are submerging the nation state of France in economic and monetary union, yet the French are the biggest, strongest advocates of economic and monetary union in Europe. Some of them advocate it for reasons that I do not share, but it is not the reason that my right hon. Friend fears.
Having for the first time had the opportunity to set out in this way what are in my opinion the advantages, I turn to the disadvantages, so that the House might concentrate on what matters. How do we believe that the national interest should best be judged when we come to make the decision on the option that we have safeguarded for four years? I turn to the question of convergence, which is at the root of many of the present problems.
If economic and monetary union goes ahead, it is in our interest to ensure that it does so on a timetable and a basis that can be sustained whether we join it or not. I am one of those who, like Theo Waigel, the German Finance Minister, my direct opposite number who first used the phrase that I use frequently, believes that convergence is more important than the timetable. I can reassure the right hon. Member for Bethnal Green and Stepney (Mr. Shore) that I mean genuine convergence. The key is whether the countries wishing to join will be able to achieve genuine and sustainable convergence.
The Maastricht treaty sets out a list of nominal convergence criteria that should be used as a first measure of whether a country is a credible candidate for economic and monetary union. I believe that the criteria are sensible and should be rigorously applied. They take as their underlying principles our own guiding principles on macro-economic policy.
It is not surprising that my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) took part in the negotiations on the convergence criteria, because they concentrate on low inflation and sound public finances. He was one of the architects of those conditions, which are essential for economic success. I believe that they are very necessary conditions that any country must fulfil before even contemplating membership of a single currency.
Countries joining the euro zone must not just meet the convergence criteria in a particular year. That is one reason why a particular transaction, however large and startling, proves nothing. I would certainly not regard it as any evidence that France was achieving anything that mattered. Convergence means demonstrating a credible commitment to durable and sustainable convergence. That is the key; that is what the treaty says; and that is the basis on which decisions on who should join EMU must be taken. It is certainly the basis on which the Government will take their decisions and cast any votes that we come to cast at the relevant time.
I am trying to explain that I am one of those who are genuinely waiting to decide. That is sometimes a difficult position to occupy in the House, but I think it is firmly occupied by at least 70 per cent. of the British public who are trying to follow this debate. My judgment will depend on the actual circumstances we face at the time, and where the national interest lies. It is a parody of my views and those of many others to imply that I think that the UK should join EMU this weekend.
We need to have the full picture and to debate all the issues before we take such a key decision on the economic future of our country. We have not taken all the tough steps that we have to make Britain the enterprise centre of Europe simply to make a premature and superficial judgment of our role in or out of any euro zone.
The British opt-out is described as a wait-and-see policy—a balancing act. In my opinion, those are dismissive terms for an extremely sensible policy that is, in fact, the only policy that is in the best interests of the British. That policy puts us in a position that a number of our European partners clearly envy. Unlike them, we have kept solely in the hands of the British Government, the British Parliament and the British people the ultimate decision about whether or not we will join EMU.
Those who would like us to exercise our opt-out now are asking us to throw away that hard-won advantage. Presumably they would say that a referendum is no consolation, and that they would set aside the views of the British public, because they wish to say no now, in the same way that they would say no whatever the outcome of the referendum to which we are committed.
As my right hon. Friend the Prime Minister said at the weekend, to throw away our hard-won advantage would be
fleeing the field when the game is still to be played".
We have everything to gain and nothing to lose from staying in the game. It is only now, as practical preparations get going and as a picture begins to emerge of who will be part of the project and how it will be run, that we are enjoying the full value of our opt-out.
I must get on, because otherwise I will take up a disproportionate time.
We are determining—for example, in the discussions on the regulations which most of us have now forgotten and which originally gave rise to the demand for this two-day debate; although I am glad we have moved on to the wider scene—the terms on which any British Government might, at any time in the foreseeable future, join EMU. That is why the legislation is so important. We are also helping to shape the rules that will govern the system, whether we are a member of it or not.
Our EMU option is no soft option, and I am better placed than most to know that because I have been attending the Council of Ministers since 1979. It takes a lot of hard work and a lot of nitty-gritty practical negotiations with our European partners on the part of my right hon. Friend the Prime Minister.
That would not be made any easier if partners round the table suspected that it was just an academic exercise for the UK. It is true that we could still sit at the negotiating table even if we had opted out. We could still argue in logic that our national interests enabled us to play a full part, but the reality is that the influence at the negotiating table of those countries likely to be out for the foreseeable future is far, far less than that of the lead contenders for membership.
Keeping our options open is much more than just a bargaining ploy. It is leaving us with a genuine choice to exercise at the right time in our national interest, and meanwhile keeping our national power to influence the course of great events at the negotiating table.
The Chancellor is making a clear case for monetary union and the circumstances in which the Government would not join. The Government would not join if they thought there was a political fudge, and, of course, if the United Kingdom had not qualified. What would be the Government's position if it were agreed that there was no political fudge and the United Kingdom had qualified? Will the British Government recommend that we enter in the first tranche?
I hope that the logic of my speech makes it clear that, if—as events turn out—those possible advantages that I have described strongly outweighed the possible disadvantages that I described, I would probably be in favour of joining. When I say that I retain the right to wait and decide, I have made it clear that that decision could go in either direction so far as I am concerned. I am not saying that I would necessarily say no, but I tend to emphasise that I could probably say no because that is always found more surprising by my auditors. It is obvious that I could also say yes, because I think we might lose if we stayed out of a properly functioning economic and monetary union.
Before I give way again, I should like to explain why we cannot sensibly decide now. Apart from the matters that I have already mentioned, there are far too many uncertainties about the shape of the euro zone and how it will function. No one can yet say for certain when or if EMU will happen. It would be foolish to ignore the huge political capital and practical effort that is being invested in the project by the other member states of the European Union.
We do not know which countries are likely to be in the first wave if and when it goes ahead. We do not know how much economic convergence will have been achieved, how strictly the criteria will have been adhered to, and how far participants will have achieved the necessary flexibility in their markets to deal with, for example, differing levels of structural unemployment. We do not even have enough detail on how the European central bank or the single monetary policy will operate. We also need to consider how relations with those who remain outside the euro zone will be handled by those inside it.
We need to consider the implications for the enlargement of the European Union. It is far too soon to determine the overall balance of advantage for the City and for British business in general. Those issues will all have a significant impact on the relative advantage of being in or out. Whatever we decide—in or out—EMU will affect us. We must stay involved and ensure that British interests are protected and advanced.
We have already made major advances in negotiations. We played a critical role in the original design of economic and monetary union back in 1991, when my right hon. Friends the Members for Witney (Mr. Hurd) and for Kingston upon Thames took part in the negotiations. The British negotiators took the key role in ensuring that the European central bank would be independent, that price stability would be its goal, that convergence criteria would apply and that only genuinely convergent countries would go ahead to join stage 3.
By staying involved since 1991, we have continued to exercise a key influence. My right hon. Friend the Member for Kingston upon Thames put the relations between ins and outs firmly on the agenda when other member states were seeking to avoid it. Recently, we have ensured that the so-called ERM 2 remains voluntary. We have agreed the terms, subject to our parliamentary reserve, of regulations on the continuity of contracts after a single currency. That is important for the City of London, as I explained to the House last week.
Those are just some concrete examples of how staying involved in the preparations for EMU has already proved, and will continue to prove, the best way to protect British interests.
As my right hon. and learned Friend knows only too well, we stated in the Maastricht treaty that, legally, we would never prevent the other member states from going ahead. Thereby we sold a pass.
However, can my right hon. and learned Friend explain how we can be said to be negotiating at the table when we have specifically excluded ourselves from discussions on the single currency at the intergovernmental conference, unlike those at the European Monetary Institute, in which we are engaged in the preparations? Will my right hon. and learned Friend explain the distinction between those two situations? How can we be negotiating on something that we have ruled ourselves out of?
With the greatest respect, my hon. Friend is getting himself into some confusion. It is true that, in the original treaty, we are committed not to seek to obstruct the progress of those member states that wish to proceed to economic and monetary union. It would clearly be unproductive to do so, and, anyway, the treaty is so constructed that it is not possible to vote to do so in any meaningful fashion at any time.
Economic and monetary union is not being raised at the intergovernmental conference. All the member states have agreed that it is not on the agenda. The two are separate items at the summit tomorrow. No discussions are going on about economic and monetary union from which the British Government have excluded ourselves. I am seeking to ensure not only that we do not exclude ourselves, but that we continue to punch our weight on our behalf, in our interests, when we take part in the discussions.
The immediate issue for Finance Ministers tomorrow night on the eve of Dublin will be the stability pact. The stability pact seeks to give practical effect to our existing treaty commitments to pursue sensible economic policies and avoid unsustainable deficit financing. It is all about ensuring that convergence is sustainable and durable—that is important to members of all parties. It is worth making it clear precisely why we need a stability pact.
In today's global financial markets, any nation state that fails to keep Government borrowing under control is rapidly punished by those deregulated markets as the interest rates it has to pay to finance its debts rise. In an EMU, if any one member state gets itself into fiscal difficulties or debt problems, all member states may be punished by the markets. All EMU members may have to pay the penalty of higher interest rates exacted by the financial markets for one member's irresponsible policies. Any country that was a close trading partner of the EMU bloc would have a very close interest in the stability of that bloc for its own economic prosperity.
That is why the Maastricht treaty envisages fines for countries in the single currency that run excessive deficits and which not only incur a deficit but fail to take any effective action to get it down again. The current discussions on the so-called stability pact are about how to determine such fines and when to impose them. In my view, it is important to get these rules right.
Those who favour a single European currency are in the habit of pointing to the United States as an example of where such a currency operates, but the United States does not have a stability pact. The state of California—which produces about 12 per cent. of the GDP of the United States—very nearly went bankrupt, as did the city of New York, but there was never any suggestion that the Federal Reserve or the US Government should step in. Why does Europe need a stability pact, except as part of a bureaucratic, socialist, centralising, federalist state?
The United States of America is not a partnership of independent nation states of the kind we are contemplating. As I have been emphasising throughout most of my speech, most of the analogies with the United States are, in my opinion, substantially wide of the mark, both politically and economically.
There is absolutely no suggestion of the European central bank stepping in to rescue any member state from the financial consequences of its own fiscal indiscipline. That is not what we are contemplating. There is a no-bail-out clause in the treaty that expressly stops one country bailing out another. We are talking about putting pressure on a sovereign nation state to take the necessary action in the interests of the EMU group—to which, by then, it will belong—to get its fiscal affairs back under control so that the markets give the benefits of membership to all EMU members. Those rules must be right.
I shall give way in a moment, but I wish to continue my comments on the stability pact.
We cannot have a set of rules so rigid and inflexible and fines so draconian that every fiscal problem is turned into a crisis. That is the view that I have been taking, and many right hon. and hon. Members will be relieved to know that that is probably the only substantial matter that I shall be discussing in depth over the next two or three days.
But while I am against inflexible rules and draconian penalties, we cannot have a set of commitments so vague that they are more often broken than met. In particular, we need to retain an element of flexibility and political discretion over the whole process. That is the way in which Ministers such as myself, who believe that it is the right way, are steadily taking the discussion.
The other part of the stability pact is making all EU members submit convergence reports on how they are managing their economies. In the European single market—whether or not we have EMU—all countries share an interest in promoting macro-economic stability. Surveillance provides a mechanism for this, and it is now a part of the international financial scene in the modern world.
The British Government believe in international and mutual surveillance of economic performance. We have signed up to independent examination of our economic health by the International Monetary Fund, the Organisation for Economic Co-operation and Development and the G7, as well as the EU. The UK is a role model in the provision of open, up-to-date and independent statistical information on the progress of our economy. I have published the IMF article IV report on its annual surveillance of the UK, and I am the first British Chancellor ever to do so.
All member states agreed to produce convergence reports when they signed up to the Single European Act, and we agreed to that when we signed it as a Government led by my noble Friend Baroness Thatcher. The United Kingdom has always produced the reports scrupulously, while other member states sometimes produce out-of-date reports or reports thin on information.
Making the reports compulsory is a very sensible idea, but I am determined to ensure—I give this undertaking again to my right hon. Friend the Member for Wokingham (Mr. Redwood) and to others among my right hon. and hon. Friends—that there is nothing in the regulations on the stability pact that gives rise to any possibility that the monitoring could have binding legal consequences for the UK if we remained outside economic and monetary union.
We have been in favour of the principles of the stability pact all along. By staying involved in negotiating the details, I intend to ensure that, when the time comes to agree it, it will be a system that a future British Government can sign up to.
Can my right hon. and learned Friend explain to the House how, if a country exceeds its stipulated budget deficit and consequently has a relatively weak economy, that will be improved by a fine? Was not the demand for reparations from Germany after the first world war utterly disastrous, and did it not lead to Germany borrowing more money to comply? Would it not be a system of paying tribute to a superior power—the European Union?
If I may say so, my hon. Friend warmed to his argument. He began with a good argument, with which I have some sympathy, and I can reassure him that we are not contemplating anything on the scale of reparations or penalties about which the country can do nothing and which are a burden placed on it for the misdeeds of a former Government.
When we helped to put the provisions in the Maastricht treaty, I am sure that we had in mind the possibility of penalties as a last-resort deterrent to give some added determination to a Government and a Parliament to take effective action to remedy their fiscal deficit. Not to have any deterrent in prospect could lead to some countries constantly expecting to be forgiven extremely slow progress towards fiscal health.
In the negotiations, I have been against those who want automaticity and rapid timetables for the penalties and who think that it gives credibility to the system to show the markets that huge penalties would fall on countries suffering fiscal difficulties. I quite agree that John Maynard Keynes would be spinning in his grave if he was told that the solution to a country getting into serious fiscal deficit problems was to impose on it a fine equivalent to the cost of our bovine spongiform encephalopathy crisis.
We are negotiating something that, like all the best deterrents, would not be used but would reinforce the political will of a Government to take the necessary action to get back into conformity with their treaty commitments.
To join or not to join is ultimately a political decision. Britain's interests will dictate which way our decision goes. To rush into a premature decision, to extract ourselves from the debate about Britain's future, would be, as my right hon. Friend the Prime Minister put it, "a dereliction of responsibility".
It is entirely right that the House should be debating the Government's policy on Europe over the next two days. We spend too little time debating these matters in the House. I hope that this debate will be part of the process of defining where we believe our national interests lie and determining the true balance of advantages and risks that we face, so that we can help the British public to form their views.
The key question for the country is, who do we want sitting in the chair at the negotiations? Tomorrow we go to Dublin. It remains to be decided who goes to Amsterdam in six months' time. The right hon. Member for Dunfermline, East (Mr. Brown) has a simplified approach of not exercising or having an option on the single currency. I know whom I would prefer to go to Amsterdam, when faced with the choice of the man who negotiated our option on EMU, or the man who says that he would never be isolated in Europe.
Over the years, I have sat many times alongside my right hon. Friend the Prime Minister negotiating at the big tables, not just at the European Council but at G7 meetings. He is a master of the art of small negotiation; that is why he came back with a triumph from Maastricht. When I look across the House, as I sometimes do, at the polished public image and public relations shallowness of the Leader of the Opposition and listen to the shadow Chancellor and the shadow Foreign Secretary, I know which team I prefer. In my judgment, the leaders of Europe would eat the Opposition Front-Bench spokesmen alive. They would not be so much turkeys dressed for Christmas as a prawn cocktail before tea for the great statesmen of Europe.
When the time comes, it must be a Conservative Government who consider the issues coolly and come to the right decision for Britain. So long as this party remains in power, the people of Britain can he sure of one thing: we will decide at the right time, for the right reasons; and our decision will be entirely determined by the interests of the United Kingdom.
The first question that came into the minds of Conservative Members when the Chancellor was asking who they would want to represent them at Amsterdam was whether they would want him to. When he set out the advantages and disadvantages of being inside a single currency; set out, with enthusiasm, what he believed were the principal advantages of a single currency; and said that Britain might get some of the biggest advantages from the lower interest rates that could result from a single currency, he spoke with enthusiasm, passion and conviction. But I kept asking myself whether he spoke for the Conservative party and for the Government. Does he, week to week, continue to speak for the Prime Minister on those vital issues?
The problem was summed up when the Chancellor said that the policy of the Government had the support of 70 per cent. of the population and there were jeers from Conservative Members. We know exactly what Conservative Members think of that policy. As we had jeers when the Chancellor talked of the advantages of the single currency and cheers when the right hon. Member for Kingston upon Thames (Mr. Lamont) put the disadvantages, we know why the Government were so anxious to avoid a vote on a take note motion after this debate and why the Prime Minister had to admit on Sunday that divisions in the Conservative party were damaging the national interest.
It is almost certain that Britain will meet the Maastricht economic criteria at the appropriate time. Will the right hon. Gentleman confirm that it is still Labour party policy to commit the nation to join the single currency in that event, and therefore confirm that, by voting Labour, people will vote to abolish the pound?
I will come to the hon. Gentleman's point. We will make the decision in the national economic interest and I will lay out the factors that we will consider. [Interruption.] The hon. Gentleman disparages what I am saying, but that is the policy of the Chancellor of the Exchequer as well. Today, the hon. Gentleman expresses himself as opposing the Opposition; on Friday, he was all over the airwaves saying that the Chancellor and the Prime Minister were defying the will of the majority of the Conservative party. That is the current state of the Conservative party.
Can the right hon. Gentleman say whether it is still Labour party policy, as written in its policy documents of the past year, that the convergence criteria must be applied flexibly? Is its policy still to fudge the convergence criteria or has it moved from its original policy document?
My understanding is that—[HON. MEMBERS: "Ah."] If the right hon. Gentleman reads "A New Economic Future for Britain" published by the Labour party in June 1995, he will see on page 23 the words:
Convergence must be based on improving levels of growth and employment, and not just on monetary objectives alone. That is why we have long argued that the convergence criteria must be applied flexibly.
The hon. Gentleman mentions employment and growth—exactly issues that we believe should be taken into account. The hon. Gentleman was trying to suggest that we intended to fudge the public spending guidelines. I had better deal with this now. We have always said, first, that we see substantial benefits in the principle. We have always said, secondly, that the decision should be made in the national economic interest. We have said, thirdly, that employment criteria—the real condition of the economy—have to be taken into account and, fourthly, that there must be a test of public opinion. That is a fair way of approaching the issue.
I shall make some progress and then give way to some hon. Members. [Interruption.] The Exchequer Secretary to the Treasury is shouting. Perhaps he will answer when he replies to the debate why he has been put up to answer the debate by the Chancellor when he said on the Frost programme only a few weeks ago, "I am a Euro-sceptic. I cannot support the principle of economic and monetary union." Why has he been put up to close the debate and give a position that is diametrically opposite to that of the Chancellor?
I have said exactly what is the case. We see substantial benefits in principle in a single currency, but the decision must be made in the national economic interest. We must take into account the advantages and disadvantages of being in, but also the advantages and disadvantages of being out. We must take a decision when we know the full economic information and can make an assessment of it. If the hon. Gentleman disagrees with me on that, he disagrees with the Prime Minister because that is the position that the Prime Minister laid out on Sunday.
I shall examine point by point the important decisions that will be made this weekend in Dublin and the Conservative party's position on them. The Chancellor did not deal with those important issues. I shall state the Labour party's position. We will show issue by issue that Conservative divisions are denying us the unity that is necessary, and therefore damaging the national interest on these matters.
The Chancellor tried to take comfort from what he said were divisions in the Labour party on a single currency. Let me give him a challenge. Let him do what the Labour party did and put his policy to his party membership, including its proposals on Europe, a commitment to the benefits that we see of a single currency, and the need to make the decision in the national interest and to consult the public. Let him see what the result is. Judging by his speech this afternoon, I doubt that the Chancellor will be able to guarantee a majority not just in his party but among his Back Benchers for his position, and perhaps not even a majority in the Cabinet. Who is divided on the issue of Europe?
The Chancellor presented a theoretical case for being inside a single currency. The fact is that decisions are being made every week in Europe on these issues, and Conservative Members know that. The Chancellor concentrated, as he has done in our two previous exchanges, more on the decisions that have not been made, not yet been made or will be made later, for which he wants discretion from the House, than on the decisions that are being made.
In this two-day debate, we must face up to the decisions that have been made, say what is our view on the matter, give advice to the Government where that is necessary and see why the divisions on the Conservative Benches, which cannot be concealed, are preventing our national interest from being effectively represented.
The Chancellor says that there will be no final agreements at Dublin. It is true that there will be no legislative agreements until Amsterdam and that the Finance Ministers meet again tomorrow, but no one is in any doubt that important economic decisions—perhaps some of the most important decisions that Europe has made on economic matters—are being reached in ECOFIN and are to be put to the Council and to the summit on Sunday.
We know what newspapers across the continent are saying. French newspapers are reporting French Ministers as saying that all but two issues of detail have been agreed. Indeed, the Chancellor told the Select Committee on European Legislation, chaired by my hon. Friend the Member for Clydesdale (Mr. Hood), that political agreement is likely at the European Council on 13 and 14 December. The Leader of the House said that we had to have scrutiny in the Committee because political agreement was likely. The Chancellor, reporting back to the House last Tuesday, said that there were only two outstanding issues. We know that the Irish Prime Minister has said that 98 per cent. of the proposals on the economy are already agreed in outline form and that the formal agreement comes to be ratified in Dublin before the legislation is drawn up.
Try as he does to find common ground with his Back Benchers, the Chancellor has to deny the importance of all the decisions that are being made at the moment. I believe that debate is required on the details of those agreements, which are about to be made. I shall raise some of those issues, because parliamentary approval should be sought. The public need to know and to understand what is at stake. If they do not, because divisions in the Conservative party prevent that full national debate on the detailed issues from taking place, it will not be in the national interest.
It is important also to understand why the take note motion is not before the House this afternoon. We were told that the take note motion had to be dealt with before Dublin, yet suddenly last Thursday we were told that it was not necessary because political agreements would not be reached.
No, I am not giving way at the moment.
The truth is that political agreements are being reached. The position of the Government and that of Parliament should be known on these issues. What has changed in the past few days is not that no agreements are going to be reached—what has changed is the Government's ability to get that motion through the House of Commons. That is why divisions weaken this country in negotiations. The Prime Minister goes to Dublin without the authority of Parliament to reach the final decisions, when he knows that those agreements are being reached and are only to be ratified at the Amsterdam summit.
Let us look at substantive issues. I have said where the Labour party stands. Our draft manifesto clearly states our position on the principle of a single currency and on the decisions that have to be made. The Chancellor raised the subject of the stability pact. He has reached agreement on all but two outstanding issues. He has agreed that there will be limits to deficits and that there is an agreed procedure for dealing with them. He has agreed that penalties will be there as a last resort and that fines will be paid to the European Commission. All that is agreed—Conservative Members should know that he has not opposed those proposals and that the common view in the Finance Council is that they are agreed.
In addition, the Chancellor has already agreed, as he mentioned, that convergence programmes are important for the outs who remain outside the single currency; that they will now be obligatory; that their contents will include matters on budgetary deficits; that they should be developed along the same lines in reporting as the stability programme; that those plans will have to be submitted every year and that they will form the basis of public comment by Commission; and that Britain could be rebuked for failure to take "necessary action".
Those proposals should be debated in detail in the House, but the main thrust of the Chancellor's report from the summit last Tuesday and of his speech today is that he has secured copper-bottomed guarantees in respect of Conservative Back Benchers' demands that things be written into the agreement to ensure that the obligation to avoid excessive deficits does not apply to the United Kingdom, as long as it remains outside the euro.
My right hon. Friend has made it clear—very convincingly—that all the information is now available about the stability pact, about what would happen to us if we remained outside and so on, to enable us to make a rational decision about whether it is in the British interest to join. What we would also like to know is what my right hon. Friend thinks about the stability pact and its imposition on the British people.
