§ 7.1 p.m.
§ Mr. Oliver Lyttelton (Aldershot)
I think that some apology is due to the Minister of State for Economic Affairs for bringing him out of the skies from Geneva into this Committee by raising this topic at such short notice. The official documents have been in the hands of hon. Members for only a very short time. The conclusion of these conversations, however, happens to have come at an awkward Parliamentary time and we had no alternative but to raise the matter. It is true that the Chancellor has told us that our participation in the European Payments Union will require legislation, but already some irrevocable steps have been taken, mainly in regard to the liberalisation of trade. It may be that other almost irrevocable steps may have to be taken during the Recess, so we on this side of the Committee feel that the matter had better be discussed now if we are not to be faced with a virtual fait accompli when we return after the Recess.
I will be brief and avoid technicalities as much as the subject permits, which is perhaps not very much. I have three points to make. I wish first to urge the Government to give much more information about the sterling balances. Second, I want to applaud, in principle, any steps towards the convertibility of sterling, even in a limited area, and to welcome any sensible advance on the road to economic co-operation and solidarity in Europe. Third, I want to voice misgivings about some of these arrangements, and try to elucidate some information. As I have said they represent a general advance, but they also show that an opportunity has been lost. I think that their effect is to make sterling unnecessarily plentiful at a time when it appears to me to be in the national interest to make it scarcer.
My first point is a simple one regarding information. No one would deny that the sterling balances are one of the major factors in the whole of our economy, and are the most important factor in our exter- 2335 nal finances. The convertibility crisis of 1947 was, in my view, brought about very largely by too lavish releases of sterling balances. We consider that since the crisis releases have been too large and that that has contributed greatly to the crisis which led to devaluation.
Looking at the subject as a whole, blocked, semi-blocked and quick debts amounting to £3,340 million are of the highest importance to our position in the world. It is undeniable that we see here a strange Parliamentary paradox. No legislature in the world is more sensitive than is the House to any threat to its financial control of the nation's affairs. Much of our procedure is based upon this and shows its unmistakable influence. For example, we have spent, in one way or another, 13 days in considering the Finance Bill, in the course of which we have seen Amendments ruled out of order because they would create a charge on the public. It is very strange that minor financial matters should come so closely under the scrutiny of the House while we are left in ignorance about the details of sterling balances.
Am I justified in saying that we are left in ignorance? Those like myself who, in an unofficial position, have to deal in these matters, find a great conflict of views. I will give an example. In the "Banker" of May, 1950, an authority estimated the sterling balances of those countries within the European Payments Union at no less than £400 million. I happen to think that he was entirely wrong. The actual figure he put was £381 million of identifiable balances. My researches, carried on in the watches of the night, lead me to suppose that they were about £150 million. I was encouraged to find that the "Economist" of last Saturday had reached the same figure. In a written reply yesterday, the Chancellor stated that they were of the order of £200 million.
Surely it is unfair to the House that information should be so much delayed and that figures should be so difficult to obtain and so difficult to identify. The only official information which we have about the sterling balances embraced in the European Payments Union have been extracted from the Chancellor by the persistence and assiduity of my hon. and gallant Friend the Member for New Forest 2336 (Colonel Crosthwaite-Eyre). Getting information out of the Treasury on this subject of sterling balances is rather like pulling the back teeth out of a mule.
§ The Minister of State for Economic Affairs (Mr. Gaitskell)
Has the right hon. Gentleman ever tried it?
§ Mr. Lyttelton
No, but that is what I am told. It has far too often become necessary for my hon. and gallant Friend to act in the role of the extracting veterinary surgeon. If we are later to be asked to ratify the E.P.U., we should be given the detailed figures of these balances and be told by whom they are held.
I will give another illustration of why they are so important. We are quite at a loss to know what proportion of our total exports are paid for—I have been long enough in commerce to think that not an unimportant part of a commercial transaction—in useable currency. We are only told what the money value and the volume of our exports are. It is not very difficult to stimulate exports if at the end of the day, the so-called payment for them consists of a clerk in the Bank of England drawing a red line through a portion of a sterling balance. The sterling balances are the counterpart of unrequited exports. I enter a most earnest plea for greater information to be accorded to the House.
To turn to my second point, the E.P.U. is designed with two complementary objects—to create the convertibility of currencies in Europe, and, bound up with that, to liberalise intra-European trade. I often make the point that the prime object of our economic policy must be to make sterling into a convertible currency. It is necessary to repeat that this is an obvious objective only because so many actions of His Majesty's Government and so many speeches of His Majesty's Ministers—not those at present on the Government benches but others —would appear to neglect it. The campaign against the capitalist, on whose efforts recovery depends, the attack upon profits, the network of financial controls, the soaring level of taxation, are instances of what I mean.
We should welcome any scheme which tends to make European currencies convertible even if in a limited area. We must also welcome the participation of the United States in their attempts to put Europe on its feet, and the 350 to 2337 400 million free dollars with which she is backing the scheme. We on these benches have a rather strong impression that the general idea of European cooperation is viewed with reluctance, to put it no higher, by the Socialist Party. Socialism must always be isolationist in character. It does not readily thrive in a world of free exchange either of goods or currency. If I may say so, it also gives us as little paper as it can for the free exchange of ideas in our own country. Anything that broadens the frontiers of our economy is generally to be welcomed.
I dare say that the Government have sunk some of their apprehensions over E.P.U. in the desire, at long last, to become rather more "yes-men" and rather less "no-men" in European politics than they have shown themselves to be in the last five years. They have earned the title in European affairs of "inverted Micawbers." It is said that the British Government, unlike Micawber, are always waiting for things to turn down rather than turn up. So far, I hope I have made it clear that, if we are to make any contribution of value from these benches, we are entitled to far more information, and secondly, whatever we may think of the present agreement and however it has been worked out, it is at least a step towards convertibility and towards the liberalisation of trade which we welcome.
I do not propose to dwell very long on the subject of the liberalisation of trade, except to say that the pattern of European trade has shown some startling changes during the last decade, and it is very difficult to know what effect upon some of our industries this liberalisation may have. The subject does not range as widely as one would have thought at first, because there is a great deal of make-believe about the liberalisation of trade. The present arrangements, for example, do not affect tariffs and apply only to open licences, so that they prevent the quantitative restriction of imports.
Furthermore, the liberalisation of trade in Europe applies only to private trade carried on by private individuals, and does not extend to Government trading. All the operations, for example, of the Ministry of Food and the Ministry of Supply are excluded from the liberalisation arrangements, and Socialist doctrine is here seen to be prepared to swallow trade being liberalised if carried on by private 2338 individuals but takes great care to exclude its own trading operations from these arrangements. This does not surprise me in the least. It is part of the isolationism to which I have referred.
These exclusions have not escaped notice on the Continent, where they have a strange ring about them when we are talking about measures to liberalise trade and make currencies convertible. Such exceptions—and they are by no means inconsiderable—are blows at a free European economy, upon which the idea of E.P.U. is founded. I think it would be an exaggeration to say that the extra freedom of trade which will come as the result of the agreement will be negligible, but I do think that the number of commodities covered will turn out not to be very significant.
Again, to reinforce this point, looking at the tariff side of the picture, while it is good that no inroads are to be made into Imperial Preference, very much freedom is still left to manipulate tariffs against the liberalisation of trade and it has been not infrequently used. I have here an extract from the Economic Survey for 1949, which is a United Nations publication, and on page 102 it is stated:It is apparent that in a number of instances countries in the trade liberalisation programme have consented to drop their quotas of particular commodities, secure in the knowledge that their still existent Customs duties would provide adequate protection against outside competition.As in the case of French imports of certain foodstuffs from neighbouring countries, the effect has been the opposite of that intended under the programme, since the collection of duties had been suspended and their reimposition has proved to be a more serious limitation than the quotas which have now been dropped.Italy is now in the process of drastically revising its whole tariff schedule upwards, and in the meantime has not lifted quotas on any products for which tariff rates are being raised.So that, when we look at the liberalisation of trade, we find that, though it sounds a nice, rotund phrase, there is a great deal of make-believe in it, and these things have not escaped notice on the Continent.
On the other side of the picture, it is quite true that some new European markets are to be opened to us, and we must not regard as insignificant the effect of certain imports on some of our industries, which it is very difficult to foretell. The fact that we might have cheap imports of textiles might cause embarrassment in Lancashire, and I hope that the 2339 Minister of State for Economic Affairs will devote part of his reply to discussing the trade effects of this further liberalisation, because the Government must surely have some picture before them as to how it will affect our trade.
I now turn to the scheme itself, and I apologise to the Committee for plunging into these technicalities, but I would like to say something very simple at the outset. Surely, it should be the object of the Treasury and of this country to make sterling an ever harder currency? Or is that wrong? I remember a few months ago I heard two hon. Members of the party opposite discussing the meaning of "hard currency" in tones which I could not help overhearing. One of them said, "What is your definition of a hard currency?" And the other said, "Well, it is a currency that is hard to get." That may have been the definition of a layman, but I thought it was a felicitous definition, and not at all a bad one.
The object of those who are in charge of our affairs should be to make sterling harder to get. We should try to make sterling scarce and in demand, so that once again the £ sterling may be restored to its former strength and usefulness as a medium of international exchange, and I think it still has potentialities as being the greatest.
There are two main features of the present E.P.U. scheme which act against sterling becoming scarce, and make it too plentiful. The first is allowing our foreign creditors to draw upon their sterling balances and exhaust them in a short period. This injects into the general value of sterling sums which are at the present time partially dammed off from it. We must remember that the sterling balances with which we are dealing under E.P.U. are, in the main, balances which have arisen in the course of inter-European trade since the war. I think that is correct. They differ from sterling balances like those held by India and Egypt, which arose largely out of the war itself. I should have hoped to see these sterling balances dealt with in a more organised manner and released in smaller quantities over a longer period. To the extent that sterling balances are effectively blocked, sterling is made scarcer, and the quicker they are released, the quicker does sterling become more plentiful.
2340 I have some anxieties about the effect of paragraphs 33 and 34. Since paragraph 34 of the proposals for a European Payments Union lays down that any obligation by E.P.U. to make a gold payment to a creditor may be discharged in the creditor's own currency, can the Minister now tell us by what processes—and it is a rhetorical question—the E.P.U. can acquire a holding of the currency of a country which is, by definition, a net creditor of the Union? In particular, if the United Kingdom proves to be a net cumulative creditor of the Union, can the E.P.U. acquire sterling balances either as the result of any utilisation, within the terms of paragraph 39, of sterling balances held by other members on 30th June, or else can it acquire such balances as a result of the initial debit position to be accepted by the United Kingdom? Those are questions on which I should very much like to be reassured.
The second way in which sterling is made more plentiful under the scheme is by extending credits to those who buy our goods so that they do not have to find, at least currently, the sterling to pay for them themselves. I quite admit that this effect does not last for ever. Some day, and in some way not very clear, the sterling credits thus created will be repaid by the import of goods into this country by the transfer of gold, or, if we should change from being a creditor to a debtor nation, then the money owed to us can be used to balance the account if the trading position has changed. I emphasise that the immediate effect of opening credits is to create more current sterling, just as I have said that the effect of allowing people to draw on blocked sterling balances is to increase the current flow of sterling. I feel that in the European Payments Union negotiations there was a fine opportunity of tying up sterling balances in an orderly way, and a fine opportunity of making sterling more sought for and scarcer than it is now.
I turn now to the credit operations. We have to begin with an initial handicap of 150 million dollars or units at the outset. That, at first sight, seems pretty hard and shows that we are intended to take a very full load in the clearing. On the other hand, I must concede that to include the sterling area as a trading whole, and not only Great Britain, is a 2341 very far-sighted move. But the E.P.U. seems to me to apply to a part of the world in which, at any rate at present, we are in a very favourable position. It cuts off a slice, so to speak, of the trading account of the sterling area in which we are likely to be, at least in the near future, in credit balance. To follow this up, since the exports of the Colonial Empire and of the Dominions overseas are paid for by payments into what I may call the common bank, namely, Great Britain, we may look upon the present pattern of European trade as being such that it is highly likely that Great Britain will be a substantial creditor, or, expressed in trading terms, will have a substantial balance of sales over purchases in the area covered by E.P.U.
Again, here is a figure which I should like to have confirmed. It appears to me from a study of the various documents that the sterling area had a surplus of current trade of about 300 million dollars in 1949, that is, on current trading account. It would help me if, in the course of the Debate, the Minister would confirm that figure, because the actual trading figures are considerably obscured by capital movement and the drawing down of sterling balances in the area. I got the figure from table 86 of the Economic Survey. The other figures would seem to be quite different.
