EUROPEAN MONETARY SYSTEM

HC Deb 13 December 1978 vol 960 cc811-44

Mr. Nigel Spearing (Newham, South)

On a point of order, Mr. Speaker. May I ask whether or not you have selected the amendment?

10.43 p.m.

Mr. Speaker

I have selected the amendments in the names of the hon. Member for Newham, South (Mr. Spearing) and others on both this first motion and the succeeding one concerning the common agricultural policy.

The Financial Secretary to the Treasury (Mr. Robert Sheldon)

I beg to move,

That this House takes note of EEC Document No. R/2790/1/78 on the European Currency Unit and the European Monetary Co-operation Fund.

The proposals for the European monetary system were first put forward by Chancellor Schmidt and President Giscard d'Estaing at the European Council meeting in Bremen on 6th and 7th July 1978. All nine Community Heads of Government agreed that the setting up of an area of monetary stability in Europe was a desirable objective, but at that stage no undertakings were given and no commitments were made.

The major elements of the proposal were the setting up of an exchange rate mechanism which would allow changes in exchange rates by mutual consent and the creation of a European currency unit which would contain fixed amounts of the Community currencies and would have the same definition as the European unit of account. The countries taking part would deposit 20 per cent. of their gold and dollar reserves with the European monetary co-operation fund and receive ECUs in return. The ECUs would be used to settle debts between members of the system.

The proposals also envisage the expansion of Community credit facilities up to 25 billion ECUs with consolidation in two years' time in a European monetary fund. Since July there have been negotiations with the central banks and Ministers, with the United Kingdom playing a prominent role. On the basis of the negotiations, the nine Heads of Govern- ment met in Brussels on 4th and 5th December and agreed to the setting up of the European monetary system on 1st January 1979. They asked the Finance Council meeting, which is to be held on 18th December, to consider the two proposed regulations that we are debating.

Seven countries—Germany, France, the Netherlands, Belgium, Denmark, Luxembourg and now Italy—have made it clear that they will take part fully in the European monetary system from the outset. The United Kingdom's position was made clear by the Prime Minister in his statement on 6th December when he said that we do not intend to participate in the exchange rate mechanism at the outset although we may do so later if the conditions are right. However, we shall participate in other aspects of the system—for example, the expansion of the medium-term, but not the short-term, Community credit facility and all discussions of the European monetary fund.

We have made it clear that we want sterling to participate in the ECU currency basket. In addition, we may wish to deposit 20 per cent. of our gold and dollar reserves within the European monetary co-operation fund and receive ECUs in return. The Prime Minister indicated that the Chancellor of the Exchequer would be considering that matter with the Bank of England.

Mr. J. Enoch Powell (Down, South)

Will the Financial Secretary make clear the nature of that deposit on the part of the United Kingdom? I take it that it is a deposit that is unconnected with entering into the currency scheme. If so, what are the advantages for the United Kingdom in that period of having a proportion of our reserves exchanged into ECUs?

Mr. Sheldon

It may be advantageous for there to be currency arrangements between the different countries in the same way as SDRs, along with many foreign currencies, are part of the reserves. It may prove convenient to have ECUs among the other currencies as part of our reserves. The Prime Minister announced that the Chancellor of the Exchequer would be considering the matter with the Bank of England.

The two regulations that are before the House are the minimum Community legal framework required to establish the European monetary system. The first regulation would change the unit of account of the European monetary cooperation fund from the existing European monetary unit of account to the ECU, and the second regulation would enable, but not require, the European monetary co-operation fund to receive deposits of gold and dollars from member States and to issue ECUs in return.

I turn to the amendment in the name of my right hon. Friend the Member for Battersea, North (Mr. Jay). The amendment is acceptable to the Government because the United Kingdom's economic and financial affairs rest in Parliament and will continue to rest in Parliament to that extent until Parliament itself decides formally to surrender part of that control. Although we have chosen not to join the exchange rate mechanism at present, we remain free to do so in future if we wish. We are equally free to remain outside the exchange rate mechanism. In either case, we shall be joining in the development of the ECU and the European monetary fund in the coming months.

Neither of the regulations would create the exchange rate mechanism itself—that is, specify the agreed rates of exchange between participating currencies, the permitted margins of fluctuation and the agreed arrangements for intervention. These matters would not need to be the subject of a Council regulation. The exchange rate mechanism of the existing snake is not governed by a Council regulation. It is the subject of an agreement between participating central banks supported by a Council resolution. It would, however, be possible to make the exchange rate mechanism of the EMS the subject of a Council regulation if the participating countries desired this. If a proposal for such a regulation were made, the Government would ensure, before agreeing to it, that it did not place any obligations on the United Kingdom which were inconsistent with our declared position. As yet, no such proposal has been made.

In due course, there will be a further proposed Council regulation to expand the Community medium-term credit facility. In the longer term, there may need to be Council regulations to set up the European monetary fund. However, the detailed negotiations about this have not yet begun.

The first regulation under debate would change the unit of account of the European monetary cooperation fund from the existing European monetary unit of account to the European currency unit. The EMCF is the account through which transactions between member States in relation to the EMS will pass. The EMCF was set up in 1973 by Council regulation 907/73 and is at present used to record transactions between members of the snake. It has been agreed that the EMCF will perform the same function for the EMS until it is superseded by the European monetary fund.

Mr. Spearing

It is important to get this matter straight. My right hon. Friend will agree that the European monetary co-operation fund was set up with a view to proceeding towards European economic union. Can my right hon. Friend say whether, in the period of up to two years, the function of the fund will be to manage the EMS? Will the board of governors as constituted by the EMCF operate it, or will the Council of Finance Ministers take on the management pending the permanent arrangement?

Mr. Sheldon

All the operations are in the hands of the Council of Ministers. They will remain so until decisions are made in which we shall take part. These are matters for discussion. In the next few months such details will be worked out.

Mr. Douglas Jay (Battersea, North)

The Prime Minister said that the Government would consider the deposit of 20 per cent. of our gold and dollar reserves with the EMCF. I understand that that is still the position. But did my right hon. Friend say that the Government had actually decided to do that?

Mr. Sheldon

This is for discussion between the Chancellor of the Exchequer and the Bank of England. A decision has yet to be taken.

Mr. Hugh Dykes (Harrow, East)

In the context of the European monetary fund being set up in two years' time—although tonight's events and the vote might mean that the Government are no longer responsible for this task—have the Government already established the outline case for the EMF to be located in London as a physical institution? There is a strong case in favour of its being located in the principal financial centre of Europe.

Mr. Sheldon

The hon. Member is moving rapidly. The basic organisation of the EMF is yet to be discussed. I am sure that the suggestion that London should be its location is worthy of support.

I shall deal with the operations of the EMCF. These are at present expressed in European onetary units of account with a defined value of approximately 0.88 grams of gold. The proposed regulation would require the EMCF's operations in future to be expressed in ECUs.

