HC Deb 06 December 1978 vol 959 cc1421-38
The Prime Minister (Mr. James Callaghan)

With permission, Mr. Speaker, I will make a statement on the meeting of the European Council in Brussels which I attended with my right hon. Friend the Foreign and Commonwealth Secretary on 4th and 5th December. I apologise for the fact that it is a little long.

The main topic of discussion was the European monetary system and matters related to it. The Council agreed that a European monetary system should be established on 1st January 1979. The five Community countries at present in the snake indicated that they would participate in all aspects of the system, and France decided to join them. At the conclusion of the discussions, the Prime Ministers of Italy and Ireland said that they would need more time for consultations before reaching a conclusion on their participation in the exchange rate mechanism.

I explained to the Council that I would not be recommending to the Cabinet that the United Kingdom should participate in the exchange rate mechanism when it begins to function. I informed the other Heads of Government that we intend to work for a continuation of the exchange rate stability which sterling has enjoyed for nearly two years. I am arranging for the relevant document which was agreed to be published as a White Paper.

It was agreed that the United Kingdom would be free to join the exchange rate mechanism at a later date if we wish, or, of course, to remain outside it. We shall, of course, join in the development of the ECU and of the European monetary fund. All Community currencies will be included in the ECU. We are free to choose whether or not we wish to deposit 20 per cent. of our gold and dollar reserves with the European monetary cooperation fund against issue to us of a corresponding value of ECUs. That is a matter that the Chancellor of the Exchequer will consider shortly with the Bank of England. In taking a decision, we shall take into account the possibility that intervention in Community currencies could be helpful to us in maintaining the stability of sterling.

We shall participate in the enlarged Community credit which is linked to the establishment of the EMS. This will be without reservation in the increase in medium-term credit. As regards the short-term monetary support, which is more closely linked to day-to-day rate intervention, we have agreed not to call on the credit increase which is now being made, and our partners have agreed not to call on us. There is also provision for reciprocal consultation about important decisions concerning exchange rate policy between countries inside and outside the exchange rate mechanism.

At the previous Council meeting, in Bremen, I called for studies in the context of EMS about measures to strengthen the economies of the less prosperous member countries. This part of our work was less thoroughly prepared than the work on the system itself. The proposals which eventually emerged provided for additional loan facilities of up to 1,000 million European units of account a year over five years for less prosperous countries participating in the exchange rate mechanism, with a 3 per cent. interest rate subsidy. There was a limitation on these loans, that they should not be used for projects which might create distortion of competition within other member countries. Member countries not participating in the exchange rate mechanism will not contribute to the financing of this scheme.

I stressed the importance of Community policies, taken as a whole, contributing to convergence in the economic performance of members of the Community. It was doubts about the value of the proposals so far made that contributed to the unwillingness of Italy and Ireland to commit themselves. The Commission was invited to look into this whole question and report back to the next European Council.

As for the common agricultural policy, the Commission made a report recommending a rigorous price policy as a way of tackling the problem of surpluses, with a freeze on common prices for 197–0. The President of the Commission announced that the Commission would make its detailed proposals for next year's prices on this basis. The Council agreed to return to this problem and to establish the necessary guidelines at its meeting in March. There was a short discussion about fisheries, and the Commission was asked to make further efforts towards finding a satisfactory settlement.

Among other topics, I should report briefly on two. The first was the agreement to ask a committee of three, drawn from France, the Netherlands and Britain, to look at the way in which the Community works and make practical suggestions for improvements, with a view particularly to the prospective enlargement to 12. My right hon. Friend the Member for Birkenhead (Mr. Dell) has been good enough to accept an invitation to serve, together with M. Barend Biesheuvel of the Netherlands and M. Robert Marjolin of France.

Secondly, Foreign Ministers discussed the emoluments which should be received by directly elected Members of the European Assembly. They agreed that the emoluments should be based on those of Members of national Parliaments and be subject to national taxation. There will be consultation with the Assembly by the President of the Council of Ministers.

