§ 10.30 p.m.
§ The Minister of State, Treasury (Mr. Denzil Davies)
I beg to move,That this House takes note of EEC Commission Documents Nos. COM (77) 620 final, R/2355/77 and R/415/78 on Economic and Monetary Union and Co-ordination of National Economic Policies.These three documents contain proposals by the Commission to try to achieve a better and more balanced overall economic performance by the member States of the Community in the next few years. The document on the prospect of economic and monetary union, COM(77)620 final, outlines a five-year programme covering four main areas, convergence of economic policies, the completion of a common market, and structural and social policies. The communication on improved co-ordination, R/2355/77 covering COM(77)433 final, discusses a number of practical steps that member States might take to that end. The economic and monetary programme, R/415/78 covering COM(78)52 final, contains specific proposals for action this year.
Before referring to the content of the documents perhaps I may put them in an appropriate context with a brief account of how they are being considered in Brussels. Last December, the European Council took note of the document on prospects for economic and monetary union but agreed to await the advice of Finance Ministers before it attempted to form a view. All three documents are currently being subjected to a detailed examination by the specialist economic and monetary committees that advise the Finance Councils, and by the Committee of Central Bank Governors. Finance Ministers are expected to begin discussion of them shortly on the basis of reports from these Committees. The present debate will enable the views of Members to be taken into account at ministerial level, prior to further discussion at the European Council.
It may help the House if I outline briefly the background and scope of the present initiative by the Commission which is embodied in these documents. It is convenient to take as a starting point 786 the Summit meeting of the original Six members which announced at the Hague in 1969 that plans would be worked outwith a view to the creation of an economic and monetary union ".From this beginning came the report of the Prime Minister and Finance Minister of Luxembourg, with its concept of a Community proceeding rapidly to a fully fledged economic and monetary union in a few years. In accepting this initiative in 1971 the European Council committed itself to making the Community a single economy by 1980, with, in effect, a single currency and a single authority for domestic and external monetary management.
The sequel to this undertaking is well known. Some of the first stage of the Werner scenario—notably the system of maintaining EEC currencies within certain margins, known as the snake—was implemented, though even this was not effective for the whole of the Community for more than a few months. The 1975 White Paper on renegotiation stated thatevents have shown that the programme of movement towards full EMU by 1980 … was over-ambitious and unattainable.Let me assure hon. Members, especially my hon. Friends that the objective of EMU has not been formally abandoned, but all member States accept that it has become what might be described as a more distant goal.
The Community countries had been forced to focus their own efforts to overcome the problem which, in a sense, came to a head with the oil price crisis. But the emergence of inflation and recession, with poor confidence, poor investment and mounting unemployment, has increasingly led Member States to consider whether there can be benefit from concerted efforts and more economic convergence within the Community. I believe that there is now a much greater recognition that we should be talking about practical action in these areas, rather than having fruitless arguments about the unattainable.
Our economies are becoming more interdependent. Nearly half the external trade of the Nine is carried on within the Community. As a result, we must cooperate with our partners in the EEC to ensure that we achieve faster growth and continuing control of inflation. This aim 787 of convergence of the economies of the Nine is the connecting thread that runs through all the documents.
Convergence is rather a general term and it appears that there is no single definition. Some Governments tend to equate it mainly with greater equality of living standards achieved possibly through a transfer of resources within the Community. Others stress the need to devise complementary economic policies designed to achieve faster rates of growth for member States leading to lower levels of unemployment. Yet others think primarily in terms of greater price stability throughout the Community. These objectives of lower unemployment and greater price stability that all member countries share will be furthered if convergence in some of these senses is achieved.
Document COM (77) 443 is the most important document on convergence. It makes a number of specific proposals designed to achieve more coherent and consistent economic policies. I shall return to these later.
Document COM(77)620 discusses the prospect of economic and monetary union. Broadly, the Commission sees progress towards EMU as two-stage: first, persevering with and intensifying a gradual approach; and secondly, deciding on significant transfers of economic sovereignty. The second stage, however, the transfer of economic sovereignty, is seen as a longer-term goal, and the Commission recognises that it cannot be reached in the immediate future. So we are left with the gradual approach, a vital part of which, apparently, is economic convergence.
Finally, we have the 1978 economic and monetary action programme—Document COM(78)52—which is the first year of a five-year action programme foreseeen in Document 620. Again, an important part of this action programme concerns economic convergence, and the document therefore reflects a number of the themes in Document 443.
Document 443 argues for three things: first, the extension of the existing system of budgetary guidelines and their stricter supervision; secondly, the fixing of monetary guidelines for each member State; and, thirdly, developing consultations on 788 exchange rate trends and establishing exchange rate guidelines.
§ Mr. Neil Marten (Banbury)
Will the Minister explain a little more about how it is proposed to give guidelines on and more control of the money supply, which is what he was really talking about just now?
§ Mr. Davies
I think that the hon. Gentleman will appreciate that the documents are not particularly clear as to how this state of affairs is to be achieved, but I thought that I had better set out for the House the main proposals in the documents and then listen to hon. Members' suggestions as to how they were to be achieved.
§ Mr. Ian Wrigglesworth (Thornaby)
I hesitate to suggest that the Minister, has not, perhaps, looked right through the documents, but if he looks a little more closely, he will see that there are proposals for meetings of central bank governors and co-ordination of monetary credit in the individual member count-tries. There is a fair amount of detail that we have not seen previously.
§ Mr. Davies
There are suggestions for a large number of meetings. Whether the suggestions will lead to practical decisions is another matter.
The convergence proposals in Document 443 are, essentially, summarised in the part of Document 620 which deals with economic convergence as one aspect of the five-year action programme which, the Commission believes, will pave the way for economic and monetary union.
§ Sir Anthony Meyer (Flint, West)
Are we listening to a Front-Bench speech, or is the hon. Gentleman making a Back-Bench speech from the Front Bench?