Article 1 of the regulation defines the ECU as the sum of fixed amounts of the nine Community currencies, including an amount of £0.0885. This definition and the amounts of each currency are the same as for the existing EUA in which a large number of Community transactions are now denominated. The current value of the EUA in sterling terms is about 67p.

The inclusion of sterling in the ECU does not in any way commit the United Kingdom to joining the exchange rate mechanism of the EMS at any time. Similarly, the inclusion of the Irish pound does not commit that country to participating in the exchange rate mechanism at any future date, if it does not do so at the outset. Nor does the inclusion of sterling represent any other commitment to any European obligation. Sterling is already included in the European unit of account.

On the other hand, the inclusion of sterling in the ECU is helpful to the United Kingdom because it will increase our influence in discussions on the future development of the system, both in putting forward our ideas and in resisting the ideas of other countries that could damage our interests. In addition, if we ever decided in future that a change in conditions made it in our interests to join the exchange rate mechanism, it would be helpful to us to have sterling already in the ECU.

Article 2 of the regulation would allow the Council, acting unanimously, to determine the conditions under which the composition of the ECU may be changed. The need for a change could arise if, over a period of time, one or more of the participating, currencies were to appreciate or depreciate significantly in terms of the others. Because the amounts of each currency in the basket are fixed, such a movement could result in the weight of the currencies concerned in the basket rising or falling significantly. For example, the 0.0885 sterling element in the basket currently represents a weight of about 13 per cent. However, if over time sterling were either to appreciate or depreciate in terms of the other currencies, £0.0885 would come to represent either a higher or a lower weight in the basket.

The European Council agreed that the weights of currencies in the ECU should be re-examined and, if necessary, revised within six months of the entry into force of the system and thereafter every five years or on request or if the weight of any currency had changed by 25 per cent. The requirement for Council unanimity safeguards our interests.

Mr. Russell Johnston (Inverness)

I do not claim to be an expert on this subject, but I am advised that there is a point of view that to revise the weights of currencies only after six months and then to let them run for five years, granted that a review may take place on request, is not a realistic approach and that there should be provision for a much more frequent review than is proposed.

Mr. Sheldon

I would not want revisions to take place very frequently. There would be considerable upheavals in determining these rates, and I should have thought that once every five years or on request, on the basis that I have outlined, should meet any objections. There is nothing fixed or permanent about arrangements of this kind, and if the revisions proved to be too infrequent changes could be made.

Mr. Nigel Lawson (Blaby)

I am not altogether clear, in spite of the Financial Secretary's remarks, about the passage in the Brussels communique which was published as a White Paper. The right hon. Gentleman made it appear as though the revisions would be automatic following exchange rate changes, provided that they were mutually agreed. But that is not what the communique says. It states: Revisions have to be mutally accepted.…They will be made in line with underlying economic criteria. Will the Financial Secretary say what that means?

Mr. Sheldon

I thought I had made clear that the matter would be reexamined and, if necessary, revised within six months, and thereafter after five years, if the weight of any currency had changed by 25 per cent. One has a basket of currencies, and it will be revised if the variation in weight alters to the extent I had mentioned. I do not see that any problems will arise, because the mechanism for change exists and will, if necessary, be used.

Mr. Powell

Presumably, the sentence to which the hon. Member for Blaby (Mr. Lawson) has drawn attention implies that even if the weight of a currency is changed by 25 per cent., thus triggering the automatic mechanism, the adjustment will not necessarily precisely correspond with that change in weighting, and may not correspond with it at all theoretically. Is that so?

Mr. Sheldon

The weight will correspond as long as it is outside the limits set—that is, if the weight of any currency has changed by 25 per cent., or it re-examination is made on request. It can then be examined and revised. This is a permissive matter which the European Council can examine. I do not see the dilemma which the right hon. Member for Down, South (Mr. Powell) appears to see. This will accord with realities. The further decisions that will be made to complete the final examination of these affairs will correspond with what I have suggested.

The second regulation under debate would enable the European monetary co-operation fund—the EMCF—to receive monetary reserves from member States and to issue ECUs in return. This provision is contained in article 1. It would enable ECUs issued by the EMCF to be used as a means of settlement between member States and between member States and the EMCF.

This regulation would enable that part of the European monetary system agreed by the European Council to be established. It provides for member States wishing to do so to deposit 20 per cent. of gold and dollar reserves with the EMCF and to receive ECUs in return. The EMCF is not at present empowered to undertake such transactions, which are not a feature of the snake.

The regulation is purely permissive. In article 1 the crucial words are "empowered to receive" and in article 2 the crucial words are "may be used ". The regulation would not place any obligation on a member State which does not wish to participate in this aspect of the EMS. This position is not affected by the formal reference in article 3 to the regulation being binding…in all Member States ". This refers to the legal status of the regulation as a whole and does not affect the permissive nature of its content.

The European Council agreed that a member State not participating in the exchange rate mechanism might nevertheless participate in the deposit of reserves with the EMCF and the receipt of ECUs in return. It was also agreed that the deposit would take the form of specified revolving swap arrangements.

My right hon. Friend the Prime Minister told the House on 6th December that the Chancellor would be considering with the Bank of England whether the United Kingdom should take part in this aspect of the EMS. No decision has yet been taken on this. The factors to be taken into account include the attractiveness of the ECUs as a form of investment of part of the United Kingdom's reserves. This will include consideration of the exact terms of the proposed swap arrangements and the yield on the ECUs in comparison with the yield on other possible forms of investment. Further detailed discussions are needed on these points with our European partners.

We shall also need to consider the use to which we would put these ECUs. Article 2 of the proposed regulation would not restrict the use of ECUs as a means of settlement to those member States participating in the exchange rate mechanism.

Mr. Lawson

The Financial Secretary mentioned the yield on the ECU. What yield will it give?

Mr. Sheldon

There is the possibility of being able to use this in our normal financial transactions.

Mr. Lawson

I was referring to the rate of interest on the ECU.

Mr. Sheldon

ECUs will be placed in the market in the same way as we use our dollar reserves. They will be placed in certain markets and we shall get interest. We shall use the ECUs in the same way as we use foreign currencies generally.

As I said, we need to consider the use to which we could put these ECUs. Article 2 of the proposed regulation would not restrict the use of the ECU as a means of settlement to those member States participating in the exchange rate mechanism. However, the precise details of the way in which a member State, such as the United Kingdom, not participating in the exchange rate mechanism could use the ECU in settlement of debts incurred to other EEC member States need to be further discussed.

Another aspect which will require consideration is the extent to which participation in this aspect of the EMS would increase our influence over the development of the ECU as a reserve asset and over the future development of the EMS in general. Again, such influence may be useful both in promoting our own ideas and in resisting any ideas of others which could damage United Kingdom interests.

Because this regulation is purely permissive and places no obligation on the United Kingdom, and because we may wish to deposit reserves and receive ECUs from the EMCF, the Chancellor proposes to support this regulation at the Finance Council on 18th December.

11.7 p.m.