We were greatly helped throughout this long and arduous meeting by the skilful chairmanship of Chancellor Schmidt. We can be satisfied that our country played a constructive part in the months of discussion that led to the construction of the European monetary scheme. The initial decision has now been taken and it is for each country to decide whether the proposals now on offer are commensurate with the greater risks involved of going into the exchange rate mechanism.

The British Government hope that the greater stability which the dollar has enjoyed in recent weeks will continue and will help the exchange rate mechanism of the EMS when it begins to operate. We for our part look forward to participating in further work that remains to be done on both the internal aspects of the system and in its wider international implications.

The broad conclusion that I offer to the House is that well-constructed and effective international monetary arrangements can assist those who take part in them in certain circumstances but they can be no more than additional supports, and that in the end it will be the success of our own efforts in restraining inflation, keeping down prices, maintaining the stability of sterling and remaining competitive that will ensure the long-term well-being of our people.

Mrs. Thatcher

This is a sad day for Europe, in that the nine member countries have been unable to agree on a major new initiative which will affect us all.

There are three points that I want to put to the Prime Minister. First, is it not also a sad reflection on the performance of this Government that after four and a half years the Prime Minister is content to have Britain openly classified among the poorest and least influential members in the Community, and that along with them we must ask for assistance if we are even to contemplate joining the scheme?

Secondly, what really prevented the Prime Minister from joining the scheme? Was it economic weakness and lack of competitiveness, or are the reasons political, in that, whatever his own view, his party clearly would never have allowed him to join the system?

Thirdly, has not the Prime Minister come back from Brussels with the worst of all worlds—no reduction in the budget contribution, about which he himself has been complaining but which he himself negotiated and commended to the country in 1975; no reform of the common fisheries policy; no reform of the common agricultural policy; and no membership of the EMS?

Just what did the Prime Minister achieve for Britain in Brussels?

The Prime Minister

I think that basically there was no particular achievement on anyone's part. What happened was that national considerations of all the nine members prevailed over the attempt to bring about an international agreement. Britain was one of those that put its national interests in the forefront. On occasion that is necessary. But, as I think is well known in the House, there are many occasions on which international agreements, if we can secure them, are for the benefit of not only our country but other countries. On every occasion we must judge. The plain truth is that just as other countries judge their national interests, so we judged ours.

In her usual way, the right hon. Lady asked"Is not it a sad reflection on the performance of this Government?"If we are to improve our national position it would be as well if we all looked at our performance over the past 40 or 50 years. I have never been hesitant in saying that this country's performance has slid steadily backwards since at least the end of the First World War. I do not think that it helps to try to compress our performance into a period of three or four years, except for party reasons. I understand that the right hon. Lady must do that to satisfy those on the Benches behind her. What is important is that this country should become more competitive and should keep its rate of inflation down. I should like a little help from the Opposition now and again in doing those things.

The right hon. Lady also asked what had kept us out. I suppose that basically it was that we felt that the system as it was devised was too close to the original snake. It gradually acquired more characteristics of the snake as the negotiations went on. The right hon. Lady, who of course likes to draw a veil over her own experience in this matter, might contemplate, in the quietness of this evening, that she herself was part of a Government that went into a similar system and emerged very bedraggled after six weeks. We should at least try to learn from our history, even if the right hon. Lady prefers to forget it.

There are differences about this system which in my view make it more likely to succeed. There is the proposal to intervene when the rates become divergent —up to 75 per cent. of their normal rate —which I think will help, together with the establishment of the 25 billion ECU credit fund. That gives it a better chance than the original snake.

But I think that basically the final decision not to join was made simply for this reason: when the right hon. Lady's Government negotiated the matter six or seven years ago, they were informed, I am certain in good faith, and they accepted in good faith—I do not blame them for accepting the information; they just happened to be wrong, all of them—that the economies of the Community countries would converge before the transitional period came to an end. That has not happened.

The right hon. Lady may blame me for that. I have no doubt that she will. Everybody can judge. The plain truth is that the economies have failed to converge. [HON. MEMBERS:"Hear, hear."] I remind those who cheer that their convergence required not only action on our part but promises by the other members of the Community that they would take action to achieve it. Both those things have been missing, and therefore we decided that at this stage it would be imprudent to join the exchange rate mechanism.