I think, for the purpose of my argument, it would be better if I took a hypothetical illustration. Suppose within the year 1951 we had a favourable trade balance of 600 million dollars or units in E.P.U.—that is what [think we shall have in the current 12 months—what happens? It seems to me to be like this. From the 600 million dollars of favourable trade balance, we first have to deduct the initial handicap of 150 million dollars, reducing, so to speak, the favourable trade balance to 450 million dollars. Out of that 450 million, we are obliged to extend clean credits to the tune of 210 million, and that leaves what is outstanding at 240 million. Of that we extend credit to the tune of 120 million and should receive gold to the extent of 120 million. That is how it works. In other words, a favourable trade balance of 600 million is set up out of which we have received 120 million in gold. That seems to me to be making sterling unnecessarily plentiful. and, as I shall show later. this 2342 is evidence of the lack of confidence in sterling which is shown by the present Government.
Everything that is done in the E.P.U. is done on the assumption that in a not-long-distant future we are going to be in debit, and, therefore, the scale is always weighted in favour of the debtor. I think that is unfortunate. It is quite easy to say that we should have been obliged to extend these credits for a large part of this sum in any case, but I do not think that argument has much validity, because it is the scarcity of sterling and the pressure to get it, which builds up a currency into being an international medium of exchange sought after all over the world. For better or for worse, this scarcity of sterling has already been signed away, and, to that extent, sterling has been made more abundant and less scarce.
I think it is fair to say that, judged at short-term—and I do not want to overstate it anywhere—the effect of these credit operations is that under the scheme we should temporarily have made unrequited exports to the tune of 480 million dollars. Of course, at long-term these loans of 480 million have got to be paid to us in some form or other, but currently and for the moment they increase the availability of sterling.
There is a second way in which sterling is made more plentiful, and that is by the valorisation—I apologise for the word, although I think it is convenient—of sterling balances which become, first of all, the medium through which those who owe us currently for goods they have bought can pay for them. If that should not be so, then there is a provision in the agreement which obliges these sterling balances to be repaid with the help of E.P.U. within two years. I think, in principle, there is a good deal of vice in these arrangements, but since the Chancellor's written answer yesterday, I feel a little relief, because the total amount involved, though important, is not so massive. I think the right hon. and learned Gentleman used the phrase, "in the region of 200 million dollars." That figure, of course, has to be read in relation to the £3,340 million which is the total of the sterling balances.
I have the impression that into every line of the document can be read the lack of confidence which His Majesty's 2343 Government have in sterling. The balance is tipped, wherever it is possible, in favour of the minus country or the debtor, and I think that over the short period covered by the agreement, we are certain to be large creditors, and that, therefore, this is an unfortunate bias.
There is another matter upon which I should like to have some reassurance. I feel that with the large credit facilities which are now open, it is likely that Europe will increase substantially her purchases from the Dominions—there is nothing very bad in that—and that these purchases will ultimately take the form of sterling balances in London in the hands of the exporting Dominion. I am very apprehensive about how far and for how long this process can go on. We now know that out of £3,340 million of sterling balances, no less than £2,000 million are what might be called "sight" balances over which we have far less control and far less reason to claim control than over the other sterling balances which are the result of war debts. The unfortunate effect of this will be to increase the "sight" sterling balances in London. I think that will have a considerable effect, and I want to know what is the answer to that argument.
I feel that His Majesty's Government have been unduly timorous over this arrangement, and I repeat that they are always haunted by the idea of what has happened to them in the past. They have a prejudice in this matter. They are so accustomed to crises over two or three years that they see another one, even in this area. That is why everything facilitates the debtor from having to pay gold in this arrangement. They instinctively think that that is where they are going to be short. I do not believe they will be in this area. That is my third point.
To sum up, first, I most earnestly ask for more information about the sterling balances, not only in the E.P.U. area but elsewhere as well. It may be that we have some contribution to make from these benches. We should make that contribution much better if we were given this information. Secondly, I think this scheme is in the right direction, and I have pointed out that there are going to be large categories of trade which, in my opinion, are unaffected by this so-called liberalisation. Lastly, sterling is being 2344 made unnecessarily plentiful on current account. It is a commentary upon our times that an arrangement so complicated as this, although it is described in clear language, should have to be set up at all. It is almost beyond the grasp of those who are not experts, or who are not economists or cambists.
All that the scheme does is to try to replace the finely adjusted mechanism of the free market in exchange which used to rule these matters. When the right hon. and learned Gentleman described this scheme as one of the greatest achievements of European co-operation—he repeated it twice in his statement—he descended, for once, into hyperbole. Perhaps he did so because any evidence of British co-operation in any international agreement will be held as some evidence of enlightenment. However, I feel that a considerable opportunity has been lost. If it would be unfair and unjust to describe the scheme as a bad one, it would be positively fulsome to give it an unqualified blessing in its present form. We hope that some of the imperfections will be removed, and, if that is done as a result of any arguments advanced from this side of the House, we shall feel that this Debate has not been in vain.
§ 7.32 p.m.
§ Mr. Crosland (Gloucestershire, South)
The right hon. Member for Aldershot (Mr. Lyttelton) has given the scheme a rather less warm welcome than I thought it would have received from right hon. and hon. Members opposite. It was a little difficult to understand, from some parts of his speech, what was exactly the main line of his criticism, because once or twice he said the scheme was too timorous, and yet he went on to say it required from us sacrifices on too excessive a scale. Once or twice he said the scheme was not going far enough in liberalising trade, because it only covered private trading under open licence, and, on another occasion, that it was going dangerously fast.
I merely want to say something briefly on his general arguments, before coming to one or two general points of my own. The right hon. Gentleman argued very strongly that we were giving credits too freely and, therefore, making sterling too plentiful over the world and, possibly, undermining confidence in sterling in the future. I should have thought that, at the moment, this was a very exaggerated 2345 fear and, in any event, I do not think we should have this fear to too great an extent.
The worst possible result of making sterling too scarce, namely, that we should begin to lose gold on a considerable scale, is almost entirely ruled out by the many safeguards in the scheme against our losing gold.
§ Mr. Lyttelton
If the hon. Member will forgive me, I think he may have made a slip of the tongue. We do not lose gold if sterling becomes scarce.
§ Mr. Crosland
I meant to say, of course, that if sterling was too plentiful, the main danger would be that we would lose gold. Although we certainly do not want sterling to be so plentiful that its value falls on world markets in a serious fashion, nevertheless, we do not want to have a bias for making sterling excessively scarce. Dollars have often been too scarce, and we should not have had any of our dollar difficulties in the last two or three years if the dollar had been more plentiful and less scarce than it has been. It is not a desirable object of economic policy to emulate the scarcity of the dollar in the case of sterling. We could, of course, quite easily make sterling exceedingly scarce—by blocking all sterling balances, restricting imports even further, and building up a large trade surplus. But the effect of this would be seriously to contract international trade.
Any attempt to make sterling into a currency anything like so scarce as the dollar has been would have a disastrous and a restrictive effect on world trade as a whole. I should have thought that the right policy for us, as a member of the Western European community, was to make sterling as plentiful as we can, subject, of course, to safeguarding its essential position. In other words, we should not have too strong a bias in favour of restricting the use of sterling, because by providing plentiful sterling we are helping trade within Western Europe, and helping Western Europe to expand its trade. I am, therefore, glad that we are willing to extend this credit.
I think this is now a very good agreement. In its original form it was not at all a good agreement, but the British negotiators—and I am certain they deserve a great deal of congratulation—have improved it and have removed the 2346 worst dangers. The general outcome is a largely satisfactory agreement. A good deal of credit must go, undoubtedly, to the American negotiators, who, I understand, have sat in on all the discussions and who, quite evidently, even from releases in the Press, have played a large part in producing the agreement in its present form.
I am certain that this is the right line upon which to advance. It is an interesting contrast to compare this line of advance with the Schuman Plan. It seems to me that this fact, that we can get a good agreement like this on the basis of inter-Governmental negotiations—a really satisfactory and concrete agreement—shows that it is a much more satisfactory approach to the whole problem of Western European unity than the "airy fairy" schemes of the kind which have been hinted at a good deal in recent weeks.
It would not have been a possible scheme if we had not had devaluation of the pound. I did not have the privilege of being in the House at the time, but, whatever the argument then, there is no doubt that devaluation of sterling was a necessary condition of our entering E.P.U. at all; because it very largely devaluation of sterling which has removed the disequilibrium between Belgium and Switzerland and the rest of Europe. It has very largely removed the Belgian surplus which, if it had continued, would have made any European agreement virtually impossible. If we had not had devaluation of sterling, I do not think we should have had a sufficient degree of equilibrium in European trade to make E.P.U. possible.
The really encouraging thing about it is that it ends one of the most unsatisfactory periods in Anglo-American economic relations, a period of continual differences and disputes on international trade policy. We have had this almost absurd contrast between American theories of complete multilateralism, convertibility, and non-discrimination, and the practice of discrimination and non-convertibility forced upon all European countries by the fact of dollar scarcity. The consequent arguments across the Atlantic between European practice and American theory have been bad for Anglo-American relations, and good for nothing at all in particular.
2347 But now we find the American experts backing this agreement, which means that at last we have agreement between European practice and American theory; and the most encouraging thing about these negotiations is that we have had full American support right through and, for once, there has been no dispute in this field of international policy. I very much hope that we shall never again have any discussions of the kind that have been going on in Paris recently, about the future of European or any other sector of world trade, without the Americans and Canadians co-operating as closely as they have been co-operating in the E.P.U. discussions in recent months.
Everybody is now more or less agreed for the first time on the subject of world trade; at any rate, they are agreed on the short-term objects of world trade.
§ Mr. Crosland
The hon. Gentleman says that the object of world trade is to sell goods, but I would add that it does not help to sell goods to make sterling excessively scarce.
We have, at any rate, reached a fairly general agreement that if there is a really serious unbalance in any part of international trade, non-discrimination, convertibility and multilateralism will have a bad effect and not a good effect, because they tend to restrict world trade. We have still got a very serious unbalance over the dollar. Therefore, as far as world trade is concerned, nobody suggests now that we should immediately introduce total convertibility and total multilateralism. But in Europe, for various reasons, and because of the progress we have made in the past few months, we have no serious unbalance in intra-European trade, and we can, therefore, make an experiment in multilateralism and convertibility in this regional non-dollar area. For the first time we now have agreement in both the European and the North Atlantic communities on this important half-way house.
For these reasons, I welcome this agreement very much. There are risks, but I think they are very slight indeed. There are so many safeguards in the agreement, that the risks of our losing 2348 gold on a large scale are almost negligible. There are minor criticisms—for instance I should have liked to have seen more sanctions put on the persistent creditor country, but I think that all the criticisms of the agreement are essentially of minor character. On the main matter, it seems to me a very big advance both towards closer European unity and a greater expansion of world trade.
§ 7.43 p.m.
§ Mr. Maudling (Barnet)
I cannot agree with all that the hon. Member for Gloucestershire, South (Mr. Crosland) has said, but I can certainly agree with him in welcoming any movement in the direction of freer and more multilateral trade. The fact that it is made by a Socialist Government makes it, perhaps, in some ways all the more pleasant to be able to welcome it.
I think this agreement is to be welcomed. It is an achievement, but I think it is a pity that too much stress should be laid on the greatness of the achievement. Certainly, it is a tribute to the powers and persistence of our negotiators that agreement should have been reached at all. But in paying tribute to that, we should not be led into thinking that a great deal has been achieved in this agreement. It is, after all, still an agreement between the central banks, and it is an agreement the effects of which in liberalising and spreading more multilateral trade, though noticeable, are not likely to be very large in the comparatively short space of time which is to be covered by this agreement.
The agreement is to be welcomed because it is a step in the right direction of more multilateral trade, and it is also to be welcomed because it assists our relations with the Americans in the development of plans for American assistance to Europe. I agree also with the hon. Member for Gloucestershire, South, that improvements have been made in the last few months. In particular, it seems to me that the present scheme does a good deal to safeguard the position of sterling as an international currency and to prevent any trenching in on the very wide use of sterling that is at present accepted in the trading centres of the world.
I cannot help feeling that people, mainly abroad but sometimes in this country, are very wrong when they talk 2349 about sterling as if it were just another European currency, and say, "Why should sterling have a special position?" The reason why it seems to me sterling should have a special position in a scheme such as this is that as a currency sterling is more important in international trade than all the rest of the European currencies put together.
I am convinced that the present scheme prevents the reduction in the widespread use of sterling as a money of account which might have been brought about by the earlier schemes, but I cannot help feeling that we have had to pay a heavy price for the concessions which we have obtained to our point of view, and I would imagine that part of that heavy price which we have had to pay is making sterling very much more freely available in the European area, as my right hon. Friend the Member for Aldershot (Mr. Lyttelton) was pointing out.