Mr. Nigel Lawson (Blaby)

I wish to ask the Financial Secretary some specific questions before broadening out into one or two wider observations on the European monetary system.

As the Financial Secretary said, article 1 of the second draft regulation empowers the European monetary co-operation fund to receive 20 per cent. of each of the EEC member States' gold and dollar reserves and to issue ECUs in exchange. But will Britain take part in this arrangement or not? If so, will legislation be required? If not, will parliamentary approval be sought?

In his statement to Parliament a week ago, the Prime Minister said that the Government would decide very soon whether to take part and hinted that we would participate. It seems a pity that on this the last occasion for debate before the EMS comes into operation, the Financial Secretary cannot take us any further. I urge him to reconsider and let the House know whether we will take part in the ECU swap system.

Secondly, the Treasury memorandum describes the first draft regulation as altering the unit of account in use in the European Monetary Co-operation Fund (EMCF) from the gold-based European Monetary Unit of Account (EMUA) to the European Currency Unit (ECU) which is defined in terms of a basket of Member States' currencies. But clearly there must still be a link between the ECU and gold, if only to determine the number of ECUs that are handed out in return for the gold deposited with the fund. Can the Financial Secretary tell us what that link will be? At what price will the fund accept gold? The closer that price is to the free open market price, the better. Any attempt to demonetise gold by fixing an artificially low ECU-gold exchange would prove both foolish and futile. At any rate, what is the link to be?

Thirdly, what will be the rate of interest—I asked the Financial Secretary this, but he clearly did not understand the question—on ECUs? He says that it will be just like any other currency, but there is no rate of interest on currencies. Interest is paid on bonds and so on. What will be the rate of interest on ECU holdings?

Mr. Robert Sheldon

It is clear that the hon. Gentleman did not understand the answer that I gave to him. Currency in itself does not provide interest; it is where one puts the currency that provides the interest. I thought that the hon. Gentleman would understand that.

Mr. Lawson

The ECUs are not like a normal currency. One cannot put them somewhere. They are like SDRs, on which a rate of interest must be given, because they, too, are a special reserve creation. They are not a normal currency. So the question is a real one.

Fourthly, who is to bear the cost of exchange losses that will occur from time to time as a result of the swap arrangements?

The right hon. Gentleman seemed rather confused in his exegesis of the question of changes in the composition of the ECU. As the right hon. Member for Down, South (Mr. Powell) pointed out, two different criteria are set out in the White Paper which embraces the Brussels communique. One is automatic changes in the weights as a result of changes in exchange rates. The other is the much more general sentence and criterion which clearly was not put in to mean nothing. If it does mean nothing, perhaps the Financial Secretary will say so. It states: They will be made in line with underlying economic criteria. Presumably "underlying economic criteria" means something different from changes in weights. Otherwise, that other sentence would not have been put in.

Incidentally, would a change in the composition of the ECU, whenever and however it occurs, automatically be accompanied by a change in the composition of the EUA, which is used for common agricultural policy purposes? In other words, would the initial identity between the two units be automatically maintained?

Of course, the problem of changes in the composition of the ECU, which is already one-third deutschemark and could, I suppose, progressively become more and more like the mark as time goes by, is less acute the fewer changes there are in the exchange rates between the various Community currencies. There is no doubt that the other Community countries accepted sterling as part of the ECU—the right hon. Gentleman boasted of this—despite the fact that the Government have decided not to take part in the exchange rate mechanism at least for the time being as the Financial Secretary put it, because they understood that they had an undertaking from the Prime Minister and the Chancellor of the Exchequer that sterling, although officially outside the mechanism, would informally be kept in line with the other Euro-currencies. Indeed, Herr Schmidt even told the world that the British Government had specifically undertaken, unilaterally as it were, to keep within the EMS margins of plus or minus 2¼ per cent.

However, on BBC 2 last Sunday, in the interval of "Lohengrin ", the Chancellor declared that Herr Schmidt had got it all wrong and that we had agreed to keep the pound stable not in terms of the ECU but in terms of the Smithsonian basket, the trade-weighted index of all currencies, including the dollar. That is a very different matter—

Mr. Powell

The swan, not the snake.

Mr. Lawson

—implying, as it does, that if the dollar continues to fall the pound in turn will continue to depreciate in terms of the mark and other European currencies.

Therefore, my fifth and final question to the Financial Secretary is as follows. Precisely what is the Government's exchange rate policy, both in general terms and in terms of other Community currencies in particular? I see that the hon. Member for Southampton, Test (Mr. Gould), who has a great interest in this matter, is present. Is the Government's exchange rate policy compatible with the continued inclusion of sterling within the ECU basket?

These are all questions of the first importance to Britain, questions to which the House is entitled to have an answer. I hope that the Financial Secretary will deal with every one of them. It may be that one or two or them remain as yet unresolved, with the answers still to be negotiated. But, if that is so, surely this is yet another reason why in our own national interest we should be in there negotiating strongly as fully participating members in the scheme instead of feebly haranguing our fellow swimmers while keeping just one toe in the water ourselves.

The Government's reasons for wishing to keep Britain outside the full EMS, virtually alone following the Italian Parliament's decision this evening to endorse the Italian Government's decision to join after all, become more obscure with every day that passes. Hearing the Chancellor in the debate on 29th November, the innocent listener might have imagined that the trouble was that the British economy was too strong to allow us to join the exchange rate mechanism.

The White Paper has, for the first time, at least given the lie to that bit of bluster. Buried away in the last paragraph is the coy admission that Britain has been formally designated a less prosperous country and is thus eligible for Community charity. It takes a Socialist Government to reduce Britain to the official status of a less prosperous country when we are enjoying, for the first time, the immense and unique benefit of North Sea oil.

The only serious argument against membership of the EMS is the view, argued with great force by a number of my hon. Friends, that to have any exchange rate policy at all is absurd and doomed to failure. Certainly, the theoretical case for freely floating exchange rates is very strong. But that is emphatically not the Government's position. Both the Prime Minister and the Chancellor have consistently evinced a horror of floating rates and are explicitly determined to maintain a managed exchange rate policy. That being so, the political argument for conducting such a policy within the Community framework is surely overwhelming.

I know that there is a fear among some and a hope among others on both sides of the House that a Bretton Woods-style exchange rate system on a Community basis, which is what the full EMS more or less amounts to, would inexorably lead to European monetary union and the end of the nation State. As usual, this view was most vigorously expressed in our only previous EMS debate on 29th November by the right hon. Member for Down, South, who declared: So far from there being no loss of independence by accepting a system of control over our exchange rate, it is the largest loss of independence yet which we could contrive to make; for all the economic decisions lead back, feed back, into the exchange rate. Surrender the right to control the exchange rate —surrender control over it to another body—and one has, directly or indirectly, surrendered the control of all the economic levers of government."—[Official Report, 29th November 1978; Vol. 959, c. 512.] I find this a little puzzling. I had always understood the right hon. Gentleman's view to be that we had lost our sovereignty when we entered the EEC in 1973. I should have thought that sovereignty, in this respect, was like virginity. Once one has lost it, one cannot lose it a second time. More fundamental than this, there is no way in which a Bretton Woods-type arrangement can of itself lead to monetary union. While an EMS can be operated within the framework of our existing political institutions, monetary union—that is, a common currency can emerge only from the aftermath of political union and the creation of new political institutions appropriate to such a union.