If my right hon. Friend, who contributes to all these debates and has done so for many years, will be patient, I shall tell him. As he knows, there are two outstanding issues relating to the stability pact that have yet to be agreed and I shall come to those issues in a minute. They are the definition of exceptional circumstances and the discretion that is available to the Council. I think that he would agree that those are important issues on which the Labour party—[Interruption.] This is the problem with trying to have a rational debate on Europe. Because some Conservative Members are against a single currency in principle and in all circumstances, they are not prepared to debate the issues that affect the United Kingdom.
The Chancellor tries to find common ground with the rebels. He goes to Europe and comes back saying that he has got what amounts to a footnote in the new agreements that member states that are outside the euro will be under no obligation to avoid excessive deficits—something that was already stated in black and white in the Maastricht treaty anyway.
The Chancellor gets that provision in order to appease Conservative Members, but it makes no difference to them. They have only one mission in mind, which is to prevent there being a single currency in any circumstances—the tragedy is that the Chancellor knows that too. If they can, they will write into the Conservative manifesto that there will be no commitment to a single currency in any circumstances. If they fail to do that, they have made it clear that they will have their separate, personal manifestos and write it into those. They will also write in a statement that they would prefer Britain to be outside the European Union altogether.
Here is another Conservative Member who takes that view. That is the position of many hon. Members on the Conservative Back Benches—I suspect that they form a majority of the hon. Members present today. Increasingly, they are becoming a party within a party and no amount of rabble-rousing on their part can disguise their agenda and their pursuit of it.
We do not accept that a country moves into a federal Europe immediately on considering the issue of a single currency. We shall look at the issue in terms of what is the national interest. The hon. Gentleman should look at those questions in detail.
I give way all the time to Conservative Members and, instead of asking questions about details that affect Britain's interest, they repeat the same old question, because they are wholly against the single currency. That is their agenda.
I am now on the detail. [Interruption.] We have one section of the Conservative party saying, "Let's have a debate on the detail," and another saying, "We must debate only the principle and we must rule out the principle of a single currency."
I am glad that the hon. Gentleman is participating in this debate. He is the person who rebelled on Sunday when the Prime Minister talked about irrelevant Members of Parliament who were stirring up the issue to get a moment's fame. The hon. Gentleman asks about sovereignty. I do not accept that a single currency removes our freedom to make decisions on taxation and other issues in the House of Commons. It will annoy Conservative Members that I share the Chancellor's view on that matter—[Interruption. The Chancellor is smiling because he has at least one supporter on the issue in the House. That will be the Labour party's position on the matter.
We cannot sit out these negotiations simply because a group of Conservative Members say that we must rule everything out in principle. We must play an active part in the negotiations, but, try as the Chancellor does to find common ground between him and his Back Benchers, it is becoming impossible as they push him further and further to a position where he cannot agree with them.
On the two outstanding issues on the stability pact, there must be flexibility rather than rigidity in the definition of exceptional rules. On that point we would agree with the position that the French have put over the past few days.
There must be discretion for the Council. Indeed, that was the spirit of the Maastricht treaty. In answer to a question put earlier, we should have the ability to examine the state of the economic cycle and to take past trends and levels of investment into account when deciding what action to take.
Will the right hon. Gentleman allow me to recap? When a question was put to him earlier, he said that the word "flexibly" did not appear in the document. It was then put to him that page 23 of "A New Economic Future for Britain" says:
the convergence criteria must be applied flexibly".
What does he mean by that?
I thought that the right hon. Gentleman was referring to "The Road to the Manifesto", the document that we have produced and circulated to our members. That has been voted on by 95 per cent. of the members and is the manifesto on which we shall fight the next general election. The right hon. Gentleman is not quoting from that document, but that was my understanding of the comment that was made, and that is the basis on which we shall fight the election. I understand that it is impossible for the Conservatives to have a similar document at this stage. Indeed, it may be impossible for them to agree on a manifesto on those issues, but the Labour party has agreed its position. [HON. MEMBERS: "But what does it mean?"] I explained to hon. Gentlemen what it meant. It meant taking into account employment issues when making a final decision on monetary union.
It is interesting that the Chancellor said little about exchange rate co-operation, but concentrated on the stability pact. We know that the exchange rates of the outs as well as the ins will have to be monitored and assessed under the new arrangements being agreed, but the purpose is to avoid real exchange rate misalignments. Surveillance of what are clearly market-sensitive areas will be published by the Commission in the form of recommendations. Whether binding or not, recommendations in such market-sensitive areas are bound to have an impact. Once again, however, desperate for common ground, the Chancellor tried to get included in the document an understanding that that would be non-binding on the British Government if they were outside the euro.
The House must debate the fact that all member states, whether they introduce the euro or not, will be subject to recommendations on their exchange rates. Those will have market-sensitive implications, and we must take that point into account. We shall support the necessary surveillance. We accept that exchange rates will be monitored and published. That is another issue which, for reasons of holding the Conservative party together, the Chancellor, who has raised no general objections to those matters, chooses not to emphasise.
I shall not give way again. I have made that absolutely clear.
We have dealt with the stability pact and exchange rate co-operation, the issue that will come to the Dublin summit. But, as all the interventions from Conservative Members who are against Europe and a single currency have made clear, the real issue is the single currency. We know that the Chancellor agrees with the principle and that a decision should be made in the national interest. We also know that he agrees that we should assess the advantages and disadvantages of being out as well as in. That would be my position as well. However, it is because the Chancellor is in favour of the principle of a single currency that the Conservative party cannot unite on the issue. That is what the House should face up to today.
At least 50 Members of Parliament and candidates have said that they will stand on a separate manifesto. Like the debate on what the IGC should recommend, the debate on a referendum and the decision made by the Prime Minister and the Cabinet on that matter in March, a pattern of events is consistently followed. Conservative Euro-sceptics make a demand, they expect the Prime Minister to vacillate, the Chancellor digs in, the Prime Minister retreats a little, factional war then breaks out and the war of the factions effectively decides the final outcome.
Even when we have a period of truce, the silence lasts only a few days, sometimes even less, while regrouping takes place so that the Euro-sceptics can fight again. A group of Conservative Members is so implacably opposed to the principle of a single currency that no peace within the Conservative party is possible.
No, I shall not give way.
That is the new constitutional theory that runs the Government. Ministers used to initiate, the Cabinet used to decide and Parliament used to approve. Now, however, Euro-sceptics initiate on this great issue of Europe, Ministers are always in a position of reacting, factional in-fighting always breaks out, and the war of the factions decides the final solution. That is what lies behind all the events of the past few days.
When the Chancellor went to lunch at Chez Nico only a few days ago, at the back of his mind was the attempt by Conservative Back Benchers to force on to the Prime Minister a new manifesto commitment, or at least a statement during the election campaign, that he would rule out a single currency. If anybody doubts that, he or she should read the interview given by Lord Tebbit on Sunday when he made it absolutely clear that a plan was afoot. He said that he was in discussion with Downing street and made it clear that moves were being made by some people with influence at No. 10—
some people like myself—to find a formula which would bring me and my friends back on board. This formula, which looks as though it might be successful, was that we would accept the Prime Minister's word. Let me say that at the beginning of the election campaign he would say, 'Look, Ken Clarke takes his view. I take this view: while I am Prime Minister I can assure you we are not going into the single currency in the next Parliament because the Europeans arc fudging it and it would be a mess.'
That plan led to the article in The Daily Telegraph, which was what so exercised the Chancellor when he went to lunch. It was just a few days after the Budget when he had been boasting about the state of the economy. When he went to that lunch with two BBC journalists, was he there to boast about his great economic achievements and his success story in Europe? What was on his mind? What was his agenda? Was it to defend the Budget? Was it to reassert the ringing declaration of his loyalty and that
any enemy of John Major is an enemy of mine"?
No. What was his real agenda? So keen was the Chancellor, after the events of the previous few days, to unburden himself on the European issue that, it is reported, he did not even drink much of the two bottles of wine that were produced by the BBC reporters—he was talking so much. It turned out to be a perfect lunch. That may be an additional reason why the Chancellor got more exercised towards the end of the conversation. The significant claim that he made was not about explosives or scooters. The significant claim that he made—the straight talking—was, according to the report,
Mr. Clarke does not doubt that the source of the story ruling out a single currency was someone close to the Prime Minister.
In vino veritas. No wonder his mind was not on the Budget or the economy. It was on the attempted betrayal, as he saw it, of No. 11 Downing street by No. 10. After that, the next stage of the familiar cycle started to work itself out. Nothing that I could say about what is going on in the Tory party could be as damaging as what its members have said about each other over the past few days, with talk of madness, purges, Ministers alleged to be puppets, allegations of political suicide, betrayal, treachery—those are only the allegations that they made about themselves during the past week—words that make the Chancellor's comments about boomerangs, explosives and scooters seem mild and statesmanlike, even if he was speaking through the wine that he had enjoyed. One member—
I thank the right hon. Gentleman for having the courtesy to give way. He is in misquotation mood. He claimed earlier that I made a statement on "Breakfast with Frost". It may have been a little too early for the right hon. Gentleman—he was probably bleary. Let me tell him what I said. It was not what he claimed. I said:
I am a Euro-sceptic. I may not be in quite the same league as you …"—
I was referring to the hon. Member for Billericay (Mrs. Gorman)—
but I would find it totally unacceptable if the British Government was trying to commit us to EMU without having a referendum and without it going through Parliament.
I hope that the right hon. Gentleman will have the good grace to apologise for his earlier misquotation.
The Minister said that he was a Euro-sceptic. I saw "Breakfast with Frost". He has now read out his statement. The Minister who is to reply to the debate on behalf of the Chancellor later this evening went on the programme as a Treasury Minister who is supposed to defend the documents, and said that he was a Euro-sceptic. [Interruption.]
The House will look strangely on a Minister of the Treasury who said publicly on "Breakfast with Frost" that he was a Euro-sceptic. That sends out a clear message. If he says—which I accept—that he does not support the principle of a single currency without a referendum being held and without proper parliamentary approval—[HON. MEMBERS: "Apologise."] If the Minister is saying that he will not support the principle of a single currency—economic and monetary union—without a referendum and without the matter coming before the House, is he saying that with a referendum and after it has come before the House, he will be prepared to support the principle of a single currency?
Earlier in the debate the right hon. Gentleman attributed to me a statement that was wrong. It is beneath him and shows ill grace for him not to withdraw it and apologise.
I was reading the quotation from The Independent on the Monday after the Minister's Frost interview. Does he deny saying that he was a Euro-sceptic? [HON. MEMBERS: "Withdraw."] "I am a Euro-sceptic," he said. That is typical of the Conservative party. Conservative Members are divided and they are clutching at straws. We have a Conservative Treasury Minister—
The right hon. Gentleman should not debate in this way. After the remark about my hon. Friend being a Euro-sceptic, the right hon. Gentleman went on to attribute to him remarks on the Frost programme that he now knows my hon. Friend did not make. In those circumstances, the right hon. Gentleman should withdraw.
I am reading the report from The Independent. [HON. MEMBERS: "Withdraw."] If I have misquoted the hon. Gentleman, I apologise. [HON. MEMBERS: "Five minutes."] The hon. Gentleman said that he is a Treasury Minister who is a Euro-sceptic. Given a referendum and parliamentary approval, would he support the principle of economic and monetary union—yes or no?
There is the division. During the debate the Chancellor said that he supports the principle of monetary union. The Minister cannot say that. Is that not an example of the division at the heart of the Treasury? Conservative Members are clutching at straws if they believe that they can wish away the fact that within the Treasury the Chancellor says one thing and the Minister who is to reply to the debate says another.
May I tell the right hon. Gentleman that wine played a much smaller part at the lunch than he believes, but that is the least of my complaints against the BBC journalists involved?
On the argument that the right hon. Gentleman is trying so passionately to deploy, can he deny that if he went to lunch with the right hon. Member for Bethnal Green and Stepney (Mr. Shore) and the hon. Member for Bolsover (Mr. Skinner), he would not find the slightest shred of agreement on any of his arguments? At least 50 members of the Labour party do not believe a word that he is saying and would vote against his argument if they had the chance. Why is he trying to distract attention, instead of trying to deal seriously with the real issues?
Can the Chancellor imagine putting to his party membership his policy on Europe and finding that he could get a straight majority, far less 95 per cent. of the party voting in favour of a draft manifesto?
The situation in the Conservative party is summed up by events since the Prime Minister's interview on Sunday. The Prime Minister went on television on Sunday. He was to unite the party. He would draw a line. Clarity and coherence would reappear. The in-fighting would stop. All the damage done off the record by the Chancellor would be resolved by the interview on the record by the Prime Minister. Yet within five minutes of the interview being completed, the right hon. Member for Wokingham (Mr. Redwood) was saying one thing, Lord Howe was saying another and the cycle began again—there was a momentary remission during the Prime Minister's interview, before the relapse.
Small wonder it is that Lord Blake said:
Since I was old enough to vote I have lived through 14 general elections. I have never seen the party I support in a worse state of disarray, a worse state of confusion, of factiousness, than today.
What chance is there of reconciliation when, clutch at straws as they might this afternoon, Conservative Members express entirely different views from the Government Front Bench and have no intention of reconciliation on the issue of the single currency? We were taught that Cabinets decide and Parliament approves. We now know that factions in the Conservative party initiate, Ministers react, factions fight it out and struggle among the factions decides the outcome.
Very important issues are at stake at Dublin. There is the stability pact, which I have mentioned; there is the future of exchange rate co-operation; there is the decision on the euro. The decisions about a European single currency must be made in the national economic interest. In my view, the worst thing that has been happening in recent days is that, when we have needed a debate in the national economic interest so that a decision can eventually be made on those issues, divisions within the Conservative party on matters of theology, ideology and dogma have prevented that decision from being made. It seems that, despite what the Prime Minister said on Sunday, the national interest always comes second.
Three years ago, the Chancellor said that the Conservative party was in a hole. It still is. It has long ceased to be able to govern on the vital issue of Europe. It is no longer seen as a party by the general public. It cannot unite the country; it cannot even unite itself. Its divisions are damaging the national interest. It is time that the national interest came first: it is time that this Government went.
It is a long-established tradition in our Parliament, and particularly in the House of Commons, that on all questions of international negotiations—and, indeed, on many involving national negotiations—no attempt should be made to bind the hands of those taking part, whether Prime Minister, members of the Cabinet or other Ministers. In my experience of innumerable negotiations, particularly international ones, no attempt has ever been made to bind me to particular positions while they have been going on.
During the long negotiations between 1961 and 1963 on the first attempt to enter what is now the European Union, I reported frequently—to the astonishment of my colleagues from other countries involved in the negotiations—but was never asked here to bind myself either to what had been agreed or to what was going to happen. That position should, I believe, be maintained—and more so, not less so, because we are within five months of a general election. That is vital.
These negotiations cannot be finished before the possible date of a general election. We should therefore accept, as a Parliament—I believe that the people of this country are perfectly prepared to accept it—that we shall not know the answer until the negotiations are concluded, whichever party is in power. Unless we do that, we are heading for catastrophe.
I believe that my right hon. Friend the Prime Minister was absolutely right to say on Sunday that he would not be forced to make any announcement, either now or during an election campaign. He is backed by the Chancellor of the Exchequer, the Deputy Prime Minister and the Foreign Secretary, and rightly so. I therefore hope that all of them will adhere strictly to what has been said. I believe that it is right. It is what Parliament is accustomed to, it is what Parliament needs, and I believe that Parliament should have it.
When considering the general questions that are at issue, we must recognise that the Six, as they originally were—and the members of the Union, as they are today—have always benefited from the fact that their principal parties have agreed on their membership of the Union and on the steps that have been taken to develop it, as, almost without exception, have all members of those principal parties. There are those who say today that they never realised that there was any politics in it. Many people say that all the time. I am sorry, but it has been clear from the beginning that this was a political development, and also an economic development. There are those who talk glibly about sovereignty. Of course the Union, or the European Coal and Steel Community as it was then, had supranationality. It gave up sovereignty at once, in order to maintain peace in our continent by governing, centrally, what Germany and France could do in regard to creating weapons of war by means of the two materials of coal and steel. That has always been there.
Every treaty has emphasised this. The treaty of Rome, which we signed—we are not in the habit of breaking treaties—sets out quite clearly that what is involved is ever closer union, which involves sovereignty, and that such a union is political as well as economic. That is absolutely clear, and always has been.
Sovereignty exists for the benefit of the people. It exists for the benefit of our fellow citizens. If we can do something to which our sovereignty contributes for the benefit of our people, its use is absolutely justified.
I must also point out that when it comes to NATO, on which there is very little division of opinion—perhaps I could draw the Chancellor's attention to this—our surrender of sovereignty is complete and absolute. NATO says that an attack on one is an attack on all. It does not say, "You must go back to Parliament to get approval." It does not say, "You must have a referendum," or, "You must have a general election." What it says is, "Without question, you go to the defence of the member that is attacked." No one could ask for greater abandonment of sovereignty than that. Why? Because we believe that it is justifiable, in our national interest and in the interest of peace.
As for the single currency, an argument that has not been used today but that I consider important is that no single market in the world has more than one currency. We have heard great support for the single market, and in some ways I agree with what has been said about the United States, which is the world's biggest single market—unless we consider the Union to be a fully developed single market: in any case, the United States is a very big single market, and it has only one currency. It is impossible to imagine the United States with 50 different currencies. We can work out individual aspects, but that is a very important one.
The reason is simple. If members keep their currencies, they cheat. That is what we did when we devalued the pound by 15 per cent: we cheated, and they all believe that we cheated. That is an essential aspect, quite apart from the benefit to industry and to individual citizens.
A factor that should not be overlooked, particularly by members of our party, is that industry believes that it will benefit from a single currency in the Union. It will benefit, and that is why it wants a single currency. As for the question of articles 103 and 104, health and society, and so on, those in industry are clear about the fact that that does not bother them. The Confederation of British Industry has said that, if we return to minimum wages at a reasonable level, the effect on us will be perfectly acceptable. Even the Institute of Directors says that it does not mind. Very well: we cannot ask for more than that from the business point of view. Is it not time that we paid some attention to what industry wants, given that industry is the basis of our own existence? Of course we should do that.
We hear a great deal about the nation state. The fact is that the Union, as it is today and as it has always been, is sui generis: it exists in its own framework. There has never been anything like it before, and it is unlikely that there will be. What we must do is not waste time on arguments about the definition of federalism, and so forth, but ensure that what we as a Union need to operate efficiently is there, in the framework.
What worries me is that in all these debates—today's debate was announced as being of great importance from the point of view of the details of the single currency—there is no positive contribution. If there are problems, and we all know what they are, why can we not make a positive contribution to their solution—Members of Parliament, apart from Ministers and the Government? That, I believe, is the task that we face.
As I have said, we have heard a great deal about the nation state. I have not heard so much about the nation state since I was an undergraduate reading political history. In the past, people talked about the nation state; it is only in the past three years, and only in this country, that there has been so much emphasis on the nation state. The plain fact is that the nation state seeks the highest standard of living for its people. That has been the emphasis here, and we must judge things on the benefits that they bring to the people of our nation state.
My view is quite clear: the greatest possible benefit for the nation state lies in the European Union. That is why we must remain not only members but positive, constructive members of it, which in turn will help the rest of the Union to develop in the way that is most beneficial to its people. That is the task to which we should address ourselves and to which I believe the people of this country want us to devote ourselves.
There are perhaps some people here who think that the election will be settled on the question of Europe. It will not. It will be settled on many other issues—and we know what they are. Let Parliament concentrate on making a success of the European Union to which we belong.
It is always a challenge to follow the right hon. Member for Old Bexley and Sidcup (Sir E. Heath). I must say straight away, however, that although he used phrases such as "sovereignty" and "nation state", the conspicuous absentees were "democracy" and "self-government". What is at stake in our relations with Europe is very much the question of who governs Britain in the future. If that is not of great concern to the right hon. Gentleman, it should be: his failure to take account of that marred his own negotiations and the signing of the treaty of accession in 1973. I should like to spend more time on this matter, but so little is available to us that I turn straight away to what I regard as the major new factor in this debate—the stability pact.
The stability pact was not even mentioned on the Floor of the House until today, or at least until the Chancellor was forced—reluctantly—to make a statement on 23 November, or whenever it was. The stability pact is a major new dimension to the Maastricht treaty. It has three components of which we should be very conscious.
The first is that the norm expected of member states that are party to the single currency is that they should break even on their balance budget account year by year, and the 3 per cent. of gross domestic product figure is the exceptional margin that is to be allowed when things go wrong and when the economy appears to be plunging into recession. That is not exactly what people thought the original Maastricht criterion of 3 per cent. meant.
Secondly, under the stability pact, we are to be subject to fines which could amount to 0.5 per cent. of our gross domestic product every year. That is the formula. In Britain's case, it would be a fine of up to £3,500 million a year—that is what we are exposing ourselves to.
The third and very disagreeable feature of the stability pact is that, although the initial call is to make a deposit with the European central bank, if that deposit is not redeemed after two years it will be turned into a fine.
I find it truly remarkable that, as he told us in the letter he sent to us on 22 November, the Chancellor considers that
the stability pact makes good economic sense".
He went on to say:
we believe that deposits and fines will be useful deterrents against any member of EMU stage 3 who maintains irresponsible fiscal policies".
I intervened on the Chancellor and pointed out that, had the stability pact been in force during the four years that he had held that office, Britain would have had to contribute £11 billion to the European Union. I then asked him—I ask the House again today—whether we really think that he has been wholly irresponsible in his conduct of our affairs during the past four years, or whether we in fact accept that Britain had fallen into serious recession following our unhappy stay in the European exchange rate mechanism from which we broke out—or were driven out—only in September 1992. The economy was deeply depressed and, as my hon. Friends should understand better than the Conservatives, it therefore made sense to have a large borrowing requirement and to increase public expenditure even though it meant incurring that large borrowing requirement.
That is what sensible economic management dictates, and it is something that we as a party should never agree to abandon, in treaty form, to those in Europe who have an entirely different view about what is good economic policy and an entirely different political aim—that of creating, as soon as they can, a federal state or a united states of Europe. Those people do not disguise their intentions; it is only here that we cannot bear to face the reality.
I find it inconceivable that any British Government should have so little self-respect that they feel they have to be bound by treaties that others have written and hand over to unelected authorities in Europe the single most important financial judgment of the year—the Budget judgment on what the balance should be between taxation and expenditure. Are we really saying that, to pick up a phrase used by a Conservative Member some time ago, we are no better than a rate-capped local authority? Do we really think that we do not have the good sense to make the correct economic judgment for our people and our nation year by year?
If we feel that we no longer have the self-confidence or the ability to decide our yearly economic policy or, indeed, our economic policy as a whole, and if we are prepared to hand over control of not only our interest and exchange rates but the Budget judgment—and to do so without argument—what arguments have we against those who would press us at the intergovernmental conference, as they are now doing, into letting them take over our immigration and asylum policies and even our foreign policy? That is what is at stake.
I cannot believe that the House has so little regard for itself and its people that it is prepared to abandon that which the British people achieved for themselves and which has caused us to be the envy of the greater part of the world because we maintained it for so long and despite great difficulties. After all, most of us have lived through a period in which we in Britain were proud of our achievement in creating something like 40 additional nation states by the voluntary withdrawal from empire. Are we now to abandon for ourselves what we so prized for so many other nations and peoples—nations much weaker and smaller than ourselves and with far less experience of self-government? We should reject the stability pact and all that goes with it.
I come now to an entirely lesser matter of helping the Chancellor out of his difficulty. I intervened on him to tell him that he had a way out, if he was not too stubborn to take it. That way out is simple. Our European partners have indeed cheated on the convergence criteria. I mentioned France, but Italy, Spain and Belgium are all involved in open manipulation of and cheating on the so-called convergence criteria. However, something like two of the four convergence criteria have already been abandoned.