I would say this to the hon. Member for Gloucestershire, South. In considering whether it is a good thing to have sterling scarce or readily available, surely it is important to consider what part of the world one is talking about. Surely it is the excesive availability of sterling in the sterling area and in soft currency areas which has acted as a drag on our export trade, diverting our exports which might otherwise have gone to the hard currency areas. It seems to me that creating profusion in regard to sterling in western Europe, or in India or Egypt for that matter, is likely to weaken the general trading position of this country rather than to strengthen it.
There are one or two questions I want to put to the Minister about some of the details of this agreement. The first is this: Are there any limitations in time about the use by members of the Union of their drawing rights, or their credit, as there is in the International Monetary Fund? Or can people make full use of all the credit to which they are entitled straightaway? I imagine that some countries might well want to do so. No doubt, there is a check in the fact that after the first 20 per cent. gold has to be paid pari passu with the obtaining of credit.
I should like to link with that the fact that in the early stages of the operation of the Union compensation is to be made 2350 at two-monthly rather than at one-monthly intervals. A very great deal can happen in these international monetary matters within the space of two months, and by the time the calculations have been completed by the agents a good deal more than two months will have elapsed. May I also link with that a further plea for publication of information? I think it is most important that Parliament should be given the greatest possible information on the working of the scheme, particularly in its initial stages.
The next question I want to ask is this: As I understand it, the scheme is solely concerned with payments on current account, and does not affect capital transfers. Are the Government satisfied that it will be possible, in practice, to distinguish between current payments and capital transfers in this context? I have no doubt that the Minister will say that the introduction of E.P.U. does not in any way detract from our current exchange control regulations. It is a pity that it does not. It shows how little this scheme advances in the direction of really free trade, that there is no variation at all from our existing exchange control. Is there not a possibility that other countries, partners in the Union, may not have exchange controls of such efficiency and rigour as that operated by His Majesty's Government, and is there not some possibility of damage to our position arising from that fact?
I want to say a word or two about the question of the sterling balances—first of all, the sterling balances held by European members of E.P.U. Let me ask this simple question of fact. We have heard a lot of the balances held in this country by other members of E.P.U. Are there any balances held by us in member countries? Are all these sums of £150 million or £200 million, to which references have been made, net or gross? Are there any British balances in European capitals? My next point is this: I am encouraged to see that the E.C.A. authorities have undertaken to make good to us out of E.C.A. funds any losses of gold which we may suffer by reason of European holders of sterling balances using them to make good their deficits at the periodical compensations when they are worked out.
Is the right hon. and learned Gentleman really certain that it will be possible 2351 always to determine to what extent a loss of gold; if we suffer such a loss, will have been due to the use of sterling balances and to what extent it will have been due to the other, many, contributory causes which will, of course, arise? No doubt that subject has been very carefully considered by His Majesty's Government, but I should welcome an assurance that it will be possible to determine the sum in gold which we should receive if, unhappily, we should lose gold as a result of the operation of this agreement.
I am not clear as to the effect which this agreement will have on the sterling balances of countries outside the E.P.U. area and, particularly, the free sterling balances of other members of the Sterling Area. I imagine that the Sterling Area countries hold a very high proportion of the free sterling balances in London, amounting, I think, from what the Economic Survey says, to £2,000 million. As I understand it, at the moment all those free sterling balances are freely spendable in Western Europe, by agreement between the British Government and the Governments holding the balances.
Will E.P.U. make any alteration to that position, in two regards? First of all, will the payments scheme, with the liberalisation proposals, taken together, make it likely that free sterling balances held by Sterling Area countries will be more rapidly spent than at present in European countries; and, secondly, will the consequences of such spending, in terms of possible loss of gold to this country, be worse under E.P.U. than they were previously when we had obligations to pay certain countries, such as Belgium, in gold, but not other countries, such as, for example, Italy?
These questions are rather complicated, but I hope I have made the point clear. I saw on the tape yesterday that an announcement was made in Australia giving the impression that a good deal of imports would flow from the Belgian and Portuguese monetary areas to Australia. Does any danger arise of a good deal wider spending of sterling balances in Europe, which may lead us to lose gold through the E.P.U. arrangements?
Those are the detailed questions about the scheme which I wanted to ask. I 2352 want now to say one or two words about the broader aspects, particularly the proposals for liberalisation of trade. We on this side of the Committee naturally welcome schemes for liberalising trade and for promoting competition. This country has gone a long way in liberalising trade and if we are to go further, under this scheme, I hope we are satisfied that there is an effective international machine of some kind to make sure that we get our quid for our quo, to make sure that for what we give up, someone, in exchange, makes us a fair recompense; because at the present time it seems quite arguable that we have given up more to other people, than they have been prepared to give up to us.
Certainly, there are considerable advantages for our export trade in the liberalising of trade between members of E.P.U., if the agreement is effectively carried out. For instance, Turkey has, I believe, been so short of sterling as to have had great difficulty in placing many orders in this country and, of course, that may be a contributory reason for the fact that German industry has so strongly re-established its position in Turkey. I should welcome an assurance from the Government that they have formed an estimate of the effect on our trading position, both in this country and in the Colonies and other countries of the sterling area, of the very great upsurge of German exports which will almost certainly result from the operation of this agreement. After all, the main reason why German competition is such a relatively small factor today is that the mark is a hard currency, is the equivalent of a dollar—is an extension of the dollar, in fact; and that is one of the main barriers to German competition against our goods in most of the world's markets.
Recently, I have heard quoted on a number of occasions rather disturbing examples of how German manufacturers can under-cut British prices. The other day a man trying to buy machinery for fabricating aluminium obtained quotations from British firms and from German firms, and the German quotations for exactly the same machines, with a very short delivery date, were anything up to 50 per cent. lower than the quotations given by British manufacturers, who also had to quote a much longer delivery date. 2353 I believe that competition from Germany may be very intense as a result of the operation of this agreement. I do not think we should become frightened about that: I believe competition is a good thing. But I beg His Majesty's Government to realise that British industry, already operating under many handicaps, will be faced with a new threat which will make it even more difficult for them.
Finally, all these arrangements for liberalising or multilateralising trade within Europe, increase the danger to this country and to employment in this country which will arise from our remaining an island of inflation in a deflationary Europe. The barriers which the Socialist Government and Socialist economists would like to erect against deflationary pressure coming from our European neighbours are bound to be weakened by this payments agreement. I do not think that is necessarily a bad thing in itself, but I would emphasise that the operation of the scheme will increase the danger to the level of employment in this country if we continue to maintain our present inflationary monetary policy.
Perhaps the Chancellor of the Exchequer would like to encourage all other countries in Europe to follow his own particular brand of monetary policy, but I suggest that at any rate we must be prepared for the eventuality that some of them will not be willing to do so. If we are left as one single inflationary country in an area of much freer trade and payments than at present, and where deflationary forces are ruling, then the threat to our economy may be quite serious.
§ 7.56 p.m.
§ Mr. Richard Adams (Wandsworth, Central)
Like my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) I join in giving these proposals a rather warmer welcome than that given to them by the right hon. Member for Aldershot (Mr. Lyttelton). I thought that the hon. Member for Barnet (Mr. Maudling) was rather kinder to the proposals than was the right hon. Gentleman himself. It seemed to me that the right hon. Gentleman was rather juggling with words in trying to make up his mind whether to blame or to bless these proposals, and that has resulted in his making one or two contradictory statements. For instance, he said that the agreement was 2354 not liberal enough, but he did not go on to make any precise proposals of how he would make the arrangements more liberal if he were in office and were sitting round the table developing the proposals.
Like the right hon. Gentleman, I was relieved to find that Imperial Preference is in no way affected by these proposals. The right hon. Gentleman, however, went on to suggest that he would like other tariffs lowered and yet, in almost the next sentence, he complained about the effect of the existing proposals upon our textile trade. If he wants our textile trade to he protected then it is reasonable to suppose that there might be other trades, which he did not care to mention, which might also like to retain their present protection. Then the right hon. Gentleman went on to say that we ought to make the pound harder to get. I should like to know how lowering tariffs would affect that suggestion.
He said he would like to have taken advantage of this opportunity to tie up the existing sterling balances more tightly. Surely he will appreciate that it is not much good concerning oneself unduly about the £200 million or so of the sterling balances due to the members in this Union when the total sterling balances are running at over £3,000 million: it is not a point worth bothering about.
I should like to deal next with the right hon. Gentleman's point that these proposals seem to have been made for the advantage of debtor nations, though, in fact, we look like being a substantial creditor country. First of all, I would refer the right hon. Gentleman and other hon. Members to Command Paper 7928 in which our position with regard to O.E.E.C. countries is set out. As the right hon. Gentleman said, in 1948 we ran a surplus of 100 million sterling or 300 million dollars, but if he looks at the provisional figures for 1949–50 he will find that there is an expected deficit of 20 million sterling or 60 million dollars. So that even when we take into account the possible effect of countries outside the scheme drawing on their sterling balances it is still by no means certain that we should be substantially a creditor nation.
Now I should like to turn to consider for a moment what is, in fact, the maximum amount of credit which we could be called upon under this scheme to provide. There is. first of all, the notional 2355 figure of 150 million units or dollars, which will be covered by payments from E.C.A. In passing, I should like the Minister, when he replies to the Debate, to say how this allocation will be dealt with. I can visualise a possible situation where, in the first period, we may be a creditor, say, to the extent of 50 million dollars, in which case I gather that we should receive a payment of 50 million from E.C.A. and our credit of 50 million would be written off against this notional deficit of 50 million in the books of account. Suppose that in the next period we ran into a real deficit position, would we be called upon to repay the dollars which we had got from E.C.A. in the previous period to cover our credit position, or is that a payment which, once made, is forgotten forever, whether we go up or down in relation to our credit position? Anyway, it is clear that the first 150 million is taken care of by the special arrangement whereby E.C.A. backs any line of credit we have to advance.
§ Mr. Adams
On the contrary, if the hon. and gallant Gentleman reads the White Paper he will find that E.C.A. is the organisation which will be responsible for making available dollars to cover any credits that we have to grant up to the first 150 million.
We then come to the first line of credit of 212 million we have to provide out of the quota 1,060 million units or dollars. There we are called upon to make a loan of 212 million. Thereafter we have pari passu arrangements of credit and gold, which means that in the remainder we could be called upon to give a further line of 424 million dollars credit, and we should receive 424 million in gold, so that the total free credit that we should be called upon to provide under this scheme would, in fact, amount to 636 million units or dollars.
How does that compare with our total trade commitments? It is true, as the right hon. Gentleman the Member for Aldershot said, that in 1948 we did in fact, run a credit of 300 million dollars with O.E.E.C. countries. Our total trade, including our visible and invisible exports and imports, I estimate, balances out roughly at 7,500 million dollars a year. 2356 So if we take the year 1948 as an example, and a line of 300 million dollars credit is required through entering into this Payments Union, we should, in fact, be financing our trade on credit in this way to the extent of only 4 per cent. of the total annual turnover.
I say that, to assist the liberalisation of trade in Europe, it is a reasonable proposition that we should be prepared, in the extreme, to provide credit to the extent of only 4 per cent. of our total trade throughout the world. I have no objection to make to that at all, and I agree with my hon. Friend the Member for Gloucestershire, South, that we are making a really practical effort here to help Europe. We are not entering into, perhaps, a rather more high sounding scheme like the Schuman Plan, but our representatives have got down to brass tacks, and they have worked out a practical way of making a beginning upon the liberalisation of trade in Europe.
I think that we all ought to wish this venture good luck, and that we ought to watch its operations in the course of the next year or two with the hope that, if it does provide a means of encouraging multilateral trade and of opening up trade between member countries, we should be ready to go forward with the next logical step of trying to get agreement to extend it to the whole free world. If we can get to that stage then I can foresee that the next logical step would be the incorporation of the International Monetary Fund and Bank into the operation of this world organisation. We could then approach the stage where we could have what would be the equivalent in normal commercial banking of current and deposit accounts. Members would be required to maintain in their current accounts sufficient funds to operate current trading. Then, countries which were running lines of credits would, in fact, have deposit accounts upon which they would be paid a reasonable amount of interest, and those funds would be available to cover overdrafts by those debtor nations who would, for the most part, be in the backward areas.
Without taking up much more time of the Committee, I would say that I would like to see if this can be applied to the whole world in due course. We should be taking surpluses from the creditor nations like the United States and making them available to the United Nations 2357 through this financial organisation, so that they could be applied fairly and evenly to the more backward areas that had the need of credit to make the imports which they badly needed to improve the standard of living in those areas. So, I personally view this as only a beginning within the confines of O.E.E.C. We can only hope it will succeed, so that in due course we can apply it in the wider sphere in the way I have indicated.
§ 8.7 p.m.