No doubt, in a sense, the Zollverein paved the way to the German federation a century ago, but the crucial fact is that it was only after Prussia and Bismarck had achieved a political union through blood and iron that a common German currency could be born. This was the great fallacy of the Werner plan of 1970–I remember writing so at the time—the idea that a common currency could somehow precede the creation of common political institutions and political union. It is equally fallacious today, whether voiced by pro- or anti-Marketeers.

The truth of the matter is probably rather closer to the evidence given to the Expenditure Committee inquiry into the EMS by Professor Laidler, the distinguished economist, monetarist and tax exile. [Laughter.] He is a sensible man. He concluded that opponents of monetary union should support the EMS and that supporters of monetary union should oppose it.

Those of us, including the Government, probably, as well as the Opposition, who are not obsessed with the vision of European monetary union see the EMS principally in the context of the political and economic desirability of a greater degree of convergence among the economies of the EEC member States.

There is some trouble here. I believe that the fashionable term "convergence" has been used, especially by the Government, far too loosely. A convergence of attitudes and objectives among those responsible for economic policy in the various Community countries is an indispensible part of the process. But the key concept must be the determination to achieve a convergence of rates of inflation and to accomplish this by converging towards the German rate of inflation. However, to speak, as the Chancellor of the Exchequer has done frequently, of a convergence of rates of economic growth and, equally—and in direct logical contradiction to this—of a convergence towards equality of national wealth are both to utter economic absurdities which can result only in Governments taking their eyes off the anti-inflation ball.

I believe that if it evolves in the right way the EMS can assist the achievement of a beneficent convergence of inflation rates. I also believe that Britain's ability to see that it evolves in the right way requires us to be in there—certainly availing ourselves of the wider margins which are open to non-snake members—negotiating as full members.

We are paying a very high price for the present Government's wholly negative and passive attitude to Europe. Had we adopted a more positive and more constructive approach, we could have been promoting a European initiative wholly consonant and wholly in harmony with our national interests. Instead, the present Government have simply sat back, reacting belatedly to Franco-German initiatives as and when they arose. It may be that the divisions within the Labour Party run so deep and the Government's authority, as we saw tonight, is so shallow that no other course was possible. But to abandon the direction of Europe to a Franco-German axis is no way to serve Britain's national interests.

11.23 p.m.

Mr. Douglas Jay (Battersea, North)

I beg to move, at the end of the Question, to add welcomes the Prime Minister's refusal to tie the United Kingdom to the European Monetary System of exchange rate control; and welcomes the views of the Prime Minister expressed in this House on 6th December last concerning the control by Government and Parliament of the economic and financial affairs of the nation ". The amendment welcomes the Government's basic decision not to tie the £ sterling in the straitjacket of a fixed exchange rate regime. Incidentally, I welcome the fact that my right hon. Friend the Financial Secretary has already accepted the amendment.

I shall not rehearse the economic arguments against fixed exchange rates, partly because I did my best to express them in our debate on 29th November. I say only that I am not impressed by the claim that the EMS means fixed but adjustable rather than just fixed exchange rates. After all, so did Bretton Woods. But we found by experience that an alteration of the parity of the £ sterling under Bretton Woods in both 1949 and 1967 required just as much economic damage before the change was made and as much of a political convulsion when it was made as the change in 1931, which was not under a regime of theoretically adjustable exchange rates.

But, of course, as we have heard tonight, exchange rate control is not the whole story of the EMS by any means. We are also confronted with a proposal, which is clearly a most important part of the scheme, for each member to deposit 20 per cent. of its gold and dollar reserves with a newly-created European monetary fund, which appears in some respects to be attempting to become a rival to the International Monetary Fund.

I have not yet seen any convincing case for our depositing 20 per cent. of our national currency reserves in this way. Gold and dollars, whatever else one may think about them, are acceptable throughout the world. Heaven knows how acceptable ECUs would be.

Dr. Colin Phipps (Dudley, West)

Far more than dollars.

Mr. Jay

Dollars are acceptable, though the exchange rate may change from time to time. But would central banks outside the EEC accept ECUs in payment of their debts?

Dr. Phipps

Would not my right hon. Friend agree that if central banks had had the opportunity to be tied to an ECU of the kind that is currently being described back in, say, 1958, they would currently be twice as well off as they would have been if their money was in dollars?

Mr. Jay

That does not prove that they would necessarily be acceptable by all other central banks. I would like my right hon. Friend the Minister to tell us whether there is any ground for supposing that they would.

I believe that what really matters most to the House tonight is that the British Government and Parliament should retain control over those instruments of economic policy which effectively determine levels of employment, prices, production and so on. That is the main reason why we most warmly welcomed the Prime Minister's statement in the House on 6th December when he said: 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."— [Official Report, 6th December 1978; Vol. 959, c. 1427.] I hope that the Government and the House will put those words of the Prime Minister firmly on the record by accepting the amendment.

But, if that is the view of the Prime Minister and the House, it reinforces the argument I advanced on 29th November that the Government need legislation by this House before they surrender part of our currency reserves, which, after all, are public property, to a new international fund, just as we legislated in December 1945 in the case of the IMF, which the Prime Minister rightly quoted as a precedent.

But here I think that many in the House may well be puzzled as to what the Government's intentions are. In the debate on 29th November, in response to a question from me, my right hon. Friend the Chancellor of the Exchequer said: There is no question in any case of that type of handing-over of reserves to an international fund at this stage. All that has been agreed in principle is that negotiations would take place with a view to setting up a fund two years after the exchange rate regime comes into effect. If these negotiations were ever concluded and we were part, we should certainly need legislation in order to participate." —[Official Report, 29th November 1978; Vol. 959, c. 493.] There again, of course, he meant legislation by this House. The House and the Government must have taken that—certainly I did—as a firm pledge that legislation would be introduced before reserves were handed over and that this would not in any case take place before two years from now. That is the plain meaning of what the Chancellor said.

It was, therefore, at first sight a little surprising when the Prime Minister said on 6th December in his statement to the House: 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 co-operation fund against issue to us of a corresponding value of ECUs. This is a matter that the Chancellor of the Exchequer will consider shortly with the Bank of England." —[Official Report. 6th December 1978; Vol. 959, c. 1421.] In the Prime Minister's version, it would be considered not two years hence, but "shortly ". We have had it confirmed clearly by my right hon. Friend the Minister tonight that no further decision on this has been taken, at any rate since the Prime Minister's speech.