§ Mr. Davies
It should be noted, however, that this does not in any way imply that economic and monetary union will take place in five years. In fact, no timetable is proposed and I imagine that many hon. Members will share my view that this is a very distant prospect.
Additionally, Document 620 referred to the possibility of a return to greater integration of Community currencies, but it does not make any specific proposal on this and again does not set a rigid and inflexible timetable. The document also 789 suggests that an objective over the five-year period should be an increase in the financial resources available to the Community. These refer specifically to regional policy, social policy, industrial policy and energy policy.
The two other main areas that the document covers are the completion of a single market and structural and social change. The completion of the single market covers such issues as tax harmonisation and freedom for internal capital movements as well as full exercise of the right of establishment. The suggestions on structural and social change cover the Commission's intentions for Community action in industrial policy, public investment and social policy.
It is the objective of each of the five one-year programmes to make specific proposals fitting in with the overall strategy of Document 620. This is what COM(78)52 sets out to do. It therefore has sections on convergence of the economies, the single market, structural policies and social policy. With the exception of the first section, on convergence, the Commission's document is basically a list of Community proposals, which in some cases have been on the table for many years and which the Commission would like the Council to agree in the course of 1978.
The section on convergence works through a similar analysis of the reasons why the European economies have in fact diverged and suggests ways in which greater convergence might be promoted. To some extent these represent a development on the Commission's thought in Document 443. For example, Document 443 calls for the extension of budgetary guidelines to the whole of the public sector. Recognising, as a result of discussion on this point, that this would be premature, Document 52 merely suggests some further work on qualitative or quantitative data as the first stage in extending the scope of these budgetary guidelines.
Following the discussion at the European Council of 6th December, Documents 620 and 443 were remitted for study by the various specialist economic and financial committees of the Community, and the convergence section of Document 52 has similarly been remitted. The rest of Document 52 has been remitted to the Committee of Permanent 790 Representatives. The attitude of the Government will be determined in the light of these studies and the views of Members.
Naturally, there is scope for considerable debate within the Community about the detail of some of the proposals. We and some of our Community colleagues have, for example, indicated that too much weight should not be put on the specific convergence of intermediate objectives such as monetary or fiscal or exchange rate policy. The important thing is for these all to be seen to be fully consistent with the overall objectives of the Community's economic policy. The discussions in the specialist economic committees so far show that this broad approach has a good deal of support. Member Governments of the Community are also thinking on these lines. My right hon. Friend the Chancellor took part in a wide-ranging debate at the Finance Council on 20th February, where the clear objective was to see how far co-ordinated action could usefully stimulate growth throughout Europe as part of the search for solutions which need to be on a world-wide scale.
I am, of course, aware that there are within the House differing views about the role that the EEC should play in these matters. I can only reiterate what my right hon. Friend the Prime Minister told the House on 7th December:Let us see how this new system can be of benefit to the United Kingdom in its recession as well as to Europe".—[Official Report, 7th December 1977; Vol. 940, c. 1395.]Certainly, whatever our views about economic and monetary union, or about the EEC itself, there can be little doubt that action to stimulate growth at a Community level in the recession carries with it the prospect of greater effectiveness than action by individual Governments.
One solid achievement over the last year or so has been the agreement reached on the need for a new aid to help the relief of unemployment amongst the young. With the active participation of the trade union and employer organisations, studies are taking place on, among others, the employment effects of investment, and of work sharing. Work sharing, as the TUC recognises, is an area where unilateral moves by an individual country could undermine that country's 791 competitiveness. I am therefore pleased that this is an aspect of economic convergence which is due to be examined in the action programme for 1978.
Again, the European Council last December recognised that solutions to the structural problems which are common to some industries in all member States must increasingly be sought at Community level. This is particularly true of the iron and steel, textile and ship building industries. There are other spheres where a concerted response may pay dividends. Multinational corporations pose special problems. It is in no one's interest that they should seek to bid up investment aids by playing one country off against another. EEC ceilings on the amount of regional assistance that can be offered to such a project have an important part to play, while the different national systems of regional aids can take account of special national problems.
These are some of the positive ways in which the Community can help. We should not allow ourselves to be directed by irrelevant arguments about the unattainable. I firmly believe it is in our best interests, as well as those of the Community, that working together we seek common answers to the serious economic problems facing us. Provided we are vigilant about our national interests, I believe that we can shape the Community policies outlined in these documents to serve the interests of all the Community's members.
§ 10.45 p.m.
§ Mr. Peter Tapsell (Horncastle)
This brief debate on a "take-note" motion is obviously not the occasion for a lengthy examination of the immensely varied and complex issues raised by the concept of economic and monetary union. We only have to read the index of subject matters covered by the document dated 16th February 1978 to see the very extensive range of highly technical issues involved. Indeed, if we were to embark on a proper examination of all the issues raised in the three documents, there would scarcely be time for the House to do justice to them in the whole remaining part of this Session, let alone in the 90 minutes available to us tonight.
As the Conservative Front Bench spokesman, I shall be brief so that as many as possible of my right hon. and 792 hon. Friends who wish to make contributions are able to do so.
The complexity, variety and ambition of the documents are in a real sense the essence of the problem. The Continental European traditionally and historically favours the bold intellectual approach—the statement of resounding ambitions, the announcement of lofty and idealised goals. All that is very attractive, but the British approach traditionally is a good deal more cautious, more prosaic, and more empirical.
§ Mr. Wrigglesworth
Could the hon. Gentleman define the difference between Continental man, as in Italy, France, Denmark, Holland, Belgium and Ireland, and the British in the way he has described?