One involved being a member of the ERM within the narrow band of 2.5 per cent.—but that whole system has been scrapped, so that criterion can no longer be observed. In addition, is it not clear that, although the 3 per cent. criterion is still being partly adhered to, the 60 per cent. criterion is being abandoned? There is no question of Italy, Belgium, the Netherlands or any of the so-called candidate states—apart from Germany, France and Luxembourg—reducing their ratio of national debt to gross domestic product in the one year that is left. In some countries, the figure is 120 or 130 per cent. We know perfectly well that those countries will not observe the criteria.
The Government could say, "We don't think you are entitled to join. We don't think that it would make a sensible, strong euro." But that will be decided by qualified majority vote, and Britain does not have a veto to prevent any such candidate country—however fudged the criteria may be—from joining the single European currency.
Other than the political restraints within his party, the Chancellor has every reason to say no to Britain joining the European single currency, to say it now and to maintain that opposition throughout the next Parliament. The same applies to my right hon. Friend the Member for Dunfermline, East (Mr. Brown), who knows that there has been no convergence of the real economies.
The right hon. Gentleman always speaks eloquently and in tones of certainty. He speaks now in December 1996 as if he knows what the position will be in December 1997 or the spring of 1998. I think that that is wrong. Next year will be a year of turbulence and uncertainty right across the argument. This year began with doubts about whether the timetable and criteria for economic and monetary union would work. We passed through some months of total confidence, and now doubts are returning.
There are two certainties. First, if the single currency comes about, it will affect us greatly whether we are in or out. Secondly, if it goes ahead, it is in our interests for it to be well constructed and to succeed. It is not in our interests to be surrounded by the chaos and bad-tempered confusion of an abortive currency scheme. That could undermine the single market, which is the greatest achievement of the European Union to date, and is still incomplete.
I have never been an advocate of the single currency. It was planned as the latest in a series of great leaps forward in the integration of Europe. It is a gigantic leap. Currency stability is a sound aim of policy. It is now the fashion to extol wholly floating exchange rates, but retired Ministers do not have to be fashionable. I am sure that Europe needs a system with a bias towards currency stability, but that system should not impel a country to defend a particular exchange rate when economic reality has condemned it. When the memories of the last, partly mismanaged, tightly reined exchange rate mechanism have faded, we shall look again for such a system.
At Maastricht, instead of a flexible system, all those present—except us and the Danes later—plumped for a drastic, inflexible system. That political solution provides that, at a date to be fixed by political decision, every citizen in every high street in Europe, including Germany, France and Britain, will be told that what he or she has in his or her purse is trash. It assumes that, despite most of the present evidence, the economies of the nation states will converge and, more difficult to achieve, will stay converged. No one proposes what so alarmed my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). No one would tolerate the huge increases in the European budget that might be necessary to keep convergence in place.
The single currency is a drastic proposal. It is right that if the British Government in the next Parliament—or at any time—decided that it was in the national interest for us to join, there should be a referendum. I am glad that the Government finally decided that they would hold a referendum, and that slowly and in a bedraggled way the Labour party has also taken that view.
One cannot be certain about where the national interest lies. Probably—not certainly—the euro will go ahead. No one can tell what its impact would be on our prosperity if others went ahead and we stayed out. I do not know of a single British institution that is not divided on that issue. Industry is divided, the City is divided, the Trades Union Congress is divided, the Labour party is divided and, occasionally, if I am right, even the Conservative party is divided on that issue.
Many people speculate, but the truth is that we do not know whether our economy and our prosperity would begin to lose blood. We do not know whether we would begin to lose investment, jobs and national prosperity. If there were such a haemorrhage, we do not know how great it would be, or whether it would be great enough to counterbalance the political arguments against a single currency, which are strongly felt, not just in parts of my party.
It would be rash, therefore, for people to say at the coming general election that, without any qualification, come wind come weather, they would never support the entry of this country into a single currency. I strongly support the line that was taken by the Cabinet this spring and reaffirmed by senior Ministers in the past few days.
As my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) said, we must consider this matter against the background of the part we play in Europe. It was disappointing that the right hon. Member for Dunfermline, East (Mr. Brown) did not attempt to do that. It is difficult to do so, partly because of the lamentable state of reporting of these matters in our press. Politicians are scared of attacking the press, but again ex-Ministers do not have a great deal to lose. In my experience, it is not possible to read in any of our broadsheet newspapers—except one—anything like a full, plain, factual account of what happened yesterday, whether in Paris, Bonn or Brussels. There is plenty of opinion and gossip, and there are some fine columnists, but factual reporting is thin and trivial.
I shall give one example of that—I could give many. It is difficult to find in our press reports on the liberalisation process within the single market. The Commission and the European Court are our allies in that liberalisation, however imperfect it may be. The prising open of telecommunications, aviation, electricity and, I hope, gas is a huge advantage to British enterprises that are already liberalised. British Airways is a classic example. It is subtly and energetically using the prising open of the continental market achieved by the Commission and the court, and it is seizing every opportunity to pounce and to move in. It is not put off by the caricature of Europe, which supposes that we will always be isolated and defeated.
I have always been against pushing the process of integration to a fully integrated united states of Europe. Many hon. Members and I have seen the reef—a barrier of rocks under the water. That barrier reef is the loyalty that most people—not just in Britain—bear to their nation and its ways. It is not true that we are alone. What defeats me so often in these arguments is the wrong assumption that we are alone and isolated in our feelings. That barrier reef exists in France, Germany and in all the Scandinavian states.
I would be delighted if I were told tomorrow that all the leaders of Europe were aware of that reef and were determined to avoid it, and that their main concern was to carry through what we have already undertaken but not completed: liberalisation in the single market, the enlargement of our Union to the east and co-operation on foreign policy so that we can be valid partners of the United States on important issues.
The priority for Europe should be to make a success of the present before launching further into the future. The arguments that Ministers have made over and again—particularly in the White Paper this year—are valid. They are weakened, perhaps crippled, by the trivial, distorted nature of much of the debate in Britain. My right hon. Friend the Member for Old Bexley and Sidcup is right. We are trying to achieve something that is new in history. The United States and Germany are not the models. We are trying to reconcile the identity of European nations with their working together far more effectively than ever before—the ever closer union not of states but of peoples. I believe that that is what most people in the House and in Britain want, and the main danger to realising that is that we shall be defeated by our own defeatism.
The debate has been characterised by a great deal of uncertainty and division across the parties, certainly the two larger parties, and in the country. That lack of purpose is a matter of concern. At least the Liberal Democrats have a clear position on a single currency. We believe that a well-formed single currency would be in Britain's national interest. It would help us to cut interest rates and transaction costs and it would help our trade.
The Chancellor gave a robust explanation of what he believed the potential advantages would be, and we concur with that point of view. To some extent, the current level of interest rates across Europe confirms that view. We have the highest long-term interest rates in Europe, with the exception of Greece. Even Italy, Spain and Portugal have lower interest rates than Britain.
That is partly a sign of the failure of the Government's economic policy, but it is also a sign that long-term investors in the United Kingdom do not believe that we shall pursue the stable, consistent economic policies to which those most committed to monetary union have declared themselves committed. It makes a fundamental difference.
Those who make passionate statements about what they are against in the frame of monetary union have some obligation to explain how they believe that Britain will operate differently outside and what the benefits would be. Mostly, they articulate the negative rather than the positive view of being outside.
No. I do not have much time and I do not wish to detain the House.
The arguments for and against monetary union, where they are genuine as opposed to rooted in a totally rigid preconceived position, are well known. Therefore, I shall concentrate on the three current most topical issues—the convergence criteria, whether they could be fudged and what that would mean, the stability pact and monetary policy.
The convergence criteria have been well discussed and argued as being good housekeeping agreements by those who seek to prepare themselves for monetary union, which needs to be followed with a degree of firmness and genuine commitment. At the moment, one of the arguments in the Conservative party, which may be designed to lighten the divisions, is that the convergence criteria might be fudged. Those on the extreme anti-monetary union wing of the Conservative party say that they definitely are being fudged and that that is their rationale for suggesting today that we should declare that we want no part of it. Those on the other side may be grasping at the idea that the possibility that they might be fudged is some kind of argument for leaving the option a little blurred.
The reality is—I challenged the Chancellor and he gave me a fairly straight answer—that if the convergence criteria are to be strictly applied, and Germany for one is saying that they must be, and if the United Kingdom were to meet those convergence criteria, which is by no means as certain as some hon. Members suggest, the benefits to Britain in being a founder member of the euro zone far outweigh the disadvantages. It would be a unique opportunity for the United Kingdom to be in on the ground floor of a European enterprise for the first time rather than to be dragged in struggling, kicking and screaming at a later date. That is extremely important.
The Government's position is not quite clear. The position that the Chancellor articulated was that there are real advantages and if those two criteria were met, he was clear that he could argue that it would be in the British national interest to be a member. It is not at all clear whether he has the Cabinet behind him on that.
We are entitled to know the circumstances in which the Government would exercise their opt-out to opt in. The paralysis of the Conservative party and the Government stems from the fact that they are so internally divided that no one but the Chancellor seems capable of expressing a view on that. That is greatly to the weakness of Britain's negotiating and bargaining position. That is at the heart of why the Prime Minister was forced to admit in his interview on Sunday that the divisions within his party were damaging the British national interest and weakening our negotiating position before monetary union. Therefore, I do not believe that opting out, as some member states want, would benefit the Conservative party. Failing to explain the circumstances in which it will opt in is serving neither its interests nor the national interest.
There is no doubt that none of us believes that a monetary union that goes ahead on the basis of blatantly fudged criteria is likely to be sustainable. In a sense, the trumpeting of the merits of the opt-out is slightly overblown in that there is no real suggestion that any member state would be forced unwillingly into monetary union if it were deemed that in so doing it was being asked to accept criteria which other member states knew had been severely fudged—no one favours that—but if they are sustained and we qualify, we should join.
Because the convergence criteria are so important to the determination of who is eligible and whether monetary union is likely to be sustainable, it is inevitable that there should be discussion of a stability pact. The right hon. Member for Bethnal Green and Stepney (Mr. Shore) is right on that count. Simply to determine on an instant in time that a number of member states have achieved an agreed set of criteria which makes them eligible to join monetary union and for that union to go ahead should not be the end of the matter. The conditions under which new members should join as monetary union grows then have to be determined, and those members within monetary union should determine their relationships with each other. That is perfectly rational and some of the more extreme elements of the Conservative party are simply wrapped up in a lather of phobia about this, without recognising that there have to be agreed principles in order for there to be business-like arrangements. Therefore, there needs to be a stability pact and it needs to be firm, not blurred at the edges.
There should also be some discretion within that pact. Its purpose is to stop nations backsliding into bad old ways. If they do not have the option of competitive devaluation, about which some Conservative Members seem so enthusiastic, they must clearly operate on other criteria and the level of borrowing is a significant factor.
Why should those countries which, for example, have qualified well under the GDP-debt criteria of 60 per cent., be constrained to the same degree as those which have qualified above those criteria but are moving down sharply? It is reasonable that the stability pact should differentiate between countries that have got their GDP-debt ratio down much further than others at the time of membership. The treaty is clear that 60 per cent. was never an absolute criterion, but an objective to which all applicants should aspire and be moving rapidly towards. In those circumstances, it might be possible to say that a country that had got its GDP-debt ratio down to 50 per cent. might, if it so required and if it were agreed by the other members, run a budget deficit of, say, 4 per cent. and not be strictly tied to a 3 per cent. deficit.
Within that context, there has been discussion of the role of monetary policy. It is unsustainable to suggest that the creation of a single currency unit automatically leads to the abolition of sovereignty. It is a pooling of sovereignty. It is an agreement to share certain decisions in common, in particular the setting of interest rates. It is an interesting comment on the British style of economic management, as contrasted with the continental style, that politicians of both Labour and Tory persuasion seem anxious that they should have the opportunity to interfere in the short-term strategy of interest rate setting, even though the record shows that such interference nearly always damages the long-term interest of sustained recovery and growth. The short-term intervention of successive Chancellors, Labour and Conservative, has created the UK's boom-bust climate. The absence of that facility has contributed significantly to the much more constant and sustainable growth that, for example, Germany has achieved.
Having said that, I believe that whether Britain opts in or out, we should be considering moving the central bank from its position of current transparency to genuine operational independence. That needs to be done whether or not Britain joins in the first wave of monetary union.
Even if we decided to stay out in the first wave, we would presumably continue to monitor our position and, effectively, remain an applicant. Sooner or later, we would by treaty be obliged to create an independent central bank, but in any case the markets would be highly suspicious of an economy that had qualified for monetary union and then refused to join it.
Therefore, it would be highly desirable for us to give a clear signal to the markets that we are not going to take advantage of the position in an irresponsible way and that, as a measure of our good faith, we are going to make our central bank independent. I suggest to Front-Bench teams that it would be extremely beneficial if both could pledge to the House today—although, disappointingly, I do not expect them to do so—that the operational independence of our central bank will be in the next Queen's Speech, whoever wins the election.
The Chancellor made a good case for keeping Britain's option open on monetary union, but unfortunately he made it—this was apparent from the Opposition Benches—against the background of a party that has already closed its mind. He remains clearly of the view that monetary union might be in Britain's interest. He can envisage circumstances where signing up in the first tranche would be in Britain's interests, but many in his party have decided, not because they think that it is in Britain's interests, but because they think it is in their party's interests, to close that option and to leave the Government effectively defenceless in the negotiations.
The sceptical members of the Conservative party are trying to put a fudge on a fudge. The whole point about the opt-out was that it was a fudge to try to placate the Euro-sceptics in the Conservative party. The problem with the Euro-sceptics is that the more the Government give them, the more they want. It is absolutely clear that the opt-out is not good enough. They want it to be exercised now and in so doing they want the national interest to be thrown to the winds.
As the right hon. Member for Witney (Mr. Hurd) made absolutely clear, it is not possible to determine now exactly who will qualify, on what terms, whether it will be viable and whether it will be in the British national interest to join. What is clear is that there is a political determination among the main players in Europe to be part of monetary union. Britain must think carefully about the extent to which our national interest would be well served by qualifying, by seeing others qualify and then by exercising our option not to be part of that monetary union. That would be a betrayal of Britain's economic interests. It would be a lack of vision and a narrowness of appreciation of the fact that Britain's future is bound up in Europe whether we are in or out. Being in gives us a hell of a lot more influence than being out ever will.
Since the Maastricht treaty was agreed four years ago, the House has had many opportunities to debate monetary union and the question will not go away, although I am sure that the Government wish that it would. European politicians have performed their primitive rain dance and, contrary to the predictions, the first few drops of rain are beginning to appear.
The Government have had four years to develop their position, years that saw the Danish referendum and the tortured passage of the Maastricht Bill through the House. Our economic performance conclusively demonstrates that Britain can prosper without an exchange rate link to Europe. All that might have been a reason for the Government to have moved confidently towards saying no to monetary union.
The Government risk being left powerless to lead the debate on Europe at the general election. In contrast with the Labour party, they say that they are against political integration. It is not entirely credible for them to be opposed to making Britain part of a federal Europe and at the same time to be neutral on the most important move to a federal Europe ever proposed.
I understand the Prime Minister's predicament, but in Britain there is a legacy of distrust and a sense of betrayal over Europe. I welcome the fact that the Prime Minister said at the weekend not only that the convergence criteria should not be fudged, but that convergence must be lasting. As lasting convergence cannot be demonstrated in advance and as, in fact, it will not be achieved, I took that as a signal that the Prime Minister is moving towards saying no to a single currency, and so he should.
As my right hon. Friend the Member for Witney (Mr. Hurd) said, Europe is taking a monstrous gamble—a huge unprecedented risk. The convergence criteria are really financial criteria designed to stop Germany, having to be responsible for Italy's debts. The criteria do not tell us anything about real economic convergence.
The conditions for a single currency in Europe simply do not exist. A natural currency zone—normally a country—has to be both a single and a flexible labour market. Europe's labour market is neither single nor flexible. The most important barriers in Europe's labour market involve the fact that Europe consists of different countries. Someone who has been made unemployed in Motherwell going to Brescia or to Germany to find a job is a completely different matter from someone who has been made redundant in New Jersey going west to find work elsewhere in his country.
The labour markets in individual countries in Europe are notoriously inflexible. I think of the non-portability of pensions, job protection regulations and social security entitlements. Everything that Europe does makes that worse and a single currency would make it worse still.
With monetary union, there will be one interest rate for the whole of Europe. Surely the lesson of our experience in the exchange rate mechanism was that it is difficult to set a single interest rate for a whole continent, with different economic conditions in different parts.
The Government say that they will not make up their mind until the last moment because they want greater influence. It is a curious logic to think that other countries will be remotely influenced by a country that cannot persuade itself what it wants to do. The trouble with a wait-and-see policy is that it assumes that there is no fundamental issue of principle involved in monetary union, but a profound principle is involved: can a country continue to be independent and self-governing within monetary union?
The Chancellor of the Exchequer thinks that no such dilemma exists, but the Prime Minister recognised it when he said that the possibility of a single currency was
the greatest constitutional question to face this country this century".
I quoted to the Chancellor what the president of the Bundesbank and another of its members have said. European politicians are completely open in arguing for monetary union on the ground that it will lead to political union. Not so long ago, I took part in a public debate in Switzerland with Karl Lamers, a European spokesman in the Bundestag and a close friend of Chancellor Kohl. I stated my opposition to monetary union on the ground that it would lead to political union. When Mr. Lamers began his speech, he said, "I am not sure that there is anything to discuss. Of course Mr. Lamont is right. That is why we Germans want monetary union." Whether the Chancellor of the Exchequer recognises it or not, that is what is felt by many continental politicians.
Part of the debate has been about the stability pact. Some of my hon. Friends worry that it will not be enforced and others worry that it will. They are all right. It will be a disaster if it is enforced and it will be a disaster if it is not.
The risks of being in the single currency are far greater than the risks of being out. Britain has nothing whatever to fear from being out. The City of London already trades more deutschmarks than are traded in Frankfurt. There is no reason why, outside the single currency, London should not be the centre of trading in euros.
Increasingly, the only argument for the single currency—it resembles one argument for the EU that is increasingly advanced in desperation—is the feeble one that if we are not part of it, others will discriminate against us. The very same people who tell us that Europe is liberal, outward looking and free trading hint darkly that if we do not go along with its plans, Europe will find a way around GATT and the treaty of Rome to make life difficult for us. That is an argument not for being at the heart of Europe but for having nothing to do with the single currency.
Far from being afraid, Britain should welcome the opportunity to go it alone in monetary affairs and to set an example of what can be achieved with an independent Bank of England and a competitive, deregulated economy, especially to create jobs for the unemployed.
The Europeans support monetary union on the basis of politics, not economic analysis. The mystery is why European politicians are so obsessed with political union.
In his recent Harold Wincott memorial lecture, the Spanish economist Dr. Pedro Schwartz said that he sometimes thought that the Common Market had not been
founded in Rome but in Vienna, on Dr. Freud's couch".
He said that the Germans wanted the Union to stop them falling into Nazi ways; the French wanted to be cured of an inferiority complex; the Italians wanted to become a nation; the Spaniards wanted to bury Franco; the Portuguese wanted to be French; and the Greeks did not want to be Turks.
The trouble is that it is not just the Europeans who have their neuroses; we British have them too. We have been bullied into believing that we can prosper only through Europe. We are told that millions of jobs depend on the European Union. Millions of jobs may depend on European consumers and markets, but no business actually sells to an organisation called the European Union. The Swiss, the Norwegians, the Japanese and the Americans have all increased their exports into the European Union just as quickly as we have.
There is no reason why Britain should not prosper outside a single currency or in a semi-detached relationship with Europe. Our prosperity depends on the efforts of our people and our Government. We should not just be trying to halt the drift towards a European state; we should be trying to reverse it. It is not sufficient just to say no to more powers for the European Parliament and the European Commission. We should be repatriating powers to national Governments.
The British Government say that they want a Europe of nation states, but is Europe really interested in being a Europe of nation states? A Europe of nation states would not seek to weaken our anti-terrorist laws. It would not promote anti-smoking campaigns nor would it have 100 embassies around the world. Should we be surprised by that? Chancellor Kohl has told us that the day of the nation state has passed and nation states cannot solve the problems of the next century.
We are not winning the argument in Europe. There is a fundamental, irreconcilable difference between what we want from Europe and what the Europeans want from Europe and one day that clash will have to be faced and choices made.
I congratulate both my right hon. Friend the Member for Dunfermline, East (Mr. Brown) on his speech and the Chancellor, who gave us a fine exposition of the pros and cons of the single currency.
Like my right hon. Friend the Leader of the Opposition, I congratulate the Prime Minister on his "On the Record" interview on Sunday. Although I considered him far too negative about the British negotiating stance at the intergovernmental conference and about the prospects for the intergovernmental conference, I agreed with what he said about the importance of British membership of the European Union and the need for Britain to keep open the option of joining the single currency.
Indeed, it is a pity that the Prime Minister has not given a few more interviews such as that one and made a few more speeches in the same spirit. Had he done so, the Tory party might not be in such deep trouble about European issues. The problem is that the so-called Euro-sceptics who are scheming away on the Conservative Back Benches think that they can push the Prime Minister around and make him change his political position. That is what the article in last Monday's The Daily Telegraph was all about. No doubt in the new year they will make another attempt to change the policy. That is bad news for Britain.
I should like to warn the House against the unholy alliance of Europhobic ideologues—we have just heard from one of them—blatantly biased newspaper editors and owners—I do not see any of them in the Press Gallery, but it is typical that they do not want to listen to the debate—and ambitious Conservative politicians who seek not only to capture the Tory party, but to subvert the national interest.
Let us make no mistake about it, for all their occasionally comic aspects, the so-called Euro-sceptics are dangerous people. The term Euro-sceptic is a total misnomer. If they were truly Euro-sceptics, they would approach the IGC pragmatically and want to keep open the option of joining the single currency—as poll after poll shows the majority of people do. If they were truly Euro-sceptics, they would be in favour of compromise and of a constructive relationship with our European partners.
The only genuine Euro-sceptic speech was made by the right hon. Member for Witney (Mr. Hurd), the former Foreign Secretary. He is a Euro-sceptic; the rest are Europhobes. They hate the European Union and all its works. They distrust anything from Brussels and they blame Brussels for almost anything that happens here. In their heart of hearts, many of them still believe that, far from being good democrats, the Germans still wear jackboots. We hear that occasionally from the hon. Member for East Lindsey (Sir P. Tapsell), who once talked about Panzer divisions. That is quite disgraceful.
Unfortunately, those people are uncritically backed by the Murdoch and Black press. Those powerful combines should declare their interest. One would never know from reading The Sun or The Times that they were owned by an Australian American who has a commercial interest in keeping nations weak and unco-operative. That is the reality that we never hear. One has to ask how credible the Canadian-owned newspaper, The Daily Telegraph, is as a judge of the British interest.
Those newspapers consistently pump out anti-European propaganda. They are a disgrace to the British press. They suppress any debate about the European Union. One has only to ask pro-European Conservative Members how easy it is to get articles or their letters into The Times or The Daily Telegraph. It is almost impossible. I was amazed that The Times actually accepted an advertisement from the European Movement, signed by hon. Members on both sides of the House. I hope that that was a turn for the better. Journalists and editors who work for those newspapers should start to examine their conscience and what they are doing for a free press in Britain. Above all, we should be aware of the motives of the leaders of the anti-European faction in the Conservative party.
Of course, there are genuine anti-Europeans, such as the hon. Member for Southend, East (Sir T. Taylor) and my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), who have always been against the European Union; there are genuine sceptics, such as my pair, the right hon. Member for North Shropshire (Mr. Biffen); and there are the genuine resigners on principle, such as the right hon. Member for Wells (Mr. Heathcoat-Amory), whom I respect for it; but I must query the credentials of hon. Members such as the right hon. Member for Wokingham (Mr. Redwood). One would never guess from listening to him—and we do so quite a lot—that he headed Mrs. Thatcher's policy unit at the time of the signing of the Single European Act, which not only introduced the single market but greatly increased and strengthened qualified majority voting. One would never guess from his present stance that he was in the Government who took the Maastricht treaty through the House.