After the debate, I wrote to the Chancellor asking him to explain what was intended, and I am grateful to him for promptly replying in a letter which I got today. What I understand him now to be saying is as follows. In the first stage to be immediately considered, in the interim period before the full EMF is set up, we may or may not deposit 20 per cent. of our reserves with the EMCF. Then, in the possible second stage, two years or more hence, the full EMF could be set up, and for this second operation, the Chancellor confirms, United Kingdom legislation would be needed.

The main question I want to put to my right hon. Friend tonight arises because the Chancellor states in his letter that in the first stage the Government arc merely considering whether legislation will be required. I should like to urge strongly that legislation certainly would be required, for constitutional, legal and political reasons, in accordance with the pledges both of the IMF precedent and of the Chancellor of 29th November. It would be required for the immediate transfer in the first stage as well as for the second stage two years hence.

We should equally, surely, in the first stage be handing over a substantial slice of our national currency reserve to an international fund. That is not in dispute. If we took this action, that is what we should be doing.

The IMF precedent is similar in all essentials, and in his letter to me of 12th December the Chancellor also said—my right hon. Friend said something like it this evening: It is envisaged that all the interim arrangements for the EMS (including deposit of reserves with the EMCF) would be subsumed and consolidated into the essential arrangements for the EMF ". But surely it follows that if membership of the EMF certainly requires legislation for subscription to the fund, as the Chancellor has told us, and if the interim arrangements for the EMCF can be subsumed and consolidated into the full EMF, the interim deposit of reserves must equally require legislation in the first place. I cannot think that my right hon. Friend will deny that. I do not think that the House wants to be subsumed or consolidated by stealth into the European monetary fund.

I ask my right hon. Friend not merely to accept our amendment, although I am delighted that he has done that, but to tell us clearly tonight—indeed, to admit —that the interim deposit requires legislation here in advance of any consolidation as a second step, and to give an undertaking that our national reserves will not be deposited with the EMCF at any early date until appropriate legislation has been brought before Parliament and approved, as was done in the case of Bretton Woods. I do not think that the House should be content with anything less than that this evening.

11.34 p.m.

Mr. J. Enoch Powell (Down, South)

I am glad that the amendment is to be made and that we are to have a motion which specifically embodies the statement of the Prime Minister on 6th December. It is not clear whether the Opposition intend, flushed by their exploits earlier this evening, to vote against the amendment, but I think that probably, even if they did, the outcome might be very different from that which occurred earlier.

The hon. Member for Blaby (Mr. Lawson) was quite right to distinguish between the convergence of exchange rates on the one hand and, on the other hand, convergence of economic growth or economic wealth. Where I think he was mistaken was in degrading the importance of convergence of inflation rates. Even the most—

Mr. Lawson rose—

Mr. Powell

Can I develop my reasons for so saying?

Mr. Lawson

But the right hon. Gentleman has misunderstood.

Mr. Powell

If I am mistaken and have misunderstood the hon. Gentleman, then of course I give way.

Mr. Lawson

The right hon. Gentleman has it wrong. I specifically said that the important convergence was convergence of inflation rates and, specifically, convergence towards the German inflation rates.

Mr. Powell

I did take that and thought I had reflected that statement. At any rate, I meant to do so. From that, the hon. Gentleman deduced that the consequences for our economic sovereignty of committing ourselves to convergence of exchange rates fell very far short of economic and monetary union which is envisaged by the proposal of the Commission as one of the implied intentions of the European monetary system.

This, I think, is a mistake and a serious mistake. Even the most convinced and thoroughgoing monetarist would admit that the inflation rate which is actually experienced is the outcome of highly complex decisions taken in the respective countries. No one can say that a particular fiscal policy or a particular budgetary policy will produce that degree of inflation. The degree of inflation is the upshot of all the forces which are operating.

In order, therefore, to produce convergence of inflation rates, in the narrowest sense of inflation rates, it would be necessary to have a thoroughgoing identification, a thoroughgoing approximation, of all branches of the economic policy of the Governments concerned. But, of course, that does not exhaust the implications of exchange rate variations, since exchange rate variations reflect not only variations in inflation in the respective countries but the whole variation of economic experience and the reaction of a particular country to that experience.

So the Prime Minister was thoroughly justified, in the passage to which the motion will now refer, in referring, in the context of exchange rate approximation in the EMS, to The control by Parliament of this country's economic and financial affairs ". The importance of his statement is difficult to exaggerate. He qualified his assertion that that control "must always be absolute ", but he qualified it in a very important way. He said, first of all, that it must be absolute except to the extent that we ourselves "— that is, the United Kingdom— decide formally "— not tacitly by accepting some decisions of the Government in the Council of Ministers, but formally— to surrender a part of it. Secondly, the Prime Minister envisaged this occurring only in an international context which he was specifically distinguishing from a European context. That is a significant point, because, of course, the extent to which participation in the International Monetary Fund implies a surrender of our sovereign control over our economic affairs is very different from that which is implied by surrender to the European Economic Community, which is an institution established with the purpose and intention of creating political through economic and monetary union.

Mr. Dykes

So what?

Mr. Powell

"So what?" is the greatest of all questions in politics—whether you do or do not wish to be citizens of a nation or of a province of a European State. That is the "So what?" and that is well understood.

But perhaps it was the third qualification which was the most important.

The Prime Minister said that it must be a deliberate and conscious decision by this country and its people."—[Official Report, 6th December 1978, Vol. 959, c. 1427–28.1

Mr. Dykes

And the Roman Catholics

Mr. Powell

It does involve—

Mr. Dykes

Surrender to the Roman Catholics.

Mr. Powell

It does involve our right in this country not to have decisions imposed upon us from outside—

Mr. Dykes

By Roman Catholics.

Mr. Powell

Whether by Roman Catholics or anyone else—by authorities external—

Mr. Dykes

Of which we are a part.

Mr. Powell

—by authorities external to this realm—

Mr. Dykes

Of which we are a part.

Mr. Powell

—even if we are a minority in that authority.

At this point I break off my running dialogue with the hon. Member, to whom I do not intend to give way.

Mr. Dykes

Why not?

Mr. Powell

Because we have only a limited time. [Interruption.]

Mr. Deputy Speaker(Mr. Bryant Godman Irvine)

Order.

Mr. Powell

I am conscious of using a good deal of the remaining time of this debate. I am not, therefore, intending to give way to the hon. Member, who, by persisting, is merely wasting time

I was saying that the last qualification is the most important one—that there must be a deliberate and conscious decision by this country and its people. I was immediately reminded by that terminology—and I do not think accidentally on the Prime Minister's part— of a very famous sentence of the right hon. Member for Sidcup (Mr. Heath) which he formulated shortly before the General Election of 1970, when he said that the entry of this country into the European Economic Community could take place only with the full-hearted consent of Parliament and people.

That undertaking was not fulfilled. It was disregarded. But it is being renewed now by the Prime Minister, who has formally stated—and his formulation was clearly not accidentally chosen on the spur of the moment—that any further surrender of economic decision by this country to any external authority, but particularly to that of the EEC, must be subject to a deliberate and conscious decision not merely and only by Parliament but by the people.

