EEC (COMMUNITY LOANS)

HC Deb 17 December 1974 vol 883 cc1506-37

Motion made, and Question proposed. That this House do now adjourn.— [Mr. Walter Johnson.]

10.52 p.m.

The Paymaster-General (Mr. Edmund Dell)

This is not the first time the House has considered the subject of Community loans. During the first of the debates held on a recommendation from the Scrutiny Committee on 3rd July, one of the documents then before the House contained the EEC's first tentative ideas on a Community joint borrowing scheme.

At that time I explained that the Government considered this an interesting proposal, particularly against the background of possible difficulties in handling recycling arrangements for oil surpluses and deficits. I also said that there were dangers to which close attention would need to be paid in the development of these proposals. In particular I said that any EEC scheme would have to be compatible with wider recycling arrangements which might emerge, for example, through the IMF, and that it should not in any way reduce the ability of member countries to borrow individually. Not many hon. Members offered comments on those proposals at that early stage.

In the five months since then there has been considerable progress. The House now has the opportunity of discussing the EEC joint borrowing scheme. First I propose to discuss the present state of the Community procedures related to joint borrowing. Secondly, I shall give a description of the scheme and of the obligation for the United Kingdom which will flow from it. Thirdly I shall state the Government's views.

I deal first with the procedural question. The procedure commenced with the so-called "framework" regulation, the initial draft of which was transmitted to the House in Document R/2636/74 as soon as it appeared in mid-October. The framework regulation was considered and agreed at the EEC Council of Finance Ministers on 21st October, at a time when Parliament had not yet reassembled after the Dissolution, and the Scrutiny Committees were not formally in existence. The agreement on the framework regulation, however, is subject to the proviso that the regulation would not be published in the official Journal of the EEC, and that means that it would not come into force until after the parliamentary procedures in the member States had been completed.

I should add that the text of the framework regulation was substantially amended by the Council of Ministers on 21st October. The principal change was to introduce a limit of 3 billion dollars on the principal and interest payments authorised by the framework regulation. The final text of the framework regulation as actually agreed has therefore been attached as an annex to the explanatory memorandum supplied to Parliament on 8th November. There will then be an implementing regulation which will be considered by the Council of Finance Ministers in Brussels on 19th December.

However, even after the adoption of these two regulations, there will be an essential third stage before any actual loans are concluded. On each occasion that a member State applies for an actual loan, separate Council decisions will be required to endorse the application and to determine the basis of approach to potential external lenders and the terms of the loans to be undertaken.

I come to the substance of the joint borrowing proposals, and I shall describe the main lines of the scheme. The objectives of the scheme are set against the background of the enormous prospective deterioration of the current account balance of payments of oil-consuming countries which must, at least for a time, be offset on capital account. The matching of need, country by country, will not always take place spontaneously, and there may well be limits on the capacity of normal markets to channel the enormously increased flow of funds where it is needed.

The Community joint borrowing proposals aim to provide help for EEC member States in balance of payments difficulties as a result of the increased cost of their oil imports. Where the funds for this purpose can be borrowed direct from oil-producer Governments, the scheme will contribute a form of recycling of capital which will be relatively stable and will relieve private international markets. Loans would be of a minimum duration of five years, and the maximum borrowing authorised at this stage is 3 billion dollars, including both principal and interest.

A member State seeking funds under this scheme would be obliged to demonstrate its need and would undertake to pursue appropriate economic policies. Policy guidelines would be agreed with the EEC Commission and the other member States, and these would be subject to regular examination. The appropriate policies would be decided separately for each loan application. The beneficiary member State would also be obliged to meet the full interest payments and capital repayments on the loan on exactly the same terms as it had been raised by the Community, plus any costs incurred by the Community in the process.

There is plainly a need for internal Community arrangements to assure potential outside lenders and, indeed, to meet a situation in which the beneficiary member States might be genuinely unable to provide the necessary foreign exchange to meet one or more capital repayments on due dates, even after attempts to raise funds from all other available sources. Against that event, there has been devised a system of underwriting which is des-scribed in detail in the implementing regulation.

In brief, each member State underwrites the loan to the extent of its percentage share under the EEC short-term credit facility, adjusted to take account of the non-participation of the member State in receipt of the original loan. The basic share for the United Kingdom is 22.02 per cent., the same as for France and Germany. Any member State which is itself in balance of payments difficulties may be temporarily exempted in whole or in part from contributing to the underwriting arrangements and its share divided among those whose situation is stronger. But no single member is required to underwrite more than twice its basic percentage share—that is 44.04 per cent for Germany, France or the United Kingdom. The financing of any amount left over after this limit was reached would be shared between those States which had sought exemption.

Meanwhile, the policy of the beneficiary member State which has sought refinancing of the loan would be subject to more stringent examination with the aim of restoring its solvency as soon as possible. When that had been achieved, it would be obliged to reimburse the amounts contributed by the underwriting member States, with interest, in addition to resuming the servicing of its original loan.

No formal application to borrow funds under this scheme has yet been made, and none is likely until it is fully in place. But the Italian Government have expressed interest. Similarly, no approaches have yet been made to potential lenders. It is necessary for the Community to agree first on its internal procedures before making any external move. Hence no loan operations are likely before the early months of 1975.

I will now explain the views of the Government. We have taken a positive attitude to these proposals and regard them as worthy of support. The House is well aware of the magnitude of the problem facing the oil-consuming countries, both developed and developing, in financing the deficits caused by the increased cost of imported oil supplies. We believe that it is necessary to supplement existing market, bilateral and IMF facilities by a range of new facilities for recycling the surpluses of the oil producers, to ensure that, during the next few years, finance is available to cover the unavoidable deficits of many countries.

This is by no means a task for the European Community alone. On the con- trary, larger schemes with wider coverage are under active consideration: in the IMF—a new facility for 1975 developed from the proposal which my right hon. Friend the Chancellor of the Exchequer put forward at the annual IMF/IBRD meeting in Washington in September-October; and in OECD— where an interesting proposal has been put forward for mutual support between member countries, some versions of which display interesting similarities to the EEC scheme.

The EEC scheme itself will be a modest but useful addition to these facilities, and its advantages in contributing to the overall world problem of recycling would indeed be welcome to the United Kingdom as a member or as a non-member. It does not create problems of conflict with other schemes, nor provoke difficulties for other potential borrowers. We would be prepared, indeed, to see the size of the borrowing ceiling increased, if others favour this.