One would never guess from listening to the right hon. Member for Kingston upon Thames (Mr. Lamont) that he was at Maastricht negotiating the opt-out. If all is as he has said, why did he not resign from the Government or insist on Britain using its veto? That is the logic of his position. He tells us now how terrible everything is, but I listened to his speeches and he was not saying that at the time. We should examine the records of such right hon. Members, and they should examine their conscience and what they are saying now.
I have a message for my own party. Labour Front Benchers are absolutely right—I congratulate my party on it—to stick to the policy of keeping the option open of joining the single currency in the first wave, if we think that it is right to do so. We are also right to say that a deal is waiting to be struck at the IGC. It is not a difficult deal to make, but it will very much be in Britain's national interest. The Conservative party cannot make a deal because it is so hampered by the Euro-sceptics on its Back Benches.
Contrary to press reports and what has been suggested in the debate, my party is overwhelmingly united behind the party policy that was agreed at conference and, as my right hon. Friend the Member for Dunfermline, East said, in a ballot of all members. Our supporters will be strengthened by representation in the House after the next election because the young candidates are all pro-European. I regret to say from a personal point of view that some older anti-European Members will leave.
I believe that European policies need to be carried through the House on a cross-party basis. One of the Prime Minister's biggest mistakes has been to rely solely on the Conservative majority. That majority has been threatened by the Euro-sceptics and has now disappeared. There is a European majority in the House; in the right circumstances, there will be a majority in favour of a single currency. There is certainly a majority in favour of a positive European approach, although we never hear it fully, because it is suppressed and subverted by the Euro-sceptics, who do not speak for the majority of the House or—I believe—for the majority of the country.
The prototype for the approach that we should be taking is represented by the all-party European Movement, of which I am fortunate to be the chairman. A number of other hon. Members are also officers of it. We placed an advertisement in The Times—the hon. Member for Gillingham (Mr. Couchman), who is in his place, signed it—which described what I believe is a prototype. If I have a single message to send to my party, it is this: if we are to be successful when we are in government after the next election in promoting the British interest in the European Union, we need to mobilise the widest possible cross-party alliance for our European policies.
I do not share the terrors of the objectives of the stability pact that the right hon. Member for Bethnal Green and Stepney (Mr. Shore) expressed in his passionate and eloquent speech, because I have always believed that rigid monetary and fiscal discipline is the key to prosperity, growth and jobs. We are benefiting today in this country from that austere approach. That is what I have always argued—except perhaps during a flirtation with Keynes in my student days.
I have never believed that competitive devaluation is the easy way out. Oddly, it might have worked—although I do not think that we yet have the full story—when we were most recently bounced out of the exchange rate mechanism, but I do not believe that it worked very successfully throughout the post-war period. It was a desperate remedy to try to compensate for a basic lack of enterprise and firm government by successive Governments, especially the disastrous post-war Labour Government, who got us off to such a bad start after the second world war, from which it has taken us 50 years to recover.
It seems like only yesterday when some of my right hon. and hon. Friends agreed with me that the key was monetary and fiscal austerity and discipline, yet suddenly, they are implying that the disciplines that would be imposed by the Maastricht convergence criteria—which are very disciplined—are undesirable and not the key to economic equilibrium and growth. I am not quite sure why they have undergone that U-turn, given that they believed so strongly—as I do—that the key to good economic policy was monetary and fiscal discipline and encouraging enterprise as much as possible.
I should like to make three assumptions that are almost predictions. First, the euro project will take place. A group of countries, probably including France, will pass the selection criteria in 1998 and get going on 1 January 1999. In July 1999, about six months later—this is the latest version of a little bit of fudge—Italy, Spain, Portugal and possibly Sweden will enter the single currency as well. We must start from that fact—amidst all the adversarial comment, this debate has struck some constructive notes—and ask ourselves how we shall address it.
Secondly, I do not believe that we should be in the first wave. I do not think that we shall be, although Labour Members might deny that. I do not envisage this country joining that first wave in January 1999 in whatever form it takes, although there will certainly be such a wave on that date.
Thirdly, it seems that the choice is really between a weak euro and a very weak euro. The latter is a danger to us all. The prospect of monetary chaos, which would spread far outside those in the inner core and members of the single market such as ourselves to world financial markets, is extremely worrying. It is not at all in our interest to stand back and see that develop.
Although I may not agree with all his nuances, I share the view of my right hon. and learned Friend the Chancellor—he expressed it clearly—that we must play a strong role in the monetary situation regardless of whether we are in or out. Incidentally, I found some of the barracking and baying behind him during his speech, as opposed to the honest interruptions, rather repulsive. I personally believe that we can probably play a stronger role from outside than we could by opting in, but a strong role we must play. The idea that one can stand back, that somehow an independent sterling policy can be operated and that sterling will not be implicated in what others are up to, whether in the stability pact or under other arrangements, is nearing the land of the cloud cuckoo.
There is no possibility of our not being implicated through the exercise of international capital markets in what happens to the euro. As I said, not only will it be extremely bad for us if a very weak euro tries to take off and comes crashing down, but international capital markets will be watching even if it is less unsuccessful. They will consider the pound, and while Members of Parliament think that it is wonderful that we are not bound by the stability pact and are somehow free, there will still be rebukes issued under the surveillance system and the monitoring. Those rebukes will be noted by international capital markets and punishment will be visited on any currency, including sterling, if it has diverted from what are called the convergence criteria but are actually the criteria of sensible, orthodox monetary and fiscal behaviour. Those rebukes will be swift and just as painful as any sanctions and punishments.
The idea that we could stand outside is like our dear old friends in the Lambeth Labour party making the borough a nuclear-free zone, as if when the holocaust came, it would not hurt them. Likewise, when my right hon. and hon. Friends seek to have written on the face of the treaty some protection, it is equivalent to asking that when the rain rains on everybody else, it does not rain on them.
We have to face the detailed involvement into which we have already been sucked. That may be a matter for regret and it could be argued that treaties should not have been signed and that mistakes have been made, but we are involved and we must address the policy needed to pursue our national interest in that entirely new context. That is why I support the German attempts to have a strong stability pact—we should support them from outside—and why I believe that we can, by staying out, play a strong and leading role with those inside. My right hon. Friend the Member for Witney (Mr. Hurd) wisely warned us—some people are living in a world of illusion—that we shall shortly have to face the question of our relationship with that pact. Will the pact be an exchange rate mechanism mark 2—the very words cause apoplexy in some of my right hon. Friends—or will we take a lead in some other type of more flexible central rate shadowing without intervention, of the kind that is being discussed especially in the Bundesbank?
All I ask my right hon. and hon. Friends to do is not to live in the world of illusion where they think that there are copper-bottomed guarantees that we can stay clear—there are not—or where they demand that protection is written into the treaty, because it will not be. We shall be deeply involved and we must have a firm policy for our currency to ensure, first, that we play a good role in Europe and see that chaos is prevented from coming to a disintegrating Europe—and that has always been one of the dangers of the single currency project, which I oppose—and, secondly, that we promote our interests and keep control of our internal domestic affairs, which could be bitterly and directly affected by currency chaos.
The policy of waiting and seeing should include a strong wait and a strong see. We are right to stand back from this dangerous project. I see great dangers ahead, but we, as a leading European power, need to play a responsible, constructive and positive role in facing the situation.
During the period in which the right hon. Member for Guildford (Mr. Howell) was flirting with Keynes—to borrow his picturesque language—I was the lowly parliamentary private secretary to the Leader of the House, Richard Crossman, who was sent some 30-odd years ago to find George Brown on the night of the gold crisis. My right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) will recollect that that was vividly recalled in Mr. Crossman's diaries. Such an experience makes me into one of those, tagged by the Chancellor of the Exchequer this afternoon, who would have us sign up to EMU this proverbial weekend. No wait, no see. We should take the plunge and get on with it.
In that view, I am sustained by the trade unions. The right hon. Member for Witney (Mr. Hurd), the former Foreign Secretary, was wrong, because the Trades Union Congress statement has gone unchallenged. I am also sustained by employers who operate from Scotland, not on a British basis but on a European basis. Part of the reason why I speak as I do is that every week I travel by the Edinburgh-London shuttle and I sit next to people who are going to Brussels, Dusseldorf, Milan and Frankfurt to do their business in a wider context. Those people influence me greatly. I am also influenced greatly by my excellent local Member of the European Parliament, David Martin, who has done a study in depth of the issue.
The problem is that we are not operating in a vacuum. If we were to start from scratch, there would be arguments on both sides, but the fact is that EMU will go ahead if Germany is willing and France is able—and that seems increasingly likely. In 1999, 12 or more member states, including Ireland, could join the first wave of EMU, because the convergence criteria are not as rigid as they appear. There is no binding rule that countries must have a maximum of 3 per cent. deficit and a debt ratio of 60 per cent. Those are reference values inserted into a protocol and not the main text of the treaty. There are a number of loopholes. If countries are reducing debt or deficit, they do not have to reach the magic figures. If Governments are investing rather than spending, that allows further leeway. The Commission is also required to take account of other relevant factors, including the medium-term economic and budgetary position of member states.
I believe that economic and monetary union could be balanced by an employment union. The Swedish Government, backed by Labour in Europe, argue that the intergovernmental conference should add an employment chapter to the new treaty. That would commit the Union, first, to enable all men and women to attain a secure livelihood through freely chosen productive employment; secondly, to do something about long-term unemployment and social exclusion; thirdly, to ensure that demand grows at an adequate rate to ensure sustainable growth; and fourthly, to promote flexibility by providing workers and job seekers with the skills to adapt to a constantly changing economy. For any Labour Member of Parliament, those are extremely important ends. The TUC argues that if EMU goes ahead, it will have a fundamental effect on the UK economy, whether we are in or out. We should therefore be in the first wave and helping to write the rules to ensure employment and prosperity for all Europe's people and for future development.
The real question for Britain is not whether a single currency is good or bad, but rather whether we can afford to stay out when other leading European Union countries go ahead. What we need is a genuine and sustainable convergence. I shall also be blunt. I would be relaxed—but some of my colleagues would not—about the condition for an independent Bank of England. I do not see that as a bogey or as an impediment to a Labour Government. The sooner we get ahead with a single currency and make up our mind that we shall be in it and enthusiastic about it, the better.
I also wish to congratulate my right hon. and learned Friend the Chancellor of the Exchequer on his robust speech this afternoon, which went into the details of the advantages and real disadvantages of joining economic and monetary union.
I am one of those who feel that it would, at this early stage, be totally crazy to throw away our option to participate in forming the terms of economic and monetary union, whether or not we join. In saying that, I wish to point out to Opposition Members, who seem to think that there are no interested, positive Europeans on the Conservative Benches, that I am the fourth Back Bencher now to speak along those lines. We are not all Sir Buftons who have been wheeled out to make those comments: we do so because we believe in them solemnly. I believe that a large majority of the Conservative party also believes in them, although among the exceptions is my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont)—an old friend of mine, who is unfortunately absent from his place—who takes a different view. I think that he is wrong, and that he is in the minority. The other Conservative Back Benchers who have spoken so far represent the sensible, positive majority.
I have no time to give way.
Like my right hon. Friend the Member for Witney (Mr. Hurd), I have concerns about the single currency, but I feel strongly about the subject because I look back in history. I remember well that, twice at the beginning of my political life, under Macmillan, we made approaches to join the single market, some seven or eight years after it had been founded, and we were rejected by de Gaulle.
In consequence, by the time we joined in 1972, many of the rules had already been decided, including those of the common agricultural policy. We have been arguing and fighting against those rules that were decided before we joined, and paying for them ever since. That is precisely what we do not want to happen on this new, extremely important occasion.
My right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) suggested that it would be good if some of us came forward with one or two positive ideas in the debate, apart from the grand scale of ideas. Yesterday, the Bank of England published a little book called, "Introduction of the Euro—What does it mean for business?" It was produced for the joint Confederation of British Industry and the British Chambers of Commerce workshops on EMU this month. I heartily recommend it to anyone who has not yet read it.
Given that there is likely to be a referendum on the subject at some point after the next general election, it would be sensible of the Treasury to ask the Bank of England to produce a booklet spelling out fairly the advantages and disadvantages of EMU, to be distributed to every household in the country before the next election. Only the Bank of England can do that, because it is not politically driven.
Our constituents need to know the facts. Of course, a large amount of hypothesis is still involved, because we do not know what will happen after 1999, but they should have an objective summary of the current situation produced by a respected body such as the Bank of England. I hope that my right hon. Friend the Chief Secretary, who is on the Front Bench at the moment, will take note of that and pursue the idea.
My right hon. Friend the Member for Guildford (Mr. Howell), for whose financial knowledge I have a great deal of respect, hinted that he did not think that we could join in the first wave. If we do not, there can be no certainty that we could join in the second wave after 2002. We cannot take that for granted, for the simple reason that, if we met the criteria, our application would have to be decided by qualified majority voting at ECOFIN, and there would have to be unanimity on the rate of conversion between sterling and the euro.
Despite the remarks of my right hon. Friend the Member for Kingston upon Thames, it is possible that, by that stage, the Korean and Japanese companies that are currently investing heavily in this country—the House should remember that, in recent months, Korean and Japanese investment in our manufacturing industry has run at a staggering $1 billion a month and in some months has reached £1 billion a month—might decide that, with us out of EMU but EMU working on the continent, they should put their new plant in Leipzig, Marseilles or Barcelona rather than here.
It would be perfectly understandable if some of the countries in EMU decided that it was going along very well without us and that that would be a real reason for trying to keep the British and other countries out, just as de Gaulle did in the 1960s. We cannot take for granted our ability to get in on the second wave.
That leads on to the question whether we can have a truly effective single market—we all agree that that is necessary—without a single currency throughout that single market. We are understandably pleased with the results of the devaluation of sterling a few years ago, just as the Italians are pleased with the results of the devaluation of the lira. It has had a huge improving effect on our trade figures. The converse of that is the chagrin of the French and Germans, who do not want it to happen again, because it had a bad effect on their trade figures. It is possible to argue that every member of a true single market must be within a single currency to stop competitive devaluations that fundamentally change the terms of trade.
One does not like to say it too publicly, but the unpleasant obverse of the coin is that, whatever the formal rules, members of EMU are likely in the long run to bend the practice and observation of the rules of the single market to the disadvantage of those members of the European Union that are not in EMU. That point was made by Sir lain Valiance, the chairman of British Telecom, in the recent publication of the Philip Morris Institute, "Is the Single Market working?" He said:
Some form of supranational monetary discipline may be necessary to realise the full benefits of the single market.
I do not think that the European Union is at a critical stage. Progress on EMU and enlargement will be made in future, but it will be slow and tricky, and there will be quite a few changes of course. Sometimes, the only ones who seem to be in a crisis on the issue are us—the Members of Parliament at Westminster—aided and abetted by a generally anti-European press.
I noted the comments of the hon. Member for North Durham (Mr. Radice). I end by quoting the conclusion of an article that appeared in The Daily Telegraph today—a sometimes anti-European paper:
At Maastricht, John Major gained an invaluable breathing space that enables us to take part in the formation of EMU without yet deciding whether we wish to join, a negotiating position that we painfully lacked with the CAP. What we must do is use that advantage to the full. We owe it to the electorate.
It is pure chance that the author of that article is me.
I thought for a fleeting moment during the debate that we had all become Euro-sceptics on the single currency—the right hon. Member for Witney (Mr. Hurd) did not know whether we should join; the Chancellor of the Exchequer did not know whether we should join; the shadow Chancellor did not know whether we should join. For a moment, I thought that perhaps we were winning the argument. Then I listened to the reasonable and rational tones of the right hon. Member for Mid-Sussex (Mr. Renton) and the uncharacteristically strident tones of my hon. Friend the Member for North Durham (Mr. Radice).
I came back to earth and realised that the Euro-coalition in the House was alive and strong. [HON. MEMBERS: "Hear, hear."] We all know what will happen after the next election: whichever party wins—I expect it to be the Labour party—the Euro-coalition in the House will use every hook and crook, every stratagem and every fear to try to get Britain over the top and into the single currency in the first wave. I have participated in debates in the House on this subject since 1972. I hear the noises of assent all round me as the Euro-coalition bellows from time to time. They are feeling a little confident this evening.
Because there is an election coming, the Government are peddling the line—especially on the so-called stability pact and the convergence criteria—that we cannot rule out the single currency because we, the Brits, have to be in there negotiating in Brussels or Dublin, or wherever it might be. We cannot really trust those foreigners, say the Government, because, if we are not there, those continentals will fudge the single currency. The Chancellor did not say that so much today, but that was his escape route when he made his statement of 23 November: "The Brits must be there because these Europeans will fudge it and it will be a weak currency. We, of course, want a strong currency."
If we are concerned about fudging, I ask myself, why do we not support the Germans? The poor Germans are on their own in wanting a super-strong stability pact to prevent fudging. Apparently, however, we are not supporting the Germans. Apparently we are sitting with the other fudgers—the French, the Italians, the Belgians, the Greeks and the Spanish. Apparently we are against fudging—but we are not dogmatic about it.
The Italian fudge is elegant and tasty, as one would expect. The Italians have created something that they call a Euro-tax, which is a forced loan that will be repaid after 1 January 1999 with credits against income tax bills. The Italians, I suspect, are using the fact that there will not be a stability pact on national debt, and they will convert budget deficits—to get the deficit below 3 per cent.—into a national debt, which can be above 60 per cent. after 1 January 1999 because there are no sanctions on national debt. The French are not quite so good as the Italians, but we know what the French have been doing as well.
I am not sure whether the Chancellor of the Exchequer comes to all this with clean hands, either. If one opens the Red Book these days, it is sticky all over with fudge. Of course, it is not Italian fudge, but good honest British fudge. What is the private finance initiative but a fudge to try to avoid the public sector borrowing requirement? The Treasury has been very clever about the sale of the Army's surplus property, which cannot be said to be a privatisation. If it was a privatisation, the money would not show up in the European system of accounts, and we would not be able to get borrowing down to 3 per cent. We are fudging as well.
The real fudge is not in Brussels or Dublin, but here, as the Government and the Opposition try by every means to avoid a debate on the matter until after the general election. Labour Members should not be surprised that the Tory party wants to keep down public borrowing and, indeed, is prepared ultimately to allow fines against countries that transgress.
However, some of us—perhaps there are not many of us left—are worried. We represent constituencies where the income per head is much lower than the average, even for Britain; where the unemployment rate is higher; where the percentage of families on benefits increases all the time and where fewer people bring in money from employment; and where public expenditure, sadly, is a very high percentage of the wealth and income. Frankly, those of us who still worry about these things worry that the shadow Chancellor, my right hon. Friend the Member for Dunfermline, East (Mr. Brown), is, as we saw today, as keen as the Chancellor on the stability pact and all the paraphernalia of fines and reducing borrowing below 3 per cent.
Some unkind people who have made a textual study of my right hon. Friend's speeches in the past six months might say that he would be sitting with the Germans if it came to a decision on the stability pact. But the coalition in the Labour party is now in agreement with the Conservative party on limiting public expenditure, and, in effect, public borrowing.
The convergence criteria and the stability pact will be paid for, and there will be a price to be paid for the fines—if they ever come—and a price to he paid for avoiding the fines by reducing public expenditure. As I have said in the House before, the price will be paid by the poor, the unemployed and the disabled, and by the gradual dismantling in Britain and western Europe of the welfare state. There was a time when one could expect growth in the economy to reduce deficits. That was a long time ago, and the central bank will not allow that any more. Herbert Hoover is alive and well. The central bank will make sure that growth will be choked to prevent unemployment from falling too rapidly.
Growth cannot help us, but of course we could increase income tax. We could pay for the convergence criteria by putting up income tax for the comfortable 40 per cent. But we cannot do that—the consensus will not allow it. My hon. Friend the Member for North Durham had a go at newspapers, and perhaps I will as well. The chattering classes who write for pseudo-radical newspapers such as The Guardian and The Observer and who live at the bottom of the think tanks that proliferate everywhere are all for the single currency, but they earn good salaries and do not want to pay for it. In the triangular tug-of-war involving the central bank, the chattering classes and the welfare state, the poor, frankly, do not stand a chance.
The chattering classes will no doubt salve their consciences by writing and reading articles about the evils of a dependency culture, and they will hide behind meaningless phrases such as "welfare to work", when there is no work. I read now that there has been a revival of social Darwinism, and no doubt it will be possible to excuse all this on the ground of biology, not economics.
My right hon. Friend the Member for Dunfermline, East, seemed a bit worried, and said that the stability pact would be agreed, but that is not how I read it, and it is not what came from the Nuremburg meeting. He hopes that a few little details and directives will be agreed, but I suspect that there will not be agreement in Dublin, that it might very well go to Amsterdam, and not just on formalities. If that is the case, my right hon. Friend will almost certainly be there to decide on the matter. I trust, and I hope, that he will decide against it. I trust that he will have the political confidence and the social conscience to do so. I trust so, but I fear not.
It is of great benefit to follow the right hon. Member for Llanelli (Mr. Davies), whose record on European matters has been entirely constant and honourable, and usually right. Both he and I would agree that, in the European Union today, we see an organisation that is visibly failing. It is experiencing an unemployment crisis, and there are getting on for 20 million people out of work in the EU. It is suffering a loss of competitiveness on the world stage. That is extremely serious, and bodes very ill for the future prosperity of all the citizens of Europe. It is losing the respect of the European public.
Instead of grappling with these fundamental problems, the organs of the EU are instead pursuing the wholly irrelevant project of monetary union. The reason is that monetary union is not primarily an economic project, but a political one. On the continent, it is quite openly seen as the next big step towards a politically integrated Europe, with centralised powers and a federal budget. My right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) confirmed this when he drew a parallel between his vision of a single currency in Europe and the success of the dollar in the United States.
In the United States, they first achieved a federal union. It took a civil war, incidentally, in which 600,000 American soldiers died. Much later, the United States formed a currency union, and the Federal Reserve was set up only in 1914. The circumstances were favourable, as America has a tradition of labour migration, and the states share a language and a political system.
Most tellingly of all, the United States has a federal Government with federal powers and, by European standards, an enormous federal budget that acts as a stabiliser between the various regions. If we want a single currency zone, we must, and will, have a federal Government with federal powers. That is apparently seen much more clearly on the continent than on the Treasury Bench.
My criticism of advocates of monetary union is that they do not make clear the huge constitutional implications of what they propose. When challenged—an example is the right hon. Member for Dunfermline, East (Mr. Brown)—they are dismissive of the democratic issue at the heart of the debate.
Let us be clear. If we join a single European currency, we will thereby transfer decisions on monetary policy immediately and irreversibly to the European central bank in Frankfurt. We will have one representative on the governing council, and that person will be forbidden by treaty law from taking any instructions or advice from the British Government or the House. We now learn, in addition, that there is to be a stability pact to add to the bonfire of democratic controls by subjecting our borrowing levels to external control and ultimately to the judgment of the European Court of Justice, which of course has its own activist, federalist mission.
It is extraordinary that Labour Members—with a few honourable and notable exceptions—who until recently were prepared, and even proud, to call themselves socialists, are willing to accept that control of the British economy should be handed over not only to bankers but to bankers in another country who are by treaty law insulated entirely from the democratic process. Surely some vestigial principle still lurks among them: an attachment, at least, to the concept of self-government and to the notion that we should not hand over to an external authority the powers that the public give to us.
Leaving aside for a moment the constitutional debate, there are enormous economic risks in what is proposed. A national currency is not there merely to give national politicians something to adjust or devalue; it is an indispensable adjustment mechanism that allows policy to be set according to the particular requirements of the national economy.