So we have reached a decisive point. First of all, the decision of last week is the first moment when we have declined to take a further step towards economic, monetary and political union. A halt has been called. But in calling that halt the Prime Minister has imposed a barrier, similar to the barrier which was breached and neglected in 1970 to 1972, and that is that there must be a deliberate and conscious consent, not only of Parliament but of the electorate which lies behind Parliament, if there is to be any further advance in that direction or any further surrender of the control by Parliament of this country's economic and financial affairs which, subject to that condition, "must always be absolute ".

Although this is one of these comparatively minor debates and although the hour is late, I believe that the placing upon the record of that statement by the Prime Minister, in the context in which it was made, is one of the most important events in our endeavours to regain the sovereign independence of this country which was given away in 1972.

11.43 p.m.

Mr. John Roper (Farnworth)

I am not altogether surprised, being a habitué of these debates, that the right hon. Member for Down, South (Mr. Powell) supports the amendment moved by my right hon. Friend the Member for Battersea, North (Mr. Jay), but I was sorry to hear that my right hon. Friend the Financial Secretary felt that he should accept the amendment.

I support what my right hon. Friends the Prime Minister and the Chancellor of the Exchequer have done in the past few months in trying to find a satisfactory basis for a European monetary system. I can understand the reasons why, at the end of the day, they were unable to accept that we should play our part in the exchange rate regime while none the less ensuring that we played our full part in the other sections of the EMS. However, I do not share the Financial Secretary's view that this is something which the House should welcome. I believe that it is something that the House should regret.

It is unfortunate that my right hon. Friends were not able to persuade their colleagues in the Council of Ministers and eventually in the European Council that a system could be evolved to take account of the interests not merely of this country but of the Republic of Ireland. It is unfortunate that they could not persuade the President of France, for example, to make the necessary contributions to the European regional fund and the German Chancellor to make modifications which they felt necessary.

I cannot accept that we should welcome the fact that it was not possible for us to take part. It is a setback for this country and for the Community as a whole that we have not found a way to take part in the EMS. I believe that both the Community and this country are worse off because we have been unable to find a solution

Mr. Dykes

In the context of the Italian Republic, which has far greater internal economic and currency problems than we have, despite a recent improvement in its balance of payments, now deciding, with great courage on the part of both Parliament and Government in a difficult coalition set-up, to join the system is it not even more deplorable that the British Government did not have the courage to do the same?

Mr. Roper

I do not want to comment on the views of the Italian Government. We had a chance to read them today, and we shall have a chance tomorrow to read the debates which took place in the Chamber of Deputies.

It is a pity that the developments towards a European monetary system were not linked, as was proposed by my right hon. Friend at Bremen, by successful concurrent measures, including the enlargement of the regional fund, particularly the "third window" of the regional fund for which my right hon. Friend the Chief Secretary pressed at the appropriate stages. That would have been to the advantage of the Republic of Italy, the Republic of Ireland and the United Kingdom. Unfortunately, that was not achieved.

I think that it would be wrong for the House to place on record that it welcomed the fact that we were not to play our part within the exchange system. Therefore, I hope that my right hon. and hon. Friends on the Front Bench will think again about their acceptance of the amendment moved by my right hon. Friend the Member for Battersea, North.

e welcome those parts in the Prime Minister's statement in which he made it clear that we would go on playing our full part in the development of the system. As was said in the debate on 29th November, this is obviously an evolving system. It is fortunate that we are to play our part.

Mr. Nick Budgen (Wolverhampton, South-West)

Evolving towards what?

Mr. Roper

Evolving to working out mechanisms for greater convergence in economic policy-making within the countries of the Community, so that—this goes back to the points made by the right hon. Member for Down, South about the problems of currency fluctuations—we can enjoy within the Community a zone of monetary stability of the kind which exists in the United States and which existed for a long time in the sterling area. It would be of advantage to us if that could be achieved. In the coming months, we should work towards being able to take our part in the exchange system.

It was a psychological and political disappointment to many of my hon. Friends that we were unable to reach that solution last week. That is why we believe that the acceptance of the amendment would be a mistake, because it would put us on record as welcoming a situation in which we had failed to play our part in developing what I believe is an important part of the future of the European Community.

11.50 p.m.

Mr. Russell Johnston (Inverness)

In the time available, and with a lot of hon. Members still wishing to speak, it is possible only to jot down a few headings rather than to develop any argument at length.

I quite agree with what the right hon. Member for Down, South (Mr. Powell) implied, that it is a great pity that in such a short debate so late at night we should deal with matters which, as the right hon. Gentleman rightly said, are of fundamental importance and which very much extend to basic and deep arguments which still persist within the country about the way in which we should go.

As to the way in which we should go in regard to EMS, my hon. Friend the Member for Cornwall, North (Mr. Pardoe) said on 29th November that we favoured the Government's joining. Therefore, I was in agreement with the speech of the hon. Member for Farnworth (Mr. Roper). However, this does not mean that we were not, and are not, conscious of the immense pressures which the Government face. One would be very foolish to ignore them. It is difficult in a debate of this sort, particularly within the time available, to disentangle the general arguments, which to a degree have already been aired, about the for and against of the whole question of the Community from the question of EMS, complicated matter as it is in any event.

Although I rather hesitate to cross swords with the hon. Member for Blaby (Mr. Lawson), I did not agree with his comparison with Zollverein, the subsequent unification of the federation of German States and the fact that it required the political push and pressure thereafter to do it. It is an entirely different situation with which we are now dealing.

At that stage, one was dealing with a position in Europe where unification was still achieved by conquest. We are no longer in that state, thanks largely to the European Community. But the other side of the coin—and here I agree with the right hon. Member for Down, South —is equally true. One does not take steps such as EMS, or those in relation to convergence which the Chancellor outlined when talking to the EMS sub-committee, without clearly indicating that one is moving in the direction of an economic and monetary union. We must face the fact that that is the case.

Mr. Lawson

Does the hon. Gentleman really believe, for example, that the Government of France are intent on a common European currency and full economic and monetary union?

Mr. Johnston

It is always difficult to tell what the Government of France are intent on at any given moment, although they are certainly always intent upon the well-being of France. But it is a great mistake to judge French attitudes at this particular moment when Giscard d'Estaing is in full flight from the Gaullists for various internal reasons, which the hon. Member for Blaby probably knows as well as anyone else.

We Liberals certainly believe that the argument that EMS would provide stability of currency, consequently enabling forward investment to be more surely made, and at the same time compel a convergence of inflation rates, is the right course to take. It is not an easy course. I quite accept that the Government were right in emphasising the need for the transfer of resources, that it was difficult for us to undertake this, that we might have to fall out and all the other arguments. I in no way play down those arguments.

However, this debate is linked to the one that we have just had. The reason why Liberal Members were in the Opposition Lobby a short time ago is that we believe that at some stage this country will have to face up to the fact that we shall not be able to control inflation unless we give our prices and incomes policy a statutory base and allow something to be worked out. That is the view we take, and that is why we also argue that an external pressure to reduce inflation would be a desirable thing.