Mr. David Steel

Does the Prime Minister agree that the apparent division of the Community into two blocks, one consisting of the stronger economies and one of the weaker, with ourselves in the second category, is itself most unfortunate, to say the least?

Does the right hon. Gentleman accept that his description of the British role over these months as constructive does not appear to be shared by our Community partners?

I should also like to ask the right hon. Gentleman a question about the committee that is being set up, on which his right hon. Friend the Member for Birkenhead (Mr. Dell) will serve. What will that do that the Tindemans report did not, and what happened to the Tindemans report?

The Prime Minister

The right hon. Gentleman is incorrect in his first point. After all, up to now five members of the Community have been in the snake. Now there will be six, in the new system. I have heard no accusation of two blocks before, and there will not be two blocks now. At least, if they do exist now, they existed before.

I totally disagree with the right hon. Gentleman on the question of our contribution. I do not think that he will find any informed commentator—he will certainly find no Head of Government—who shares his views about the attitude that we have adopted or the work that my right hon. Friend the Chancellor of the Exchequer has done on the system—work that has been highly praised by all those who have been associated with the negotiations over the past few months.

Indeed, the President of France said yesterday that he thought that we had been extremely constructive in our approach and in what we had tried to do. I prefer to rest on that than on the jeers of an Opposition determined to try to do everything to destroy the Government's credibility.

Mr. Jay

Is my right hon. Friend aware that his firm defence of British interests will command widespread support throughout the country, particularly at a time when the Conservative Party seems ready to champion the interests of any country but its own?

The Prime Minister

I am bound to say that when I listened yesterday to the Prime Ministers of France, Italy, Ireland, Denmark and Belgium—to name but a few—I detected no intention by any of them to depart from their national interests. I thought that I was modestly joining that bandwagon when I defended British interests on this occasion.

It is remarkable that the Opposition's spokesman on foreign affairs—of course, I expect it from the right hon. Lady—should regard it as a disgrace when we defend our national interests.

Mr. Powell

Is the Prime Minister aware that over a large majority of the public of this country the decision not to join the currency system will be received with relief and satisfaction? Is he further aware that the decision of himself and of the Cabinet will be taken as an earnest of the sincerity of their undertaking to maintain the control of Parliament over the essential economic affairs of this country?

Mr. Skinner

The right hon. Gentleman is voting Labour again, I think.

The Prime Minister

The control by Parliament of this country's economic and financial affairs must always be absolute, except to the extent that we ourselves decide formally to surrender a part of it, as we did, for example, when we entered the International Monetary Fund. I would not hesitate to recommend to the House a departure from our national sovereignty for an international monetary system if I thought that it would increase growth, reduce unemployment and make for better trading relations between the countries of the world as a whole or a part of them. But that must be a deliberate and conscious decision by this country and its people.

Mr. Roper

Taking into account what he has said, may I ask my right hon. Friend whether he will assure the House that the British Government will continue to play a full part in developing policy within the Community to ensure economic convergence between its members?

The Prime Minister

That is important, but it is also important that we should endeavour to have a rate of inflation, to take just one indicator, that is as good as those of our major competitors and partners in Europe. I regret that we do not look as though we shall move far in that direction during the next 12 months. I wish that we were likely to. We shall have to take other measures to achieve that, over a period of two or three years, in order to get where the Germans are now.

As for working out policies that will ensure the convergence of our economies, that, of course, is sensible. We have always said, in relation to the Third world, that we cannot have persistent islands of prosperity if we have a world of poverty. Likewise, we must have a better balance in the economies of the countries of Europe. The wealthy countries can contribute to this, but the main effort must be ours. That is why the Government are taking the steps that they are taking today, and we shall persist in them.

Mr. Gordon Wilson

I accept the many sound reasons that the Prime Minister has advanced for the United Kingdom not joining the EMS, but did not he find it humiliating to be the leader of a country that is so weak economically and so third-rate that he was unable to join other small prosperous countries, such as Denmark and the Netherlands, let alone the big boys, such as Germany and France?