The economies of Europe have different structures, financial markets, pension funds and trade patterns, and they respond differently to external shocks. To try to force them all into the same financial straitjacket with a single interest rate and a single monetary and fiscal policy would be to risk catastrophe.
We glimpsed such a catastrophe in our experience with the exchange rate mechanism. By 1992, Germany wanted higher interest rates to ease inflationary pressures, while we and many other member states wanted lower interest rates to prevent a recession, and the mechanism broke up. At least it could break up, and we could get out of it. The much-derided devaluation that followed led to the economic success and stability and to the growth and falling unemployment that we have experienced from that day to this.
In a single currency area—this is the warning—those differences and divergences would persist and be repeated. Without the migration of labour and the flexible labour markets that exist in other currency zones, such as the United States, the strains and stresses would become intolerable, and would be relieved only by huge transfers of cash from one member state to another. That was the conclusion of a study group set up by the Commission under the chairmanship of the British economist Sir Donald MacDougall. He postulated at least a quadrupling of the size of the European budget to make possible those cash transfers.
When that point is made to Ministers or to Opposition spokesmen, they simply deny that it will happen, and wish away the conclusions of the study group, because they conflict with their political desire for monetary union.
The question of direct financial cost—the cost to retailers, banks, computer systems, tax agencies and Government Departments of abolishing our currency and converting to the euro—has not yet been raised in the debate. The cost would certainly be many billions of pounds, but when I tabled a parliamentary question on the subject, I was told:
The Government have not made any such estimates."—[Official Report, 12 November 1996; Vol. 285, c. 165.]
That is in breach of the White Paper, "Releasing Enterprise", in which it is clearly stated that compliance cost assessments are to be provided
for every proposed regulation that could affect business.
I cannot imagine regulations that affect business more directly than the proposal to abolish our currency, but when the regulations were presented to the House for scrutiny three weeks ago, there was no cost assessment.
Leaving aside the technical requirements and the understanding between the Government and the House on the matter, I find it extraordinary that we may be committing ourselves next year to a multi-billion-pound expenditure project affecting the entire economy, yet the Treasury has no idea what it would cost.
As part of the debate that we have started today, I ask my hon. Friend the Economic Secretary, who may be winding up the debate—if I can attract her attention for a moment; if not, perhaps someone else will hear me—to respect the procedures of the House and give us the information that I have requested. That would be in line with previous Government commitments, and if we intend to spend tens of billions of pounds changing our currency, we would like at least to have the raw material and know what it will cost.
I had a conversation on Saturday with a German Member of Parliament who represents Frankfurt. He said that he would be happy if our country stayed out of a single currency, because that would mean that Frankfurt would replace London and get more of its business.
One of the problems in this debate is the incredible insularity and the feeling that we can debate the matter as though we could act independently of the world outside. If we stay out of the single currency, there will be costs, as the right hon. Member for Guildford (Mr. Howell) said. Those costs must be examined calmly. There may also be costs involved in going in, but the fact remains that if there is not a zero sum gain—costs of going in and costs of staying out—we must consider the situation calmly, logically and rationally.
The costs of staying out—in which we would be accompanied perhaps by Denmark and Sweden and definitely by Greece—would involve our political influence being reduced and a possible reduction in our economic potential. There would be speculation against our currency, potentially higher interest rates and damage to inward investment, because the Japanese and others would choose other European Union countries—perhaps Ireland, because it also uses the English language—rather than the United Kingdom, as they might prefer to invest into the single market and the currency established with it.
Staying out in 1999—in January or a few months later—may not be so bad. But, as has been said, there is no guarantee that it will be easy to get in later on. I hope that if we stay out at that time because we do not get political consent, we will recognise that our long-term interest is to be in the system. Surely it is better to face the issue at the first stage than to go into a system that we are known to have entered reluctantly and in a way that could be damaging.
If our economy meets the convergence criteria in 1998–99 and we choose to stay out, we may damage the economy in such a way that we cannot meet the criteria two or three years later. Perhaps that is what some Conservative Members want. As some of them said, they think that it is an issue of principle that we should under no circumstances be in a currency union with anyone else. I do not know whether they took that view when the British and Irish pounds were in a currency union or whether they apply it in all respects to the international economy. Do they think that the Hong Kong dollar should not be linked to the American dollar? If one believes for all time in floating exchange rates and the potential for massive movements that bear no relation to the real economy through devaluation or appreciation over short periods, one will take that view. I can understand free market Thatcherites taking that view but not why people on the left or left of centre in the Labour party or the trade union movement take it.
We believe that there is a role for state and society in the way in which our affairs are governed. The right hon. Member for Wells (Mr. Heathcoat-Amory) asked whether there were any socialists any more, which was amusing coming from him. Some of us believe that there is more to life than a free market and that the European Union has a role in minimum standards, environmental protection and other matters about which we can co-operate with our neighbours.
If the single currency goes to a referendum, the referendum will not be about a single currency but about the position of Britain in the world and the direction on which we focus. It will be a watershed for the sort of society that we wish to live in. I say that as someone who has opposed a referendum because I do not believe that we should have them on narrow issues. But if we are to have one, fine; but let us have it early and lance the boil of Euro-scepticism. Let us get the issue out of the way once and for all so that the people of Britain can choose whether we wish to be a grumbling island off the Eurasian landmass and, though not the 53rd or 54th state of the United States, a country with an important role in the world whose potential is undermined because we have excluded ourselves from our largest markets, our closest neighbours. The political and economic costs—
Yes. There will be costs that will damage our trading relationships if we take that course to its logical conclusion. The logic of the Euro-sceptic position is, "We don't like foreigners, especially Germans, and we do not want anything to do with them." I see that the hon. Member for Billericay (Mrs. Gorman) agrees with that.
I apologise to the hon. Lady if I have maligned her.
The positive Labour case for a single currency was put forward in the pamphlet that 14 Labour Members published in September. It is worth reading. Conservative Members have also written pamphlets: the hon. Members for Stamford and Spalding (Mr. Davies) and for South Derbyshire (Mrs. Currie) and others have written in support of a single currency from a different philosophical point of view. At least they recognise that Britain cannot say, "Stop the process, we want to opt out," because, at the end of the day, it is going to happen. There will be a single currency. The question will be whether we want to be in at the beginning, influencing the way in which it develops, whether we try and fail, as we will undoubtedly will, to sabotage it or whether we sit it out and damage our economy and the future prosperity of our people.
I am bound to say that the European Union issue, symbolised by the single currency, is the biggest that has confronted the country for some time. It looms ever larger as European intentions and the choice that confronts us become clearer. Opinion in Britain is sharply divided, and that is reflected in the House. The division cuts across party boundaries, so the House has become a parade ground for statements of personal beliefs, which are often strongly held. Some of us may feel that we have a surfeit of drill sergeant-majors shouting at us from different quarters of the parade ground introducing confusion into the ranks. Be that as it may, it seems that the choice before us—certainly from this debate—is whether to become more deeply involved in the European Union and pay the political price that that entails, or to preserve such independence as we have and possibly assert it more strongly as circumstances permit.
The ultimate determinant of our choice must be the future economic and political well-being of our people. Without political freedom, we cannot properly exercise economic self-control. Of course, we are reluctant to give that control to people outside this country and our democratic process. In these matters, I tend to follow my right hon. Friend the Member for Mid-Sussex (Mr. Renton) and take a historical approach.
Although we have lost our empire and not yet found a role, as Dean Acheson put it in his damning dictum of the early 1960s, as a people we are still imbued with the imperial spirit; we like to get our own way in the world. However, it is becoming increasingly clear that we are not getting our way in Europe. Perhaps, as my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) said, it is because we are not pressing our views hard enough.
We envisage Europe as a vast free trading bloc in which we can continue to flourish. But that is not the prime objective in the eyes of the European political elite, as Jacques Santer, the President of the Commission, made clear yet again only last week. Its main thrust is towards greater political unity. That comes from Germany and France, and Germany in particular. It seems that there is no stopping them.
Chancellor Kohl said that the Union is about war and peace in the 21st century; he may well be right. The Germans certainly distrust themselves, and with two world wars behind them I suppose that they have good reason. Perhaps they can see foresee troubles on their extensive eastern and southern frontiers and want the moral and military power of Europe behind them in resolving any difficulties that may arise. That is understandable from their point of view. But what is the British interest in all that? We have learned from our participation in two world wars that we have an interest in the preservation of peace in Europe, but historically our ability to influence developments and events in Europe is limited, especially without the backing of the United States. Any thought that we can do so independently is illusory. We are an island, not a continental power.
We also have our eyes on the rest of the world, especially those parts of it where we have traditionally exercised great influence. It is a fact of life that the most promising prospects of economic growth in the next century lie outside Europe in Asia and the emerging markets elsewhere. As a trading nation, we cannot afford to be confined and tied down by our European involvement, as will inevitably be the case. So the challenge to us now is to keep our foothold in Europe, reaping such economic advantages as we can at the least possible political cost. We certainly cannot afford to endanger that 60 per cent. of our trade which is with Europe. Nor can the European countries afford to lose their trade with us. We certainly cannot afford to lose all the foreign investment that has come here on account of our membership of the EU and the single market.
The Government have a difficult task in ensuring that our future remains unshackled and that any opt-outs that we secure are respected and not eroded. The "wait and see" description of the Government's policy is a misnomer. I believe that the Government are in there fighting for British interests, and they must continue to do so as vigorously as possible. It may often look like a rearguard action because of the considerable extent of our involvement to date and the way in which we have been drawn in ever closer to the European vortex which so many of us find uncomfortable.
The pledge that no irrevocable commitment to a single currency will be given without a referendum—a pledge that has been belatedly reciprocated by the Labour party—should provide sufficient reassurance. I cannot agree with my colleagues who would like the Government to commit themselves in advance to blocking out a possibility which may or may not materialise and, if it does, might profoundly affect us, whether we are in or out of the single currency and what I call its accoutrements—the central bank and so on. Our negotiators must not be sent naked into the conference chamber, to adapt a phrase that may still be familiar to some. We really must trust my right hon. Friend the Prime Minister and my right hon. and learned Friend the Chancellor, who will report to the House at every stage.
One thing seems certain. The Leader of the Opposition and new Labour are more committed to more of the European agenda than is the Conservative party. I am not talking only about the social chapter. There is a pseudo-socialist ethos to present-day Europe and my guess is that new Labour is comfortable with it. The idea that primacy should be given to Britain's interests as a trading nation does not sound quite Labour's line. It may be antipathetic to them. I believe that new Labour would willingly throw in its lot with the other European nations in the Union and hope for the best, which might well be made attractive to the mass of British electors in the short term.
We should take a long-term view of British interests. Wages and standards of living may be low in the emerging markets now, but they will not always be so. We know that those markets can develop. We must not only face up to their competition but supply those expanding markets. Just as the European Common Market beckoned us in the second half of this century, the global market is beckoning us now, as we approach the next century.
I think that I have made my position clear. I hope that we stay in Europe and safeguard British interests there. At the same time, I hope that we are not so closely bound up with Europe that we are unable to take full advantage of the burgeoning opportunities in the world outside.
We must not get so involved in the detail that we lose sight of the principles that should govern our policies. Politics and economics are inextricably intertwined in this situation and there is no clear dividing line. There is an element of give and take and our job is to ensure that the take is more substantial than the give, not just for the present—
It was reported recently that at the time of the Maastricht treaty the Prime Minister did not believe that the other countries were serious about the third stage of EMU. If that was the position, I am rather surprised. It is spelt out clearly on page 87 of the Maastricht treaty. The leading and founding countries of the European Union have always wanted to proceed to deeper integration. Britain has always made the mistake, whichever party happened to be in office, of underestimating the deeply held and far from secret wish of those countries, particularly France and Germany, for deeper integration. So it comes as no surprise to me that the leading countries which have signed the treaty on the third stage of EMU now wish to proceed as quickly as possible.
Nor should we work on the assumption that when those Governments argue and press for deeper integration, they are necessarily out of step with most of their electorates. I have been pleased and encouraged by the demonstrations that have occurred in a number of European countries. I do not know whether some of my hon. Friends who are very keen on the third stage of EMU believe that those protests and demonstrations—today in Spain and recently in France and Germany—against convergence and what it implies have been justified. I believe that they have been because it has meant large cuts in public expenditure and services.
Some Conservative Members argue that we should not take too seriously the convergence criteria and the rest of it. I accept that there is a good deal of fudge, but the fact remains that many public expenditure cuts have been made on the continent to meet the criteria. Hence the reason for the protests, led in almost all circumstances by trade unions.
One of the ironies of the political situation in Britain is that the sorts of policies to which I am opposed in so many respects are precisely the policies of which the Euro-sceptics in the Conservative party are usually in favour, including strict economic and fiscal discipline, taking the axe to public expenditure and continued privatisation. Conservative Members who have been critical tonight have described what they called a pseudo-socialist Europe, but such policies are hardly what I would describe as socialist or on the left. It is understandable that many of us have the deepest reservations about pursuing those policies.
One of the differences of view about deeper integration between the continental countries and Britain is that most people in Europe probably believe that it will reduce substantially the chances of another European war. That is why I said earlier that I accepted that when national Governments on the continent pressed for deeper integration, they were not necessarily out of step with their electorates. It is a view sincerely held by people. I do not believe—I want to make this clear—that EMU or anything connected with it is a deep German plot to carry out economically what they could not carry out militarily in the past two wars. That view is alien to my thinking and, I imagine, to that of almost everyone in the Labour movement.
I do not however take the view that European peace is dependent on a tightly integrated Europe. On several occasions, it has been said that stable democracies rarely go to war against each other and that is true. I cannot accept the view expressed by the hon. Member for East Lindsey (Sir P. Tapsell), who I understand was reported as having said, at the last meeting of the 1922 Committee, that this is another 1940. Despite all my reservations, I do not believe that this is another 1940.
The hon. Gentleman shakes his head. If he says he was reported incorrectly, I accept that entirely.
It is important to have a balanced debate and to recognise that the situation is as far removed from that of 1940 as it possibly could be. As I shall argue, there are many concerns about political and economic sovereignty, but it would be foolish to exaggerate in such a way as to make it appear that this is the same situation as we faced 56 years ago.
On the third stage of EMU, I have heard my hon. Friend the Member for North Durham (Mr. Radice), who is the chairman of the European Movement, and my hon. Friend the Member for Linlithgow (Mr. Dalyell) express their enthusiasm. Indeed, my hon. Friend the Member for Linlithgow said that he would like to go into EMU as quickly as possible.
However, I heard the same enthusiasm expressed by some of my hon. Friends and by some Conservative Members in connection with the European exchange rate mechanism. I heard the same wish on the part of the European Movement—we were told that we should not any longer be isolated and that to stay out of the ERM would be disastrous for Britain. I know what was disastrous for Britain—going into the ERM. Any recovery that we have experienced since 1992 started after we left. Of course I have such reservations, because EMU would lock us in even further than did the ERM. No one could argue that the ERM was not disastrous for Britain, although we could argue about whether that was because we went in at the wrong rate. Given that it was disastrous for Britain, why should we conclude that joining the third stage of EMU and having a fully integrated economic Europe would be to our advantage?
Whichever view we take, there are profound implications relating to the economic and political sovereignty of this country. That is why it is right and proper that, at the appropriate time, the British people should have a say. I am not generally in favour of referendums, but this issue is so serious and so profound that it is necessary to consult the British people in the same way as they were consulted in 1975. We should not work on the assumption that we know best and that we can, in the next Parliament, act on an issue of such significance for this country's future without consulting the people in some form other than a general election. That is why I am pleased that both main parties are now committed to a referendum.
I am glad that this debate is taking place. We shall continue it for a long time to come, because the issue is not settled. We are not going to join EMU in the near future, as my hon. Friend the Member for Linlithgow would like. When we do—if we do—it must be on different conditions from those laid down in the Maastricht treaty.
I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on a speech made in the face of barracking from in front and behind. He set out to try to make a debate and spelled out in a reasonable fashion both the pros and the cons of the problem. Hon. Members on both sides of the House should congratulate him on that effort.
In debating fashion, I turn to two of my right hon. Friends, who have now left the Chamber. My right hon. Friend the Member for Mid-Sussex (Mr. Renton) tried to remind the House that, if we did not get into the common currency in the first wave, we might not get in in a second wave. That is exactly what happened when we did not insist on signing up to the treaty of Rome—we allowed that to be signed so that it could be completed before the German and French elections, but said that we would come in soon afterwards. In fact, after two years of negotiation between 1962 and 1963, and just as everything appeared to be favourable, down came the no. It was 20 years before we became part of the Common Market.
My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) seems to claim that every European Member of Parliament is massively in favour of a federal, unified structure of greater growth. That simply is not true. I am a member of the North Atlantic Assembly and treasurer of the parliamentary assembly of the Organisation for Security and Co-operation in Europe. Nearly twice a month, I meet Members of Parliament from all the countries of the European Community. On the whole, I find that the Germans and the French have no desire for a position whereby their economy and their fiscal and monetary policy are controlled by a central bank; they want to be able to ensure that French and German taxes are controlled by Frenchmen and Germans, just as we want to ensure that our policies are controlled by the English people.
I am concerned that a number of my hon. Friends, normally described as intelligent, if not highly intelligent, are allowing prejudice to overcome logic in this matter. Of course, there have always been a handful of Conservative Members and a handful of people in the country who have never wanted to be in Europe at all, but they have always been a very small minority. In the past, they pointed to Sweden and Switzerland and to what those countries were doing. Now, Sweden is a member of the European Union and Switzerland—the most non-aligned of all countries—has applied to join. How can it make sense that we should stand apart?
Some argue that we can align ourselves with the Commonwealth and with America, but the Commonwealth, in the old sense, no longer exists as a trading bloc. Australia and New Zealand participate massively in the Association of South-East Asian Nations and look to the far east as their market. Canada has already aligned itself with the trading bloc that includes America and Mexico. America, in many instances, looks to us as the influential player in Europe that has the greatest affinity to the United States. If we were not in Europe, playing a major part, the Americans would soon turn to Germany or some other EU member state for such a relationship. Equally, anyone who believes that inward investment from Japan and Korea would continue to come to Britain if we left is dreaming. Those countries see production in this country as the way to get their products into the European continent.
The negotiations surrounding the common currency are massively complicated. No one knows today what the presiding conditions will be at the end of negotiations. We have some idea, but we do not know absolutely. No ordinary person with any common sense will either accept or reject a proposition or deal until he knows all the surrounding facts. For instance, our national reserves might be used to stabilise the whole European monetary position—whether or not that was to our advantage. Would that not change if we negotiated a reserve position that allowed Britain to use British reserves, when we wanted to do so and, in any necessity, for our domestic fiscal or economic position? That could easily be negotiated and I suggest that it should be.
The position if the central bank set the rate of interest within a snake, perhaps with a variation of 2 or 2.5 per cent., would be vastly different from what it would be if a single rate of interest were set, and it would allow the sort of development that we would want in the British economy. Therefore, the concept that a common currency would allow a European central bank to dominate Britain's fiscal and monetary policy need not be true. If it is, there is a different picture to paint of the euro. If we saw that investment continued to come to Britain, that, too, would alter our judgment.
I am not in favour—I would fight it as a matter of basic principle—of Britain being pushed away from our growing trade success, brought about by the conditions established by a Conservative Government. Nor am I willing to see Britain's position in the world eroded. But the first absolute fact in the argument about EMU and a common currency is that Britain will be and must be affected, whether we enter the currency or not. It is therefore essential that the Prime Minister goes to the IGC in Dublin to negotiate, with the backing of the nation, to ensure the best possible deal for Britain. Anybody who does not want the best possible deal to be negotiated for Britain should stand up and be counted.
Do we start, before the negotiations begin, by declaring unilaterally that under no regime and in no circumstances would Britain join a common currency? In two quite disparate ways, that is nonsense. Certain businesses, and commercial and tourism interests, find considerable advantage in a common currency and their opinions must hold some weight, even with the sceptical. Before we make up our minds, we need to know the facts. We need to ensure that those matters, which are imperative for Britain's interests, are tied up as legally as possible.
I appeal to the whole House to accept the obvious fact that if, at the start of the negotiations, we categorically state that our position is to undermine and contract out of a common currency, none of our friends will be interested in our arguments and views. Of course we shall sit at the negotiating table, but everyone will turn a deaf ear to our arguments and proposals. That will not be negotiating to win the best position for Britain; it will be exactly the reverse.
Some people have made the ludicrous claim that most Conservative Members support the Euro-sceptics or the Euro-sceptical position rather than the position of the Government and the Prime Minister. Those who repeat that untruth must believe in the Goebbels philosophy that, if one keeps saying something frequently enough, people will eventually believe it.
What are the facts? Only eight weeks ago at a conference of more than 3,500 Conservatives in Bournemouth, support was given on the conference floor to the Chancellor, the Prime Minister and the Foreign Secretary without a ripple of dissent, interruption or speech in opposition. A vast standing ovation was given to the Prime Minister—[Laughter.] Some Conservatives may laugh at that, but that is how the people in the country feel. Senior members of the Conservative party, who claim to be good Conservative Members of Parliament, should realise that, if they continue as they are, they will lose the election for the Conservative party. That is what our constituents feel.
The media's calling the Prime Minister's stance a "wait and see" policy was disparaging and misleading. The Prime Minister's negotiating stance is best for Britain—
This has been an excellent debate, because it has provided a platform for a number of highly reasonable and positive contributions on the single currency from hon. Members on both sides of the House. Hitherto, the so-called Euro-sceptics have dominated discussion surrounding a single currency, and few issues in modern British politics have been the subject of wilder exaggeration and distortion.
Not all the distortions have been confined to the Prime Minister's enemies and the Conservative party. I regret to say that we continue to hear from Labour Members about the myth of the £18 billion cut in public expenditure, which, it is asserted, would be forced on us to meet the 3 per cent. criterion. Ludicrous claims are made about massive rises in income tax and VAT. It is even claimed that unemployment could rise by up to a million.
None of that is true, however. The Treasury summer forecast projected a deficit of 3 per cent. in 1997–98, a figure endorsed by the International Monetary Fund. The Red Book now puts the figure at 2.5 per cent., both for the public sector borrowing requirement and for the general Government financial deficit, which is the deficit measure now adopted by the European Commission. Nothing that I have heard from my right hon. Friend the shadow Chancellor suggests a significant relaxation in that target, even if the market would permit it, which is doubtful. Are my hon. Friends who have so far stuck to the £18 billion myth so pessimistic that they believe that growth will cease under a Labour Government? I cannot believe that that is a rational or politically appropriate expectation.
The dominant myth among Conservative Euro-sceptics is different. It is that entry into a single currency will represent a terminal loss of sovereignty or, even more dramatic, an irreversible step towards creating a European super-state. In part, as Professor Joad might have said, it all depends on what one means by sovereignty. I shall say a little more about that shortly.
It is simply wrong to claim that a single currency will mean the end of the British state. Since 1921, Belgium and Luxembourg have enjoyed the benefits of a currency union without any trend towards political integration between their countries—quite the contrary, as anyone who knows anything about the history of Belgium understands. Perhaps we should learn something from those countries and their experience of a currency union. Whereas Britain stands at No. 18 in the OECD's world prosperity league, Belgium stands at No. 5 and Luxembourg tops the list.
Let me bring the argument closer to home. For nearly 60 years, until 1978, Ireland and Britain had a de facto monetary union. Would any hon. Member seriously suggest that that led to the political integration of our countries? The idea is preposterous. It is equally preposterous to imagine that monetary union—a single currency—will in itself coerce the nations of Europe against their will into a European super-state. The facts of history speak against it.
The next fallback for Euro-sceptics is loss of economic sovereignty; yet, five days ago, two words from the chairman of the American Federal Reserve wiped £14 billion off the value of stock in the City of London. We must ask ourselves just how real is the concept of economic sovereignty in the modern world of interlocking financial markets. What genuine freedom of manoeuvre nowadays remains to a British Chancellor of the Exchequer when it comes to setting interest rates, deficits and the level of debt? Like it or not, the decisions of the Bundesbank, currently made only in the interests of Germany but backed up by the money markets, determine the main outlines of monetary policy in Britain as elsewhere in Europe.