Furthermore, we consider this an appropriate measure for the Community at the present juncture. It is a sensible and practical step by which all the members of the Community will combine for the benefit of those in difficulty. By acting together they will achieve more than they would by acting separately. In our view, this is the kind of pragmatic co-operation which the members of the Community should always be attempting to develop. The concept of mutual help for balance of payments difficulties clearly makes sense in the present economic situation. It is sensible for the Community to have powers to seek funds for this purpose from external as well as internal sources.

As my right hon. Friend the Chancellor of the Exchequer has already explained to the House in a Written Answer on 14th November—reported in HANSARD in volume 881, columns 572–3—the United Kingdom has no intention of seeking to borrow funds under the EEC scheme in the foreseeable future. We have been able so far to finance our balance of payments deficit without recourse to any multilateral official facility. But as a major recipient of external funds, we can welcome the creation of this EEC scheme as a reinforcement to the total range of sources available to those in need of external financing.

Mr. Douglas Jay (Battersea, North)

My right hon. Friend says that the United Kingdom does not propose to avail itself of these funds. Does that mean that we might, nevertheless, have to underwrite a guarantee and, therefore, assist someone else who is unable to fulfil his obligations?

Mr. Dell

Yes, certainly it means that we shall have to underwrite the scheme if there is any borrowing. I should have thought that my right hon. Friend, with his great interest in free trade and the encouragement of world trade, would regard that as advantageous, quite apart from his attitude to the European Community. But whether or not we sought to borrow under this scheme, there is benefit to the United Kingdom in assistance being provided to other members of the EEC who arc our trading partners.

The underwriting arrangements involve a contingent liability on the United Kingdom. But the contingency that these arrangements would be invoked in a manner which was burdensome for the United Kingdom is exceedingly remote. Deliberate default can be excluded. Insolvency—that is, lack of necessary foreign exchange by the beneficiary State —is conceivable. But first of all the regular examinations of that State's economic policies should provide means of anticipating and averting this extreme situation.

Secondly, there is a strong likelihood that the Community would be able to raise the necessary funds from other external sources. Finally, even if the member States were obliged to honour their underwriting commitments, the United Kingdom could seek exemption if, at the time, our balance of payments was weak. Hence, we would be required to contribute in full to the underwriting arrangements only in circumstances where we could afford to do so. We should have to contribute a fraction, if at all, only if we were demonstrably in difficulties ourselves.

In the Government's view, therefore, the proposed EEC joint borrowing scheme will make a modest but useful contribution to the solution of the worldwide problem of recycling. The underwriting obligations are acceptable as representing an extremely remote contingency and providing for exemption in case of need.

Finally, I refer to the specific document—R/2712/74—which is before the House tonight. This is the penultimate draft of the implementing regulation. It has been subjected to exhaustive technical examination in official committees in Brussels. Some changes have been introduced. I can describe them to the House if desired. This debate gives the House an opportunity to express its view on the proposal for joint Community borrowing, and my right hon. Friend will bear in mind what is said.

11.6 p.m.

Sir Brandon Rhys Williams (Kensington)

We have heard from the Paymaster-General that the Government wish to take a positive attitude towards this proposal and that they consider it worthy of support. We, too, wish to take a positive attitude and we, too, consider that the scheme is worthy of support. However, there are a number of questions that must be asked and some reservations that must be expressed, partly because we must experience some disappointment that, after months of preparation, so little has apparently been achieved.

The Community intends to act as a Community when dealing with the balance of payments difficulties of individual members. This obviously strengthens the Community and supports individual member States which are inevitably finding the economic scene more and more unfriendly as funds pile up in the hands of the oil-exporting countries and, as yet, find no stable home.

We must welcome the Commission's initiative in seeking to prevent rivalry between member States in negotiating to secure their own position in this unfamiliar situation where the enormous petro-dollar surpluses have to be recycled so that the monetary system can continue.

No doubt the object of the Commission and of the Governments of member States would be to prevent the risk of a general restriction on imports becoming necessary, because of the balance of payments deficits arising particularly from the sudden increase in the price of oil. It would clearly be deeply undesirable if the balance of payments deficits of Italy or of Britain or of other major oil users arising principally from the increase in oil prices should make it necessary for economic measures or trade restrictions to be applied which might have the effect of reducing imports from all countries, without bringing about significant effects on imports of oil. If such a situation were to arise—there are already signs that this is beginning to occur—clearly emergency action would be necessary. It is far better to prepare for such contingencies in advance.

The plan that is put before us appears to solve certain of the problems inherent in a collective operation of this kind. It is wise that the loans are to be in one currency only, because in a world of floating rates which are becoming increasingly unstable, a multi-currency operation would present such complexities that it might be very difficult to reach an agreed system of rules in advance as to the way each eventuality should be catered for.

There is also the question of liability. As I read it, each loan is primarily a liability for the borrowing country. It is only in the event of default by the borrowing country that the collective responsibility is brought into effect. It is also, perhaps wisely, not a complex scheme. One might even regard it as an extremely primitive scheme. No doubt if it goes well refinements can be introduced later. If the scheme proves workable and successful, no doubt it can be expanded.

The right hon. Gentleman gave the impression that the Government would support such a development. On the other hand, we have to recognise that the ceiling of 3,000 million dollars makes this a very limited operation, particularly as—I believe on Dutch insistence—it was decided that the interest must be added so as to be included within this total.

The question of the negotiation of the loan needs to be considered as well. I believe that in the final draft, which is not before the House tonight, it is suggested that the agent for handling the mechanical aspects of the loan, once it has been negotiated, should be the European Fund for Monetary Co-operation. This will give it a useful but rather limited function, and we must welcome it. It is an organisation which has been in existence for about 18 months but is still only a glint in the eye of the Bank for International Settlements. It has not yet really taken positive shape. It will be welcome if it is correct that that fund is to handle the mechanical aspects—the interest payments and settlements.

I have to ask myself—and I think my right hon. and hon. Friends are entitled to know—who is going to handle the negotiations with the countries—I suppose the OPEC countries in the first instance—from which the money is to come? If they are handled amateurishly or in conflict with the negotiations which are also being handled by member States, it will obviously lead to misunderstandings and the negotiations may not succeed.