The Prime Minister

I do not welcome the fact that our national income is below that of the average in the Community, but I do not think that we should use words such as"humiliation"to describe it. What it should do is spur us on to a bigger effort, nationally achieved, to improve our performance. Anything that indicates how far we have to go and how far we have slid down is to my mind a very salutary reminder to all our people.

Mrs. Castle

Is my right hon. Friend aware that most Government supporters are not surprised that he failed to get the conditions that he so rightly laid down for British membership? Is he aware, further, that we congratulate him on having stood up firmly for the needs of the British economy? Does he realise that the conditions never will be met for achieving monetary stability in Europe through fixed exchange rates? Therefore, will he please abandon this will o' the wisp and concentrate on building up Britain's needs and Britain's economy?

The Prime Minister

I am grateful to my right hon. Friend, but I hope it is not true that the conditions never will he met in which we can have more exchange rate stability in Europe. I cannot depart from my strongly held view that it will be in all our interests if the conditions are met. That demands a big effort by us. It also demands assistance from the other countries towards the general convergence of the economies. I also hope that the European monetary system, although we have not entered the exchange rate mechanism part of it, will he a precursor to another attempt to get back to more exchange rate stability on an even broader basis with the dollar and perhaps with other currencies.

Mr. Maurice Macmillan

Is the right hon. Gentleman aware that many of us are disappointed at such an incomplete result of the EMS talks? Will he assure the House that in the months to come he will bear in mind the problems of business men dealing in wildly fluctuating currencies and try to ensure that the three wise men, of whom his right hon. Friend the Member for Birkenhead (Mr. Dell) is one, consider not only the position in Europe but the position of Europe in the rest of the world and perhaps—especially in the Prime Minister's case—our position isolated now from our European partners?

The Prime Minister

I do not understand the last part of the right hon. Gentleman's question about our being isolated. It is a remarkable degree of iso- lation when my right hon. Friend the Member for Birkenhead (Mr. Dell) is invited to be one of the three who are asked to consider how European procedures should develop. That is a strange form of isolation. However, I agree with the right hon. Gentleman that yesterday's result was a more incomplete one than was expected. I regret that. I wish that it had been more positive in some ways, because this is a set-back for a very bold initiative by Chancellor Schmidt, who was trying to raise the general standards throughout Europe. He has not succeeded so far, but I believe that another attempt should be made in due course. If the conditions are different, perhaps it will be more helpful to those who are not able to join the present system, and will enable them to do so.

Mr. Ashley

Is my right hon. Friend aware that the Government's strategy and tactics, in very difficult economic circumstances, have been quite correct and that, although he has now made a tactical advance, it is imperative to resist the dogmatic demands of extremists on both sides of the EMS in order to retain the flexibility that is necessary for the future?

The Prime Minister

Yes, Sir. We have managed to secure the necessary flexibility both to participate in some of the benefits—through credits—of the European monetary scheme while retaining flexibility on our own exchange rate, but I do not want that to be construed as an easy option to alter our present exchange rate policy, because that is not the purpose of the decision.

Mr. Spearing

Does my right hon. Friend accept that those of us who applaud his standing up for our national interests do not regard the mechanisms of the EEC as internationalist in the true sense of the word and that it is the tact that it is supranational and wishes to become a large super Power that we distrust? In that respect, can my right hon. Friend outline to the House some of the obligations that would have been placed on Her Majesty's Government in respect of economic or financial policy had we acceded to the scheme for which he would have been accountable to the EEC authorities and for which, from now on, he will he accountable only to this House?

The Prime Minister

I understand my hon. Friend's attitude, which has been consistent all the way through, and his distrust of these instruments. But we are members of the European Economic Community. I wish, for example, that it would show a greater outward-looking vision through its agricultural policy, which is one of the most reactionary that I have seen. It is incredible that at the same time as discussions were going on yesterday about the way in which Ireland could be assisted to raise her standard—and not very large amounts were involved—we were presented with a report that showed that more than 8 billion units of account was to be devoted to agricultural support, surpluses and stocking during the next year. I agree with some of my hon. Friend's criticisms. However, I get off the train a few stations before he does on this matter.