Is it not logical, therefore, that Britain should be represented in a European central bank, exerting a direct influence on European economic and monetary policy in the British interest? Whether inside or outside EMU, Britain will have no option but to pursue the convergence criteria. The markets will give us no choice. Are we to understand that Conservative Euro-sceptics think that the markets would be wrong? Are we to understand that they are in favour of deficits over 3 per cent. and debt ratios at more than 60 per cent.? For 17 years, the Conservative party has preached the gospel of sound money. Is devaluation the new Euro-sceptic orthodoxy? If we opt out of EMU, that will be the inevitable conclusion drawn by the money markets. With equal inevitability, Britain will pay the penalty in higher interest rates and lost jobs.
The last refuge of the Euro-sceptic is the currently fashionable argument that the convergence criteria are being fudged, the stability pact will not work and, two or three years down the road, it will all end in tears. Even if that happened to be true, there is no way that Britain could escape the fallout. That in itself is a powerful argument for our remaining at the centre of the negotiations, doing our best to get it right.
Of course, putting public finances on a sound footing is a stressful exercise. We should know a little about that in Britain. Is it seriously suggested that our European partners are going through all that pain, with no intention of sticking to the criteria? Our European partners are already proving that they can reduce the deficit sharply in a short period and sustain those reductions. In 1993, Sweden's deficit stood at more than 12 per cent.; in 1996, it is just under 4 per cent. It is now likely that Sweden will meet the criteria for EMU.
It is patronising and ignorant to suggest that our European partners would sign up to EMU and not be serious about the criteria or about their commitment to fulfilling them. EMU will happen. Our European partners will make it happen, because it makes sense for their economies. It makes sense for Britain too, and I see no virtue in delaying our entry.
In explaining our case for the euro, we should not fall into the trap of exaggeration and distortion, which has characterised the Euro-sceptic approach. The benefits of EMU will not be huge, but they will be widespread and significant. The elimination of national currencies will be cheaper and more convenient for the tourist. The ending of transaction costs will improve the competitive position of small to medium-sized firms vis-á-vis large companies. The consumer will benefit from increased cross-border competition between firms, once all prices are quoted in the same currency. EMU will render currency speculation obsolete. That will be a special gain to British firms and to small traders in particular, whose exports and business plans have often been damaged by fluctuations affecting sterling in the post-war period.
For a country such as Britain whose currency has carried a risk premium because of our record on inflation and devaluation, there will be a permanent gain in lower interest rates. That will mean higher growth and more jobs, cheaper mortgages for British householders and cheaper finance for industry.
Those are the sensible and practical economic and financial arguments for monetary union. Sooner, I hope, rather than later, the Labour Government will hold our promised referendum on the single currency. When that day comes, I have no doubt that the common sense of the British people will give us a massive yes to the euro.
To reply to the question put to me by the hon. Member for Walsall, North (Mr. Winnick), I did not suggest in a recent speech that there was any military analogy between 1996 and 1940. The point that I made was that there are rare occasions in politics when the use of the word "never" is justified. In 1940, Churchill said that Britain would never surrender. I thought that we ought to say in 1996 and 1997 that Britain would never join a single currency.
We should make that declaration not only because of the serious technical disadvantages that would flow from membership of a single European currency—I earned my living, such as it was, for 35 years in the City of London in currency and bond markets—but because the overwhelming argument against joining a single European currency is the constitutional argument.
I cannot accept that it is possible to join a single European currency without giving up a large measure of our national sovereignty, particularly because the mechanisms of the single currency that are proposed are essentially undemocratic. As many hon. Members on both sides of the House have pointed out, the proposed European central bank, which would dominate the proceedings, would not be accountable in any democratic way to any elected body.
Only three days ago, President Chirac said that he was concerned about the undemocratic nature of the European central bank and suggested that some counterbalance to it was needed. For some extraordinary reason, he seemed to think that the proposed stability pact might provide that counterbalance.
It must be remembered that a nation state depends for its continued existence on three conditions: control of its armed forces, control of its currency and control of its borders and the territory contained within them. If it loses any of those, it ceases to be a nation and becomes a satellite, a province or a Government in exile, such as those of many countries that were set up in London during the war.
Without control of our currency, we would lose control of our interest rates. Those would be determined by the European central bank. Britain would be particularly adversely affected by that: interest rate movements have a greater political impact in Britain than in any other country in continental Europe, because a far higher proportion of people buy their houses in Britain and there is a much smaller rented sector than in the rest of Europe. Everyone knows that the smallest movements of interest rates in Britain have a large social and political impact via mortgage rates. The idea that those decisions should pass into the hands of non-accountable foreign bankers is politically unacceptable.
What guarantee is there that the European interest rate would always be appropriate to the needs of the British economy? The hon. Member for Streatham (Mr. Hill) made that assumption. He understands such matters, but I draw different conclusions from his. I do not understand why he assumes that sterling outside the euro would necessarily be a weak currency. On the contrary, precisely because there are fears throughout Europe and among international fund managers that the euro may come into being, there has been a considerable outflow of their funds into Switzerland and Britain. Even the Germans have been transferring money into sterling for fear of the euro.
Following our experience with the exchange rate mechanism, I do not know why the hon. Member for Streatham should assume that our interest rates would necessarily be higher if we were outside the euro than if we were in it. They would, of course, vary according to the state of the British economy in relation to the state of the continental European economies.
In the period from 1990 to 1992, our interest rates would unquestionably have been lower if we had been outside the ERM. I remember clashing publicly and quite fiercely on two occasions with my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), who was then the Chancellor of the Exchequer, when he kept saying that if we left the ERM, our interest rates would go up. I argued forcefully during that period that we should leave the ERM before we were driven out and that our interest rates would go down. I do not think that there is any certainty about those matters, but I think that it is important for us to retain effective British control of them.
It is time for the leaders of our nation, particularly the leaders of the two main political parties, to spell out clearly to the British people exactly what is their vision of the Europe of the future, and what that future holds for us. If the vision is of a Europe of independent nation states co-operating to increase trade and prosperity and combining to maintain peace and combat crime, it is a vision behind which all the British people could unite; but that vision is wholly incompatible with British membership of a single European currency, and it is grossly dishonest and insulting to the intelligence of the British electorate to pretend otherwise. A single European currency is the chosen instrument by which Chancellor Kohl plans to create a federal super-state.
I, too, frequently attend international conferences in Europe. I was in Helsinki the other day—the day on which the Finns joined the exchange rate mechanism. Everyone there, from many European countries, welcomed it, because they saw it as a step towards the building of a federal Europe. I have seldom met a leading politician in a continental country who was not enthusiastic about the building of a federal Europe. European politicians think that the single currency is the essential element of such a process, and that is why they attach so much importance to it.
The idea that certain absolutes should be laid down, in the form of the Maastricht economic criteria, strikes me as naive and economically illiterate. We all know that in every aspect of life, especially politics and business, the laying down of absolutes is usually very unwise. It so happens that, in this particular phase of the British economic cycle, the Maastricht criteria are consistent with the broad economic policies that any sensible British Government would now be following—we are following them with great success—but that will not always be the case for Britain, and it is certainly not the case for France or Spain now. Indeed, it was not the case for Britain in the ERM in 1991 and 1992.
The idea that one particular set of economic targets will always be appropriate for a wide variety of countries in all circumstances, at different stages of their economic and social development and at different stages in their trade cycles, is absurd. That degree of convergence is unattainable, and always will be.
Anyone reading the economic provisions of the Maastricht treaty would suppose that John Maynard Keynes had never lived. The capacity to employ variations in our country's exchange rate, interest rate and fiscal arrangements is an essential economic tool if Britain is not to be plunged into mass unemployment.
I welcomed the opening speeches of the Chancellor and shadow Chancellor. Both clearly stated their personal support for the principles of a single currency, and argued strongly for its advantages—provided, of course, that the convergence conditions were met. Both made excellent speeches, which I believe have moved our debate forward considerably.
One of the accusations levelled against the Chancellor by those sitting behind him during his speech was that much of the motivation for the drive towards a single currency was political. I do not think that we should be embarrassed about saying that the single currency is a political as well as an economic project: of course it is. A serious political debate is taking place in Europe today—but it is not between those supporting the caricature of federalism and the super-state and those supporting subsidiarity; the real debate is between nationalists and unionists.
As the Chancellor made clear, there is no federalist plot or project for Europe. What there certainly is, however, is a unionist argument within Europe. I am a unionist when it comes to Europe, for exactly the same reason that I am a unionist in the debate about the future of the United Kingdom. I oppose nationalism in Europe for exactly the same reason that I oppose it at home. That is because I believe that the peoples and nations of Europe grow stronger and are enriched when they co-operate, combine and pool their sovereignty. That is the real argument that is going on, not the absurd argument and accusations about a federal super-state. The real argument is between unionists—those who want the ever-closer union in Europe to which the treaty of Rome refers—and nationalists—those who believe in maintaining the maximum degree of sovereignty, and favour an abstract concept of independence for nation states.
I cannot understand those Tory Members who are staunchly unionist when it comes to the multinational Union of the United Kingdom, but somehow transform themselves into nationalists when it comes to addressing the same issues in Europe. I find that illogical, just as I find it illogical for some Opposition Members to be nationalists—Scottish nationalists, for example—in the United Kingdom, but unionists in Europe. I find those positions inconsistent.
I do not think that we should hide from the fact that there is a political argument behind the case for economic and monetary union. It is not simply a dry and bloodless argument over statistics; politics is at its heart, and those of us who have a political belief in an ever closer union should be happy and proud to declare that.
The economic arguments are also vital. Some economic issues have been identified today as obstacles in the way of monetary union. The right hon. Member for Wells (Mr. Heathcoat-Amory), for example, advanced an argument that has become quite familiar in the debate—that Europe is not what the economists call an optimal currency area. In other words, the regional differences between European countries are too great to permit their currencies to be locked together without the risk of dislocation and turmoil in those countries.
Although it is used a lot, I do not consider that a serious argument. It is obvious that none of the national currencies that currently exist in Europe occupies an optimal currency area; it is absurd to think that they do, or that they ever did. Europe's existing national currencies were not based on any rational calculation by a committee of economists: they are the product of historical and political evolution. There are huge regional differences within the existing national currency areas.
If the north of Italy were a separate country—as some northern separatists would like it to be—it would be the richest country in Europe; yet that zone of growth in northern Italy shares the lira with regions such as Calabria and Sicily, which are notorious for being among the most stagnant and underdeveloped in Europe. Likewise, no one can pretend that the highlands and islands in Scotland and the south-east of England share an optimal currency area—yet they share the pound, and both are affected by the decisions of the Chancellor and the Bank of England.
Of course there will be regional differences within the currency area of the new euro, but there are equally great differences within the existing nation states in terms of economic competitiveness, growth and unemployment. We find all those differences in the existing national currency areas. Just as the pound and the lira must respond to the different economic conditions and prospects in Britain and Italy respectively, so the new euro will have to respond to regional differences in the countries that sign up to the new single currency.
There will be one absolutely vital advantage: unlike the Bank of England which, as far as I know, has no voice representing the interests of the highlands and islands, the new European central bank will have representatives from all the nations that sign up to the new euro. Its decisions will therefore be properly representative of all the conditions across the currency area and will not be dominated by a single economic centre, whether it be London or Frankfurt.
Another argument commonly used against monetary union is that Europe is increasingly stagnant and uncompetitive economically and that such stagnation is made worse by the need to deflate European economies in order to meet the single currency criteria on inflation and borrowing. It is astonishing how widely that pessimistic and gloomy view of Europe has spread beyond its natural home on the Tory Back Benches and into the media. However, if we examine the statistics, we see that the reverse is true.
If we take the European Union as a whole and take its currencies as a single currency, we find that last year the European Union enjoyed growth of 2.5 per cent., that European Union inflation was below 3 per cent. and that it enjoyed a trade surplus of $145 billion. Indeed, were it not for the UK, the trade surplus would have been even greater. Europe has had a trade deficit in only three of the past 15 years.
I believe that that record, in terms of trade, competitiveness, growth and productivity, compares favourably with that of the United States, for example, which is often put forward by Euro-sceptics as a model to which we should be aspiring. They are the real facts that the Euro-sceptics and Euro-pessimists have consistently failed to address. I believe that it is in Europe's interest to form a single currency, provided that the convergence criteria can be met, and that it is in Britain's interest to join that single currency. When the Labour Government come to make their judgment in two years' time, I am confident that—provided the convergence criteria are met—they will reach the same conclusion.
I am delighted to be called relatively early in this two-day debate and put on record my pleasure in the fact that we are having this debate. It is about time that the importance of European issues was recognised by the business managers in the House. It took a lot of effort to get a two-day debate, and I hope the fact that nearly 100 Members have asked to be called to speak is taken into account when such matters are next discussed. Indeed, I hope that we are setting a precedent and that future European Council meetings are preceded—preferably in good time—by a two-day debate in the House, which will give far more of us an opportunity to be called.
The Father of the House, who spoke earlier, was absolutely right. It is about time that members of our Front-Bench team spoke far more positively about Europe. What worries me is that by not doing so, Cabinet members and members of important Ministries and Departments such as the Department of Trade and Industry and the Treasury are making a rod for their own backs or, indeed, for our backs. Where no enthusiasm is expressed about the European Union and its developments, doubt will tend to creep in; and if no information is made available, even from the Government, about any proposals—their complexity and their advantages and disadvantages—anxiety takes its place. Doubt and anxiety are now the prevailing emotions that pervade much of the discussion in the country at large.
I should like to hear from every member of the Cabinet the same type of robust speech in defence of Europe that we have heard from the Chancellor today and, indeed, in the past few weeks. Would it not be wonderful if the Home Secretary spoke in favour of the European Court of Justice? Would it not be absolutely terrific if the Secretary of State for Social Security made positive suggestions as to how the unfunded pension liabilities of our colleagues overseas might be dealt with, and if he made available to them details of our experience in a friendly and constructive tone? We would gain a tremendous amount in this country and overseas if we adopted that approach.
In particular, I should like to hear far more Conservative Members and Ministers talk about how we gain from membership of the European Union. I should like to hear the same from Opposition Front Benchers. In the next few weeks, as we go into the general election, I hope that the Opposition do not start to back off; indeed, I look to one or two Labour colleagues who I see nodding at me to ensure that it does not happen.
Membership of the European Union is especially relevant to my constituency. The unemployment rate in South Derbyshire is 4.5 per cent. That must be one of the lowest rates in any industrial area in Europe, perhaps anywhere on the entire continent. It is partly due to the advent of Toyota, which has brought the largest inward investment that Europe has ever seen. In my area, it means jobs and exports. In fact, the United Kingdom has had the lion's share of inward investment to Europe from outside, and we ought to make it absolutely clear why that is so.
What we have tended to hear from the Government is that we have gained that inward investment because the UK is different from the rest of Europe. I should like to hear them say that it is because the UK is a member of the European Union and that, were we not, Toyota would not have given us a second glance—nor would most of the other overseas companies that have invested so heavily in us and are still doing so. We must make it clear that it is because we are a member of the European Union that these companies come to us. We must never let anyone in government, or out of it, forget that.
I am absolutely certain that Toyota did not come here because of a flexible exchange rate or because we were in or out of the exchange rate mechanism. Such considerations are not part of its planning. Much of our current economic strength is due not to the fact that we are in or out of the ERM but to the inward investment that has brought not only money but skills, management, jobs and imagination and the exports which it generates and which help to improve our situation.
As for the single currency—
I hope that my hon. Friend will forgive me, but there is not time.
As for the single currency, I am convinced that it will happen. From what I see on the continent, people are planning for it far more vigorously than we are. I am also convinced that it will work. I sometimes hear colleagues talk about foreigners as if they were all stupid. I have to say that most are not as stupid as some Members of this House. We ought to take into account the fact that they are planning carefully for what is going to happen in a couple of years' time.
My concern is that a single currency might work too well. I fear that if a group of extremely strong countries with very high levels of foreign exchange reserves—Germany's foreign exchange reserves, for example, are twice as high as the UK's, and ours are tending to fall rather than rise—got together in a currency union, they would have a very strong currency indeed. Colleagues in the Bundesbank are quite mistaken if they fear that the single currency will be a weak currency. As I have said, I fear, and I believe that they should fear, that it will be a very strong currency, stronger even than the deutschmark. That would be rather worrying, given the lack of competitiveness which is a problem in much of Europe.
People who do not want monetary union—I refer especially to Conservatives—should make it absolutely clear why they do not want it. In all the kerfuffle about dominance by Germany and in all the talk about democracy and the nation state, they fail to admit, and are shy of coming to grips with, the fact that the one policy option that would disappear were we to adopt the euro would be the option to devalue. It is an option which we have used extensively during my lifetime and which, I believe, we should abandon.
Devaluation means fiddling with our currency. At the least opportunity, or under the least pressure, Tory and Labour Governments have tended to debase our currency. The net result is that my constituents work just as hard as they did 10 years ago—indeed, they work with a higher percentage of capital investment than they did 10 years ago—but when they go abroad their precious sterling buys less than it did 10 years ago. Even though our currency has appreciated in recent weeks, it still costs them more to live in this country, because interest rates are increasing. Our interest rates are twice those of countries which it is widely believed will join the euro, and where devaluation is not a policy.
If the Government move any further to rule out our joining the single currency in the next Parliament or at any future point, they will have a problem with members of the Conservative party such as me. I have been a member for 30 years, but if the Government were to decide to shift from a policy of wait and see, I could not be a candidate at the next election. I defend the policy of wait and see: it is entirely sensible, as we do not yet know how the currency will work and which countries will join. It is right that, as we approach the election, we should say that, until we have more information, it would be unwise to make a decision.
We should be a core nation of the European Union. This nation will pay a great price if we do not join the single currency, provided that it is well run. As my right hon. Friend the Member for Mid-Sussex (Mr. Renton) said, the option is open to us now, but it may not be open to us when the single currency is in existence. Once it has been created, the option may be removed. We had the option to join the Common Market in the first place, but we refused and were then denied entry for 18 years. We should take that very seriously.
I say to my right hon. and hon. Friends on the Front Bench, "Please, this far and no further. Don't budge any further towards the Euro-sceptics. You won't win a single vote, and you will not do this party, this Government or this country any good by shifting." If the Government shift any further, this lady at least will not be fighting in South Derbyshire. When so many jobs depend on us being at the heart of Europe in the future, I cannot explain to my constituents why the Government have become Euro-sceptic. That is not the way forward, and it is not a view that I can accept.
I endorse the point made by the hon. Member for South Derbyshire (Mrs. Currie) about the two-day debate. A debate on the pros and cons of EMU, the stability pact and such matters is welcome and long overdue.
I support the point made by my hon. Friend the Member for North Durham (Mr. Radice) about the way in which the debate on Europe has been conducted so far. The xenophobia and nationalism that has come through has brought Parliament and this country into disrepute. We can never support such behaviour. I hope that from now on debates will be conducted better than they have been.
I want this country to join the single currency on 1 January 1999. I believe that the benefits far outweigh the disadvantages. The single currency is unstoppable: it is bound to happen. The momentum behind it is immense.
The system must operate successfully. The euro must be a hard currency. We do not want a currency that is susceptible to speculation. All the member states that participate must have good monetary and economic discipline. The stability pact is not only desirable but essential to ensure that each member state acts responsibly, so that the single currency works successfully.
Both the major parties are in a wait-and-see situation. Some of the negotiations on the stability pact are still uncertain. They may argue that it is necessary to wait and see, but the Chancellor told us that the discussions in ECOFIN have gone far beyond what I imagined, and the whole package for EMU and a single currency seems to have already been tied up.
It is extraordinary that we have not yet debated the advantages and disadvantages of a single currency. I should like to use the few minutes available to me to list some of them, so that they are on the record. The obvious advantage is that traders and tourists would not have to change currencies. Currently, that equivalent to a trade tax amounts to about £3 billion per annum. A single currency would allow us to improve the profits of small businesses in particular. The consequence of a single currency would be a boost in trade between Britain and the other countries of the European Union.
Any business—especially a small business—needs stable exchange rates. That is an important requirement. Businesses can keep their costs under control, invest in the best technology and equipment and employ skilled and educated people, but a nasty fluctuation in the exchange rate can wipe out their profits, and possibly the businesses. I see hon. Members nodding in agreement, who, like me, have run businesses. It is a swamping factor. In the 1980s, under the Thatcher Government, we had huge rises in the value of sterling, which caused havoc for many small traders.
When companies submit bids for competitive tenders, they have to allow for such fluctuations. Their bids become less competitive because of the need to guarantee their business against fluctuations. When companies lose contracts, they lose jobs. The great advantage of a single currency is that companies are not susceptible to speculation.
What would be the advantages for a small company in west Hull, which is near the Dutch coast? There is a North sea ferry across the channel. I would like such a small business in my constituency to be able to trade as easily with a company in Rotterdam as it does with a company in Leeds or Manchester. It would then be able to exploit the huge and exciting single market. That would not only boost the profits and business opportunities of that company in Hull, but create many jobs in my constituency.
If we had a single currency, we would be able to open up the single market, which has been extraordinarily successful. We want to take advantage of the single market, but we can do that only when we have a single currency.
My hon. Friend the Member for Streatham (Mr. Hill), who is not present at the moment, made a valid point about prices. Groups of pensioners go to Spain every winter for the sunshine and warm weather. The prices in the shops are in pesetas, so they do not know whether a product is cheaper or more expensive than it is at home. They need to know what the current rates are, and they need a calculator to work it out. With a single currency, they would be able to determine whether the prices in Spain were good or bad. That would lead to competition, and would bring great benefits to consumers. Economic and monetary union would have the great advantage of bringing prices down.
Another important benefit of the euro would be lower interest rates. British long-term rates are estimated to be about 1.5 per cent. greater than the rates in Germany and France, because the markets believe that the British economy is susceptible to higher inflation. Therefore, countries using the euro will be seen to be a lower risk, so we can expect lower interest rates.
For too long, Britain has been bedevilled by a bust-boom economy, and our competitors have been able to enjoy appreciably lower interest rates and lower inflation than ourselves. They have also been able to sustain those lower rates. With the European central bank, we can build on such experience in our competitor countries in the EU. The European central bank will provide a great opportunity for a euro zone, by ensuring that we can perform as well as our competitors. As a consequence, businesses will be able to make long-term investments without worrying about huge fluctuations in interest rates, and that will lead to greater investment.
Opting out of the single currency will leave us isolated. Experts to whom I have spoken have said that Germany and France will join by 1999 and that Benelux, Austria and Ireland will all join, leaving Britain, apart from Denmark, isolated. We would incur substantial costs, in terms of both lost investment and higher interest rates, if we were not part of the euro. Therefore, I appeal to all hon. Members to push for our membership of the euro by 1999.
A joke going around Westminster at present suggests that the arguments of the Euro-realists somehow undermine the national interest. As I mentioned to the Prime Minister the other day, I hope that we can all keep a sense of humour about this matter. It is important and serious, but I hope that we can keep a sense of humour and remain even-tempered. As I said last year at the time of the leadership election, it is important that we should talk to one another rather than at one another.
At the heart of the fudges within fudges and the arguments that we have heard so often today there is the question of the Maastricht treaty itself. That is why we are in such incredible difficulty and why it is now so difficult for many people who subscribed to it and whipped it through to admit that it went wrong. They now face the consequences of what was decided at that time.
The problem was that we said that we would never use our veto to prevent the other member states going ahead. Therefore, as I said in a paper that I was asked to write for the Conservative party's manifesto committee in 1991, we put ourselves on the outer tier of a two-tier Europe, where we would be marginalised, lose influence and be dominated by other countries, including Germany.