§ Sir Herbert Williams (Croydon, East)
I have listened with great interest to the two speeches from the other side of the Committee. I am sorry that the author of one of them is departing because he and the hon. Member for Wandsworth. Central (Mr. R. Adams) rather led me to understand the subject for a moment. I have come here partly to speak, partly to ask questions, and to try to find out what it is all about. The hon. Member for Wandsworth, Central, said that we must look to a time when we shall get lines of credit and that we are getting down to elementary things. In 1937, or even prior to the days of Dr. Schacht, we were able to do things without any International Monetary Fund, without lines of credit, without E.C.A. or E.P.U. and all the rest of it. I hope we shall be able to go backwards still more and a little more rapidly. The hon. Gentleman said that E.C.A. had a line of credit with E.P.U. I do not know what it means. I look at page 18 of the White Paper—
§ Sir H. Williams
That seems rather sad to me. I have been reading this White Paper. It is one of the worst documents ever presented to this House. It is a very badly-written document.
§ Sir H. Williams
Perhaps the hon. Gentleman who has benefited by going to the Library would consider the document, and, in particular, page 18. Perhaps he could tell us what it means. I do not know what it means. It says: 2358The initial debt position of the Belgium-Luxemburg Economic Union shall he considered as falling within"—then there come some more initials that look like the French for blue—"B.L.E.U." I do not know what it means. It goes on:quota of 360, so that that quota shall be financed as follows: Initial debt position"—It is incredible. It says "Initial debit position," "Gold free tranche of credit"—whatever that is—"72." It says "Gold pari 288 minus x over 2. Credit passu 288 minus x over 2." If anybody can tell me what that means I shall be delighted.
§ Sir H. Williams
I once took a degree so I know all about x. What I do not understand is "pari 288 minus x over 2" I know what x means. What does "pari" mean?
§ Mr. Henry Strauss (Norwich, South)
May I suggest the explanation? I was puzzled by the same passage. I think it is what Beachcomber describes as a "printer's frolic." If one takes the words "pari" and "passu" away from the formulae to which they are at the moment attached and puts the words together opposite the middle of the bracket on the left-hand side the whole paragraph will make comparative sense.
§ Sir H. Williams
I am glad to have had a little more assistance from South Norwich than I have so far had from Central Wandsworth or South Gloucestershire. This document really is a scandalous document.
§ Sir H. Williams
I am saying so, and the responsibility for saying so is mine. I have tried to read it twice and have found it very difficult to understand. I think it is the duty of Ministers and other people concerned to present to Parliament documents which can be understood by the ordinary Member, and which can be understood by the ordinary person who takes the trouble to read them. I say that from that test, this document is a scandal—and let us say it. I am perfectly certain that the hon. Member for 2359 Wandsworth, Central, does not really understand it. He has made a glib speech saying that it is a good idea—
§ Sir H. Williams
Certainly. I will ask one or two. He has not even explained what "pari" and "passu" mean up to now.
§ Sir H. Williams
I am not quite certain, but I think this document was written by a North Korean, translated by a Japanese into Arabic and re-translated into Urdu on a French ship.
As far as I can make out, it is some kind of attempt to return to a gold standard. I think so, because gold comes into it very much. Balances can be settled by gold. Obviously, nobody has ever been more conscious of gold than they are now, when apparently we are not on a gold standard. The strange thing is that we are trying to play the game of the gold standard without the rules of the gold standard. The rules are a bit harsh and rough. In the old days, if we found we were over-trading, spending more than we could afford, the Bank of England, observing the export of gold, raised the rate of discount, and if that was not enough they went through certain open market operations designed to restrict credit because the export of gold was an indication of over-trading, and sometimes it had rather harsh results, as we know.
§ Mr. Woodburn (Clackmannan and East Stirlingshire)
Perhaps the hon. Gentleman will recall 1929, when during the boom in America investors tried to invest so much British currency in America that it set up a very great dollar problem at that time, and helped to bring about the crisis which followed that boom.
§ Sir H. Williams
I do not think that was quite the cause. The United States people, being less stable than we were, went in for the biggest gamble the world had ever known. At the time I was in New York City; I went to the gallery which overlooks Wall Street, and I was told by the bell boys that Wall Street was gambling itself into disaster.
§ Mr. Woodburn
When British investors send a cheque to Wall Street and it cannot be backed up by goods in normal trading it raises a problem of paying that cheque either by gold or by some other method. When all these investments went from this country to America it was a physical problem which we were quite unable to solve, and contributed greatly to the disaster which overtook the world at that time.
§ Sir H. Williams
As far as I can understand the right hon. Gentleman—I must not call him my right hon. Friend, although we are very old friends—he is rather hinting that the American disaster was brought about by the fact that we, the people of this country, invested too much in the United States. Well, there have been many explanations of that disaster, and I always thought the primary cause of the American disaster was the excessive gambling of the people of the United States in which the whole community was involved; they bid up common shares until they were only yielding 1 per cent. It was the most awful gamble ever known, which precipitated the most awful disaster in 1929. I know it is the habit of the party opposite to look forward and never to the past—
§ Sir H. Williams
—"and all that." It seems to me that what the Government are trying to do is to play soccer according to the rules of billiards. There are well-established rules for playing the game of the gold standard. The other thing is to say, "All right, we will go on by having no export and import restrictions, no exchange controls"—except that I know my hon. and gallant Friend the Member for the New Forest (Colonel Crosthwaite-Eyre) wants to keep a tight hand on what are called the sterling balances; somehow or another they have to be funded, or tied up. But leaving them out of account, that is a policy, and then the rate at which our currency will exchange for the currency of other people will solve all the problems; everything will look after itself. Now there are two philosophies. One can have the gold 2361 standard with its regulations; or one can have an inconvertible currency and let it find its own value in terms of all the other currencies in the world. Both will work.
If hon. Members have a little time to spare they might go to the Library and read a most interesting speech made in the House of Commons on 18th August, 1919, by the then Prime Minister, Mr. Lloyd George, who surveyed the economic situation which then prevailed. At that time there was a condition of what we call full employment. This speech curiously describes many things which exist today, and he announced that from the following morning the sustaining of the exchange value of the £ in relation to the dollar was to be abolished and we did that unilaterally on 19th August, 1919. In five or six months the whole of our adverse balance of trade had been completely wiped out. There is one system working.
Then we go to 21st September, 1931, in conditions of almost the highest unemployment ever known, due largely to the policy of the party opposite, assisted by the right hon. Member for East Stirling (Mr. Woodburn). We had then vast unemployment, and circumstances forced Mr. Philip Snowden the Chancellor of the Exchequer to abandon the gold standard. Again the £ had to find its own level. A great many things happened, but within a moderate period of time the exchange situation had rectified itself and there was no problem of hard or soft currency. I therefore think it is worth while considering simpler methods than this present most elaborate method. Think of all these poor people sitting round with wet towels on their heads trying to think out what all these things in this document mean.
§ Mr. Adams indicated dissent.
§ Sir H. Williams
It is no use the hon. Member shaking his head. He cannot explain to me what "pari passu" means so I shall not take him as my guide, philosopher and friend. When we look at page 6, I suppose everybody in the Committee knows what this means:Each member of E.P.U. shall have a quota within which such surpluses and deficits as may arise among them shall be settled by gold payments, as provided in paragraphs 28 and 29 below.2362 Then I start reading down to those paragraphs, but before I get to them I find this:Special temporary arrangements as set out in Annex 1 will be made for dealing with those members who are declared by E.C.A. to be structural debtors or creditors.I do not know what a structural debtor or creditor is. I expect the hon. Member for Wandsworth, Central, has found that in the Library, too. I know what a structure is, and I know what structural steel is, but I do not know what a structural debtor or creditor is. He is not defined in this document. Then I turn to Annex 1, and I do not find a solitary word in Annex 1 about structural debtors or creditors. That is why I complain that this is a badly written document.
§ Sir H. Williams
That is:Effect of initial positions on automatic financial arrangements prior to liquidation.Is that what the hon. Gentleman is referring to? There is nothing there about structural things. There are "Initial Credit Positions," which means that one is not broke, and "Initial Debit Positions"—we are in that lot; we are 150 millions of units broke according to this document, if it means anything. I wish I could have a little more information from Wandsworth; I know the district very well.
§ Mr. Adams
At the risk of taking up more time, might I try to explain it very simply to the hon. Gentleman, although I know it is very difficult to explain anything to him. Surely he will appreciate that in drawing up the structure of E.P.U. it was necessary to declare some nations debtor countries and others creditor countries. That is what is meant by structural debtor and creditor nations.
§ Sir H. Williams
I still do not understand. We know that some people are in debt and that some are in credit. I want to know when we are structurally broke and when we are structurally not broke. What the Socialists have been engaged in for a good many years has been an unsuccessful battle against what the old economists used to call the law of supply and demand. They are failing in that battle. All this unbalance throughout the world is caused because we are trying 2363 to evade the unpleasantness involved in the law of supply and demand. So long as we go on trying by planning to avoid this, we shall have to bring in document after document like the one now before the Committee, and still we shall remain in difficulties.
I am a firm believer in having a system of protective and preferential tariffs, because they do not interfere with the freedom a trade. The Chancellor of the Exchequer was brought up as a free trader, and I have no doubt that he devoted himself very much to the study of the result of import duties, preferential duties. It is no good his shaking his head and looking superior, because that does not impress me. [HON. MEMBERS: "Nor anyone else."] I am glad to have that confirmation. If we impose a tariff, it creates a tendency not to buy that thing which we are trying to exploit by means of a protective duty. It is no good running to the Board of Trade and asking for an import licence. If I want to buy a duty article in a free economy, I am entitled to buy it without asking the permission of the Chancellor of the Exchequer or anyone else. That is why I say that free trade and freedom of trade are fundamentally two different things.
If the Chancellor of the Exchequer believes in this document—the Chancellor of the Exchequer always goes out when I am talking; that is why we make so little progress—this document professes to support liberalisation of trade. Liberalisation of trade, so far as it is pursued in this document, is not opposed to protective tariffs. It is designed to do without an import licence, an export licence, or exchange control; that apparently is its purpose. But what a complicated method of doing so. It could be done much easier by methods which in the past have succeeded, and I make the plea that if we are going to do a job like this, let us do a good clean job, instead of having a terribly complicated document like this, which I assert neither of the hon. Gentlemen who have spoken from the other side understand, although they think they do, and none of the others have tried to understand. I think that it is a scandal that a document of this character should be presented to the House of Commons.
§ 8.24 p.m.
§ Mr. Norman Smith (Nottingham, South)
This Debate has been useful because it has shed bright light on Conservative financial policy. It is not only the hon. Member for Croydon, East (Sir H. Williams) who wants to get back to what he believes to be the immutable, unchallengeable rules of the gold standard. The right hon. Member for Aldershot (Mr. Lyttelton) wanted what he called, plainly, convertible sterling. It has come out that the party opposite want to get back to the kind of currency we had when I was a boy. They want to put an English sovereign in their pocket and go to France and spend it on red wine at 4d. for a good-sized bottle and good quality stuff. They want to get back to that kind of currency. I do not, because I happen to have been brought up in that era when a few people were extremely well off, but the people who, for example, live in my constituency and who put me in this House were very badly off.
The right hon. Member for Aldershot said quite plainly that what he wanted was to make sterling scarce. I shall tell my constituents at the next General Election, "Put the Tories in, and they will make sterling scarce; if you do not vote for me, you will find that money is scarce." What the right hon. Member for Aldershot overlooks is contained in the phrase the hon. Member for Barnet (Mr. Maudling) used, "It depends in what part of the world sterling is going to be scarce."
My experience during the 60 years I have been alive is that when sterling is made scarce overseas, as the right hon. Member for Aldershot wants, sterling is also scarce in the back streets of English industrial towns. I represent a large English industrial constituency. I was put into Parliament by the people of the back streets, who voted for me, and so long as I am in politics I shall oppose any policies and any parties that seek to make money scarce.
§ Sir H. Williams
Is this document designed to make sterling scarce overseas or the reverse, because I have been trying to find out?
§ Mr. Smith
I am not going to allow the hon. Member for Croydon, East, to get out of the hole in which he has put 2365 himself and his party. [HON. MEMBERS: "Answer the question."] I have been told on good authority by friends of mine connected with the medical profession that there are people who are so fond of alcoholic liquor, and get so much satisfaction out of the effects of it, that they are quite unable to resist the temptation to carry the consumption of alcoholic liquor to excess. I am told that that is so. In 60 years I have noticed quite a number of people—some of my friends among them—who have been that sort of people. The Tory Party is exactly like that. They crave for the gold standard and scarce money in exactly the same way that alcoholic addicts crave for the bottle.
The right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) complained of this European Payments agreement because it did not make sterling scarce enough. He said, "We want sterling to be scarce." That is what the Cunliffe Committee said in 1918. That is what Mr. Montagu Norman decided in 1919. The hon. Member for Croydon, East referred to Mr. Lloyd George speaking in this House in 1919, and taking up a certain position. Actually, the hon. Member is wrong. It was Mr.—as he was then—Austen Chamberlain who made the fatal announcement—
§ Mr. Smith
—who read the Cabinet minute which determined that sterling should no longer be abundant as it had been during and immediately following the first war, that it should be made scarce; and within 12 months the number of unemployed had risen from about half a million to just on two million. That is the effect of scarce money on the people of this country.