There has been a great deal of advertisement of the scheme in advance. One wonders whether, in fact, the countries from whom we are hoping to raise the funds—presumably Arab countries—will necessarily welcome the scheme in the form in which we are presenting it to them. It would be proper to ask the right hon. Gentleman whether he has any inkling whether the scheme is likely to succeed from the point of view of those who have the money to advance.

Other questions inevitably arise as to the investigation of the Member countries' ability to pay. I think the phrase which appears in the document is that "appropriate policies must be followed". This is understandable. There would have been such provision in the heyday of the sterling area, and obviously similar arrangements have become familiar through the working of the International Monetary Fund. But it would be wrong if the House did not probe the sort of commitments which the Government may be making in connection with this scheme.

Although they may say at the moment that they have no intention of applying for funds through this facility, one must wonder, particularly in view of the excitements of the past week, how long it will be before the United Kingdom decides to take advantage of this scheme. It seems rather unsymmetrical that we should be supporting the borrowings of other member States through this scheme while appearing to take no advantage of it ourselves. We should like to know, where does the scheme go next? Perhaps we shall learn.

The right hon. Gentleman whetted our appetites by referring to new proposals from the IMF and the Kissinger and van Lennep plans which I do not think this House has had an opportunity of debating, and which may have very important implications for the future of the financial system of the Western world.

I should like to know, too, whether it is the Government's view that this humble start will eventually become the nucleus of a Community debt system. This undoubtedly was the scheme as conceived by the Commission and there is very much to be said in favour of that concept as providing a support mechanism for expenditure by the Community as it develops and becomes more sophisticated with the passage of time. What, then, is seen as the ultimate size of the borrowing ceiling?

Perhaps I have posed enough questions to the right hon. Gentleman this evening, Since the document we are considering is only a penultimate draft and such straws in the wind as I have been able to pick up on what the ultimate draft might contain are unofficial and may be quite inaccurate, the House is entitled to ask the right hon. Gentleman to give it much more precise details of what will be in it when it comes before the Council of Ministers, which we understand will be later this week.

I do not wish to have appeared in any sense carping about this important proposal. It is a small begining and there are questionable aspects, but it is undoubtedly a step in the right direction. The Government are to be congratulated because they are one of the member governments in the Council which has brought very near to completion this most important initiative, and I think that we must wish the right hon. Gentleman well in the remaining negotiation.

11.17 p.m.

Mr. Ken Weetch (Ipswich)

I shall preface my remarks by expressing my thanks to my right hon. Friend for his explanation of the document. But in making this short contribution I should give voice to fears and misgivings I have and seek clarification of certain sections of the document with regard both to meaning and to implications.

My first point is to seek clarification of certain passages that occur in both the draft regulation and in the Explanatory Memorandum. Article 5 states, When a Member State receives a loan from the Community, the Commission in collaboration with the Monetary Committee and the Committee of Governors shall take the necessary measures to verify that the economic policy of this State accords with the conditions laid down by the Council". Article 5(3) states, Should it appear that a State may have difficulty in making a payment on the due date, the Commission in collaboration with the Monetary Committee and the Committee of Governors shall, sufficiently in advance of the due date, make a special examination of the situation. Precisely what does that involve? That is a straight question. What sort of scrutiny will that be? Are we to sit on the stool of penitence and submit to policies with which we do not agree? Shall we be forced to adopt an inflexible exchange rate or policies of deflation and unemployment? Paragraph 4 of the Explanatory Memorandum says, The proceeds would be on-lent to one or more Member States on terms exactly watching the terms of borrowing, and subject to economic policy conditions to be agreed at the time and arrangements for subsequent surveillance. Precisely what does that mean? May we have more information about what the EEC has in mind for us on that score? I was pleased to hear my right hon. Friend say that this mechanism does not preclude us from making individual and bilateral arrangements to borrow foreign exchange to finance any deficit in our external account. I am glad to hear that. I am glad that we shall not be strait-jacketed by the proposals. I am not impressed by the way in which the EEC operates in commodity markets, leave alone financial markets.

I note that under Article 2 Germany and the United Kingdom have an equality of contribution, at 22.02 per cent. If our proportion of foreign exchange required is equal to that of Germany's, whose economy is much stronger and whose balance of payments position is much healthier, there is an incompatibility. If these proportions are arranged in accordance with our voting strength, it is incompatible that they should be the same, because they are at variance with our financial and economic strength. There is a divergence of logic here. At first sight it seems that our efforts to renegotiate our contributions to the Community are not reflected here.

It is obvious to all that the United Kingdom is in a parlous balance of payments situation, appreciably caused by our entry into the Community, a substantial factor being the quadrupling of the price of oil. But in the 1980s, when we shall have our own oil in increasing quantities and others will not, might there not be pressure on the United Kingdom, despite the 44 per cent. maximum contribution, to be the substantial paymaster of the whole operation, if we are to help fund the defaulters? Might not this prove in the long term to be a back door for European penetration into our oil capacity?

There may be long-term and medium-term implications in the documents which we have not realised. Only time will tell. But they will scarcely be discovered by the House, because of the speed with which documents appear before us and then disappear. The lack of time for proper scrutiny is a continuing cause of dissatisfaction in the House, a point made on the subject by speakers much more distinguished than I.

I hope that we may have reassurances when the debate is wound up, but I fear that we shall not.

11.23 p.m.

Mr. John Davies (Knutsford)

I, too, was glad to hear the Paymaster-General say that the Government welcomed the scheme. That represented a good, sensible approach to what seems to me to be a good, sensible scheme, fully within the whole principle of inter-Community help.

The basic idea behind the Community is to produce methods by which in times of hardship or difficulty for individual members there is a basis of support. That is right. I regret the intimation by the hon. Member for Ipswich (Mr. Weetch) that if the time came when we could offer effective support to the maintenance of prosperity within Europe and the future of our continent, we should be loath to do so. That does not represent my point of view, and I trust that it does not represent the point of view of many hon. Members, even those who are not greatly in favour of membership of the Common Market.