As for the obligations that we do not now undertake, perhaps my hon. Friend will be kind enough to study the White Paper, which I hope will be published in the next day or so. He will then see in detail what they are.

Mr. Dykes

Is it not a sobering thought that those right hon. and hon. Members who are most delighted by today's news are the right hon. Member for Battersea, North (Mr. Jay) and the right hon. Member for Down, South (Mr. Powell)? Will the Prime Minister say quite clearly why there were good reasons for France to join, with an equally vulnerable currency, and why there were good reasons for us to stay out?

The Prime Minister

I do not wish to comment on France's decision to join. That is a matter for the President of France to decide. History will reveal whether the scheme is successful.

Mr. George Gardiner

May I ask the Prime Minister about the salaries of Members of the European Assembly, in which I should tell him that I have no personal interest whatever? How can he justify an arrangement by which the elected representative of the British people are to be counted among the paupers of the European Assembly, being paid in many cases less than the secretaries serving them? Is this an accurate reflection of the depth to which we have sunk, in economic terms, compared with our European partners?

The Prime Minister

I sympathise with the hon. Member in his desire to find something to criticise the Government about, but this was a unanimous decision by the Council of Ministers in which all the Heads of Government decided that the most satisfactory way of settling this was that all members should receive the salaries that were applicable to Members in their own Parliaments. There was no reference to humiliation, poverty, disgrace or any of the other adjectives that come so easily to the hon. Member's lips.

Mr. Torney

I congratulate the Prime Minister on rejecting the EMS, despite the noises from the Conservative Benches to the contrary. Will he tell the House whether we can rest assured that there will be no sell-out of the British fishing industry now that EMS is well out of the way for the time being?

The Prime Minister

There would never be a sell-out of the British fishing industry. There were expressions of concern yesterday about the inability of the negotiations to proceed further because of international complications. There is a third group of countries outside the EEC which is waiting for treaties to be signed and agreements to be made. This cannot be done until we achieve a settlement on the British fishing industry dispute. As my hon. Friend knows, a meeting has been arranged between Commissioner Gundelach and British Ministers tomorrow. I hope that some progress will be made then.

Mr. Eldon Griffiths

Will the Prime Minister tell us how it serves the British national interest to set back the greater financial unity of Europe? Are we not involved in that? Looking to the future, the Prime Minister has fairly stated that he hopes at some stage to join such a currency arrangement. Will he tell us how he expects to get better arrangements with our European partners from the outside than he could have got from the inside?

The Prime Minister

It is no use mouthing slogans about the greater financial unity of Europe unless the system that is proposed meets the needs of all those who are invited to join it. That is where the previous Conservative Government went wrong last time. I very much hope that this scheme will prove effective and durable. However, we must judge that as we see it develop and unroll.

As for being outside, I think that the hon. Member misunderstands the position. The scheme comes under the overall supervision of the Finance Ministers. Therefore, we are part of the scheme, to the extent that my right hon. Friend will be there joining in a number of these discussions, concerning, for example, the long-term development and matters such as credit, relations with the dollar, and the differences in the exchange rates. He will not be concerned with the day-to-day maintenance of sterling against the Community currencies. Therefore, in terms of the development of the system and the protection of sterling and European currencies, my right hon. Friend will be there playing his full part.

Mr. Marten

Will the Prime Minister tell the House, after his meeting in Brussels, whether there are any realistic chances of any radical reform—and I mean reform, not just price tinkering—of the common agricultural policy? If there is no chance of such reform, what does he propose to do?

The Prime Minister

This is a matter of semantics. I regard radical reform"as involving the destruction of surpluses, or at least the ending of the accumulation of surpluses. A price freeze, if the Commission put that forward, would contribute to that end. If we want changes in the policy it is important for us to make clear that the objectives of the policy are not under attack by us. The objectives are those that were introduced by Tom Williams into British agriculture 30 years ago, namely, a fair return for the producer and reasonable prices for the consumer. It is the failure to achieve these ends that we attack, not the objectives themselves.