§ Sir H. Williams
The hon. Member has confused two issues. Following on the report of the Cunliffe Committee, we decided by stages to return to the gold standard. That process was continued by all political parties until April, 1935. What I was referring to was the speech made by the then Prime Minister on 18th August, 1919, in the course of which he said, "From tomorrow morning the pound will be permitted to find its own level in terms of the dollar." The hon. Member has mixed two things. It does not surprise me, in view of the 4d. bottle of wine of which he spoke.
§ Mr. Smith
The hon. Member introduced this topic of going back to the gold standard. I have not been to the Library, as no doubt he has, but I am sticking to this point, that the policy of the Conservative Party has emerged as making money scarce. He is quite right on one thing, and in view of what has happened since and in view of the nature of this Payments Union—what it is and what it could have been—it is necessary that we should concentrate on it. The hon. Member for Croydon, East, is quite right in saying that the policy of making sterling scarce and getting back to the gold standard, which he and the right hon. Member for Aldershot want, was agreed by all parties in that epoch. Perfectly true. The difference is that my party has learnt from experience; his party has not.
We have learned from experience that, if we deliberately embark on a policy of making sterling scarce overseas, then it becomes scarce in the back streets of our industrial towns and we have trade depression and unemployment for lack of purchasing power. That policy was preached by the Cunliffe Committee in 1918. It was practised by the Coalition Government in 1919. It was consummated by the present Leader of the Opposition in 1925 when, with his gold standard Budget, he precipitated two coal stoppages and a general strike in 12 months.
§ Mr. G. Beresford Craddock (Spelthorne) rose—
§ Mr. Smith
I will give way in a minute. The result was that the right hon. Gentleman the Leader of the Opposition, being, among other things, an essentially honest man, got up in the House—I was in the Press Gallery at the time—seven years later and admitted that, in being guided by the financial experts in 1925 and going back to gold, which hon. Members opposite want to do, he had been wrong. I commend that speech of April, 1932, by the right hon. Member for Woodford (Mr. Churchill) to both sides of the Committee.
§ Mr. G. B. Craddock
Am I not right in assuming that one of the supporters and advisers of my right hon. Friend at that time, in 1925 to 1926, was the late Mr. Philip Snowden?
§ Mr. Smith
The hon. Gentleman is right. Mr. Philip Snowden supported the return to the gold standard, but my party has since learned sense, and the proof that my party has learned sense is that this Payments Union, as a result of negotiations which went on for such a long time, is not what it might have been, not what those American advisers, to whom my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) referred, would have liked it to be. It is what it is because, happily for this country and particularly for the people in the back streets who sent us here, my right hon. and learned Friend is not Mr. Philip Snowden.
§ Mr. Craddock
Would the hon. Gentleman agree that this document is really a return to the gold standard in another name?
§ Mr. Smith
It was not a return to the gold standard in another name, because we have never been divorced from gold. Gold has always functioned in payments, even during the war. There have been gold settlements in international transactions ever since I was born, in 1890. It is precisely because we have not got away from gold that the world has to endure so many misfortunes.
I referred just now to what my hon. Friend the Member for Gloucestershire, South, said about American advisers. They have, to some extent, modified their point of view, and there is one interesting thing about this Payments Union agreement that even the attitude of the American experts concerned is vastly different from their attitude in 1945, when I first came to this House as a Member, and this House was invited at a week's notice to implement an agreement which meant going back to free trade, nondiscrimination, gold standard, and all the apparatus of 19th century Victorian capitalism. I was relieved no end when I learned the terms of this agreement. I felt grateful to my right hon. and learned Friend, with whose policies I have not always agreed in the last few years, because the agreement could have been so much worse than it really is.
I would like to draw the attention of the Committee to one other aspect of Conservative policy which has emerged in this Debate. The hon. Member for Barnet said that he welcomed international competition and the liberalisation of 2368 trade. If my geography is right, Barnet is in Hertfordshire, and I hope he will tell that to the market gardeners of Hertfordshire, because the right hon. Member for Aldershot referred to the possibility of competition from Continental textiles. I should like to know whether the Conservative Party really do want the liberalisation of trade or not. I wish that they would make it clear.
I welcome the agreement, although not because I like it for its intrinsic qualities. So long as money is based directly or indirectly on gold, so long as money has to perform the two functions of medium of exchange and of wealth which can be stored, we shall always be in difficulty about payments—of course we shall—so long as we have a money which is supposed to be intrinsically valuable. What we ought to have is a very different system of money, but that is outside the scope of tonight's Debate.
The whole thing could have been very much worse. This Debate has shown that my right hon. and learned Friend and we on this side have learned, but that the Tory Party still have their minds back in the reign of Queen Victoria.
§ 8.37 p.m.
§ Colonel Crosthwaite-Eyre (New Forest)
Judging by what has been said by the hon. Member for Nottingham, South (Mr. Norman Smith), the only thing about which hon. Members opposite have not learned is the subject of the Debate. I have never before heard so much irrelevance.
The Debate is concerned with two very simple questions. Does this measure which has been proposed help us to achieve what what must have been the object of His Majesty's Government and would be the object of any Government; to see that, as a result of the war and all the strains and stresses that have been placed upon our currency, sterling is now coming back to be a currency that can be convertible at will and, above all, a currency which any nation throughout the world will be willing to accept, as a medium in which it can either fulfil its own trade or use as a reserve for its own currency and also be certain that it can use it at any future time that it likes. That was the task with which the Government were faced and with which any other Government would have been faced. Unless it was fulfilled, then I think it fair to 2369 say that the Government must accept that they have failed. We should look at the conditions of E.P.U. in that light and in that light only, and not go back into the past or make nice arguments which may or may not be relevant.
What are the conditions of E.P.U.? First, the whole of the sterling area is now amalgamated within the European Payments Union, and the two are now to become one, and the liabilities, the things that may be charged to one, will now be able to be charged within both. We are accepting a very grave extra liability in saying that all the liabilities we have acknowledged and allowed to the members of the sterling area are now to be equally acknowledged and allowed to the members of the European Payments Union. That is the first thing.
The second thing is that we are saying we are to start at a handicap. We are to accept that since in the past we have been in Europe a creditor nation, therefore, 150 million dollar units of trade are to be debited against us before, within this union or club, we are to be allowed to earn anything at all. It is a sort of entrance fee that we have to pay.
At the same time we are saying that we are going to release £200 million of sterling balances. The Chancellor of the Exchequer said that, as far as the sterling balances that we release involve a gold payment, such would be made up to us by E.C.A. I am sure the right hon. Gentleman opposite knows that there is nothing in the European Payments Agreement to say that this bargain has been struck between His Majesty's Government and E.C.A. I hope he will tell us what bargain has been struck and under what heading, and that he will publish in the OFFICIAL REPORT the terms of that bargain. I think it is deplorable that when we get an agreement of this nature and this complexity, the Chancellor should come to the House, as he did on Tuesday, and say that E.C.A. are going to make up the gold payments, when he knows that such a condition is not within the terms of the agreement, but is something outside it.
Again, the Chancellor said yesterday, in answer to Questions, that this £200 million would not be drawn down very quickly, and that we need not worry on this liability. But what he did Plot tell the House was that the £200 million is to 2370 be liquidated within two years and, unless it is, E.C.A. will automatically take action to see that it is. Here is a case where I suggest that if there was a little more honesty on the part of the Treasury in answering Questions, it would be far easier for hon. Members on this side of the Committee, if not for hon. Members opposite, to make an honest appreciation of the problems with which they are presented.
I think that most hon. Members will agree that the vital question in this European Payments Agreement is what is to be the result upon our home industries of the open licences which are to be granted. We are now told that, whereas in the past protection from European competition has been given to a great number of our industries, that is now to cease, and it is obvious that this is of the greatest importance, for instance, to horticulture. If we are again, for instance, under open licences, to have inroads on the horticultural industry, such industries, built up at great expense and effort, are to find themselves blasted out of existence as a result.
I asked the Chancellor of the Exchequer yesterday what was the total of imports he expected to come in during the present year and in the first quarter of next year as a result of these open licences. I put the two questions because, under the terms of E.P.U. whatever the effect this year, a far greater volume of trade has to be liberalised in the first quarter of next year. The Chancellor simply replied that he did not know and was not prepared or able to make any statement. If we are to believe that as being a true statement by His Majesty's Government, we can only come to this simple conclusion that His Majesty's Government have gone blindfolded into this and have signed a cheque for instituting open licences without any knowledge whatsoever of what it is going to mean to British industry, and particularly to British agriculture. That is what they have said and they seem quite impervious to it and merely say, "This is something we have done and no doubt it will turn out for the best."
I have mentioned horticulture, but what about other things? We have had great difficulties in the last six months, for instance, in the textile industry in regard to produce labelled "Hong Kong" but 2371 which in fact comes from outside the sterling area. These open licences will make that infiltration even more possible and something which will be of even greater danger to our own textile merchants. Take Bizonia—the heavy industries there, by this method of open licences, are going to increase troubles to ourselves.
I ask another question. Apparently we have accepted this position that we start with a handicap of 150 million units as something due to the overall creditor position which we enjoyed in the past. If that is so, why have we allowed Belgium to get away with the favourable terms that she has received? Belgium is in a far better position than we are but she has not had to face up to the position. Belgium has a much more easy and, if one may say so, disproportionate entrance fee. I fully realise that the right hon. and learned Gentleman had to go to Paris and make the best bargain he could and live down the background against which he went, but is it reasonable for this country to accept a 150 million units entrance fee when Belgium is let in so easily? That does not seem to be just or reasonable.
Up to the present we have, through licensing control and import licences, been able to prevent losses of gold and dollars to ourselves by seeing that our trade with any European country was so regulated that we spent only what we could afford. Now there is to be a very different position. It will now be possible, once the sterling area and the European Payments Union become one, for the whole transferable sterling balances to be used for purposes within the whole of the European Payments Union area; that is, that the whole of what my right hon. Friend has said is the equivalent of £2,000 million may be used, if the countries so desire, for the purpose of buying goods within the European Payments Union.
I know that the right hon. Gentleman will say that that is all right. that we have agreements and that we are quite certain that no one will break the club rules. That may be so, but it seems to me extremely difficult for anyone to come to this Committee tonight and say that in our present position, however much it may have improved in the last few months, we are now willing to take the 2372 risk of accepting a further £2,000 million being available for use to our disadvantage, with the only safeguard that we believe that the other members will keep to the rules.
§ Mr. R. Adams
Surely the hon. and gallant Member appreciates that under the quota imposed, the limit, as I explained in my speech, is 636 million dollars.
§ Colonel Crosthwaite-Eyre
I am not at all clear what the hon. Member is referring to, in relation to the point that I was making. If he means the subscription or the amount we have to put down in the guarantee, I agree, but if he means the amount of the extent of which we are liable, I do not agree. I am not certain to which of the three things he was referring.
Let us remember, as an hon. Member on this side of the Committee has said, that it was only yesterday it was announced that the Australians are already buying in the Belgian area more than they have done in the past. Let us remember also that we are in a very difficult situation in relation to foreign policy and it may well be that the Australians will want to spend money for their own defence. If they do, they will naturally look to their ready reserves, which are sterling balances. Again, it may be that they will wish to increase their stockpiles of raw materials. In that case they will look to their sterling balances and expect them to be honoured. The right hon. Gentleman may say that he is quite certain that these transferable balances are blocked for the moment, but they are certainly not blocked for any use in case of emergency, and the right hon. Gentleman will be the first to say that they should not be. Yet so far as they are not blocked they are a liability which we may have to meet under the European Payments Union.
This agreement is as great a gamble as that taken by the late Chancellor of the Exchequer when he introduced convertibility. The Chancellor may smile, but he should remember how often he smiled from those benches when he said that devaluation would not take place. But it did take place. While we all want to see sterling move along the lines to which I have referred, there can be nothing worse for it than to enter into a gamble which is not estimated and the extent of 2373 which is not known by the Treasury, and which may well lead us into the position which we faced before of accepting something in good faith and then having to repudiate it because it does not in the least work out as we expected.
In view of these unknown quantities, which the Chancellor says he does not know, we shall be very foolish, before we know more, to go ahead full tilt in the belief that the thing will work. I agree that in a short Debate such as this much must be left unsaid, and much which might convince people cannot be explained. I hope by the time we come to consider the legislation which we know is necessary, we shall have a very full statement which would justify us taking this additional risk with the certainty that we shall achieve what we all want to see achieved, namely, the value of sterling and the stability of sterling increased.
§ 8.51 p.m.