It is interesting to consider what the Paymaster-General said about further documents which I understand will be considered by the Finance Ministers, meeting in Council later this week. I understand that in particular there will be a resolution seeking to obtain the agreement of members of the Community to the principle that a number of such recycling operations are desirable, and that there is no monopoly in any of them to attain something which is obviously to be attained only by a more general and widespread effort. I understand that in the resolution specific reference will be made to the IMF and OECD proposals. I welcome that. It seems to me that the Community plan in no way seeks to do something on the basis that it alone can do it and that no one else can. This is not its purpose, as I understand the matter. We need the aggregation of as many such schemes as possible.

When we think of the scale of the problem with which we are concerned, and about which nothing has yet been said, it is clear that the reasonable estimates of the future position in relation to what is called the recycling problem relate to anything between 300 and 400 billion dollars by the end of this decade, which is an accumulated sum arising from the tremendous receipts of the oil-producing States and which they do not find any ready means of recycling through the normal trade and aid systems of their own investments.

We are faced with a colossal change in the resources pattern of the world, which has very grave consequences for us all. It is hard to take in the full measure of the figures involved. We are talking about shifting, within the compass of this decade, between two and three times the total product of this country out of the hands of the industrialised nations of the West and the oil-consuming countries. It is an enormous shift.

In the nature of democratic countries such as ours, the inevitable tendency is for the main charge of those resources to be taken up against investment. It is highly probable that consumption will not materially suffer during the course of that period, because the nature of democratic governments dictates that they cannot afford the unpopularity involved in severe consumption setbacks. Therefore investment, in one form or another, suffers.

It is stated in the Explanatory Memorandum that the British Government are not contemplating an early use of these resources. One can well understand that. The British Government's position at the moment, judged by the reserve assets, is relatively healthy—despite the basically unhealthy state of the balance of payments—which is caused largely by the fact that very large parts of the sums which have already accrued to the oil-producing States have been redeposited in this and other centres on short-term arrangements. We are equating our balance of payments entirely with the short-term systems. There are short-term supports for our balance of payments. There is no long-term support.

We experienced prior to the weekend a necessary reminder of the dangers involved in relying on short-term support for the precarious position we are currently experiencing in terms of the balance of payments. Indeed the recycling problem involves not only the shifting back of resources to those places from which they have been removed, so that they may continue to serve the purpose they otherwise would have served, but also converting what is essentially a precarious short-term advantage into something of a more stable and durable kind. This is part of the recycling proposal. Indeed an organisation such as the EEC would be well placed to undertake a task of this kind, in affording the combined guarantees of nine powerful member States, to ensure that stability could be given to arrangements which otherwise, by their very nature, would remain precarious.

I would stress that the Paymaster-General and his right hon. Friends should regard this as a slender beginning, because it simply looks at the question of assisting countries, which are in the grip of deficits with their balance of payments problems.

There is perhaps a more severe and serious problem regarding these funds. What happens on the scale of nations is happening seriously on the scale of enterprises, public and private, throughout Europe and the world. At the moment, the short-term nature of the availability of funds presents any enterprise engaged in long-term investment with arduous problems in terms of balancing the term of its borrowing arrangements with the term of its investment.

I feel that the intervention of an organisation such as the Community can act as a catalyst to procure funds and change their nature from short-term deposits to long-term availabilities which are essential to the maintenance of investment in Europe. If it is not maintained, as a result of faltering over the next few years, means will have to be found to ensure that stable funds are available on reasonable terms—and ideally on reasonable terms—to those whose investment decisions are uncertain. This is a very big problem that we face not only in Britain but in the industrialised world, and most particularly in Europe.

I believe that the Community can play a very much more active part in this. Using this modest scheme as a basis, it can seek to act as that catalyst which will change the present situation where we are living both nationally and industrially on a knife edge of short-term money used for long-term investment into one of a very much more conscientious and responsible way of handling our money in the world as a whole, especially in our industrial investment.

11.32 p.m.

Mr. Raphael Tuck (Watford)

I may be mad. I do not want to be offensive to my right hon. Friend, but either—

Mr. Deputy Speaker (Sir Myer Galpern)

Order. I remember that the hon. Gentleman on a previous occasion said something about mad people and then added an adjective. He said that he would not have it said in the House of Commons. I hope that he will not pursue that line this evening.

Mr. Tuck

I shall not use that adjective. But either my right hon. Friend was standing on his head when he read this document, or I was when I read it. I have never seen such a load of rubbish in my life.

Here we are saying that we have no immediate intention of availing ourselves of the benefits of this scheme, yet we are blithely committing ourselves to distributing largesse, like Santa Claus, in return for which we shall receive nothing. My right hon. Friend said that we shall be receiving some benefit in that we shall feel very good when we appreciate the fact that another nation is benefiting from our largesse. In other words, we shall get some vicarious thrill from the other country's benefit. To me, this is masochism on a large scale.

We are committing ourselves to 22 per cent. or even up to 44 per cent. of the amount borrowed. At a time when we are ourselves suffering from a massive deterioration in our economy and from a massive adverse balance of payments when we need everything that we can get, we go into this with light hearts.

My hon. Friend the Member for Ipswich (Mr. Weetch) referred to several matters in Article 5 and in paragraph 4 of the Explanatory Memorandum: … The Committee of Governors shall take the necessary measures to verify that the economic policy of this State accords with the conditions laid down by the Council pursuant to Article 5 … and then … subject to economic policy conditions to be agreed at the time and arrangements for subsequent surveillance. That can have only one meaning. It means the regulation of our economic policy by the EEC, to which we strongly object. It is another example of the abdication of our sovereignty, and I regret that our Government have seen fit to endorse these monstrous proposals.

11.35 p.m.

Mr. J. Enoch Powell (Down, South)

This is an extremely rum affair altogether, as regards both procedure and contents.

I should like to ask a question or two first about the procedure. We are told by the Paymaster-General, and we are told in the Explanatory Memorandum, that both these regulations have been approved by the Council of Ministers. At least, the term "approved" is the one which is used—[Interruption.] I do not know how the right hon. Gentleman will be able to answer my questions if he does not hear them, but perhaps there will not be time and in any event it does not seem to matter in these debates because the House of Commons can be overridden anyhow. I notice that there is a difference in phraseology in that it is the framework regulation which is "approved" and the implementing regulation which is "agreed". There may be some subtlety there, there may not.

However, my first point is that we heard both from the right hon. Gentleman and from the hon. Member for Kensington (Sir B. Rhys Williams) that the implementing regulation, which has been agreed by the Council, was not the final one. We have not seen what the Council of Finance Ministers will have before it later in the week. That was described as "the final draft"; but we were told, again by the hon. Member for Kensington, that what we have before us is "only the penultimate draft".