The view has already been expressed that it is questionable whether the Government were at the beginning serious in their intention to join the EMS. I agree that the transfer of resources argument was a fair one, but I do not agree that it was possible in the circumstances to achieve a change in the budgetary contribution and a fundamental revision of the CAP all at once. That was the Government's bargaining position and it was not one that was practical.

The EMS is the first genuine Community system. That is the great difference between it and the snake. There is the agreement for a reserve pooling and the creation of the ECU. I am not sure whether the right hon. Member for Down, South said that that is the first step towards a parallel currency, but he might well have done. If he said that, that would be true. That is the objective of the ECU. That is a step towards the establishment of a greater convergence of our economies with the object of providing economic and financial stability within the Community, which surely is a desirable objective.

I hope that the Government will move rather more rapidly in the direction in which they are set. I hope that when the Prime Minister emphasises how positive a role the Government have played in these matters he will ensure in future that that role is more strikingly obvious to the casual observer.

11.52 p.m.

Mr. David Stoddart (Swindon)

I welcome the decision of the Government not to enter the EMS. It would have been a great mistake to enter, not only from the point of view of the future running of our economy but because undoubtedly it would have been a step towards economic and monetary union, which has not been agreed by the British people and is not wanted by them. Nor is it wanted by the majority in the House. The hon. Member for Blaby (Mr. Lawson) shakes his head, but even tonight we have seen some indications of what EMS would mean. From the debate in the European Parliament, it is clear that the Members of that assembly saw EMS as a significant step towards EMU. I am pleased that we did not take that step. As some see it, it would have been a small step, but in my view it would have been a significant step.

I only hope that the Government will not have second thoughts in about six months' time and decide that perhaps the political storm has abated here and they can take the step of entering EMS. Let us treat the Government with the respect that they are due and let us trust them to adhere to the policy that they have enunciated.

As the hon. Member for Inverness (Mr. Johnston) said, it is a great pity that these debates are limited to one and a half hours and that they commence after 10 o'clock. It would do the House good to hear some of my hon. Friends who speak on European matters, together with their Opposition colleagues. It would be interesting for other hon. Members to hear exactly how far they are committed to a federal Europe. It would also interest the country to know how far they wished to tie this country's economy and monetary system to the German mark and to ditch the Atlantic alliance which has served us so well. That, in effect, is what they are saying.

They wish to untie us from the United States and tie us to the German mark. [HON. MEMBERS: "No."] It is no use saying "No ", because that is the tenor of their argument. That is the direction that they wish to take. One of my hon. Friends stated that he wished us in Europe to enjoy the monetary stability enjoyed by the United States of America. The reason why the United States enjoys that stability is that it is a federal State. [HON. MEMBERS: "Hear, hear.") I am pleased that my hon. Friends the Members for Dudley, West (Dr. Phipps) and for Belper (Mr. MacFarquhar) confirm what I say. They are saying that they want this country to join a federal European State.

Dr. Phipps

That is right.

Mr. Roderick MacFarquhar(Belper): I do.

Mr. Stoddart

I wish that more hon. Members were here to hear my hon. Friends say that. My point is that too many hon. Members are bamboozled into thinking that our membership of the Common Market does not eventually lead us there.

The White Paper states: To implement the decisions taken under A the European Council requests the Council to consider and to take a decision on 18th December 1978 on the following proposals of the Commission. What does that mean?

I am also concerned about the last sentence in that paragraph, which reads: The European Council stresses the importance of henceforth avoiding the creation of permanent MCAs and progressively reducing present MCAs in order to re-establish the unity of prices of the Common Agricultural Policy, giving also due consideration to price policy. Does that mean automatic devaluation of the green pound? Does it mean that our prices can rise without any further reference to the House?

I should like my right hon. Friend the Minister to answer some of the questions asked in the Financial Times this week concerning the return on ECUs and their relationship to the value of gold and dollars.

12.3 a.m.

Mr. Robert Sheldon

The hon. Member for Blaby (Mr. Lawson) asked about the price that the European monetary cooperation fund would accept for the gold. This matter is still open to discussion. Only the initial arrangements have been agreed and most of the details have still to be worked out. It is likely that the price at which the fund will accept gold will be market-related—something between the old price of gold and the present variable market price. The matter has not yet been decided.

I wish to deal next with the arrangements for revision of the weights of currencies in the ECU basket. Here, too, we are faced with the difficulty that the details have not been worked out, and there is not much that I can say beyond what is in the White Paper. That is that the weights of the currencies in the ECU will be re-examined and will be revised in accordance with what I said. That will be within six months after the entry into force of the system and thereafter every five years, or on request if the weight of any currency should change by 25 per cent. These matters are still open for decision or elaboration. Discussions will be starting next week and may continue on this for some considerable time.

I was then asked by a number of hon. Members about the definition of our exchange rate policy. That policy is to continue to keep the rate stable, as it has been over the past 18 months or so. The Government intend to attempt to maintain the level of stability that we have achieved.

Dr. Phipps

Is this not the nub of why we have not gone into the EMS? Is not that because we do not believe that we can keep our rate stable and that we intend in the future to use devaluation, as in the past, in order to pay for our deficits? We have become the banana republic of Europe, and is it not about time that we had the courage to get into the EMS and stick with it?

Mr. Sheldon

No. The intention is that stability will apply to our exchange rate with all our trading partners—the United States of America, the Community and other countries, too. The problem that we envisaged in the EMS was concerned with the technical arrangements and whether they could be permanently achieved. These details still have to be worked out. At present, they look rather more like the snake than was envisaged in the earlier meeting at Bremen.

The difficulties still remain. We hope that it will be possible for us to consider the operation of the system, and in this context I shall deal with the point made by my hon. Friend the Member for Farnworth (Mr. Roper), who assiduously attends these debates and puts his points of view very forcefully. He complained that we were not taking part in the EMS. I can assure my hon. Friend that we are. That gives us the right to influence its development, to play our part in that development and to argue that certain lines of development ought not to take place if we consider that to be necessary.

Mr. MacFarquhar

Does not my right hon. Friend accept that if Italy is to go in, and if the Irish, too, decide to enter, we shall have a very weak voice from the sidelines?

Mr. Sheldon

I do not think I can accept that. As a member of the EMS, we shall have the right to watch these developments, to comment on them and to obstruct if appropriate. We have to bear in mind that the Irish have not announced any change in their intentions yet, and we do not know whether they will. We are members of the EMS, but we are not members of the exchange rate regulation system.

Mr. Dykes

Is it accurate, to sum up, to say that although the Government are not part of the exchange rate mechanism, they are enthusiastic members of the EMS?

Mr. Sheldon

We are members of the EMS and happy to be so. My right hon. Friend the Member for Battersea, North (Mr. Jay) asked about legislation. Member States will be able to deposit reserves in the EMCF and it is likely to be on the basis of revolving swap arrangements. If it works out in that way, there will be no question of irreversibility of deposits, but this is for further discussion. It is unlikely that the other members of the EMS would wish to have irreversible deposits of reserves. But if for some reason it were to happen—as is most unlikely—that the deposits were irreversible, we should have to consider legislation.