§ Mr. Tapsell
The only brief answer I could give the hon. Gentleman would be to suggest that he should read, first, Rousseau and then Locke. The pragmatic British and Conservative attitude to economic and monetary union was very well put by my right hon. and learned Friend the Member for Hexham (Mr. Rippon), leader of the Tory delegation to the European Assembly, on 26th September 1977, when he said, in a speech in Holland:Some joint economic and monetary policies are a matter of common sense. The likelihood—or the effectiveness—of a single master plan remains highly dubious. What is required—and possible—is a series of specific initiatives within the framework of a broadly agreed strategy.That exactly expresses my own view. In so far as general agreement on this issue will ever be possible, I believe that it expresses the view of the great majority of those people in Britain who concern themselves with these matters. This need not make us, as a country, a less effective or in the long run a less sure member of the Community. Rather the contrary; we are a conspicuously stable member, as is becoming increasingly apparent with every passing year and, indeed, almost with every passing day.
Nor do we need to be unduly critical of much of the small print of the documents. Many British readers of them will find much to interest and appeal. For example, our farmers, certainly those in my constituency, will welcome the section on monetary compensatory amounts; our business men will welcome the section on 793 the liberalisation of capital movements. We should, in my judgment, seek to direct our minds to practical, limited specifics of this kind and see, at the end of the day, where they take us. That is the British way.
My right hon. Friend the Member for Knutsford (Mr. John Davies) put it very well in a recent article when he wrote:We believe in co-operation, not convergence.
§ Mr. J. Enoch Powell (Down, South)
I thought I recollected—perhaps the hon. Gentleman will confirm whether I am right—that the right hon. Member for Sidcup (Mr. Heath), in September 1972, immediately after the European Communities Bill had passed through Parliament, signed an adherence, on behalf of this country, to the principle of economic and monetary union by 1980. Is this so or not?
§ Mr. Tapsell
I believe that that was the case, but I think that the likelihood of that being achieved in practice is becoming increasingly remote. The whole thrust of my speech, if I have succeeded in making myself clear to the right hon. Member for Down, South (Mr. Powell), would be that I think that we must deal with practicalities in these matters. In 1972, of course, even the right hon. Gentleman had probably not foreseen, despite his strong support for floating rates, the degree of turbulence in currencies, to take just one technical issue, which has made the achievement of those aims by 1980 very much more difficult than would otherwise have been the case.
My right hon. Friend the Member for Knutsford—who, after all, is a great supporter of the European ideal, as are so many of my hon. Friends—wrote as I have said:We believe in co-operation, not convergence.I would add that, before we can even co-operate we must recuperate, and the starting point for all this, it seems to me, must surely be to put British economic affairs in order. Then we can begin to think realistically about our external relationships.
794 When, for instance, our inflation rate and our productive growth rate are at least reasonably similar to those of West Germany, there may indeed be a case for our rejoining the Community monetary "snake". But practicalities, as the Minister pointed out in his opening speech, made it inevitable that Britain, like France and Italy, should leave the "snake" as our economic performance weakened.
§ Mr. Nick Budgen (Wolverhampton, South-West)
Does my hon. Friend agree that the argument that he is now putting forward is that we ought to have convergence when we can have convergence, when our economy is in a sufficiently good state to allow it?
§ Mr. Tapsell
That is exactly what I am saying, and I go on to say that we shall remain outside convergence with the other currencies within the "snake" until the practicalities of the present situation change. Indeed, they are changing as a result of the International Monetary Fund having taken over control of our economic affairs, and as a result of North Sea oil and various other factors. When they have changed, the whole matter of monetary co-operation and the possibility of Britain re-entering the European snake will deserve and is certain to receive the most careful study.
To take the cautious and pragmatic view that I am advancing is not in any sense, I would argue, to adopt a position of hostility to British membership of the Community. All of us, after a few years in this House, have a past. Some of my hon. Friends might regard this as the shocking record of a misspent parliamentary youth, but I supported in this House the original initiative taken by Mr Harold Macmillan to join the Community in the early 1960s. I voted in favour of every stage of the European Communities Bill when it was before the House. I flew back specially from the Far East to vote "Yes" in the national referendum on the subject. I really cannot forget—even to please the right hon. Member for Down. South, whom I am always anxious to please—that that is my political background on these matters, and it would be wrong of me to try to conceal it from the House.
Indeed, I take the view that many of our problems—and many of the problems 795 of the Community as a whole—stem precisely from the fact that we joined the Community far too late. With the wisdom of hindsight—I am bound to admit that it was not until the early 1960s that I formed this view—it seems to me now a thousand pities that we were not one of the founder members and one of the architects of the original Rome Treaty which, I suspect, would have been called the London Treaty and which, in respect of the CAP, fisheries and so on, would have been a very different document.
But politicians, as we all know to our cost, have to deal with situations as they are and not as they would prefer them to be. We should be wise to concentrate on working in ever closer co-operation with our European fellow members of the Community in the areas of economics and foreign affairs—the Middle East and Africa spring immediately to mind—and on those practical matters that seem best designed to bring prosperity, security and happiness to the peoples of Britain and Western Europe.
I feel that we should concentrate in particular on the practical benefits that may be derived by our people from our membership of the Community. Of those I put jobs at the very top of my list. As my hon. Friend the Member for Mid-Oxon (Mr. Hurd) has pointed out so well, speaking with his great authority in these matters, the greatest successes of the Community since Britain joined have passed almost unnoticed in this country. It is our duty as Members of this House to draw to the attention of our constituents the successes as well as the failures, because if we do not do so. we are failing in our duty.
In fact, the Community has had very considerable successes on behalf of the people of this country. It has increasingly succeeded in negotiating as a united body with the outside world in vital matters of trade and finance. For example, it is the EEC which has tried to establish world conditions in which the British steel industry can survive. It is the EEC which negotiates with the textile producers of the Far East under the Multi-Fibre Agreement so that the British textile industry can survive. It is the EEC which on behalf of its members conducts the multilateral trade negotiations in Geneva. It is the EEC which has just concluded a 796 major trading agreement in China. It is the EEC which is about to negotiate a new Lomé Convention regarding our trade relations with the Third World—an aspect of our affairs in which I am particularly interested. Above all, it was the EEC which, in parallel with member States, discusses the vital European trading relationship with Japan.