Are we to see the final draft? Are we to see the draft which will contain the provisions—which are not here before us tonight—about the International Monetary Fund? They would be very interesting, I should have thought, but apparently we are not to see them. Or is it that the Finance Ministers at the Council will not agree to the final draft, even though they have agreed, apparently, to what is only the penultimate draft?

We read on, and note that there is no need for the Government to come to this House for any specific authority. Echoes will be awoken in the minds of some hon. Members by the fact that the underwriting obligations—this is in paragraph 8 of the Explanatory Memorandum—will "be met from the Consolidated Fund under the authority of Section 2 (3) of the European Communities Act 1972". There is thus no question of any control there; and the "authority for any borrowing by the United Kingdom" is available already under the National Loans Act. It behoves us, therefore, to look sharp about us now as to what opportunities we have for exercising any authority in this matter.

We are at first reassured to discover that the thoughtfulness of the Council of Ministers has indeed provided a rôle for us. Although they agreed—or approved —these regulations, they "noted their need to consult their respective Parliaments." That is in paragraph 9 of the Explanatory Memorandum. Indeed, the right hon. Gentleman went further and used an interesting expression. He said that the agreement or approval—I took his words down—was subject to "the parliamentary procedures in the member States". So we learn something which is very curious. We learn what is our parliamentary procedure, subject to which the agreement is to be given. The motion before the House is "That this House do now adjourn". Whatever may be the case in the other Parliaments of the Community, our parliamentary procedure for authorising Ministers to have approved or agreed these matters is to debate the motion "That this House do now adjourn". This was actually described—I forget from which Front Bench; it makes very little difference— as this House having "an opportunity of expressing its view".

It needs to be made clear, because evidently there are those who have not understood it, that there is a well-recognised method whereby this House expresses its view. It is by the Question being put on a substantive motion or a proposition. This House does not express its view by debating the motion "That this House do now adjourn". Indeed, it is a recognised method whereby the House avoids expressing a view; and it is not impossible that that fact has something to do with the choice of the motion which is before the House tonight. So on several grounds the procedure in the context of which these matters come before us is grossly unsatisfactory. It is unclear; it withholds from this House a sight of the final documents; and it insults this House, whatever is happening in the other eight States at this hour of night, by the pretence that an Adjournment debate of an hour and a half is a consultation and a securing of the pleasure of the House on what is to be done in its name.

Turning to the substantive matters, I return to one point raised by the hon. Member for Ipswich (Mr. Weetch). Although the articles that he quoted from the second regulation were very pertinent, I look at Article 3 of the "framework regulation": The Council shall decide on the principle and the terms of the loans to be granted to one or more Member States and on the economic policy conditions to be fulfilled by the beneficiary Member State(s) in order to redress its (their) balance of payments. That is something which the Government have approved, subject to this debate— that it shall be a function of the Council in administering these powers, to lay down "the economic policy conditions" which are "to be fulfilled by the beneficiary member States"—so they approve that sort of procedure—for a specific purpose, not their general economic policy, but the conditions to be fulfilled in order to redress the balance of payments.

I fancied that this reminded me of something. Sure enough, it did. It was in the February manifesto, the famous manifesto on which both of us fought the election in February—in particular, those terms of renegotiation referred to again and again as the tablets of stone by the Prime Minister. This is what it reminded me of: We would reject any kind of international agreement which compelled us —and if, as seems to be popularly assumed, we availed ourselves of these facilities, we should be so compelled— to accept increased unemployment for the sake of maintaining a fixed parity. That is what it reminded me of.

The right hon. Gentleman may say, "Ah, but there is nothing here about a fixed parity. You are worrying too much. You are seeing ghosts. It refers only to 'redressing the balance of payments'." But that is the same thing. The balance of payments always balances, because it cannot help it. Of course, the balance of trade does not balance and the capital balance does not balance, except by accident; but a balance of payments always balances: it has to. The only difference is whether it balances at one exchange rate or at another; and if it does not balance at a free exchange rate, it has to be made to balance at a fixed exchange rate.

So in reality, as we know perfectly well, what the Community is talking about is parities. That is why this is one of the stages towards economic and monetary union. This is all about fixed parities and it is all about policies which have to be adopted internally in order for a country to comply with fixed parities. We know what those policies are: they involve the usual measures of deflation or reduction of inflation—for which there may be perfectly satisfactory reasons, which may commend themselves to a sovereign national parliament responsible to its electorate—for redressing the balance of payments at a particular exchange rate. In fact Article 3, in other language, is exactly that which the party opposite forswore in principle and said that they would insist upon rejecting as one of the elements of their fundamental renegotiation.

Talking about renegotiation brings me to my last question. It relates to the— what do they call it? they do have such names—"implementing regulation", from which the hon. Member for Ipswich also quoted. Article 5 describes what happens when we get into trouble, either such trouble that we go along to the Community for assistance of this character or, being one of the guarantors—and automatically the United Kingdom will be— that we want to be released from the obligation of guarantee which we are in principle undertaking by this agreement; for the same procedure is applied under the subsequent article to applicants for relief from the duty of guarantee as to applicants for guarantee. Paragraph 4 of Article 5 reads: the debtor Member State may make application to the Council, which shall decide thereon by qualified majority after consulting the Monetary Committee and the Committee of Governors. Only yesterday the House was considering paragraph 6 of a communiqué from Paris. Paragraph 6 said that the Luxembourg Agreement—or disagreement—was renounced as applicable on all occasions. The House would like to know from the Paymaster-General whether this is or is not one of the occasions when that right of veto, so often held out to anxious and tender consciences in the House at earlier stages, applies or does not apply or whether this is one of the cases where it has been renounced.

Mr. Jay

If I may supplement what the right hon. Gentleman says, he will recall that yesterday, although the communiqué said that we had renounced the Luxembourg Agreement, the Prime Minister said that we had not.

Mr. Powell

I am not sure that the communiqué actually said that. Indeed it is extremely difficult to find out from the translation from the French what it did mean, or even could mean. But we are entitled to ask the right hon. Gentleman whether or not the qualified majority would or would not be subject, if we were the country in case, to the use of the veto under the Luxembourg Agreement.