§ Mr. David Eccles (Chippenham)
The agreement embodied in this document fulfils very well its limited objective. If all that it was wise to do in place of the old intra-European payment scheme was to give central banks multilateral facilities to set off their balances, we should have to congratulate our negotiators on having done a very good job, and there would be very little more to say.
There is no doubt that the ingenuity and skill which must have been required to deal with the points fairly raised by all the different parties to the negotiations must have been very great indeed; and anyone who has had any experience of the texts of payments agreements would not agree with my hon. Friend the Member for Croydon, East (Sir H. Williams), that this is a particularly had one. In my bumble opinion, it is rather a good one. I think that the result is as good as it is largely because the early stiffness of His Majesty's Government disappeared as it was found that sterling was in a better position following devaluation; some, at least, of the defensive attitude of the Government gave place to more confidence, and the introduction of the Minister of State for Economic Affairs, with his more flexible mind, did a very great deal of good.
Keeping in mind the narrow objective to which the agreement is addressed, I have one or two questions to put. We are 2374 very glad that there is to be a liberalisation of invisible payments, and I would ask the Minister to tell the Committee something about the effect of the liberalisation of invisibles upon the United Kingdom, which might be very great. Then I wish to enter a protest against using the Civil Contingencies Fund to put up these large sums of money, I suppose the £53½ million of the initial subscription, and maybe some of our credit as well. I consider that we ought not to use this fund for this purpose and that, instead, we should have had legislation introduced into this House.
I do not like the provisions relating to the winding-up of the agreement. It is a very short agreement. It is only for two years, and if the Committee will look at paragraph 79 they will see that there is to bean overall review of the scheme not later than 31st March, 1952. At that time, the Organisation, in consultation with E.C.A., shall decide on what conditions the financial commitments of the Members shall be extended, in the light of the circumstances then prevailing.Many members of the union will wish to know well in advance what is to happen to their debits and their credits after June, 1952. Otherwise, we shall find that this agreement will only work smoothly for a few months and then everyone will have an eye on the final date and will be wondering on what terms any debit he may then have will be liquidated. The rules for liquidation provide a very short period of only two years and some of the structural debtors—which, of course, means the countries whose debit balances arise from the unbalance in the structure of their production, due to the war—are, I think, entitled to know at the earliest possible date what will happen to their debits after 1952. I ask the Government to undertake this review, and to give more clear and early information about what will happen in so short a time from now.
My real criticism of this agreement is that its object is too limited and that, in some respects, the limitations are due to the nationalist policy of His Majesty's Government. We have to regard a Payments Union as something more than a theoretical exercise to discover a neat machinery by which central banks can compensate their balances. We have to look at it in relation to time and place and to the particular problems which are dominant at that time and in that place. Here 2375 we are, five years from the end of the war, and the area concerned is Western Europe and the sterling area combined. We are very glad that the sterling area has been brought in. I suppose the chief problems are the dollar gap, the maintenance of employment, and the mobilisation of resources to meet Communist aggression. On all these problems, convertibility has a very great influence, and, by all those tests, the agreement is inadequate.
Take first the question of the dollar gap. Here, the object of loosening trade and payments must be to increase the productivity of European capital and labour. If it does not do that, then, of course, out of the same volume of production, more goods will be exchanged between the different European countries and there will be less to export overseas. So that liberalisation might very easily—especially in the short run—make it more difficult to close the dollar gap than it was before. I have doubts about this liberalisation as it is provided for in the Agreement. Unless there is an international capital market, so that capital can flow to expand the industries which greater competition show to be the ones which will survive, then I do not see how greater productivity in Europe can come about as a result of greater liberalisation of current trade.
There is no international capital market today. There are, therefore, not the same continuous automatic adjustments in the structure of industry which are demanded if the most efficient firms in the most suitable places are to expand their output, make their goods cheaper and thus enable Europe as a whole to earn more dollars. That is a serious defect in this agreement and unless it is buttressed by other agreements which will lead to greater productivity in Europe, then all that may happen is that a larger proportion of European output will be consumed within the area and less will go to the hard currency markets.
Then there is the question of employment. Here, the Payments Union is a grievous disappointment. Obviously, a system of this kind can only work if the net credits and debits are kept within reasonable bounds. The gold reserves in Europe are not big enough to cope with very large disequilibria between different countries. Another way of dealing 2376 with such large balances would be to allow exchange rates to fluctuate. That would bring about a correction, but that method is ruled out on good grounds—first, because of the instability which fluctuating exchange rates bring in trade; and, secondly, because it would set up cross-rates between the dollar and different European currencies, which would be a serious factor for sterling. That being so, it is clear that some other provisions must be made to keep the balances within reasonable bounds. If not, it is certain that the pressure on a country which is running up a deficit and coming to the end of its line of credit will be to deflate, and that will bring unemployment.
People who have thought about this convertibility scheme over the last year have agreed that the only answer to this problem would be to include in the payments union, as an integral part of the machinery, provisions for recommendations and action to co-ordinate credit policies between the member countries, so that their internal financial systems should not get out of step one with the other. The hon. Member for Nottingham, South (Mr. Norman Smith), was quite right when he said that too scarce sterling produced unemployment, and if any of the currencies within the Union become too scarce they will bring unemployment. It is of the greatest importance that we should not live in the past, as the hon. Member suggested in referring to the inter-war years, but that we should apply modern knowledge to see that all currencies within a payments system of this kind are managed so as to provide an effective monetary basis for a high and stable level of employment.
The Economic Committee of the Consultative Assembly of the Council of Europe published its report on European monetary reform last December, and this is what we said in paragraph 11:An integral part of any plan of extra-convertibility is the co-ordination by Governments of the various aspects of financial policy which affect inflationary or deflationary tendencies in their economies.Then, we went on to say, in the next paragraph:We give our unanimous support to the policy of full employment. We are convinced that, possibly before and certainly after, the end of E.R.P. funds, it will be impossible for any one of the O.E.E.C. countries to maintain full employment by isolating its economy and 2377 pursuing a credit policy at variance with its neighbours. We believe that co-operation offers the best chance to maintain the volume of work and real wages in all the member States.In February of this year. the O.E.E.C., in its second annual report, confirmed what we had said in the preceding December. In paragraph 754, it stated: "Any organisation set up to supervise these new payments arrangements must have not only the right but the positive duty to consult continuously with members on their relative economic and financial policies and to use the privileges and facilities of the system to promote the underlying conditions indispensable to full transferability." The Committee will therefore see that O.E.E.C. was calling for the same things as were referred to by the hon. Member for Gloucestershire, South (Mr. Crosland), that is to say, for variations in credits and in the amount of gold which a country must pay or receive according to whether it was behaving well or badly—a deliberate managerial system, which should not only recommend but take action within the limits of the system to keep full employment on an even keel.
What happened when the document was being negotiated? It is an open secret that His Majesty's Government led the opposition to the inclusion in this payments union of any such machinery for consultation and action. The British negotiators were instructed to get as automatic a machinery as they could, with as little power in it to take action, in order to moderate in one direction or another the internal financial policies of the members.
If, therefore, the Committee will look at paragraph 58, they will see what has happened to these recommendations for co-ordination of policy. It says:The Organisation shall keep under review the economic and financial situation of members, with a view to making such recommendations as it may from time to time think appropriate to enable all members to play their full part in the attainment of the objectives and the satisfaction of the conditions set out in paragraphs 2 to 12 above.If we look back to paragraphs 2 to 12, we find, in paragraph 11, the sentence:The internal financial equilibrium of the participating countries is an absolute condition precedent to its success.Those are the old words from the original O.E.E.C. document, and those who sponsored them in the first document must have insisted that they should be kept 2378 in the final edition. But gone are the powers for bringing that co-ordination about, and I particularly want to ask the Minister to tell the Committee what the Government intend to do under paragraph 58. Do they intend to co-operate with other European countries before deflation or inflation in any member State has got out of hand? Do they really intend to make a common monetary policy in Europe, or is it just one more of the proofs, of which we have had so many, that the moment the European countries want to do something in unison which touches in the slightest the complete mastery of His Majesty's Government over our own economy they draw back and say, "There, we will not follow you."
The right hon. Gentleman made a speech the other day at Geneva, in the report of which I was much interested, in which he said that the Government would be prepared to enter into consultations for the dovetailing of investment programmes. But this is much more important. Is he prepared, not only to enter into negotiations, but to take joint action to maintain a common level of a monetary demand in the area? Without that I think that both the Strasbourg Committee and the O.E.E.C. report of February will be found to be correct in saying that the system will not work for very long.
I now come to the third question, which is really the effect of the payments agreement on the "cold" war. Exchange control, which lies behind all these agreements, is one of the most powerful controls for destroying personal liberty. If there is to be a clear conception in the minds of Europeans of the difference of life on our side of the Iron Curtain and life on the other side, I can imagine nothing that would make that more evident than the right of an ordinary citizen to do what he wants, at any rate, with a fair proportion of his money, across frontiers. Exchange control pins a man down and curtails his freedom.
I well remember during the Second Reading Debate of the Exchange Control Bill five years ago—I opened for this side—recalling to hon. Members that a few days before the Foreign Secretary—who, we are glad to see, is getting better—had said that he looked forward to the day when a man could go to Victoria Station and buy a ticket and go anywhere 2379 without a passport. I asked what was the good of that if there was exchange control which prevented the man from having any money. This form of control is one of the most serious handicaps to liberty, and a very powerful agency of the totalitarian State.
What, then, would we expect of an agreement like this? We should expect that it would lead to some dismantling of exchange control over persons, but, of course, it does nothing of the kind. All that it does is to give greater facilities to central banks and Governments to exchange, once a month, the net balances in their hands, each Chancellor of the Exchequer retaining the same old powers to determine how much foreign exchange shall have got into the hands of any individual in his country.
In my judgment, this is a matter of great importance in getting Western Europe to feel that the free way of life is really better than the life on the other side of the Iron Curtain. I expect the right hon. and learned Gentleman, like me, listens occasionally to a programme called "Educating Archie." If he did so, on Sunday, he will have heard Archie being given a lesson about the French Revolution. There was the Scarlet Pimpernel trying to bribe Robespierre to let off two aristocrats from the guillotine. The Scarlet Pimpernel said to Robespierre, speaking in terms of his own currency, "You can have 10 million francs." Robespierre said, "No, nothing doing." The Scarlet Pimpernel said "Twenty million francs," and Robespierre said "No." Then the hero paused and said, "What about a dollar?" the two aristocrats were let off, there and then, to go home.
There is a great deal of truth in the fact that if people can get a little something in the money that they want, it has an enormous effect on their sense of "Where I live, things are free," and we ought to test any new payments agreement by the degree to which it makes possible the dismantling of exchange control. I do not take the view of my hon. Friend the Member for Croydon, East, whom I understood to say that we should sweep the whole of exchange control away today. I think that would be impossible; but we should show we intend to move in that direction if we want to have a growing 2380 sense of confidence in freedom on our side of the Iron Curtain.
What could the Government have done which would have enabled them, at this date in 1950, to present us with a payments agreement that would have permitted exchange control to be dismantled to a considerable degree, and would have allayed all the fears from this side of the Committee that one of the dangers of the arrangement might be that sterling would be too plentiful? It is true that, following the war, sterling was put to a strain it had not been under before, largely owing to the great accumulation of balances in this country. It is also true that, until those balances had been dealt with, and until His Majesty's Government was quite sure what the monetary policies of the sterling area were going to be, it was a risk to put United Kingdom sterling into the European arrangement. That is no excuse, of course, for not having got the family together after the war, and for not having reformed the management of sterling.
One of the things that has not been done, and that should have been done, was to have reformed and co-ordinated the full monetary policy of the sterling area so that we knew exactly where we were, and to have put it on a much more formal basis. The fears expressed by my hon. and gallant Friend the Member for New Forest (Colonel Crosthwaite-Eyre) as to whether, for instance, the Australians will keep the rules or not, are very legitimate. Personally, I am sure that the Australians will keep any gentleman's agreement they make. But it would be better if the management of sterling had been put upon an Imperial and Commonwealth basis. Had that been done, then, with confidence, His Majesty's Government could have said to the European countries, "We need not bother about inventing this new unit in which we are going to calculate how we make intra-European currencies convertible. Sterling is the currency. We can assure you that all the family have got a single monetary policy. Now you join us." They would have done it.
I say that with confidence because I spoke to all the representatives of the nations at the Strasbourg Assembly last summer on those lines. I pointed out to them—and it is on record in the Strasbourg Official Report—that there would 2381 have to be a European convertibility scheme before the next year was out, and I asked them whether they would base it upon sterling. They said, "Yes, if your Government can give us assurances that they have adequately tied up the sterling area and that they will keep prices steady in the sterling area, and, in particular, that they themselves will not pursue an isolationary policy in regard to money in their own country which will infect us with an inflation which we do not want."