Any hon. Member who has a commercial life as well as a political life will know that American and Japanese business men who come to this country and who are considering investment in this country—I believe that there will be a massive investment, particularly from the United States, in the next few years—do so primarily for two reasons; first, because we are a member of the EEC and, secondly, because they regard us as politically the most stable member of the EEC. All these matters have a most direct effect on the levels of employment in this country.
In a world that is moving deeper and deeper into recession, and with protectionism an increasingly attractive option and temptation for many other countries, we derive enormous additional strength both from having a market of 250 million people open to us on our doorstep—because for 600 years the whole of British history has been a fight to ensure that we have access to large, secure markets—and by negotiating with the outside world from a position of economic strength, which membership of the EEC brings with it.
These are the practical and immediate measures of co-operation on which we should be concentrating. If they are facilitated by ever closer co-operation on monetary and economic matters, so be it. But do not let us put the cart before the horse by arguing among ourselves about the far more distant possibilities of economic and monetary union. There is little prospect of that goal being attained in the near future while the performance of our economy differs so radically from that of West Germany. Let us put our own house in order and co-operate with our friends in Europe and see how matters develop from there.
§ 11.1 p.m.
§ Mr. Douglas Jay (Battersea, North)
It is a pity that the hon. Member for Horncastle (Mr. Tapsell) departed from 797 reality towards the end of his speech when he started to describe the blessings of EEC membership. Until then, I was thinking what a pleasure it was to have some signs of common sense emerging from the Opposition Front Bench on these matters—better the one sinner who repenteth than the ninety and nine who follow the party line.
This debate is typical of the methods by which we discuss Community legislation. We have 90 minutes, including Front Bench speeches, to debate papers on the prospects of economic and monetary union, improving the co-ordination of national economic policies, and the economic and monetary action programme for 1978. If the Government's decision to allow only 90 minutes to dispose of these topics means that they are treating all the papers with contempt and derision, I would not complain, but if that is not the reason, it illustrates again the inadequacy of our method of discussing such proposals.
§ Mr. Marten
As our debates are read most seriously by the Commission and other people in the Community headquarters in Brussels, perhaps it might be a good thing to put on the record that there are only two Members on the Government Front Bench and only three on the Opposition Front Bench. This shows almost a contempt for this whole process of economic and monetary union. I hope that those who read Hansard in Brussels will understand that there is a thin attendance for this debate.
§ Mr. Jay
It may be that the sparse attendance indicates the attitude to these matters suggested by the hon. Gentleman.
For the sake of brevity, I propose to confine my remarks to the paper on economic and monetary union, because, although all three papers contain a great deal of almost meaningless verbiage or actual nonsense, this paper involves, lurking amidst all the verbosity, serious long-term dangers for this country. I should also point out that hon. Members have noticed that even the action programme is, according to its authors, intended to pave the way for economic and monetary union.
The chief result for this country of such a union, in almost all foreseeable circumstances, would be greater unemployment and stagnation of production. I 798 make just the one economic point that is decisive in the debate: when a stronger and a weaker economy are trading with each other, there must be some method of bringing the two into balance. The best and most workable method discovered in the practical world is by changing exchange rates. The adjustment made that way enables unemployment and heavy and persistent deficits to be avoided.
The weaker country's currency declines in relative values and the stronger country's currency rises. If that method of adjustment is made impossible by forcing the same currency on both, and this comparatively painless method of adjustment cannot take place, there is heavy and chronic unemployment in the weaker economy.
This has happened for many years past in Southern Italy, Northern Ireland, Western France and other parts of Western Europe. The non-competitive economy loses exports, imports too much, and unemployment grows. That, in my opinion on all the evidence, would happen in this country to a greater or lesser degree if we so took leave of our sense as to be ensnared in monetary union with the rest of the EEC.
The British economy has been seriously weakened by the common agricultural policy, and we have a huge deficit on visible trade with the EEC. Monetary union would force on us rising unemployment and worsening deficits. It would put us at the mercy of whatever authorities we were compelled to borrow from on the Continent.
The Brussels paper before us does not really make any pretence of putting forward a rational economic argument for economic and monetary union. The Commission regards monetary union not as a sensible economic policy that will do any good to anyone, but as a concealed way of pushing on towards political federation, thereby enhancing the power of the Commission.
The main paper admits this right at the start with the words:Economic and monetary union … is an integral part of the process leading to European Union.That sentence is at least clear. All the economic arguments have to be twisted to use monetary union to establish political union by stealth. Hence we get a series 799 of meaningless and nonsensical statements, of which I shall quote two:The prime objective to be pursued over the five-year period is the establishment of lasting convergence between the economies of the Member States.One cannot have a lasting convergence of the economies of nine or 12 different States at totally different levels of economic development, because, for innumerable human and material reasons, economic forces are relatively changeable. One might as well talk about a lasting convergence of the weather in the North of Scotland and that of the South of Italy.
The other quote is:In the move to achieve greater convergence, a second line of action would be to ensure the return to greater cohesion between European currencies.All that appears to mean is that although the economic realities do not and cannot converge, we shall pretend that they do by forcing on them an artificial identity of currency.
I hope that the Government will make it plain that this country will not succumb to any proposals of this kind. I hope that I am right in thinking that that is what the Minister said, even if it was couched in slightly more diplomatic language, and that we shall not get involved in economic and monetary union of this kind in future. We have had quite enough damage done to our economy already by EEC membership. I refer to Mr. Wynne Godley's analysis, which many hon. Members have mentioned already today.