So we have the picture of one hand of the Government not knowing what the other hand does. The left hand, perhaps, is negotiating fundamentally, in good faith, upon the terms set out in the election manifestos. The right hand is going gaily along as if nothing of the sort had ever been said. Documents are put before us which are in contradiction with the policies on which the Labour Party was elected, or at least so it might appear—

Mr. Douglas Hurd (Mid-Oxon)

Supported.

Mr. Powell

Unfortunately, under this procedure we are unduly short of time, so perhaps the hon. Gentleman will forgive me for not examining his difficulty with him.

I hope, therefore, that the Paymaster-General will still have time to resolve at any rate some of these perplexities.

11.48 p.m.

Mr. Nigel Spearing (Newham, South)

I wish to refer to one or two remarks made by the right hon. Member for Down, South (Mr. Powell) and to comment briefly on what the right hon. Member for Knutsford (Mr. Davies) said.

Understandably, the right hon. Member for Knutsford dwelt on the recycling of oil revenues, and I do not quarrel with that. I was interested to observe his assumptions in respect of what he called the nine powerful States which needed that type of scheme. The right hon. Gentleman did not mention the at least equal and probably greater need of a large number of States which are even more reliant upon imports of oil and which have not direct access to the scheme, and may not have any scheme. In that context, whether or not he meant it, the right hon. Gentleman backed up the oft-quoted comment that this is a club for relatively rich men.

Mr. John Davies

Perhaps the hon. Gentleman will recall, if he was attending to what I was saying, that I said I went along with the Community's proposal to support manifold schemes to produce. He will also recall that the Government's proposal with regard to the IMF arrange-was devised partly to meet the kind of the problem he is now reciting.

Mr. Spearing

I gladly concede that. Perhaps we should ask why there should be rival schemes.

Mr. Davies

Not rival.

Mr. Spearing

It is possible that, in course of time, they will be rival. I think that it is a pity, particularly in view of the worldwide outlook many hon. Members have.

The right hon. Member for Down, South properly drew attention to the motion. Perhaps it has some advantage, in that whilst the Government may have accepted this scheme and have expressed their view tonight, the House will not have done so. That is something that my right hon. Friend might bear in mind, as well as the tenor of the speeches we have heard so far.

The right hon. Member for Down, South really put his finger on the essential point that this is a step, albeit a very small step, but, as the hon. Member for Christchurch and Lymington (Mr. Adley) said in a previous debate, one step is the start of a long journey towards economic and monetary union. This is an over-underwriting. We are in it willy-nilly. It is a question of pooling of debts among the nation States, and one more step towards an international holding company, where the accounts are becoming gradually consolidated between the tributary companies one with the other, with the obligations of mutual support such a conglomerate requires. Many of us on the Government side of the House dislike the arrangements that are endemic in the Community, partly because of this reason. Although they may not agree, some hon. Members opposite may understand our doubts on the matter.

Indeed, my hon. Friend the Member for Ipswich (Mr. Weetch) put his finger on the point when he said that we are setting out on a new system of debt, a new system of covering that debt, and a new system of interest. Although it is a small step—much too small for the hon. Member for Kensington (Sir B. Rhys Williams)—it is at least something which can grow. Who knows to what extent it will grow? We are constantly amazed nowadays, although perhaps we should not be, at the growth of small funds around the world. They grow from very small beginnings. There is a saying that from small acorns great oaks grow. If characteristics can be in the seed, they can be in the tree. Whilst it may be a small matter, that, again, is one of the reasons why many of us regard it with the greatest suspicion and regret that the Government are giving it their support.

That brings me to some of the questions I do not think my right hon. Friend fully answered. If there is a one-to-one relationship between States which need to support each other for mutual purposes, it is usually done with a degree of delicacy. There is not the urge for supervision which is written time and again into this document. My hon. Friend the Member for Ipswich referred to this aspect and gave relevant quotations. While, of course, there may be something in that element in the IMF and, perhaps, in the OECD arrangement, they are at international co-operative organisations established for a specialist purpose.

I submit to the House and to the Government that there is all the difference in the world between specific schemes, particularly those of the OECD founded for that purpose, and the EEC as such. It may be that at the moment the Government have no intention of using these funds, but in future they may find it politic to do so. There is not only the surveillance that one finds in the gnomes of Zurich the IMF or the OECD, but a total machinery, not just for financial surveillance, which can send out its tentacles, and even send its legislation, into the interstices of not only our economic system but our social system.

That brings me to my last point. All hon. Members know that, time and again, in dealing with matters of Government, and of judgment, there is a tendency, or, perhaps a temptation, to reach agreement by saying. "We shall give way on that if you will give way on something else, and perhaps we can bear in mind something for the future". In other words, the merits of any matter that has to be decided are clouded and muddied by other considerations.

I do not say that that is necessarily wrong—I think everyone knows that at times this may become inevitable—but if we are to have proper decision making, not only on the level of Whitehall and outside or inside the House but at European level—which I should deplore— those temptations become greater and greater in the decision-making institutions of the Community and more and more will the wrong decisions be made.

Instead of being able to say openly, "Let us deal with this matter on the merits and let us come to as clear a decision as we can on the needs of the situation and on the needs of the people", we shall tend to think in terms of a balance sheet. Here we have given way on one thing, and someone else has given way on something else, and questions of indebtedness will ever be present and if ever the hon. Member for Kensington gets his way they will be present more and more.

Therefore, not only is the de jure power of the House gone, but the de facto power of the House is diminished even further as the bureaucracy, the financial mechanisms and the degree of non-merit decision making take over. I feel this particularly in this arrangement, linked specifically with Community institutions, and would prefer larger regional grouping and worldwide institutions that might provide the same sort of service, not only for the 10 countries of Europe but for all the countries of the world that stand in need of the sort of recycling arrangements mentioned by the right hon. Member for Knutsford.

11.59 p.m.

Mr. Douglas Hurd (Mid-Oxon)

I had not intended to take part in the debate but I was spurred on to do so by the reception given by some hon. Gentlemen to the remarks of the Paymaster-General, particularly his remarks about the intention of Italy to take advantage of the facilities described by the right hon. Gentleman.

It is sad and slightly shocking that in this crisis hon. Members should regard our needs as sacred and the needs of other countries as a matter for laughter. It happens that in the Community of which we are members two countries— Britain and Italy—are among the weakest, the feeblest, the least able to withstand the blows and buffets that we are in for. There should be a certain solidarity among the weak.