They were perfectly ready to take sterling, but they were never asked to do so in that way because His Majesty's Government have all the time wanted to be complete masters over their monetary policy in this country, first refusing to make arrangements with the Dominions, and now, as we see in this Debate, refusing to make arrangements with the Continent. I think that an enormous opportunity has been lost.
I end my remarks by saying that this Payments Union is very good for the very limited object which was in view, but it fails because I do not think it will lead to the increase in productivity of European capital and labour. If it does not do that, it will hinder earning dollars. I think it fails because it might have been an instrument for employment policy had it incorporated really bold provisions for credit co-ordination between the European countries. I think it also fails because it might have taken a step towards personal freedom, which I believe to be the flag under which we shall beat the Communists.
§ 9.18 p.m.
§ The Minister of State for Economic Affairs (Mr. Gaitskell)
The right hon. Member for Aldershot (Mr. Lyttelton) apologised to the Committee for raising this subject at that hour, but he need not have apologised. As far as I am concerned, I am very glad that we have had an opportunity for a discussion before the Recess and before the final stages of signing the areement are actually reached.
It is, after all, a subject of substantial importance to the people of Western Europe, and indeed one might say to almost the whole of the non-dollar world. But it is also undoubtedly a subject which is complicated and technical in character, as some speeches in the Debate have 2382 shown. I am bound to say that I thought that the hon. Member for Chippenham (Mr. Eccles), who gave us at least a limited sort of blessing and said that he thought it was a good agreement of its kind, showed also that he obviously understood it far better than anybody else.
§ Mr. Gaitskell
I think I shall leave it as I said it. Undoubtedly a number of hon. Members did not understand the background to this agreement. I will begin by quoting Article 4 of the O.E.E.C. Convention, which reads as follows:The Contracting Parties will develop, in mutual co-operation, the maximum possible interchange of goods and services. To this end they will continue the efforts already initiated to achieve as soon as possible a multilateral system of payments among themselves, and will co-operate in relaxing restrictions on trade and payments between one another, with the object of abolishing as soon as possible those restrictions which at present hamper such trade and payments.There, in the rather stilted legal phraseology, is the background to this agreement, and I certainly contend that the European Payments Union proposals mark a very decisive step forward towards these objectives.
It does not seem to have been appreciated by some hon. Members opposite that up to now, although trade has, of course, developed very substantially within Europe and between Europe and the sterling area, nevertheless these developments have been mainly in bilateral channels and that, of course, is itself due in the main, at any rate, to the fact that there were only bilateral payments agreements. I do not think I need elaborate the point, for I am sure that every hon. Member will agree on the desirability of multilateral payments, but, as I say, it does not seem to be generally appreciated how limited the multilateral character of the trade has been despite the part played by sterling in developing that trade and despite the part also played by the insistence on drawing rights under the Marshall Aid proposals.
On 31st January and 1st February of this year, O.E.E.C. decided that there was to be a multilateral payments union and decided also that, as soon as a satisfactory payments union was set up, there 2383 should be an increase in the percentage of liberalisation; that is to say, trade freed from quantitative restrictions up to 60 per cent. There is the starting point of the negotiations which led up to the documents which we are considering this evening.
I think that the documents before us can be divided into three groups. First, there is the payments section of the plan, the inner core, as it were, of the European payments arrangements now put forward. Secondly, there are certain special features which happen to be necessary at the present moment but which are not theoretically, shall I say, an essential feature of any payments agreement. I refer, particularly, to the relationship of Marshall Aid to the payments system and to the disposal of existing debts and, in particular, sterling balances. Thirdly, there are the commercial aspects of the agreement, on which a number of hon. Members have commented.
I do not propose to describe the payments plan in detail. For my part, I should have thought it was fairly clearly set out, if not in the main document itself, at any rate in the guide which is published at the end of the document. When all is said and done, the central idea is a very simple one. I think it is best expressed in paragraph 8 of the document which reads:They must provide"—that is, the payments arrangements—each country with the possibility of using any Western European currency earned by it, through the provision of goods or services, to settle any current debt which it has incurred with a third country within the group.That is really the core of the European Payments Union, using the term in the rather narrower sense and referring to the payments section of the agreement before us.
Again, I think everybody will agree that it is most desirable, instead of having a system in which one builds up a credit with one country which one cannot use, while one is in debt to another country, that there should be some arrangement for off-setting debts and credits against one another. I think the arrangements for gold and credit, on which I shall have 2384 some comments to make later, are sufficiently clearly set out in this document to make it unnecessary for me to describe them again in detail, despite some speeches made by hon. Members and despite, in particular, the speech made by the hon. Member for Croydon, East (Sir H. Williams).
If it is in a creditor position, each country has to give 20 per cent. of its total quota as a gold free credit. Thereafter, it receives 50 per cent. of any additional credit balance which it acquires in the form of gold and the remainder has to continue in the form of credit. If it is in deficit, it is entitled to receive 20 per cent. of its quota as a gold free credit granted to it and thereafter, in ascending stages increasingly heavier gold payments, it pays more and more gold in relation to credit until, at the exhaustion of its quota, it has to pay 100 per cent. gold.
That, briefly, is the arrangement, and, as I said, later on I shall have something to say about the reasons why we think that the arrangement which, if I may say so, is neither an extreme gold standard arrangement nor, what would probably please my hon. Friend the Member for Nottingham, South (Mr. Norman Smith) most, something entirely without gold, should have been made. I shall have something further to say later on about that. The hon. Member for Chippenham (Mr. Eccles) criticised the fact that the agreement was supposed to be lasting for only two years. I draw his attention to the fact that the words in paragraphs 15 and 16 of the document are slightly different from that. Paragraph 15 says:The Union shall be so designed as to operate as long as it is impossible to establish a multilateral system of European payments by other means.That is to say—and the implication, I think, is quite clear—that so long as we cannot get a wider sphere of convertibility, then the idea is that it should go on.
In fact there are really three alternatives here. There is the possibility that complete convertibility will come. I would only say that I think that we are still some considerable way off convertibility—I mean with the dollar. There is, secondly, the possibility that the European Payments Union will break down. I do not think myself that that will happen, but I shall have something 2385 to say about that possibility later. Then there is the third possibility that it will, in fact, continue. When we come to paragraph 16 it is quite true that the financial commitments undertaken shall be concluded in the first instance for two years. In other words there is, as it were, a breathing space at the end of two years, when the whole question of whether it should continue or whether it should be modified will come up. I may say, speaking for the Government, that we certainly do not look upon this agreement as something that automatically comes to an end at the end of two years. Far from it. We desire that it should go on as long as it is working well and as long as there is no better system to take its place.
I said earlier on that there were three sections in these documents before us. The first is the straight-forward payment arrangements which I described very briefly just now. The second is the special features of the agreement—not, as I think I said, theoretically necessary in connection with a payments scheme of this kind, but, in fact, adhering to it for special reasons, and the first of those is the relationship of the scheme to Marshall Aid.
It is quite evident from what some hon. Members have said that there is a good deal of misunderstanding on this subject. It must be remembered that in the last two years, while we and other countries have received substantial assistance from the United States in dollars, that assistance has only been granted to us—at any rate, to the United Kingdom; and to many other countries as well—on condition that they made available sums of their own currency to other countries which were debtors to them, in other words with whom they had a credit. These sums are known as drawing rights. So we, as it were, had to pass on a part of our Marshall Aid in the form of sterling grants to other countries. The special arrangements which are described in Annex I, the Annex headed "Initial Positions." are, in fact, the successors to the drawing rights arrangements which existed in the previous years.
So far as the United Kingdom is concerned, the position is as follows. The United States have, in effect, said to us, "We shall be giving you some Marshall Aid this year, but some of this 2386 you have got to pass on, but you only pass it on if, in fact, you have a surplus with the rest of Europe." The amount in question is, I think, put into the table—150 million dollars. It is technically correct to say that we start with a debit position of 150 million dollars, but it is a little misleading, if I may say so, for the right hon. Member for Aldershot and the hon. and gallant Member for the New Forest (Colonel Crosthwaite-Eyre) to describe it as a handicap, because that 150 million dollars has only to be granted, given away, written off, if you like, to the Union if we have the surplus. If, for instance, we end the year with a deficit, then nothing has to be paid and the whole of our aid, whatever it may be, is direct aid, and none of it is conditional aid.
I hope the hon. and gallant Gentleman will therefore understand that this is simply continuing an existing arrangement under which the United States have said to us: "We think you are going to be a creditor country, but if you are not a creditor country that is all right; you will not have to pass anything on. But if you are, you must pass on 150 million dollars out of the Marshall Aid we are giving you; and you pass it on, of course, as before, in the form of sterling."
In the cases of Belgium and Sweden, the two other structural creditors as they are called—and, by the way, I may say to the hon. Member for Croydon, East, that simply means a country which is, in view of E.C.A., likely to have, I will not say permanently, but likely to have this year, a credit or, as the case may be, a debit position with the rest of the O.E.E.C. countries—
§ Mr. Gaitskell
Well, in the granting of drawing rights there was a great deal more guesswork than there is in this particular arrangement.
So far as Belgium and Sweden are concerned, the arrangements are slightly different, because they are starting with a handicap. The exact figures are not given yet because their Marshall Aid allocation has not yet been settled; the total between them is 180 million dollars; but they do start with a handicap because they are accepted as structural creditors 2387 and able to pass on certainly more than we can of part of the aid they are receiving from the United States.
Similarly, structural debtors are countries regarded as almost certain to be in deficit, and they would have had drawing rights under the old arrangement; that is to say, they would have been able to finance their deficits with other countries by those drawing rights. They are now given, as it were, special credits of clearing which correspond to the drawing rights they would have had. I hope I have made that position clear. I could explain, I think, the particular formula which the hon. Member for Croydon, East, found.;so difficult, but, if he will forgive me, I will not do so now because there is not very much time. I should be very happy to do so privately. It is not quite so difficult as he makes out.
§ Mr. Gaitskell
In writing, if the hon. Gentleman likes, certainly. I turn now to the other special feature of the agreement—the sections relating to existing balances. I should like, in order to avoid any misunderstanding, to begin by describing exactly what the provisions are. First, the parties—that is to say, the debtor and the creditor—in each case must agree not to fund the existing debts. If that is the case, it is provided under this agreement that if the one that owns the balances—to whom the balances are owed, in other words—is in deficit with the Union, it can use those balances to cover the deficit so far as they go. That is a sort of principle which applies, quite clearly, where there is no agreement to fund; and also, I must add, applies even when there is agreement to fund in certain special cases.
We have said that so far as the United Kingdom is concerned, we are prepared to agree that any country which is a holder of sterling balances and gets into deficit with the Union may use those balances, may draw on them, in order to cover its deficit. Why have we been able to say that? Because E.C.A. have made a special arrangement under which they have guaranteed us against losses of gold in those circumstances. I think the position is quite clear. That was one of the things that made it possible for us to bring the whole of the 2388 sterling area into the scheme. The hon. and gallant Member for the New Forest seemed to question whether there was really any agreement at all. I can assure him there is. I cannot at the moment publish the correspondence because we have not yet had the permission of the United States. There is correspondence between myself and the United States representative upon this particular subject, putting in writing, in effect, the guarantee against loss of gold, in the circumstances which I have mentioned.
§ Colonel Crosthwaite-Eyre
Is it, then, the case that the Chancellor of the Exchequer is supported by a letter written by the right hon. Gentleman, which cannot yet be published, but, in fact, will be published at some later date?
§ Mr. Gaitskell
I should certainly hope so. That is exactly the position. That is, therefore, the special position of sterling. There may also, of course, be funding arrangements, and if two countries agree to fund the debt, then in the ordinary way the interest and repayment will come through the fund and no special complications arise.
It is only if they disagree in the negotiations about funding that they come to the Council and say, "We have disagreed about this," and the Council then investigate it. The procedure then adopted is the one usually adopted in such cases, that a special committee of experts is set up to give an opinion on it. It is not an arbitration in the sense that their decision has to be accepted, but it is going to arbitration in that their report would have great weight with the Council. Failing agreement, and only failing agreement, the debt is to be repaid in two years. It is quite wrong to suggest that all our sterling balances are to be repaid in two years. That is not so at all.
§ Mr. Gaitskell
I am talking only of the European debts. It is quite wrong to suggest that they all have to be repaid in two years—that the £200 million odd which was mentioned by the Chancellor of the Exchequer all has to go back at £100 million per year. That is quite wrong.
What is the position? The right hon. Gentleman asked me to give some 2389 information about our situation. He will, know, appreciate that when we are talking about these balances we are talking about something which is somebody else's property. It is in fact their balances with us. Although these particular countries are not members of the sterling area, many of them treat the balances as part of their currency reserves and do not want the figures published. We cannot, therefore, say "We will publish the figures."