Ten years ago we were told that this country was doing so badly that we had better take a leap in the dark and join this organisation without its being demonstrated that it would do us any economic good to do so. Exactly the same argument now seems to be used about economic monetary union. We are told "There is a great deal of unemployment in Europe, so let us do something different. Let us adopt this new policy." But that is being said without any sensible reason being advanced to show that the situation would be any better if we did. It is the same old argument all over again and the argument seems about as invalid as it could be. Therefore, I hope that the House will firmly reject these proposals tonight.
§ 11.12 p.m.
§ Mr. Peter Brooke (City of London and Westminster, South)
The right hon. Member for Battersea, North (Mr. Jay) concentrated his remarks on European monetary union. He tilted his lance at that subject rather as though it were a windmill, even though it may be enshrined in one of the documents now before the House. I prefer to deal with the subject set out in the other two documents that are before the House and to return to EMU at the end.
As a wise man once said, if one does not know where one is going any road will get one there. In the context of the other two documents, it is worth remembering that Article 3 of the Treaty of Rome provides for the establishment of procedures to co-ordinate economic policies and to remedy balance of payments disequilibria. Articles 103 to 109 concentrate further on that subject, but there is no reference to EMU as an objective in the Treaty of Rome. In the various documents that have emerged since there is no great clarity in what is meant and envisaged by it.
The Minister in opening the debate talked of the developments immediately after The Hague meeting in 1969 and of what was envisaged as the objective at that stage. I am old enough to remember that when I had the pleasure and privilege of serving in Her Majesty's Forces, the Army Manual instructed the soldier what to do if he happened to meet King George VI in a narrow trench. In the period after 1969 one was subject to the same sort of inflexible type of instruction as in this Army one. Therefore, I am encouraged in the belief that the Commission is now adopting a much more flexible attitude and approach, more on a step-by-step basis, as its ultimate objective. There is much more emphasis on the single market and structural and social policies, whereas at the time of The Hague and subsequent reports these were regarded as secondary to the main directive.
The first directive passed in this step-by-step approach relates to the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of credit institutions in the licensing of banks. Last August the Commission published recommendations on a European code of conduct 801 relating to transactions on transferable securities. A draft Commission proposal is being considered by the Council, together with a second directive concerning direct insurance, other than life insurance, to remove discriminatory restrictions on insurance business in the Community. This is all aimed at making the Community more of a single market.
In a world where much of Britain's business activity has become somewhat febrile, it will be seen that the one respect in which we have constantly and consistently been capable of being competitive is in those areas in the City of London which I have the privilege of representing. I have not consulted my constituents in the City of London on their attitude to EMU, and if I were to do so I should probably be faced with as many attitudes as I would in the House, but what is clear is that the City welcomes the increasing opportunity to be able to compete across the whole Continent of Europe, particularly since, whereas we in the City of London have been relatively unprotected by comparison with other aspects of British business, we know that financial institutions on the Continent are accustomed to being protected. Therefore, opportunities are opening up for a virile section of the British business community to compete in an area which, frankly, is vulnerable as a consequence of the protection that it has enjoyed in the past.
The progress towards EMU, if there is any—I share some of the doubts that have been expressed on that score—will be capable of being questioned at all stages along the way by its opponents. On the basis of what has happened since 1969 it does not seem as if progress will be fast.
The great Cato always used to end his speeches by saying that Carthage must be destroyed. I am conscious that certain hon. Members take the same view about Europe. They have the potential for a field day as we move down the road to EMU. However, if EMU were to arrive, it would be because the people of Europe wanted it to do so.
When Winston Churchill was asked why he always arrived on the platform just as the train was about to depart, he replied that he always wanted to give the train a sporting chance to get away. My view is that economic and monetary union has the same characteristic as the 802 train, and that those who wish to prevent it will have plenty of opportunity to do so. If it does arrive, it will be because the people of Europe wish it.
§ 11.16 p.m.
§ Mr. Ian Wrigglesworth (Thornaby)
Those who wish to speak against economic and monetary union and who seek to justify and support the present exchange rate system, as did my right hon. Friend the Member for Battersea, North (Mr. Jay), need to explain how they will get rid of the 16 million unemployed in the OECD countries and the various other products of the economic malaise in which we find ourselves. They will have to do so if they are to sustain, as they seem to want to, the present economic system that we have in the Western world.
I am encouraged by the support that the Prime Minister, the Chancellor of the Exchequer, the Chancellor of the Duchy of Lancaster and other Ministers have been giving in recent months to the need for international action by the Governments of the Western world to overcome the problems that we are facing in far-flung places such as Japan, Hong Kong and the United States, as well as in Europe.
I begin my remarks by quoting what the Prime Minister had to say only this week to the Finance Houses Association when he was speaking about the need for more international co-operation and action. My right hon. Friend said:The leading nations of the world must decide to move forward in concert. We must act in partnership by taking measures that will reverse the present trends in trade, growth, instability and unemployment.He added:One of the present ingredients in short supply throughout the world is confidence. Agreed international collective action will bring a new confidence to the world.In my view the truth is that we are trapped in a vicious circle of demand deficiency, with reduced output and increased unemployment following on from that. We can free ourselves only by concerted international action. We need to create a new economic and monetary system that will be as successful in dealing with the problems of today and tomorrow as the Bretton Woods system was successful in coping with the problems of the post-war world. We need badly the 803 sort of vision that led to the Marshall Plan in the late 1940s.
We need to help the hundreds of millions of people in the developing world, and the unemployed men and women in the developed world, by demonstrating practically that we have the political will to find new systems to overcome the economic malaise in the Western world. I believe that the practical steps that the Commission has proposed are taking us along the road to what I believe will be a great stabilising influence in the Western economic system, namely, economic and monetary union.