There is one difference at the moment, which is that because of the strength of the City of London and the capital structure of this country we are better equipped than are the Italian Government to attract funds from the Arab world. Back-bench Labour Members are apt to scoff at the needs of Italy, but after the events of last week who can say that that will continue to be so? If we mock at the needs of Italy, how can we expect other to take our needs seriously?

The scheme that we are now discussing is on a modest scale but underlines the basic principle of the Community, which is the principal of mutual help. When people are in difficulties the Community finds ways of meeting them. He would be a very rash man on either side of the House who could be sure that in the months to come we in this country, laughing though we may be this evening, will not need every friend and every resource we shall be able to call in aid.

The hon. Member for Ipswich (Mr. Weetch) rightly mentioned the degree of surveillance that goes with the degree of lending. Anybody who ignores that point is living in a dream world. We are now borrowing, every day, at a fantastic rate, and the Chancellor of the Exchequer has been scurrying around the Middle East trying to persuade countries to invest here. Does the hon. Member for Ipswich believe that that will have no impact on our domestic policy, and that there will be no surveillance? Whoever our creditors are, they will expect some say in our policy. That is life. If the Arab countries buy property in this country, does the hon. Gentleman think that that will not have some effect on the property policies of the Labour Government? If they buy into British firms, with the encouragement of the Chancellor of the Exchequer, does he not think that that, too, will have some effect on our industrial policy? Of course it will. The creditor calls the tune.

If I had to choose, I would far rather have surveillance by institutions of the Community, of which we are part and to which we can make a rational contribution, than to suffer some haphazard and perhaps irrational surveillance by creditors elsewhere in the world on whose thoughts and decisions we have little impact at all.

Mr. Jay

Does the hon. Gentleman mean surveillance by the Commission or surveillance by the IMF or the OECD?

Mr. Hurd

As I understand it, that is not in question. The Government are trying to increase direct investment by Middle Eastern countries in this country. If the right hon. Member for Battersea, North (Mr. Jay), with his experience, believes that that kind of investment will take place without any effect on Socialist or other policies of a British Government, he is living in a dream world. I would rather have a rational discussion of these matters in the Community, in which we take part, than to see the Chancellor having to go to Jeddah two or three times a year to explain our policies and trying to persuade Middle Eastern countries that they are right.

The Prime Minister in his fascinating discourse yesterday afternoon made somewhat tedious play with the fact that he had no idea what economic and monetary union in the Community meant. If he had been able to be present this evening and had heard the wise speech of the Paymaster-General he would have had some notion of what economic and monetary union means. It means increased co-operation and mutual help on the basis of perceived need.

I must apologise to the right hon. Member for Down, South (Mr. Powell) for having in an unmannerly fashion, interrupted the conclusions of his speech. The right hon. Gentleman, in two elections—logically, from his point of view —expressed the hope that the Labour Party, regardless of perceived need, would turn their backs on co-operation with the Community. What the right hon. Gentleman is now saying—perhaps this explains the tone of his intervention—is that the Government, faced with perceived need, which they perhaps see more clearly than right hon. and hon. Gentlemen behind them, have decided that mutual help within the Community is an important—perhaps essential—resource for this country at this time of crisis. Therefore, they are disregarding the advice and, indeed, the help given to them by the right hon. Gentleman and are turning towards Europe and are seeking, welcoming and helping forward the mutual help on which the Community is based and of which this scheme is a modest but clear illustration.

That is why I am glad to welcome and support the remarks made by the Paymaster-General and the scheme that he has brought to our attention.

12.6 a.m.

Mr. Ted Leadbitter (Hartlepool)

I believe that the House has missed the point of this scheme. That remark applies particularly to the hon. Member for Mid-Oxon (Mr. Hurd). None of us is concerned about deriding Italy or any other country in the sense that the hon. Gentleman implied. We are concerned about the extent to which the sovereignty of Parliament is being flouted.

Whenever this country, through its elected Government, has embarked upon any kind of loan, we have become used to the Chancellor of the Exchequer making a statement in the House at a particular time of the day so that we can scrutinise the proposal.

We are dealing with this proposal— no matter how small it is, the principle can be enlarged—on the Adjournment of the House, when practically everyone has gone away.

Mr. Hugh Dykes (Harrow, East)

Does the hon. Gentleman agree that the Chancellor has not come to the House in the past in the way he mentioned in respect of, say, European loan schemes or IMF participation?

Mr. Leadbitter rose—

Mr. Deputy Speaker (Sir Myer Galpem)

Order. Before the hon. Gentleman continues his contribution, I remind the House that this debate must finish by 12.21 a.m.

Mr. Leadbitter

I shall be brief, Mr. Deputy Speaker, but that is part of my complaint. The House is not getting an opportunity to debate the matter fully. I am not here to accommodate any Front Bench Member when my rights in Parliament are being flouted.

Mr. Deputy Speaker

Order. I am not trying to curtail the hon. Gentleman's rights. I am carrying out the Standing Orders of the House, which allow for one and a half hours discussion on this document.

Mr. Leadbitter

I shall abide by your ruling, Mr. Deputy Speaker, but I have been speaking for the sum total of only two minutes. Therefore, by my brevity I am making a large contribution to the convenience of the House and its Standing Orders.

The only sentence which makes sense in the Explanatory Memorandum, signed by my right hon. Friend the Paymaster-General, is the last one: It seems at present unlikely that an actual loan could be arranged before the end of 1974. It seems odd that we are asked, not even in a "take note" debate but in an Adjournment debate, to deal with a matter when we have not been consulted on the original document and we are not to be consulted on the implementing regulation. The scheme will be functioning next year and the sovereignty of this House is not being recognised.

It seemed illogical, when the Opposition right hon. and hon. Gentlemen were in Government, to say to the nation, "We shall not commit ourselves without the full-hearted consent of the people." It is similarly illogical for the Labour Party to go to the country, to talk about a referendum, and to say, "We shall take the judgment of the people", when, in the meantime, we are committing ourselves to matters which we cannot examine in the House of Commons.

12.9 a.m.

Mr. Dell

I shall deal as rapidly as I can with the many questions which have been put to me. I begin from the standpoint that it is sensible to join in mutual help with friendly countries. I include EEC countries in that category.