Mr. George Grant

My right hon. Friend has stressed the inadequacy and the unfairness of the CAP at the meeting, but has he stressed the importance of energy policy, instead of the nationalistic further movement towards a common approach that exists today?

The Prime Minister

There are serious discussions going on to try to achieve a common energy policy and certainly we wish to make our contribution to such a policy. This is especially so in conservation and use of resources. However, we did not discuss that yesterday in the context of the EMS.

Mr. Skinner

Is the Prime Minister aware that despite today's strong statement and his refusal at this time to sell out on EMS, there are those of us who believe that in the interests of the working class this can be regarded as only a marginal, temporary victory? Is he further aware that he spoilt his statement by wanting to balance the books on behalf of the pro-Marketeers by accepting ECU, possibly laying down deposits and engaging a pro-Market banker to discuss the enlargement of the Common Market, presumably on our behalf as well?

The Prime Minister

I am afraid that, as so often happens, I do not agree with my hon. Friend on these matters. The judgment of the interests of the working classes should be based on increasing their prosperity, welfare and prospects for jobs, and ensuring that they can live decently. It is with those ends in mind that these matters must be judged. It is against that that I believe that it is worth while to get long-term stability in the monetary arrangements of those countries that have been so sadly destroyed since the Bretton Woods system broke up.

Mr. Michael Shaw

Is the Prime Minister aware that there is a strong feeling in the European Parliament that considerably more money should be put into the European regional fund? This would enable help to be given to those areas in special need, at the same time as monetary co-operation is being sought by the whole Community. The Prime Minister has not said anything about this. Was it not discussed at the European Council meeting? If it was, would he support the views of the European Parliament?

The Prime Minister

There were proposals to ensure funds being made available to strengthen the regions, but it was made clear on behalf of those who contribute more than they receive that they were not willing to increase the budget in that way. That was an important influence on the desire of Italy and Ireland for further consultations. We would be glad to see increases in the regional fund, but, in view of the burden being borne by Germany and by others, it would be far better to restructure existing funds away from CAP support and into regiona assistance of this sort than try to increase the budget beyond the point that some countries are willing to bear.

Several Hon. Members rose—

Mr. Speaker

I shall call four more hon. Members from each side.

Mr. Watkinson

Can my right hon. Friend say whether, under the system that has been agreed, there is a symmetry of burden on surplus countries and deficit countries? Will he continue to press for reform of the CAP? The problem of this policy will become even greater with the enlargement of the Common Market. Will he note that it is not simply a question of the end price system producing surpluses; there is large-scale structural capacity in Europe to produce food, which needs some form of national attention?

The Prime Minister

I promise that we shall persist with our attempts to get changes in the CAP. I agree that the problem will become greater with enlargement. That is why I said yesterday that if there are no reforms the CAP will break down under its own weight one day. It is in the interests of those who are benefiting from the system today, as well as in our interests, to approach this matter rationally.

Mr. Higgins

Does the Prime Minister recall a statement that he made some time ago about the objectives of the Government on North Sea oil? Is it not a fact that had he succeeded in those objectives we would have been sufficiently strong economically to join the EMS? What does he propose to do about this? Because of North Sea oil we are in a totally different situation from that in which we were five or six years ago.

The Prime Minister

I do not recall what I said about it, but I am sure that it was well judged and complete, and that it carried the assent of the whole House. I agree with the hon. Gentleman that we want to make certain that the resources of the North Sea should not be spent on current consumption. So far, we have done so. I agree with the hon. Gentleman that we must try to make better arrangements about this. But the Opposition have not proposed policies that are better than those of the Government for achieving this. I am very ready to be spurred on by them, but they will have to produce something better than they have done so far.

Mr. Cryer

Does my right hon. Friend accept that his statement will be welcome in so far as it stops the drift towards economic and monetary union and therefore supports Labour Party policy? Does he also accept that for a number of years he and others have been expressing determination to reform the CAP, but so far this has not been done? Thirdly, does he accept that we need to go further than simply withholding from EMS; we need to be prepared to make a unilateral declaration that if there is not more significant and radical reform, we shall be prepared to take unilateral action and withdraw from the EEC?