I agree with the Commission's approach of proposing practical means for greater co-ordination, co-operation and harmonisation. In that way, the problems to which my right hon. Friend the Member for Battersea, North referred, which are supposed to be taken care of by exchange rate policies, can be overcome. Indeed, that is how they are overcome in other countries that have single currencies. Such countries are able, within their currency borders, to take care of inequalities between one region and another. Therefore, the policies proposed by the Commission can lead to an ironing out of the differences and point us in the direction of economic and monetary union. In my view, that would give a tremendous boost to confidence in the Western economy and would underpin the stable conditions that must exist if we are to get growth.
As I said, economic and monetary union is a desirable objective in itself. I hope that the Government will therefore pursue it with vigour in the Council of Ministers. But, irrespective of the desired ends, it seems to me that the short-term steps proposed by the Commission are equally desirable in themselves and should be supported as the best policies to be followed to overcome the problems facing Europe now
For instance, the proposals to strengthen and clarify the role of the co-ordinating Committee on Economic and Monetary Affairs and to co-ordinate the budgetary, monetary and exchange rate policies by closer co-operation between the central monetary authorities and other economic bodies within the member States could be of enormous benefit to the whole of the Community.
804 The proposal to establish a borrowing and loan facility for the Commission would be of enormous advantage. It would help to overcome the imbalances in the long term to which my right hon. Friend the Member for Battersea, North referred. Indeed, the kind of reserves that would be required centrally to go ahead with that proposals are tiny by comparison with the central reserves that exist in other large States. I do not think that hon. Members need be over worried about the proposals that the Commission has put forward in that respect.
I hope that the Government will keep their eyes on the long-term benefits that can accrue from the stability and growth that would follow from having a European reserve currency, Such a currency would balance the dollar within the Western economic system and provide much greater stability than we have at present.
§ Mr. Nigel Spearing (Newham, South)
My hon. Friend mentioned the possibility of a currency. If there were growth, would not that single currency minimise the likelihood of that growth being equally spread throughout the Community? If so, that would not necessarily give the increase in employment and economic activity that we want to see in each part of the Community.
§ Mr. Wrigglesworth
It is for that very reason that the Commission is proposing practical steps for introducing regional and other policies to overcome the imbalances about which my hon. Friend is rightly worried. My hon. Friend is not acknowledging the practical proposals that have been made for overcoming the kind of problems about which he is talking, irrespective of economic and monetary union.
I might say that it is not only on this broad economic front that such a proposal would be popular. Recently, members of a Select Committee, of which I was one, were in Holland, and we had to travel down to Brussels. As we went over to Holland, we had to change all our currency into Dutch guilders. Then, on the train, we had to change it into Belgian francs. What about all the populations of the European countries having to do this, quite apart from the firms trading in these currencies? What an enormous benefit there would be and 805 what enormous appeal to the citizens of Europe it would have if we could be done with this nonsense of having to swap currencies backwards and forwards for our personal needs and business transactions.
§ Mr. Marten
The hon. Member and I were in Brussels together as members of the Select Committee. Does he remember the conversation that we had with the official who said that the money supply in each country would be controlled by a board of finance, which would take decisions on a majority vote? If the hon. Gentleman were Chancellor of the Exchequer, as he obviously will be in some future Labour Government, would he enjoy that very much?
§ Mr. Wrigglesworth
The only way in which we can regain the sovereignty that we have lost as a result of the closer dependence of one economy on another is by ceding the powers which the hon. Member for Banbury (Mr Marten) wants to keep, under an illusion, in our Treasury. Neither the Chancellor of the Exchequer nor, even, the President of the United States in this day and age can control the destiny of his own economy in the way that he could in years gone by. If we are to regain some of that sovereignty, we must co-operate with other countries to overcome the problems facing us at present.
I believe that the practical proposals contained in this series of documents will be of benefit to the whole of the European Community in a very down-to-earth way. Therefore, I hope that the Government will support them for themselves and also that they will press ahead with the efforts to co-operate with other European countries and with other countries in the world, but especially through the European Community, to bring about what I believe could be an enormously helpful and stabilising influence in the world, leading in the long term—and it will take a considerable time—to economic and monetary union in Europe.
§ 11.27 p.m.
§ Sir Anthony Meyer (Flint, West)
The documents before us, especially No. 620, afford us a glimpse of the real world. It is one which, 15 years or so ago, most people regarded as being attainable in a decade or so, and the sort of world to 806 which the logic of events pointed and which, it went without saying, was then desirable.
It is a real world in which the nations are interdependent and where living standards can be protected or raised only in an expanding economy, itself the consequence of trade becoming freer and freer, markets expanding, with an unimpeded evolution towards new means of producing goods and services.
Fifteen years later, all except four under the rule of the National Socialist Party—[HON. MEMBERS: "National?"] Yes, the National Socialist Party—the real world seems to many people now quite unattainable and, I fear, to a very large number also undesirable. Instead, our people have been bamboozled into believing that a mirage is nearer, more attainable and more desirable. It is the mirage to which the right hon. Member for Battersea, North (Mr. Jay) and my hon. Friend the Member for Banbury (Mr. Marten) are so wearisomely beckoning us as a place where even nations the size of Britain—or the size of Scotland—are able to sustain their own steel industry, their own car industry, and their own agriculture, with deficits financed either out of manna from Heaven or out of the shrinking tax yield of the contracting economy.
It is small wonder that so many who prefer this mirage to the reality, those whose job it is to tell us which is which —the Ministers—keep telling us that after all there is a lot to be said for the mirage. Some of them actually believe it. I am sure that the Minister did not, but he was insinuating by winks and nods that there was a good deal to be said for the mirage.
The programme set out in the documents may seem disagreeably strenuous because we have fed for so long on the illusion. The chances of its succeeding are small. If I am in a rowing boat being borne towards Niagara, I think that it is more sensible, even though it looks more comical, to try to row against the current than to drift towards the cloud of spray in front of me.
§ 11.33 p.m.