Mr. Jay

Apart from the question of irreversibility, why should the Government have any more power to hand over reserves of this magnitude without legislation than they did in the case of the International Monetary Fund?

Mr. Sheldon

I am not sure about legislation, but I agree that there would need to be a debate in the House if any irreversible step were involved in the swap operation.

Division No. 26]	AYES	[12.13 a.m.
Allaun, Frank	Barnett, Guy (Greenwich)	Campbell, Ian
Archer, Rt Hon Peter	Bates, Alf	Canavan, Donnis
Armstrong, Ernest	Bishop, Rt Hon Edward	Cant, R. B.
Ashton, Joe	Blenkinsop, Arthur	Carmichael, Nell
Atkinson, Norman (H'gey, Tott'ham)	Boardman, H.	Cocks, Rt Hon Michael (Bristol S)
Bagler, Gordon A. T.	Brown, Robert C. (Newcastle W)	Cohen, Stanley
Bain, Mrs Margaret	Callaghan, Jim (Middleton & P)	Coleman, Donald

Mr. Lawson

I understand that a swap arrangement does not need legislation. But when will the Government announce whether they intend to become involved in the ECU swap operation? Will there be a debate and vote in Parliament before a decison is taken?

Mr. Sheldon

I thought I had answered that. It is a pity that the hon. Gentleman wishes to waste the last minute that I have available in this debate. I have already said that these matters are to be discussed. If the deposits are not irreversible, there will be no problem because we can draw them out at any time we wish. However, if they did turn out to be irreversible, it would be wrong not to have a debate with a decision of the House on the matter.

The right hon. Member for Down, South (Mr. Powell) dealt with the subject of economic convergence. There are two aspects to consider here. The convergence of member States' economic growth is, of course, essential, in terms of the wider development of the Community. But we are not discussing this wider perspective. We are dealing with the more limited area of the stability of exchange rates and the convergence of inflation rates. Convergence alone is no solution to the problem related to exchange rates. For instance, the existence of North Sea oil will affect the level of exchange rates. Furthermore, the successful export performance of Germany also affects the level of its exchange rate. Therefore, the convergence of member States' inflation rates is only one consideration.

It being one and half hours after the commencement of Proceedings on the motion, Mr. DEPUTY SPEAKER put the Questions necessary for the disposal of the proceedings, pursuant to Standing Order No. 3 (Exempted Business),

Question put accordingly, That the amendment be made: —

The House divided: Ayes 111, Noes

Concannon, Rt Hon John	Horam, John	Rees, Rt Hon Merlyn (Leeds S)
Conlan, Bernard	Hunter, Adam	Richardson, Miss Jo
Cook, Robin F. (Edin C)	Jay, Rt Hon Douglas	Rodgers, George (Chorley)
Cowans, Harry	Jones, Barry (East Flint)	Rowlands, Ted
Cox, Thomas (Tooting)	Judd, Frank	Sheldon, Rt Hon Robert
Crawford, Douglas	Kaufman, Rt Hon Gerald	Silkin, Rt Hon S. C. (Dulwich)
Crowther, Stan (Rotherham)	Lamond, James	Skinner, Dennis
Cryer, Bob	Leadbitter, Ted	Smith, Rt Hon John (N Lanarkshire)
Cunningham, Dr J (Whiteh)	Lofthouse, Geoffrey	Snape, Peter
Davidson, Arthur	Loyden, Eddie	Spearing, Nigel
Davis, Clinton (Hackney C)	McElhone, Frank	Stallard, A. W.
Deakins, Eric	McKay, Alan (Penistone)	Stoddart, David
Dean, Joseph (Leeds West)	Maclennan, Robert	Strang, Gavin
Dempsey, James	McNamara, Kevin	Taylor, Mrs Ann (Bolton W)
Dormand, J. D.	Madden, Max	Thomas, Ron (Bristol NW)
Duffy, A. E. P.	Mahon, Simon	Tinn, James
Ellis, John (Brigg & Scun)	Mallalieu, J. P. W.	Torney, Tom
English, Michael	Marks, Kenneth	Urwin, T. W.
Fernyhough, Rt Hon E.	Marshall, Dr Edmund (Goole)	Varley, Rt Hon Eric G.
Flannery, Martin	Marshall, Jim (Leicester S)	Walker, Terry (Kingswood)
Foot, Rt Hon Michael	Millan, Rt Hon Bruce	Watt, Hamish
Forrester, John	Molyneaux, James	Whitlock, William
George, Bruce	Morton, George	Williams, Rt Hon Alan (Swansea W)
Golding, John	Mulley, Rt Hon Frederick	Wise, Mrs Audrey
Gould, Bryan	Noble, Mike	Woodall, Alec
Hamilton, James (Bothwell)	Oakes, Gordon	Woof, Robert
Hardy, Peter	Orme, Rt Hon Stanley	Young, David (Bolton E)
Harrison, Rt Hon Walter	Owen, Rt Hon Dr David
Healey, Rt Hon Denis	Park, George	TELLERS FOR THE AYES:
Henderson, Douglas	Parry, Robert	Mr. Ted Graham and
Home Robertson, John	Powell, Rt Hon J. Enoch	Mr. John Evans.
Hooley, Frank

NOES
Atkinson, David (B'mouth, East)	Johnston, Russell (Inverness)	Reid, George
Beith, A. J.	Jopling, Michael	Roberts, Michael (Cardiff NW)
Brooke, Hon Peter	Kitson, Sir Timothy	Roper, John
Brotherton, Michael	Lawson, Nigel	Shepherd, Colin
Butler, Adam (Bosworth)	Le Marchant, Spencer	Steel, Rt Hon David
Clarke, Kenneth (Rushclifte)	Mather, Carol	Weatherill, Bernard
Douglas-Hamilton, Lord James	Mills, Peter	Williams, Alan Lee (Hornch'ch)
Dykes, Hugh	Morrison, Peter (Chester)	Young, Sir G. (Ealing, Acton)
Fairbairn, Nicholas	Nelson, Anthony
Hicks, Robert	Newton, Tony	TELLERS FOR THE NOES:
Hooson, Emlyn	Penhallgon, David	Mr. Roderick MacFarquhar and
Howells, Geraint (Cardigan)	Pym, Rt Hon Francis	Dr. Colin Phipps.
Hurd, Douglas

Question accordingly agreed to.

Main Question, as amended, put and agreed to.

Resolved,

That this House takes note of EEC Document No. R/2790/1/78 on the European Cur- rency Unit and the European Monetary Cooperation Fund; welcomes the Prime Minister's refusal to tie the United Kingdom to the European Monetary System of exchange rate control; and welcomes the views of the Prime Minister expressed in this House on 6th December last concerning the control by Government and Parliament of the economic and financial affairs of the nation.