The Prime Minister

As a matter of tactics I would not commend what my hon. Friend says unless he is immediately willing to do so. I can imagine nothing more likely to stop rational discussion until that decision were made effective. I suggest that if he is going to do it one day when he rejoins us he had better keep quiet about it until the day that he decides to do it. I agree that we have not achieved what we would like on this matter. The walls of Jericho did not fall down the first time the Israelites marched round them—I yield to any Biblical scholar on this—but they fell down after a time, as I believe these walls will.

Mr. Crouch

Is the Prime Minister aware that it is not so much the judgment of the President of France about his performance in Brussels that matters but what is thought of the Prime Minister's performance in this House and the country? Will he tell us what he really thinks of EMS? Does he think that it was a proposal to help the more prosperous countries in the EEC, or a proposal that might have helped us and less prosperous nations to learn to live within our incomes?

The Prime Minister

It is difficult to sum up in a sentence. I think that the origin of the EMS lies in the disillusionment that was felt, in my view wrongly, last spring about the prospects for the American dollar and the American economy. That was the origin of it; nothing more high-flown than that. Whether it would yield benefits to our economy is a matter of judgment. It is the Government's judgment that at the moment it would not yield such benefits, and would place obligations on us that might result in unnecessary deflation and unemployment, as long as our currency was linked with other currencies that might themselves be affected by what happened to a third currency, namely, the dollar. If one of the strong currencies of Europe becomes a currency of refuge for the dollar, that makes it more difficult for others in this system. I am not ready at this time to take that risk.

Mr. Alexander W. Lyon

Why should my right hon. Friend be criticised for refusing to increase unemployment in this country in order to strengthen the franc? What more do we have to do to prove our loyalty to the European idea when we have paid in twice as much as we have taken out since we entered the Community and we have had a consistent balance of payments deficit, so that other members of the Nine have benefited at our expense?

The Prime Minister

I do not think that anyone with whom I discussed these matters over 30 long, wearisome hours yesterday was querying our loyalty or disloyalty. There were differences of judgment about the consequences of this scheme, and only time will reveal them. For myself, I very much hope that the scheme will succeed. I believe that it will be of benefit to the countries taking part if it does succeed, and could be the precursor to other and wider schemes. Whether it is or not, we shall have to wait and see, but there is no reason why we should hope for failure. Certainly, I do not.

Mr. Ronald Bell

Should not Britain's contribution to the stability of currencies be made through sterling and the adoption of wise disciplines in our economy? Why is it thought necessary or advantageous, or particularly dignified, that those disciplines should be imposed on us from outside?

The Prime Minister

I am inclined to agree with the hon. and learned Gentleman. Our future lies in our own hands. But it might be better if he were to address his question to the leader of his own party.

Mr. MacFarquhar

In view of the good wishes that my right hon. Friend has given for the success of EMS, will he assure the House that if that success is borne out and we then decide to try to join, our late entry will not harm us in the way that our late entry to the CAP did?

The Prime Minister

I am not quite sure what is understood by the word"entry ". The European monetary scheme is a scheme that will be supervised. The oversight will be joined by my right hon. Friend, the Chancellor, together with the other eight members. We are there to influence its direction and its shape. What we are not joining is the exchange rate intervention system, which would place certain obligations upon us. We shall be able to shape the future development of the scheme in a way that would not be possible were we totally outside the Community.

Sir Anthony Meyer

As the right hon. Gentleman loses no opportunity to tell us of the successes of his Government in overcoming this country's economic problems, will he say what further successes he requires before the economy is strong enough to accept the disciplines that this system entails?

The Prime Minister

At this moment it is not a question of strength or weakness in relation to the mechanism it is a question whether the mechanism is well devised to stand the strains placed upon it. That is a matter of judgment. Some take one view and others another. We must allow the scheme to run for a little while to see who is right.