§ Sir Brandon Rhys Williams (Kensington)
The right hon. Member for Batter-sea, North (Mr. Jay) gave us a rather unattractive picture of the economic 807 future of Britain. He talked of divergence from our trading partners and a continuous depreciation of the currency. I do not feel that that is a recipe that is likely to encourage investment, cure inflation, or create opportunities for employment, but that does not mean that I necessarily think that the right hon. Gentleman in Brussels does know best.
President Jenkins has shown a great deal of courage in relaunching the idea of economic and monetary union, but his earlier statements last year on this subject seem to me to have had too academic a character.
I support my hon. Friend who opened from the Front Bench: we must look at the common sense and practical steps that can be taken to get ourselves out of our present economic difficulties. It is not as though we have not been over all this before. In the 1930s the world currency system also broke down and Governments pursued their best advantage—as they thought. The result was unemployment, loss of investment confidence, and so on.
Of course, the situation now is not precisely the same, but the pre-war currency crisis led to the setting up of the Bretton Woods agreement, which was an attempt to create a world economic and monetary union. A great deal of progress was made. Many people think that it was a pity that that system broke down because politicians had to meddle with the workings of their economies. Perhaps it would be better if politicians were not so set on meddling with the workings of their economies and if, instead, they were to try simple remedies such as getting back to policies of integrity and common sense.
I am not attracted by economic nationalism as a remedy for our present economic malaise. I know that it attracts several of my hon. Friends but I do not believe that Britain, going it alone, will be able to solve its problems. Nor, unfortunately, is it realistic to expect that we shall get back to a world currency system in the foreseeable future. But that is not a reason for total despair.
It is possible that currency zones will begin to operate. That is something that will be forced on us by market forces even if we do not work our way to it according to a plan. If the Western European countries which have close trading links 808 become one of the world's currency zones, would it be possible to help such a system to work better by setting up some sort of organisation, or by consultation on policies, or by adoption of certain guidelines? It is easy to make mistakes in this field, but that is no reason why we should not make the effort. Much could be done by better exchanges of information and better publication of up-to-date information, so that businessmen would be able to make better-informed decisions.
If what we are trying to achieve is a framework in which business men can take decisions which normally prove right, we must try to arrange for exchanges of information, continuity of policy and a framework in which people can plan for themselves and for their businesses without the dreadful uncertainty which is created by the unpredictable political interference from each of the political capitals of the major Western eonomies.
The Commission makes a series of sensible recommendations in some of the latest documents. For instance, document 443 contains some excellent recommendations. If we were to co-operate, we would find that it was in this country's best interest.
On the capital account, the Commission recommends that there should be an issue of Community loans in order to put the financing of the regional and energy policies on a much more realistic footing. This seems to me a natural way of creating employment and of undertaking investments which are plainly necessary, and which, in the long run, will be of tremendous value to all Community countries.
A number of problems arise in connection with the question of Community loans. For instance, what currency should we use? I do not think that people would unite behind our using any one particular national currency of the Community by itself. Up to now the alternative currency of the Community has been the dollar, but the insecurity of the exchange rate with the dollar suggests that that would not be the ideal basis for long-term Community loans. Many experts think that world opinion is moving in favour of the use of SDRs, and possibly it would be advisable, in the first instance, if Community loans were to be 809 issued in SDRs. But I should like some experiments to be carried out with the European unit of account and possibly with some other methods of calculating the eventual terms of repayment. There is a great deal of money looking for secure investment and it is not difficult for the Community to raise money and to experiment with different terms of repayment.
§ Mr. Marten
My hon. Friend says that there is a lot of money looking for secure investment via the Community. Will he comment on the fact that in 1977 the European Coal and Steel Community and the European Investment Bank lent £200 million to the British Steel Corporation when, as bankers, had they examined the books, as our Select Committee did, they might not have lent it? Should not they grow up before they lend money?
§ Sir B. Rhys Williams
I have not studied these particular investments that have been financed by the European Investment Bank. In the banking community it has a very high reputation for its shrewd lending policy. All bankers occasionally make mistakes. I know nothing about the particular projects that it has financed in the steel industry, but perhaps they were precisely what the industry needed if it is dependent on obsolete capital equipment and is in urgent need of modernisation, as I believe.
I do not want to say more about the capital account, but I have a few words to offer on the current account. Business people find that it is difficult to foresee what is likely to happen to exchange rates and to calculate their opportunities to trade across currency frontiers.
I welcome the announcement by the Treasury in the last few weeks that it is prepared to underwrite European Investment Bank loans at only 1 per cent. above interest rates, so that borrowers in this country will be safe in future from the exchange risk. We have to build on that kind of precedent so that people can enter securely into long-term transactions—I am not speaking only of very long-term transactions, but perhaps of up to three or five years which are commonplace in business—without having to bear the currency risk. Unless there is some kind of institutional intervention here we shall see a progressive loss of confidence and a decline in intra-European as well as world trade.
810 In this short debate it would be wrong to try to dwell on all the other steps that the Commission is recommending, but I urge the House, particularly hon. Friends on this side of the House, to accept that we cannot go on as we are. The currency crisis is far too severe. Politicians created the situation and politicians will have to get the world out of it.
§ 11.42 p.m.
§ Mr. Ian Gow (Eastbourne)
There will be agreement on at least one matter in this short debate, and that is that the question of economic and monetary union is one of the most fundamental and far-reaching importance. I agree with the right hon. Member for Battersea, North (Mr. Jay) that it is scandalous that we should have only 90 minutes in which to debate this matter, and that of that time 30 minutes have been taken up by the Front Benchers, no doubt with more to come.
I wish to direct my remarks only to the document about economic and monetary union, and I should be interested to have the guidance of the Minister of State as to the significance of the word "final" at the end of the designation of this document.
I noted with astonishment the date that appears on the explanatory memorandum issued by the Treasury and that on the Commission document itself. The criticism I am about to make applies to virtually all Commission documents. Nevertheless, the reality is that this House is debating a document that was published by Brussels on 17th November 1977. It has already been considered by the Councill of Ministers. That seems to be a crazy way for this House to exercise any influence upon the Council of Ministers. It would be much better if these documents could be dealt with by this House before they were considered by the Council of Ministers.