I do not know whether the hon. Member for Kensington (Sir B. Rhys Williams) was making his first appearance at the Opposition Dispatch Box. If so, I congratulate him; but I shall not delay my answers to his questions any further. He wanted to know who would negotiate the loan with the lenders. This is a matter on which no decision has been taken. Discussions are proceeding in the Community. It is not a matter covered by the regulations. There will probably be a team consisting of representatives of the Commission and of the member States. He asked whether any approaches had been made to prospective lenders. The answer is, not yet, because it was thought that it was better for the Community to get this scheme organised and agreed before any such approaches were made. But I believe that it will be found that the Community's name will be regarded as good.

The hon. Gentleman asked where this scheme would go next, and whether there are likely to be developments and increases in its size as compared with its very modest size in the beginning. As he knows, there is a limit of 3 billion dollars of principal and interest. But this is a beginning, and perhaps we can develop from it. It is perhaps sensible that we should see how this modest scheme works before committing ourselves further. But the British Government, as I acknowledged in my opening speech, would have been prepared to see a higher limit than the 3 billion dollars included in the framework regulation.

My hon. Friend the Member for Watford (Mr. Tuck) appeared to think that my attitude to the scheme was such that I might get a vicarious thrill from the assistance I was munificently giving to Italy or other borrowing countries. I confess that I do not feel bad when I am helping to assist other people or other countries. But I, and the Government, have a practical motive here. It is better if our trading partners—more particularly, our intimate trading partners—are not forced unnecessarily into excessively deflationary policies. Schemes of this sort can help to avoid that, and that is better for this country as well as for the countries which will be doing the borrowing.

My hon. Friend the Member for Ipswich (Mr. Weetch) and the right hon. Member for Down, South (Mr. Powell) dealt with that point and wanted to know what sort of economic policies will be demanded of member States which borrow under the scheme. I repeat that we have no current intention of borrowing, but in answer to the general question I would say that what is decided by way of surveillance or appropriate policies will be after discussion with the borrowing countries. It will be decided in agreement with them. Indeed this, I think, is the only sensible way to go about it. We have had experience in the past of having discussions about conditions governing economic policy in this country when we have been wishing to borrow in certain circumstances. It is a feature which any borrower is likely to have to expect under a scheme such as this.

There is no requirement in the regulations, and there is no requirement in the experience of the operation of schemes of mutual assistance—limited though that yet is within the Community—which indicates that excessively deflationary policies would be forced or that fixed parities would be forced.

As I have said, we have very limited experience of this, but we have one piece of experience which is, though not identical, at any rate in principle comparable. That is the medium-term assistance to Italy, from which we abstracted ourselves under the sort of exceptional clause included in the document which we are now discussing and in which there was no obligation on Italy to fix its parity. This is not something which the European Community now requires, and there is no reason to think that this will be a condition imposed on any borrowing under this scheme.

That, then, is the position on the question of surveillance. It is reasonable, when one is engaging on a long-term lending operation, as the Community would be, that there should be some surveillance to ensure that the country which has done the borrowing will be able to make its repayments in due time. That is not unreasonable. The best way of escaping from this burden is not to have need to borrow under this scheme or any other scheme.

I was asked by the right hon. Member for Down, South what the status of these regulations was. He drew attention to the difference between "approved" and "agreed". The position is simple. The framework regulation has been approved. It was approved by the Finance Ministers on 21st October. The implementing regulation has not been approved. It will probably be approved this coming Thursday.

The right hon. Gentleman said that we have not seen the regulation that will be approved on Thursday. The draft of it now exists. I shall ensure that the regulation is supplied to the House. It will be available and the right hon. Gentleman will be able to see it. I had hoped to indicate the changes from the document that the House is discussing. However, I do not think that I shall have time to do that tonight. In any case, I shall ensure that the document is laid before the House.

Mr. Jay

How does it come about that a regulation which is to be finally approved by the Council on Thursday has not been seen by us? The procedure is supposed to be that a regulation goes to the Scrutiny Committee in reasonable time for final approval and that Committee has time to refer it to the House. During the interval the Committee undertakes not to allow it to be finally approved in the Council. Surely this document should have been to the Scrutiny Committee and to the House.

Mr. Dell

There are differences between the final regulation and this one. They are not great differences in principle, but they are differences. An important point which my right hon. Friend may like to bear in mind, is that the implementing regulation itself does not set the borrowing scheme in motion. What sets the borrowing scheme in motion is an application by a member State to borrow, and then there will have to be a decision. I remind my right hon. Friend that during our discussion on this subject in July I referred to the possibility that these procedures would reach a point of urgency, when it would be necessary for the Government to agree to the setting in motion of these schemes for the assistance of a particular country which wished to borrow.

Mr. John Davies

In view of what he has said, will the right hon. Gentleman reassure the House that any proposal for a decision to implement an arrangement in respect of a single country would be submitted to the House and would be available to the Scrutiny Committee?

Mr. Dell

It would certainly be submitted. What I cannot guarantee is that there would be time for a debate. It would certainly be the Government's wish that there should be a further procedure in the House, but I cannot guarantee that that would happen if there were reasons of urgency in meeting the requirement of a member country.

The right hon. Member for Down, South also referred to Regulation 5(4) of the existing draft implementing regulation and to the fact that it referred to a qualified majority. He related that question to the Luxembourg Agreement and asked whether there was any indication of the Government's departing from their insistence on the Luxembourg Agreement. It may be—in fact, I think it is probable—that that question will not arise on this implementing regulation when it is finally approved by the Council of Ministers, because it seems likely that when it is finally approved—this is one of the differences—it will be based on a unanimous decision rather than a qualified majority. The Government were prepared to accept it in either form, but it is now beginning to look as though the final draft of the regulation will require unanimity and not a qualified majority.

Mr. Peter Kirk (Saffron Walden)

Is it not simply a question of practice? The same is true of budgetary matters. The treaty lays it down, and on budgetary matters unanimity always prevails.

Mr. Dell

Yes, I think there is no doubt that if this country wished to maintain a particular view, for example, about its exemption from a refinancing operation—

It being one and a half hours after the commencement of proceedings on the motion, the motion for the adjournment of the House lapsed, without Question put.

ADJOURNMENT

Motion made, and question proposed, That this House do now adjourn.—[Mr. Pavitt.]