All I will say is this: That the debts in question are owed to three or four countries in particular. I do not see any harm in mentioning them. One is France, and the arrangement with the French—leaving the quantities out because the French are not particularly anxious to have them published, and we do not see why in this very definite case of a banker-client relationship they should be published—is that the repayment of this debt shall be set against the repayment of the £100 million which the French owed to us and which in fact is funded.
Then there is Italy. We hope to make an arrangement, and we have every reason to suppose that we shall make an arrangement, in which there will be some repayment during this period, but most of it will remain on balance.
§ Mr. Gaitskell
I could be drawn off into an explanation of this, but all I would say is that part of that is due to the fact that a good deal of sterling was spent in Italy, was then hoarded, and then spent later on, and is recognised and acknowledged as a debt by us. The whole amount is not very large, and only a small portion of that is likely to be repaid in any funding arrangement which is reached.
What is possible, of course, is that some of these countries may become debtor countries. I am bound to say I do not think it is likely, at any rate in the case of Italy and perhaps not in the case of France and not Sweden, but some of them may become debtor countries and then they can draw down the balances under the arrangement I have mentioned. In that case however, we are safeguarded 2390 by the arrangement with E.C.A. against any loss of gold. Therefore there is nothing whatever in the criticism which has come from the other side of the Committee that the arrangements are dangerous to us because they involve suddenly unloosing on Europe a vast amount of sterling. They do nothing of the kind.
§ Mr. H. Strauss
The right hon. Gentleman mentioned four countries. He said, France, Italy, Portugal. Is the fourth Sweden?
§ Mr. Gaitskell
Yes. I am much obliged.
The hon. Member for Barnet (Mr. Maudling) asked me a number of questions which I will do my best to answer. First, he asked whether we had any assets which offset the sterling balances in question. The answer is, yes, we have some. As a matter of fact we have a debt owed to us by Denmark and there the arrangements have recently been published. We have agreed to fund that. Although all the details have not been published, it is quite a satisfactory arrangement from the point of view of both of us. The hon. Member also asked me whether we are quite sure that the gold guarantee would work. The answer is "Yes, I am quite certain it will work because the terms of the correspondence I have mentioned are quite unequivocal and we are not worried about it." It is true there may have to be discussions. Should this arise, obviously the Americans have to be satisfied that if we have a loss of gold it is due to the running down of the balances; but I see no particular difficulty about that. Once we adopt a cumulative principle—that is to say, we take our balances to begin with. where they are in the end and how much gold has been lost meanwhile, it should not be difficult to reach agreement.
Then the hon. Member raised the fear of E.P.U. buying by the rest of the sterling area. The hon. and gallant Member for the New Forest made quite extraordinary statements about this. I do not know where he gets the idea that suddenly out of E.P.U., and arising from it, £2,000 million will be loosed on Europe. The effect of E.P.U. on the sterling area, so far as their expenditure is concerned, is very limited indeed. All one can say is that the rest of the sterling area is now in exactly the same position as the United 2391 Kingdom in that it does not matter whether or not they buy from certain countries—Belgium, Switzerland and Western Germany—as compared with others, because now we have a multilateral payments system instead of a series of bilateral payments. Apart from that, there really is no difference at all, and it is just as likely that they will also find Europe buying from them as that they will be buying from Europe. Trade, no doubt for the reasons I have given, will flow more strongly in both directions.
§ Colonel Crosthwaite-Eyre
Will the right hon. Gentleman forgive me for interrupting? The statement I made was that £2,000 million of sterling balances would be available now for purchases in Europe, and I understood from what he said that he agreed to that.
§ Mr. Gaitskell
There is no difference. The £2,000 million always was available. So far as they are members of the sterling area they are entitled to use it. It is their property. It results from arrangements of a gentlemen's agreement character. Formerly the position was that they could spend it all tomorrow if they wanted to do so, but happily the relations between ourselves and other Commonwealth countries are not such as to make that likely. E.P.U. makes not the slightest difference to that situation. Incidentally, if the hon. Member for Barnet were right in his fears, then the right hon. Member for Aldershot would be wrong in thinking we shall have a creditor position with Europe. We are not likely to have the rest of the sterling area buying heavily and at the same time a creditor situation.
The right hon. Gentleman asked me a rather technical question on paragraph 34 about the right of the fund to discharge a debt to an individual by paying in the creditor's own currency. The reference to that is actually the possibility that somebody might borrow sterling or some other currency from the International Monetary Fund and wish to use it in this way. In fact, if the right hon. Gentleman thinks about it, he will see that it would be a most unusual thing to happen because, on the one side, all current payments come into the clearing in any case, and, so far as the existing balances are concerned, they are already taken care of. Indeed, it is difficult to see how the 2392 Union could be in the possession of any currency except in very special circumstances.
§ Mr. Gaitskell
I quite agree. Those are the only circumstances, I think, in which it is likely to take place. I should like now to turn to the commercial sections of the agreement.
§ Sir H. Williams
The right hon. Gentleman still has not answered the point with which I was really concerned. Under the gold standard the bank rate arrangement gives the stabilising factor. Under the paper standard, the fluctuation of the rate of exchange puts things right. What keeps things right under this scheme?
§ Mr. Gaitskell
If the hon. Gentleman will be patient, I shall try to deal with those general issues towards the end of my speech, but I want to say something about the commercial sections of the agreement, because hon. Members have raised questions about them. It is clear that this agreement simply means that each country will now look, not at the payments position of each individual country, but of all the others taken together. That means that there is no case now for discriminating against another country on balance of payments grounds; that is, after all, the main aim of the whole thing, and is the whole obligation arising from the Payments Agreement. We, and every other country also, are obliged not to use discrimination in any future measure of liberalisation we may take.
In the second place, we are obliged to see that our past measures of liberalization—that is to say, in that part of the trade which is free from quantitative restriction—are also free from discrimination. Thirdly, we are also obliged to follow the principle of non-discrimination, even in that section of our trade which is not liberalized—that is to say, which is still subject to import licences. The next obligation I have already mentioned, namely, that the percentage of our trade, and of that of every other country, to be liberalised goes up from 50 to 60 per cent. as a result of the agreement.
There are, of course, exceptions. The first and most obvious is that if a country finds itself losing gold in a serious matter 2393 —the appropriate paragraphs are Nos. 62 and 64—it may reimpose quantitative restrictions—that is. a protective measure on behalf of its balance of payments as a whole. What it may not do is to reimpose these quantitative restrictions in a discriminatory manner; in other words, it must be done in the same way against all countries. Secondly, there are exceptions —I will not weary the Committee with them all; they are not very important—of rather special types which are mentioned in paragraphs 49 and 54, in special cases where, in the non-liberalised sector, discrimination may be practised. There is, thirdly, a possibility in connection with the accounts; this is in part the reply to my hon. Friend the Member for Gloucestershire, South (Mr. Crosland)—that the Council may waive the rules about non-discrimination either in favour of an extreme debtor or against an extreme creditor, no doubt, in the latter case, to protect the reserves of the Union.
§ Mr. H. Strauss
Am I right in understanding that the provisions regarding nondiscrimination will have the effect that, as from a date a few months hence, it will be impossible for this country to discriminate in tourist traffic as between Scandinavia and other countries?
§ Mr. Gaitskell
Certainly not. The Scandinavian case of the tourist traffic is regarded in the same light as a Customs union. There is a special provision, for instance, in the case of Belgium and Luxembourg that they may have a much wider area of liberalisation between them than they have with other countries. Therefore, the Scandinavian position remains the same; we have always made that clear in the Council. As my right hon. and learned Friend has pointed out, it means, of course, that the special restrictions in the case of Belgium and Switzerland come to and end, and the same rule applies as with everybody else.
I turn finally to the really major issues in this Debate. How far should we have gone in the direction of re-establishing what some have called convertibility and some have called a modified form of the gold standard? Obviously we have a real problem here. There are two possible extremes. On the one side we could have had a payments agreement under which gold payments were made almost at once and at 100 per cent., but there are, I 2394 suggest, very grave objections to that. In the first place, it would certainly have meant in those circumstances a scramble for gold. It would have meant that each country would have been anxious to obtain dollars for gold in order to meet its own dollar deficit and the consequences would have been a severe restriction and not an expansion of European trade.
In present circumstances, with the dollar shortage, the plain fact is that we cannot afford, any of us in Europe, to use dollars to finance purchases from each other; we need the dollars in order to finance our purchases from the United States. On the other hand—to take the opposite extreme, the extreme of no gold at all—clearly we have two difficulties. On the one side we have the possibility that a country may run up an extreme debtor position and nothing is done about it. As the hon. Member for Chippenham said, we could have dealt with that by giving the management powers. There is a limit to what we could expect individual countries to take from a central organisation in this way and also a limit to what other countries will really believe that another country is likely to take. Therefore I do not think we could have had a position in which there was no automatic sanction whatever on the debtor. It would have been wrong, in my view, to expect a creditor to run up vast amounts of credits and get nothing in return for them.
Therefore, we have to find some sort of half way house. This is the particular half way house agreed after a very lengthy negotiation—I may say many different countries started with different views, but we reached agreement—and it is true to say that the E.C.A. and the United States played a most helpful part of a mediatory kind in helping us to reach agreement. I think it is pretty satisfactory as far as that goes, because we do have some sanction on the debtor and at the same time some discouragement to the extreme creditor. They are in their extreme position only getting half their surplus paid in gold and the rest has to be paid in credit. We shall have, as the hon. Member for Chippenham said—and he is quite right—a strong force making for an equilibrium in the balance of payments between one country and the rest in the E.C.A 2395 I believe the hon. Member for Chippenham was a little gloomy and far fetched in the remarks he made at the end of his speech. Of course, no one suggests that this scheme is going to close the dollar gap. One could elaborate at some length on the exact effect it might have on the dollar position of different European countries. It may be good in so far as it leads to a substitution of European sources of supply for dollar sources of supply. It might be bad, on the other hand, if exports previously going to the United States were diverted towards Europe. Broadly speaking, I am sure that, with the advantages of the larger market which come with the multilateral system and liberalisation of trade, in the long run it is certain to improve the dollar situation in Europe as a whole. I agree with the hon. Member for Chippenham that, of course, that is the fundamental aim, to raise the productivity in Europe, and one of the ways in which the productivity will be raised is by greater competition and introducing the larger market it makes possible for everybody, our own exporters and everyone else.
The hon. Member for Chippenham suggested that it would not really work unless we had some co-ordination of credit policy. I think we all recognise that the European payments scheme is not the only type of economic co-operation which we shall have in Europe. After all, we already have, as the hon. Member must surely be aware, committees sitting, for instance, on the internal financial situation in each country. Our representatives take part with those of the other countries. That is designed, of course, to try to make some progress towards a harmonisation of credit policies, but we shall not get automatic harmonisation of credit policies simply by giving anonymous committee power to impose upon us the sort of credit policy which we should adopt. It really will not work like that.
The hon. Member must be aware that there are some differences of opinion among different European countries—not political but technical economic differences—as to the existing role and force of bank credit, for example, within the system. One cannot just say that there should have been powers given, that there should have been sanctions so that this har- 2396 monisation could be imposed. We shall secure far more harmonisation and far more harmony from the sort of arrangements we have made here and which we are making in O.E.E.C. all the time, using the system which involves the unanimity rule, and we all recognise the difficulties of that, than by setting up some body with powers and also presumably by establishing the power of the majority to reach decisions, for such a body would be meaningless without that. It is not correct to assume that agreement can only be obtained on those lines.
I would end by saying that obviously the exact outcome of the European Payments Union cannot be precisely prophesied. No one would say that. My view is that we shall be roughly in balance with Europe. We do not expect to have a large creditor or debtor position. We have provided, I think wisely, that while we have to give credits and shall be able to receive them, we are not likely to gain or lose gold as a result of entering this scheme. That is extremely important. It means that if we have a favourable position in Europe, which will certainly be associated with high raw material prices, and, as the right hon. Gentleman said, probably an accumulation of sterling balances here, at the same time if the position switches the other way we shall also have a cushion on which to fall back.
That seems to be extremely important; but whether the scheme works and how well it works depends on whether the individual countries will try to bring themselves into balance. It also depends on whether we shall be able to achieve the harmonisation in the way in which I think it should be done or in the way in which the hon. Member for Chippenham recommends, and whether we shall really treat the exceptions which will inevitably have to be granted under this scheme as exceptions and not as something which any country can come along and take advantage of.
I do not claim that this is the solution to all the problems of Europe, but it takes a marked and most decisive step forward. It is an important achievement for 18 countries, on a complicated subject of this kind, to be able, with the unanimity rule and all, to reach agreement. We can be well satisfied with what has been achieved, and also with the part 2397 which His Majesty's Government have played in achieving it.
§ To report Progress, and ask leave to sit again.—[Mr. Sparks.]
§ Committee report Progress; to sit again Tomorrow.