I am quite prepared to say that at that time I was simply trying to analyse or predict what might happen. I thought that I was right. But we now have the concrete evidence to demonstrate the veracity of the arguments that were presented during the Maastricht debates, in which, with hindsight, many people today would have liked to take part.
When we consider the exchange rate mechanism and its effect on the British economy, the riots and the disorder in other parts of the continent and the difficulty—I would say impossibility—of convergence, one is bound to ask whether that artificial construction is not based on something that could be described as an economical and political lie.
It is impossible to achieve the criteria because the convergence is impossible. Therefore, within the fudge within a fudge that we are now experiencing, we are being drawn deeper into a quagmire simply because of the lack of the realisation and acceptance that this is not merely a question of assertion, but a question of evidence. Furthermore, it is a question of principle.
In the Select Committee on European Legislation in February this year, I put it to the Foreign Secretary that economic and monetary union is surely a matter of principle. He replied that he did not follow my point. Many British people would be extremely surprised to hear that. It is a matter of principle on which we must sustain the national interest.
The national interest is undermined by our refusal to accept that the consequences of the single currency, the movement towards political union—which is infinitely more important than these artificial arguments dancing on the head of a pin about fudges within fudges and whether we shall be able to achieve the criteria—are ultimately about our democracy.
It is a great tribute to the House that this debate is taking place at all. It was precisely because, following the suggestion of the Select Committee on European Legislation, there was a genuine coalition, in the national interest, of people who refused to accept that there should not be a debate on the stability pact. that we have had this debate. Interestingly—I pay tribute to them—that coalition was made up of federalists and anti-federalists; people from all sides of all parties who joined together. We proved the point that our democracy in the national interest is at the heart of the reason why we are taking the position that we do on this European question.
Another point connected with that is that in Europe the stability pact has, as a result of this victory for the House of Commons, been restrained, if not stopped—in other words, vetoed by the House of Commons. Mr. Chirac may now be beginning to Ilex his muscles on the stability pact, precisely because he knows that, with the scrutiny reserve under the resolution of 1990, the stability pact has been put on hold. We were told last Thursday by the eminently wise Leader of the House that the matter will be shunted forward possibly, perhaps probably, to Amsterdam next year. The bottom line is that the stability pact has been put on hold with the opportunity for us to examine this matter by virtue of a democratic decision taken by the House.
The intergovernmental conference in Dublin will have to consider the questions of defence and foreign policy and their dreadful implications, on which I am sure that the Government will take a tough line, as I hope they will on the 48-hour week and on quota hopping. But given the importance of the single currency issue and its direct relationship with Britain's ability to govern itself, it is essential that the matter is properly discussed at the intergovernmental conference. In an intervention on my right hon. and learned Friend the Chancellor of the Exchequer, I made the point that it is all very well talking about negotiations at the table, which was the basis on which our party conference gave him and my right hon. and learned Friend Foreign Secretary a standing ovation, hut, as the transcript of the Prime Minister's "On the Record" interview on Sunday clearly shows, they did not explain that, in this context, being at the table means the preparations in the European Monetary Institute, which are determined by qualified majority vote. That is the difference.
All the suggestions, which permeate the interview, that somehow or other we can veto and stop the arrangements, are simply not accurate. We are not properly negotiating the question of a single currency. The issue is fundamentally being dealt with in the European Monetary Institute, which is the preparatory stage and which, al: the same time, does not prevent us from being able to extricate ourselves from the mess that the Maastricht treaty put us in.
It is no good people saying that the Euro-realists, the Euro-sceptics or even—if they care to call us this—the Europhobes are marginalising us and putting us on the sidelines, when it was the protocol in the third stage of the Maastricht treaty which said that, legally, we would never prevent the other member states from going ahead, which effectively allowed the surge of federalism to drive forward. That is precisely where we are now.
It is of the greatest concern that the "On the Record" interview does not seem to deal with the fundamental question that we should be considering in relation to where we are going on monetary union as a whole. My right hon. and learned Friend the Chancellor said, I think—he is here now, so I have an opportunity to test this—that about 70 per cent. were in favour of a single currency. [Interruption.] Perhaps I have got it wrong. My right hon. and learned Friend will no doubt correct me.
I have been in the House only a short time—not yet three years—but tonight has been a remarkable occasion because, since I entered the House, to be openly pro-European in Westminster meant feeling very much in a minority. [Interruption.] I meant in SW1, not in the House of Commons. I do not know what the House's view is, but in SW1, on television, Europhobes pant against Europe and in my newspapers, most of the pundits rant against it. I do not even quite know what is the line of my own preferred paper, The Guardian, on Europe.
Everyone can be in favour of some sludgy Europe, but when core decisions have to be taken—and in all honesty the only one that faces Britain in the next few years will be the next stage of European construction, which will involve economic and monetary union—even many of the so-called pro-Europeans tend to fade away into oblivion or find all the reasons why they are against taking a tough decision.
That is a hard decision. The decision was hard in 1950 when we did not go into the Schumann plan. It was hard in 1957 when we scorned the treaty of Rome. It was hard perhaps in 1962 when General de Gaulle was willing to make a deal with Harold Macmillan, provided that Mr. Macmillan distanced himself somewhat from subordination to the United States. Mr. Macmillan said no. That may have been the correct decision at the time, but the hard decision was fudged.
When finally the decision was taken in the early 1970s, it was massively endorsed in 1975 at the referendum. A set of interesting opinion polls were taken in the early 1980s when the British people, by three to one, said that they wanted to withdraw from Europe, let alone he part of a single currency. Withdrawal was the policy offered to the British electorate by my party in 1983 and the opposite policy was offered by the Conservative party—fat lot of good it did us.
This has been an interesting debate because, for the first time perhaps, the House of Commons—and I think probably the majority of Members reflect this—is saying no to the Europhobes, to the pundits and to the foreign press proprietors, and yes to the fact that the British people's interests lie in being in Europe and—if it is in our interests, as I believe it is—in playing a full part in the next construction of Europe.
I pay tribute to the Chancellor of the Exchequer because, apart from some rather jejune, boilerplate, anti-Labour stuff at the end of his speech, he offered a lead. He discussed in an adult and mature way the technical problems, the economic difficulties and the issues that are at stake.
I am looking forward to the winding-up speech of the Budget Master General, or whatever his new title is, because, in his interesting exchange with the shadow Chancellor, he did not deny that he said on television that he is a Euro-sceptic. A Euro-sceptic on the Conservative Benches means someone who is hostile to Europe, not someone who is sceptical about aspects of Europe—all of us are. It means someone who is in the Euro-sceptic and Europhobe camps. When he rises to his feet, he may dissemble—I think that that is the new parliamentary verb for facing both ways at once—but I want the Budget Master General to tell us whether he stands by his Chancellor, or whether he is going to run with what appears to be the majority of his party.
Sir Leon Brittan made the point passionately this week in his semaphored intervention from Singapore on Radio 4's "Today" programme. In effect, down on his knees, the former Home Secretary was saying to his party, "Grow up and get real because Britain's standing around the world"—forget Europe—"is declining as this broken-backed Government have to rely on one man—the Chancellor—to tell the truth about our future in Europe."
I found some of the Chancellor's remarks about the details of his negotiations most interesting because, in effect, we are seeing the tragedy of this once great party. It now has to speak a double language: one language negotiating the patriotic interests of Britain with our partners in Europe and another for The Daily Telegraph and the Daily Mail, in which the inducement of saying no to the single currency and no to Europe has to be offered to keep the rebellious troops in their place. I really would like a clear answer from the Europhobes.
Yesterday, I discussed the issue on television with the right hon. Member for Wells (Mr. Heathcoat-Amory), who had the courage to resign from the Government because of his opposition to the single currency. He was asked whether he was against the single currency on constitutional or sovereignty grounds. He replied that he could not decide what Parliament would do in five or 10 years' time. So, are we talking about a matter of sovereignty or a calendar?
Let the anti-Europeans make their position clear. There are two or three of them in the Labour party. They have given long and distinguished service to our party and our country and, sadly—I think that is the appropriate adverb—they will be retiring at the next election. They will be replaced by Labour party candidates who are sceptical about much of what happens in Europe, but profoundly believe that Britain's place is in Europe, that we have to work with our European partners and that the best interest of our nation is served not by standing outside, but by playing a full part in the next stage of European construction. In contrast, all the incoming Conservative candidates are anti-European.
This is not just a matter of the single currency; it concerns the future of Britain. Our country has at its essence the need to play a full part in the new global economy. If we are outside Europe, we shall not be new merchant venturers, but isolated also-rans. All the surveys suggest that inward investment is wholly predicated on the fact that Britain is a member of the European Union. If we withdraw from the European Union—as half the Conservative party would have us do—that inward investment will dry up and factories in Derbyshire, Sunderland and elsewhere will be relocated to elsewhere in the world's greatest single market.
I have long been in favour of a referendum. I do not want to lance the boil, as my hon. Friend the Member for Ilford, South (Mr. Gapes) said; I want to drain the poison that has destroyed the ability of the House—and I fear that of the Government—to take the best decision in the interests of our people. When that referendum comes, let us be quite clear that it will be on the future of Britain and whether we are in or out of the European Union. I have no fear of that question being put to the British people and I am quite confident about the result.
I say that from a position on the left. The Conservatives drove unemployment to unprecedented heights and have reduced it through devaluation, debauching our currency and driving wages down so far that people cannot earn enough even to afford to pay income tax. Until we learn some of the lessons not of Germany, which had to accommodate reunification, which is distorting its economy, or France, which needs labour market reform—
I am delighted to speak in this evening's debate. As the hon. Member for North Durham (Mr. Radice) suggested, I am one of those who signed the European Movement policy statement that appeared in The Times on Monday. That statement accorded with much of the Government's position on many of the major issues that now confront the European Union.
I am no more a Euro-federalist than the great majority of Conservatives in the House or the country, but I wish to see the United Kingdom play a full role in a union of sovereign nation states. By full role, I mean that we should cease to play Eeyore at every possible opportunity. I have no doubt that the unhelpful policies adopted by the EU over bovine spongiform encephalopathy have been backed much more enthusiastically by some countries that are aghast at our frequently obstructive attitude.
Today's debate is principally about the economic issues facing the EU, particularly the single currency. I am pleased that we have started to discuss the practicalities of a single currency rather than simply indulging in polemics.
Yesterday, I and a number of right hon. and hon. Members on both sides of the House enjoyed a working lunch with senior members of the retail industry. They expressed their aspirations and fears about the changeover to a single currency should the United Kingdom decide to join such a currency. They did not express a view either way as to whether we should or should not join, but they identified the possible difficulties of training staff, educating customers and reprogramming cash-handling equipment. They pointed out the considerable advantages of a "big bang" approach—a direct changeover rather than running two currencies in parallel.
The retailers pointed out how unsuitable a date 1 January would be, as it falls in the middle of their busiest time of year. Mid-February or mid-October would be much better, they said. They asked for national and international consultation, and I trust that that will happen, for the retail industry will need at least three years' lead-in time to make a smooth transition to a single currency. They were particularly worried about over-prescriptive arrangements for pricing, especially unit pricing. Our retail friends were, however, able to appreciate the advantages that the low on-costs in Britain would have on much more transparent pricing across Europe. Lower prices in Britain could significantly benefit British retailers.
The discussion with people who will have to adapt their businesses to the introduction of a single currency if—or more likely, when—it occurs was very useful and practical. It was also a good example of why my right hon. Friend the Prime Minister has been absolutely right to keep the British option open to the point where the whole scheme and its regulations and mechanisms will be negotiated and agreed. The Maastricht opt-out negotiated by my right hon. Friends the Prime Minister and the Member for Kingston upon Thames (Mr. Lamont) was indeed precious.
I am no great economist and do not pretend to be able to foresee the macro-economic consequences of a single currency, but I am not alone. In June, I attended a Confederation of British Industry conference on business in Europe. Some of the great panjandrums of British industry were there, telling the Government that they had to give a great lead to our push for European business.
Somewhat imprudently I asked those great leaders for a lead from industry on whether the United Kingdom should join a single currency in the first wave. There was a nervous coughing and spluttering into their sleeves by the chairmen of BA—British Airways—BP, BT, and B almost everything else, but answer came there none, for there is no certainty even among the major companies represented in the CBI about whether we should join.
No one knows what impact our participation—or perhaps our non-participation—in the first wave will have on the City, which is Europe's and possibly the world's pre-eminent financial centre. It would indeed be surprising if some of EMU's fiercest critics were not to be found in the ranks of foreign exchange dealers—self-interest is probably viewed as a quality in those circles.
What I do know is that if the Government had closed the possibility of the UK joining a single currency before May 2002—the probable end of the next Parliament—and a single currency introduced by our partners in our absence had a seriously deleterious effect on the City's complex but vital markets, the British Government would have been grossly negligent in their duty to do what is best for Britain.
There is great uncertainty about the impact on various aspects of our economy of a properly constituted single currency scheme. Will it lead to substantial employment migration from the poor south in Europe to the prosperous north? With falling unemployment in the UK at present and rising unemployment elsewhere, such migration could and may be taking place now—hence blond, blue-eyed Finnish nurses in Hackney. Employment migration certainly takes place in the United States from time to time.
Resource transfer from northern to southern Europe, or in future to new entrant countries in eastern Europe, might be necessary to turn back that tide, but employment and resource adjustments are more a feature of the single market than the prospect of a single currency. They will happen whether the UK joins a single currency or not. EMU would not limit Parliament's powers to tax and spend, although it would prevent future Governments from avoiding the consequences of their decisions. We could choose to be a low-tax, low-spending economy or a high-tax, high-spending economy. We could not be a high-spending, low-tax economy and cover the deficit by borrowing or monetisation—but only an irresponsible Government would want to do that.
Britain has been remarkably successful in attracting investment into Europe from outside Europe, as several of my hon. Friends have said, and 40 per cent. of American and Japanese investment comes here. The European operations of three Japanese second or third-line companies are located in my constituency, partly for Gillingham's unique connections with Japan but mainly for the reasons why so much inward investment comes to the UK: the English language, benign company and individual tax regimes, a flexible and relatively well-trained work force, low social on-costs for labour, and so on. Above all, as my hon. Friend the Member for South Derbyshire (Mrs. Currie) said, companies from the US, Japan and other major far eastern countries set up their European operations here because we are in Europe. Those of my hon. Friends who advocate staying clear of any closer links with Europe, whether economic or political, and furthermore advocate a progressive disengagement from Europe, neglect to tell us what might happen to the hundreds of thousands of jobs already created here by inward investment or to such investment in the future, if their proposals were adopted.
For my part, I am convinced that it remains the duty of the Government to fight for Britain's interests in a Europe to which it fully contributes; to exercise our privileged position of opt-out or opt-in to a single currency at the proper moment; and to retain the possibility of reconsideration at a later date if we decide not to join in the first wave. It is a wise politician who never says never. The United Kingdom should have learnt the lesson of Messina. Joining someone else's club without the opportunity to contribute to the rule book always means being a second-class member.
The hon. Member for Gillingham (Mr. Couchman) made an interesting speech, but the question that I wish to raise at the conclusion of today's debate is what sort of nation we want Britain to be in the future. Those in the Conservative party who attack the Prime Minister's policy frequently tell us what they do not want our future to be. They do not want us to be part of a federal European super-state ruled from Brussels, and we can all agree with that, but what they do not tell us is what sort of nation they do want us to be. Like it or not, Europe and the world are changing and we must change as well. We cannot stay as we are because our role in the world will change and the question is what we want that change to be. Conservative Members sometimes give the impression not only that they want our role to stay as it is now, but that they want it to return to what it was 100 years ago. That will not happen. We must be realistic in making a shrewd assessment of the future role that Britain can play in the world.
Let us suppose that we stay out of European monetary union for good. Most European countries will join it and it will extend to much of Europe the success that the deutschmark has enjoyed in Germany since the war, with low inflation and low interest rates. The euro will stand alongside the dollar and the yen as one of the world's three main currencies.
If we stand outside and stick with the pound, what will be our place in the world? Some 20 minutes away through the channel tunnel, one of the world's strongest currencies will be operating. More than half our international trade will be with the euro zone. We will have higher inflation, as we do now, and given the tradition of devaluation that has continued to flourish since 1979, we will have higher interest rates, as we also do now. Is not the reality that we would be locked into permanent economic weakness?
We have a poor record on investment, which is at the heart of our current economic weakness, and the weakness of our currency against the whole euro zone will simply make matters worse. It is true that we have captured a large share of the investment coming from outside Europe, but the benefits of that are dwarfed by the problems of the small investment in the United Kingdom by ourselves, so that our total level of investment is much smaller than elsewhere and much less than it should be. Permanently higher interest rates in the UK than in the whole euro zone will simply make matters worse.
It is not only our economic prospects that will be so gloomy if we stay for ever outside monetary union. We need to square up to the much wider question of our role in the world and, indeed, our sovereignty. Given economic and monetary union, Europe's main economic decisions will be made in Frankfurt. We will inevitably follow whatever is decided there because our trade is so dominated by countries in the euro zone. If we are not in the monetary union, we will have no say whatever in those decisions, but we will be profoundly affected by them. Surely the sovereignty argument, which is frequently articulated by Conservative Members, pushes us to be inside monetary union rather than outside it, because at least that way we will have a say in the most important decisions about our economy which, as I say, will be made in Frankfurt whether we are there or not.
I submit that being a committed member of a strong European Union—pooling our sovereignty in some areas in order to exercise our influence through the European Union and seeking to win the arguments about how Europe should be run—presents an attractive future for Britain. That approach would retain for Britain in the new millennium the influence that we have enjoyed in the latter part of this one, but in a modern form that can prosper in the new conditions of the world economy.
That will work only if the governing party ceases to be rent asunder by people arguing that we should not be involved. As the Prime Minister recognised on Sunday and again yesterday, he cannot win the arguments in Europe with the current shambles at home. Given a consensus in the governing party, participation in Europe—including in monetary union—holds out an attractive future role for our nation consistent with our history and with the reality of our current strength as the home of just 0.5 per cent. of the world's population.
What sort of future role do those who want us to stay outside monetary union or to leave the European Union want Britain to have? We know that they do not want Britain to be in a federal super-state, but what do they want? Some, undoubtedly, want Britannia to start ruling the waves again. My suspicion is that their position is based on an unrealistic view of Britain's place in the world. If that is not what they aspire to, what do they aspire to?
The realistic alternative to membership of economic and monetary union is for Britain to be the Canada of Europe. I am not denigrating that option. We need to have a cool debate about the realistic possible roles for Britain. Canada has its own currency, but its economy is dominated by the huge and powerful United States economy to the south. It is a great country. Those who argue against economic and monetary union may well want Britain to be the Canada of Europe, but Canada is a bit player on the world stage. What happens in Canada does not set the pace for the rest of the world. Music, fashion and sport from Canada do not set the world ablaze; music, fashion and sport from Britain do. I do not think that the British people want to be consigned to that role. We have much more to offer and much more to gain.
If we allow ourselves to keep our own weak currency and our economy is dominated, as it will be, by the strong European currency over which we have no influence, damage will be done not just to our economy but to our role in the world. By exercising influence through Europe, we can retain a role consistent with reality and with our history.
Playing a full part in Europe also holds out the prospect of a decent future for all our people, not of large numbers sliding into ever greater disadvantage compared with the few. As my hon. Friend the Member for Linlithgow (Mr. Dalyell) said earlier, that is why the trade union movement supports monetary union. It was striking that of all the major institutions to give evidence on monetary union to the Treasury Select Committee, the Trades Union Congress was the most supportive of the project.
It may not be possible for us to join monetary union at the outset, but we should not fool ourselves that sitting around and waiting to see how it works out before deciding whether to join will solve the problems. All the Chancellor's concerns about giving up our seat at the table would then arise again and the union that we eventually joined would have been completed in our absence. Missing the first wave and going in late would cause serious problems, as the Treasury Select Committee report points out.
I should like to comment briefly on the recent alarm about unfunded pension liabilities in other European countries. That is a red herring. There are plenty of ways of dealing with the problem without damaging the United Kingdom economy. It is certainly not a reason for us not to enter the single currency.
I represent an east London constituency, which has the characteristics eloquently described by my right hon. Friend the Member for Llanelli (Mr. Davies). My constituents in Newham are looking forward with optimism to a future with closer links with Europe. We are looking forward to the construction of the channel tunnel rail link, with an international station at Stratford, and to the subsequent investment in the area from European countries. The United Kingdom economy has not provided the opportunities that my constituents should have had. The European economy can provide those opportunities. I want a Government who will grasp and exploit them, rather than one who are poised to throw them away because of their divisions and their fearfulness for Britain's future in Europe.
The speech of the hon. Member for Newham, North-East (Mr. Timms) underlines the reality demonstrated by this debate—that there is, across the House, strong support for a positive and constructive relationship with Europe and for maintaining our option to enter or stay out of a single currency. Clearly, the Labour and Conservative parties have sizeable minorities who are hostile to Europe. We have seen a document signed by 50 Labour Members of Parliament who express that opinion, and I imagine that a similar number of Conservative Members share their views. But they are not the majority, and they have been made to appear so by the press—about which so much has been heard in this debate, and rightly so.
We are halfway through this important debate—which I greatly welcome—and its value has been demonstrated. The real voice of the House of Commons needs to be heard above the xenophobia and paranoia to which we have grown accustomed over the past two or three years. We have now been able to see a little of what the Euro-sceptics actually believe in. In my view, scepticism is not a genuine political position—one must believe in something.
We have seen a series of contradictions from the sceptics on both sides of the House. They believe, for example, that a single currency will not work and that it is a leaky ship. They think that it will be a disaster, and they may well be right. As my right hon. and learned Friend the Chancellor has pointed out, it could conceivably turn out as they say. I think that that is unlikely, for reasons on which I shall touch in a moment. But those who say that this is a hopeless cause, a leaky ship and a dreadful mechanism that will impose terrible and insupportable burdens on our economy and will make us pay money that we do not have cannot have it both ways.
The sceptics in my party cannot claim to be good Conservatives, and I speak as someone with dry, right-wing credentials—that is, I believe in good housekeeping and all the other good monetary disciplines that are, to a degree, enshrined in the Maastricht criteria. I do not believe that any country can devalue its way into prosperity, and experience over the last generation has demonstrated that. Yet my hon. Friends—who, in months and years gone by, seemed to share those views—now reject them because the views have been embraced by the nasty, suspicious and scheming continentals. It does not negate the sanctity of those principles if other people have now discovered—albeit belatedly—that they are good ideas.
Frequently, the German bogey is brought out of the box. The fear is that, having failed in two world wars, this is the way in which the Germans will achieve domination over western Europe to start with and eastern Europe the day after tomorrow. Oddly enough, the German people seem unconvinced of that and, at the moment, the majority of German people are deeply suspicious. Some 60 per cent. or 70 per cent.—depending on which opinion poll one believes—have yet to be convinced by their political leaders that joining a single currency is a good idea. If I were a German who had worked hard for 45 or 50 years to maintain and develop a stable and strong economy and a stable and strong deutschmark, I would take a lot of convincing that I should launch the deutschmark into a system with other currencies with less impressive track records.
The Euro-sceptics refuse to face up to many challenges and constantly make negative attacks, but they face a conundrum. What are the other countries up to? Why are seven, eight or nine countries trying every trick in the book—I accept that there are some tricks being played—to get into the single currency?
Those countries live in much closer contiguity to the Germans than we do and they have genuine experience of German domination and understand much more clearly the realities of Germany. But are they stupid? Are they ready to give away their sovereignty, or do they know something that our Euro-sceptics do not know? I suggest that the answer is the latter.
We must also take account of the possibility that those countries are ready to throw away all their achievements, yet the record of many of them over 30 years is better than ours. In 1965, one could get more than DM11 for a pound and now one can get only DM2.30 or DM2.40, or whatever the rate happens to be today. I cannot believe, therefore, that either the Germans or any of the other countries will launch a ship that will sink within a year or two. We shall have to wait and see, but that seems highly unlikely.
The sceptics tell us that our trade opportunities with the rest of the world are wonderful, and I believe that they are, thanks to the Government's stewardship, but we should not forget the balance of trade and the almost 60 per cent. of our trade that is conducted with European Union countries. To put the matter in perspective, we should remind ourselves that our trade with the Netherlands amounts to as much as our trade with the six Asian tigers, China, Indonesia and the Philippines put together, and that our trade with Sweden amounts to as much as our trade with the whole of Latin America.
My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) suggested that economic success had proved that the United Kingdom could prosper without the single currency, but of course there has not been a single currency. We are dealing with the world as it will be. There is no doubt that, at whatever time and in whatever shape a single currency comes, it will come, so it cuts no ice to suggest that we have done well without it.
My right hon. Friend the Member for Kingston upon Thames also said that he welcomed the opportunity to go it alone in monetary affairs. He had the honour of being Chancellor of the Exchequer. Of all people, surely Chancellors of the Exchequer know that going it alone in monetary affairs is not exactly an option.
On interest rates, it is interesting to note that our borrowing costs are somewhere between £5 billion and £7 billion more than Germany's, because interest rates there are much lower. If we had the German rates, the savings would mean a cut in income tax amounting to £10 a week for the average household. The chances are that a sound single currency will enable us to live with lower interest rates, and we must bear such factors in mind for our constituents' sake.
Some of my hon. Friends say that the majority of people in this country are doubtful and suspicious of the European Union and, more especially, of the single currency. I accept that that is true—it is also true, as I said, in most if not all the countries of the European Union—but it is the job of responsible politicians to lead and educate the electorate and not merely to listen to and follow them.
This debate has demonstrated that, to put it mildly, our minds should he kept open about the beneficial effects of a single currency. It would be a gross dereliction of duty to fail to lead the British people in the paths of common sense simply because Mr. Christopher Booker and the newspaper editors and owners about whom we have heard so much have misled them. I am glad to say that the debate has demonstrated that the majority of right hon. and hon. Members have that common sense, and I hope that we shall hear more of it in the months to come.
This is the debate that the Government did not want. A couple of weeks ago, they tried to sideline debate on crucial issues relating to the stability pact and the single currency to a backstairs Committee. It was only because ordinary parliamentarians, both Government and Opposition, were so outraged at their behaviour that we are having this debate on the Floor. The British constitution relies on the Executive's abstinence from the abuse of power: it gives great power to an Executive with a majority. Members of Parliament protect their right to debate issues. That is the check on Executive power. The Government tried to undermine the rights of Back Benchers by denying them the right to an open debate on the Floor on the single currency documents.
That sounds strange from a Front-Bench spokesman of the Labour party. It has just passed party regulations that mean that anyone who speaks out of line will be thrown out. They all have to be drones and clones in the Labour party now.
In our party, we have sensible, reasoned debates. One could hardly call the Conservative party's debates sensible or reasonable.
The Government tried to prevent proper debate. Even now, they are trying to deal with the issues through a debate on the Adjournment because they are frightened of a vote that they might lose. They could not pass their resolution in European Standing Committee B and fear that they will be embarrassed on the Floor. They have become so bereft of proper respect for the British constitution that they are prepared to hide their embarrassment about the divisions in the Tory party by frustrating the right of Members of Parliament to debate and vote on fundamental issues. Those who elect us deserve better than that from the Government.
I do not want to criticise the Chancellor of the Exchequer too much; he has had enough criticism from his Back Benchers. In any case, I agree with much of what he said. As he spoke today, we watched the ranks behind him seethe. They were splintering before our eyes. The right hon. Member for Honiton (Sir P. Emery) referred to the barracking of the Chancellor. The Chancellor was supposed to be speaking for his party, but I suspect that his view was not that of the majority of his Back Benchers. As his speech went on, it seemed more like a personal manifesto—his personal commitment to the European ideal. The exchange with the right hon. Member for Wokingham (Mr. Redwood)—in many ways, the personification of Tory divisions—seemed like the first shot in the post-general election leadership campaign. The inevitable conclusion about his speech was that the Chancellor spoke for himself, not for the Government and much less for a majority of the Tory party.
Recent newspaper headlines have expressed the consternation felt by the British people about the fiasco of Tory European policy. One Sunday newspaper called it
Major's Meltdown—ruin upon ruin and rout upon Tory rout—the kites did not fly, boomerangs exploded and scooters were parked on lawns.The Sunday Times headline was "Divided we fall" and it had a picture of the Prime Minister and the Chancellor, saying:
Defeated and divided they could wander in the wilderness for years, even decades".
It implied that the Chancellor and the Deputy Prime Minister were more concerned with the post-general election civil war in the Tory party than with the belief that the Tory party, even if the current policy is sustained, would ever be able to take Britain into a single currency.
The Mail on Sunday said:
thousands of Tory supporters this Sunday morning will be embarrassed and humiliated by the warfare among their party's leaders.
The Mail on Sunday shares that embarrassment and humiliation.
It demanded that the
Prime Minister should sack Ken Clarke tomorrow.
The Sunday Telegraph headline was "The week John Major's Government fell apart". The following day, The Independent said of the Prime Minister's interview:
All the Prime minister says is … 'trust me I'm honest John' … He isn't. And there are too many in his party who too obviously don't trust him.
The Prime Minister said that there would be no change in policy, then that there might be, then that there was never any thought of changing it.
The hon. Member for Hayes and Harlington (Mr. Dicks) is quoted in The Daily Telegraph as saying:
I am in two minds whether to tell him to stuff his Government and his party.
The hon. Member for Reigate (Sir G. Gardiner) was quoted in the same newspaper as saying, "The strife goes on."
The former Paymaster General—or should I say the former, former Paymaster General?—the right hon. Member for Wells (Mr. Heathcoat-Amory), said that he would tell his constituents that he would vote against a single currency. He is quoted as saying:
I cannot be expected to regard this as a breach of Party Policy since, as we have been told, there is no Party Policy.
Today, he continued his attack on his Front Benchers.
On Monday, Lord Tebbit said:
If there is clear division and everybody knows about it, between the Chancellor and the Prime Minister, the Government is in desperate problems.
The Financial Times said:
The electorate will not support a party which puts its own internal squabbles ahead of the national interest.
I am listening to the hon. Gentleman with some care, but some puzzlement. Many hon. Members on both sides of the House are very much in favour of future developments in Europe. We would much rather hear what the Labour Front-Bench spokesman thinks about that.
If the hon. Lady waits a little while, she may well hear that. I am coming to her.
During the debate today, we heard about the fears of the hon. Member for South Derbyshire (Mrs. Currie) for her party. She said that, if the policy was to change and the Euro-sceptics got their way, she could no longer stand as a Conservative candidate. That symbolises the strife within the Tory ranks today. Not only have Conservative Members joined the Opposition but some Conservative Members feel that, although they cannot do that, they are no longer prepared to carry the Conservative banner into the next election.
What is the Labour party's policy on the matter of convergence? Given that the Library reports that Belgium has a national debt of 130 per cent. of GDP, and it is unlikely that that will reduce below the 60 per cent. threshold in time for the first wave of monetary union, does the hon. Gentleman agree that Belgium does not qualify for monetary union? Will he confirm that that is his interpretation of the Maastricht criteria?
We are talking about sustainable economic convergence. I am not sure why the hon. Gentleman is so vexed. It seems from all his speeches that he has already decided what he is going to do. Why would he bother to get involved in the realities of the debate facing his Chancellor, who is trying to make a reasonably argued case against the hon. Gentleman and his colleagues on the Back Benches who do not support their Chancellor? What about the right hon. Member for Kingston upon Thames (Mr. Lamont), who talked of distrust and betrayal over Europe? He is right, to the extent that there is distrust because the Government put the party before the country. There is betrayal because the Government failed to get the best deal in Europe for Britain.
The Chancellor is not without some support among his Back Benchers. I have already referred to the hon. Member for South Derbyshire. The right hon. Member for Mid-Sussex (Mr. Renton) made an interesting speech in which he warned that we could not assume that there would be a second opportunity to join a single currency.
Many good points were made by my hon. Friends. My hon. Friend the Member for Ilford, South (Mr. Gapes) challenged the right hon. Member for Kingston upon Thames on his complacency about the City's position. My hon. Friend the Member for Linlithgow (Mr. Dalyell) asked whether we wanted Europe to go ahead, leaving Britain behind. My hon. Friend the Member for Rotherham (Mr. MacShane) gave a timely warning which the Chancellor might like to repeat to some of his Back-Bench colleagues. He said, "Remember when Labour was anti-Europe in the 1980s. A fat lot of good it did us."
My hon. Friend the Member for Newham, North-East (Mr. Timms) asked what sort of vision for the country the Euro-sceptics have. The answer, he said, was none. They hanker after an old empire—an old Commonwealth. Our future is in Europe, he said. The Tory Euro-sceptics might disagree with that, but, as my hon. Friends the Members for Streatham (Mr. Hill) and for Kingston upon Hull, West (Mr. Randall) pointed out, European co-operation can be both effective and successful for Britain if we get it on the right terms.
My right hon. Friends the Members for Bethnal Green and Stepney (Mr. Shore) and for Llanelli (Mr. Davies) made strong contributions to the debate on this issue in the Labour party. Let me point out that there are debates within all parties—it would be a poor reflection on our democracy were there not. These questions are of fundamental political importance, which is why we welcome contributions from my right hon. and hon. Friends who question a single currency.
The policy of a Government must be clear and a Prime Minister must lead—the Government owe the British people a clear sense of direction. Debate within a party is fine—it may even be healthy on occasion—but the Prime Minister must give leadership and this Prime Minister, on Europe, has failed to lead. A Labour Prime Minister, with a united shadow Cabinet and backed by a vote within the Labour party supported by 95 per cent. of the party's membership, will have a clear direction, a clear sense of policy and a clear way to lead.
From this Government, we have seen nothing but extraordinary splits, plotting and counter-plotting which extends to the highest reaches of the Tory party. We have a Chancellor who is quoted as talking of "a boomerang wrapped up in high explosive which has rebounded in the Prime Minister's face". The Conservative party is clearly in ferment. The BBC's Mark Mardell said that one Cabinet Minister told him that the party is "in chaos" and that the Chancellor is running policy, not the Prime Minister.
It all started with that now infamous story in The Daily Telegraph, that the Prime Minister was trying to push the Chancellor into ruling out a single currency in the next Parliament. Then the Chancellor and the Deputy Prime Minister swung into action: the Prime Minister was brought to heel. In the last week, the Tories have had the smack of firm leadership—not from the Prime Minister, but from the Chancellor. The Chancellor is the nearest the Government have to a leader—a tough and determined fighter for his pro-European beliefs. The Tories have a leader in Downing street—at No. 11. He sets the policy and the terms of government.
The Prime Minister was prepared to buckle under to the sceptics on his Back Benches, but the firm hand of the Chancellor steadied him in the pro-European course. When the Prime Minister, at Prime Minister's questions last Tuesday, tried to appear firm by committing the Government to a clear policy in defiance of his Back Benchers, one could almost see the Chancellor and the Deputy Prime Minister metaphorically standing behind him, exerting a steadying grip on each shoulder—or perhaps around his throat.
Even as the Prime Minister wavered, the strong Europhiles in the Cabinet showed their backbone. As the captain steered toward the rocks, the first mate and the bursar grabbed the wheel and put the ship back on course. The mutinous crew is still mutinous, but it appears that, from now on, the captain will do as he is told by the first mate and the bursar—but I suggest that there will be few votes from the public in favour of taking another passage with a crew so divided and at each others' throats as this one.
It is clear that the Chancellor and the Deputy Prime Minister have imposed on the Cabinet a strategy on the single currency that is closer to Labour's policy than to the view of the majority of Conservative Back Benchers. The Prime Minister is the prisoner of the Chancellor and the Deputy Prime Minister. As my hon. Friend the Member for Western Isles (Mr. Macdonald) implied, there is now clear blue water between the Tory leadership and the Tory party.
We all know the Chancellor's views and those of the Deputy Prime Minister. We know that most Tory Back Benchers broadly disagree with them. We know that the Prime Minister "goes wobbly" from time to time and that the Chancellor has to prop him up. We know that part of the deal is that the Chancellor does not tell us in Parliament what he has really agreed to at ECOFIN, nor can the Prime Minister concentrate on what he agrees at Dublin. Both must tell the House, not what they have done, but what they have not done—that they have not betrayed their Back Benchers. That is how the whole thrust of Government policy on Europe is now directed—to play down any moves towards European agreement and movement forward. They have had to raise isolation to an art form to keep their party together.
The Chancellor claims that binding decisions were not made on monetary union in Brussels on 2 December. The reality is that, with the exception of the definition of "exceptional and temporary" and one or two other small issues, most of the rest of the detail was agreed at various meetings over recent months. There has been a legal base set for the euro and a basis for a new, voluntary exchange rate mechanism. Many of the provisions of the stability pact have been negotiated by the Government.
It is disingenuous to claim that there is no agreement until it is legally binding in June. Either the Government keep the political agreements that they have made or they do not—and most of the agreements have already been made. The idea that it would be practicable for us to reopen all those issues next June is preposterous. The Chancellor is wary of admitting that, because he might exacerbate the civil war in his own party by doing so—yet that civil war goes on.
On Monday, we discovered that the hon. Member for Billericay (Mrs. Gorman) planned for a referendum on complete withdrawal from Europe. The former Tory Minister, Sir Leon Brittan, accused the sceptics of damaging Britain. Lord Tebbit has said that 100 Tory candidates are set to defy the leadership in their personal manifestos. The Tory party is split from top to bottom.
I thank the hon. Lady for clarifying that point. I accept her clarification, but publicity on the Bill has not been as clear as it should have been.
Labour will fight the next election in favour of constructive engagement in Europe. The Conservatives will claim that that means that we will sell out, but that is just more Tory lies. Labour will defend our national interests in Europe, instead of making a laughing stock of us as the Tories do. Labour opposes a federal state, remembering that those who signed Britain up to the Single European Act at Maastricht were the Tories. Labour will not give up our veto on strategic policies.
Constructive engagement means improving our relationship with our European partners, not squabbling with them for the purposes of domestic party consumption. It means putting British interests at the heart of Europe, not, as the Tories do, playing the British hokey cokey in Europe—in out, in out, shake it all about—a pointless little dance that no doubt placates Euro-sceptics' egos but, by turn, merely irritates and amuses our European partners.
The Government have not put Britain's interests first in Europe; they put their own political survival first. They damage relationships in Europe to please their Euro-sceptic rump. Tory divisions mean that the Prime Minister is selling Britain short. Labour will protect our national interests. We demand that Britain becomes a leading player in Europe: setting the agenda, not failing to do so; winning and not losing the debate; demanding the spotlight, not heckling from the sidelines. Labour will point the way forward for Europe while the Prime Minister wrings his hands in eternal indecision.
We shall ensure that we drive the single market forward in telecommunications, aviation and financial services. Whether Britain is ready to enter economic and monetary union on 1 January will not alter the necessity of our future being in Europe. That is why the current state of the British Government is so damaging to our people. On Europe, the Tory party is divided, disorganised and disgraceful. It is letting down itself, the country and the British people.
It is time to get rid of this tired and discredited Government. This country needs vision, direction and leadership in Europe. It will get all three from new Labour: on economic and monetary union; on the regeneration of the British economy; and on giving Britain increased influence on Europe.
We have seen the Chancellor's struggle to reconcile his views with those of his party—[Interruption.]
In a debate in which hon. Members have had 10 minutes to speak, the Opposition Front-Bench spokesman, the hon. Member for North Warwickshire (Mr. O'Brien), has taken 19 minutes to wind up. I hope that that will be noted.
My right hon. Friend the Member for Witney (Mr. Hurd) made a series of points with which few people would disagree. He stressed the importance of liberalisation, and said that he was against a united states of Europe and for a referendum on a single currency. Most hon. Members, including my right hon. Friends the Members for Honiton (Sir P. Emery), for Conwy (Sir W. Roberts), for Guildford (Mr. Howell), and for Mid-Sussex (Mr. Renton) and my hon. Friend the Member for Wycombe (Mr. Whitney), would not disagree with that and made similar good points.
My hon. Friends the Members for South Derbyshire (Mrs. Currie) and for Gillingham (Mr. Couchman) made some good and important points about the success of inward investment into Britain in recent years.
My right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) said that the float of sterling in 1992 was a cheat. I think that he implied that markets were cheats, but I do not wish to dwell too long on that aspect. He stressed the need to remain positive members of the European Union, and most hon. Members would agree with that.
My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), together with my hon. Friends the Members for East Lindsey (Sir P. Tapsell) and for Stafford (Mr. Cash) made a series of points from a slightly different angle. Nevertheless, I found plenty to agree with in their comments, although I shall not dwell on them in detail.
My right hon. Friend and predecessor, the Member for Wells (Mr. Heathcoat-Amory), asked whether the transitional costs of moving to a single currency would be taken into account and whether a compliance cost assessment had been made.
As time is limited, I would appreciate it if I could answer the point. The Government have made it clear that their decision on whether or not to go forward into a single currency will take account of a large number of factors. Transitional costs will be one of those factors. A compliance cost assessment will be made in due course.
The Government published a White Paper promising a compliance cost assessment for, any regulations brought before the House affecting business costs. Regulations were submitted to the House three weeks ago without a compliance cost assessment. Will my hon. Friend undertake to correct that deficiency at an early date, and not next year?
With respect to my right hon. Friend, my point is still valid. Those regulations will not apply to Britain unless we make a decision to go into the single currency. At that point, if necessary, a compliance cost assessment will be made.
The hon. Member for Streatham (Mr. Hill) attacked with great vehemence a document entitled "Europe isn't working". He called its claims myths. That document was signed by 50 of his colleagues.
That is an interesting insight into the unity on the Opposition Benches.
The hon. Member for North Warwickshire said in his long peroration that his party had sensible and reasoned debates on these matters. The comments of the hon. Members for Streatham and for Rotherham (Mr. MacShane) are the denial incarnate of that.
The hon. Member for Streatham said that a single currency would not reduce sovereignty. He said that EMU means lower interest rates, so we should join. How does he know that EMU will mean lower interest rates? We will not know that until we know whether the criteria are being fiddled with and meddled with. That is why the Government's policy of negotiating and waiting until we are clear on these matters is the right policy.
I hope my hon. Friend will forgive me. We have limited time. I shall try to give way later.
The right hon. Member for Bethnal Green and Stepney (Mr. Shore) came in from a slightly different side of the pitch. He said that he did not want foreigners telling us what to do. For an old socialist, there was not much of the brotherhood of man about his comments, but I know that they represent the views of some of his colleagues.
The hon. Member for Ilford, South (Mr. Gapes), by contrast, said that we should go into EMU at all costs. The hon. Member for Walsall, North (Mr. Winnick) said that we should not go in at any cost. The right hon. Member for Llanelli (Mr. Davies) said that those who want to go into EMU will use any trick to get into EMU. The hon. Member for Kingston upon Hull, West (Mr. Randall), who wants to go into EMU, is probably one of those to whom the right hon. Gentleman was referring.
The hon. Member for North Durham (Mr. Radice) said that Euro-sceptics are dangerous. I assume that he includes in his list the right hon. Members for Llanelli and for Bethnal Green and Stepney, and the hon. Member for Walsall, North, who are Euro-sceptics.
I hope that my hon. Friend will forgive me for a moment or two longer. I shall give way in a moment.
The hon. Member for Rotherham persists in getting my title wrong, although tonight's performance was a slight improvement on his last effort, when he called me the Posthorn General. He said that I was a Euro-sceptic and therefore I was hostile to Europe. He is right in one respect. I am a Euro-sceptic. That does not necessarily mean that one is hostile to Europe. It means that one is sceptical about Europe. One is pragmatic about Europe. [Interruption.] That is not the same thing.
Does my hon. Friend—who, of course, is a Euro-sceptic; we are sure of that—accept that anyone who says:
under no circumstances should the Government rule out participation in a single European currency, now or in the future
is saying something that is inconsistent with Government policy? Has he noted the advertisement placed by the European Movement, bearing the names of a lot of people who are blaming the Euro-realists but who themselves are inconsistent with Government policy?
We Euro-sceptics really should stick together, but I do not necessarily agree with my hon. Friend's premise.
All that this shows is that all the political parties are having a vigorous discussion. There are people who say that we should not have a vigorous discussion, but I think that they are wrong. This is far the most significant issue that we have faced in my 14 years in this place; it is one of the most pivotal issues since the war, and probably in this century. Many people say that it is as important as our decision to join the Community.
I know that many hon. Members feel that it is wrong in principle for us to go into EMU, and that we should say so now. Others take a different view. Whatever the view, the fact is that a single currency will affect us, whether we are in or out.
Some people say that we could just sit on the sidelines and gain some atavistic, mercantilist pleasure from any mess caused by an EMU based on skewed and muddled criteria. Some say that we may even gain advantage from such a mess on the continent—a kind of "capitalism in one country". I am not sure that they are right. More than half our exports go to Europe; United Kingdom companies are major investors in Europe, and vice versa; monetary and political chaos in Europe would probably lead to an over-strong or at least a volatile pound. We must also protect the position of the City, one of our most successful industries.
Those are all reasons why we must be at the negotiations, and why we cannot make a decision until the final shape of EMU is clear. At that point we do have the option to say no, and, even if any Government decided that it was in Britain's interest to go in, the British people would have the final say through a referendum. That is the right policy.
I am grateful to my hon. Friend.
Constituents say to me, "Mr. Marlow"—[HON. MEMBERS: "Mr. Marlow!"] Actually, they call me Tony. "Tony," they say, "if we were to join the single currency, would that mean not only that we would lose the pound but that our interest rates would be decided overseas, and that eventually our taxation system would probably be taken over the Europeans?" They say, "Tony, does this effectively mean that we would cease to exist as a nation state?" I reply, "Yes, I believe that that is the case, but I can do better than that: I can ask my hon. Friend the Minister." Does my hon. Friend agree as well?
I think that my right hon. and learned Friend the Chancellor answered that point in his speech.
One has to be deeply suspicious of a party that has so lost its soul—that so wants to get its collective snout into the red boxes—that wants power so badly—that it is willing to perform gymnastics with its policies, and play games with an issue as important as the single currency. That is what Labour is doing. On 30 October, the shadow Chancellor said:
Our policy on the single currency has not changed and will not change.
On 11 November, in a speech to the CBI, he said:
Labour supports the principle of a single currency.
The Opposition said that their policy on EMU would not change. A few days later, they announced that they would prance along behind us and hold a referendum. Some people say that that was a ploy aimed as much at some of my hon. Friends as at anyone else—[Interruption.] I hear one of the shadow Chancellor's hon. Friends say, "Hear, hear." If that is true, it illustrates the cynicism with which the Opposition approach an issue of overriding importance.
I know that the response of some to Labour's latest change of policy is to say, "Let us put clear blue water between the Government and Labour." I am never sure that it is the right tactic, if one is occupying good ground and someone else muscles in, to jump off and swim for it just to put water between oneself and that person. Some would say that a better stratagem would be to chuck them off, but these are questions of judgment and there is clear blue water between the Government and the Opposition, despite the Opposition's attempts to poodle along behind us.
Only yesterday, the shadow Foreign Secretary, who we all know is at one with the shadow Chancellor on these issues—I make that point only to illustrate that we are not the only party that is wholly united on these issues—affirmed that it was Labour policy to surrender Britain's right of veto over key areas such as social, employment, industrial and regional policy—[Interruption.] The hon. Member for Gateshead, East (Ms Quin) says that they are not key areas, but they are. There is clear blue water between the Government and the Opposition. The Opposition want closer union and to take the next big leap forward towards a centralised Europe—that is the difference between them and us.
It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.