It was difficult to tell from the Minister of State's speech whether he was saying that the whole concept of economic and monetary union was dangerous nonsense or whether he was in the hands of those of his right hon. and hon. Friends—they are few in number; the hon. Member for Thornaby (Mr. Wrigglesworth) is one of them—who believe that economic and monetary union is an attainable goal. There are many of us who would treat 811 this whole debate as an exercise in nonsense were it not for the resistance of people such as the Chancellor of the Duchy of Lancaster and the hon. Member for Thornaby. Although I believe that EMU is a goal that is wholly unattainable, I fear that there are some members of the Government and some other hon. Members who will devote a great deal of time towards trying to achieve something that is unattainable and wholly undesirable.
In favour of the view that the Government Front Bench do not regard this as an exercise in total nonsense are the words of the explanatory memorandum issued by the Treasury. Paragraph 1 states:It is envisaged that the action programme would prepare the ground for decisive progress which would make union possible.Turning to the last page of the document whose explanatory memorandum I have quoted, this is what we find in the conclusion:The pursuit of economic and monetary union would make a decisive contribution towards achieving the common goal of stability and growth …In its principles, it is eminently political and must be transformed into acts.This is the point upon which I wish to concentrate.
Economic and monetary union among a group of nine nation States whose rates of inflation and whose rates of economic growth are wholly different is quite impossible. To that impossibility will be added a further ingredient of impossibility when, as is envisaged, three other nations join the Community. Therefore, those who argue in favour of the attainment of EMU are arguing for something that is manifestly absurd.
However, I want to leave the economic and monetary feasibility and turn to the political implications of EMU. Those who argue for such a union are really saying that the nine nation States that make up the Community now and the 12 nation States that will make up the Community in the future will be so able to identify their economic and monetary policies with that of the whole that they will be in the same position as, say, Sussex, Northumberland or Scotland vis-à-vis the United Kingdom. That concept, is, of course, intensely political.
812 I am an unashamed Gaullist in regard to the development of the Community. I want to see it develop as a voluntary cooperation among sovereign nation States which are able, when it suits them, to agree upon a certain harmonisation of policies. In so far as we can achieve it, I am certainly in favour of the free movement of capital, goods and people. If we are able to get rid of some of the formalities about passports and to have a currency that is readily exchangeable, and so on, all these things will be very welcome to me.
But the political consequences of EMU will mean that the power of this House and the power of the United Kingdom Government to determine our own fiscal and economic policies will have been surrendered to a new supranational authority—the Commission. It is to that surrender of the power of the Chancellor of the Exchequer, that power of this House ultimately to decide what ought to be our fiscal and monetary policies, that I am wholly opposed.
Furthermore, if we were to agree to EMU, as is proposed in the document, we would be doing something that would be bitterly resented by those whom we represent. If they were in disagreement with the fiscal policy that was being followed and they were to complain to their Members of Parliament, what could we say? We could say "It is nothing to do with us. Take your grievances to Brussels or Strasbourg". That would widen still further the gulf between people and Parliament—between Government and the governed.
I detected from the Minister of State that he really wanted to tell the House that the document that he was compelled to read, no doubt written for him by the cleverest that could be found in the Treasury, was nonsense.
The right hon. Gentleman's record upon these matters is one which has rightly shown the greatest scepticism about economic and monetary union. I hope that when the right hon. Gentleman replies he will tell us, and in the clearest terms, that the Government will have no part in this.
§ 11.50 p.m.
§ Mr. Nick Budgen (Woverhampton, South-West)
The right hon. Member for Battersea, North (Mr. Jay) made it very plain that the technical arguments 813 against monetary union were so strong that anybody who thought that it would in any way be an advantage to this country was entirely mistaken. It has been argued by some—I believe that the right hon. Member for Down, South (Mr. Powell) has argued this—that if, for instance, Scotland had its own currency, it would be the most effective regional policy that Scotland could have. So it is argued, to me most persuasively, that on purely technical grounds monetary union is no solution to the British economic problem.
But the point that I wish to dwell on most is the Minister of State's argument that throughout all the documents that we have to consider tonight the objective of so-called economic convergence was the one which was highlighted. When we talk about economic convergence it is assumed that the nation States of Europe and of the EEC have common objectives. It is assumed that within France at any one time there will be the same attitude towards the trade-off between inflation and unemployment as in this country; that it is no more possible than it is possible for individual people to have the same ideas about inflation and unemployment. It is assumed that if all men of good will and equal intelligence throughout Europe consider economic problems they will come up with the same satisfactory technocratic solution.
In fact, the economic performance and the economic objectives of nation States are formed as a consequence of their national characteristics and their national history. It is no mere oddity, no mere quirk of history, that the German economy since 1945 has had as its primary objective the maintenance of sound money, for twice in this century the Germans have seen their money become worthless. It is equally no oddity of history that our most recent inflation has been caused by fear of 1 million unemployed, the inevitable consequence of the Jarrow marches, the high levels of unemployment which scarred many people in the 1920s and 1930s.
So it is that our economic performance and the economic performance of each of the nation States of Europe is the consequence of national characteristics and national history. It is idle to pretend that it is possible for some sort of supranational assessment upon economic ob- 814 jectives to emerge. It is idle even to pretend that the actual technocratic methods of creating—
§ Mr. Marten
Does not my hon. Friend realise that this whole project is really a last and rather pathetic gasp of a Community which knows that it is bound to disintegrate in the end?
§ Mr. Budgen
I shall conclude quickly by saying that I believe that economic unity is an impossibility—indeed, is worse than an impossibility. If it were tried, it would be an attempt to frustrate the democratic wishes of peoples within the nation States. People in each nation State in the Community are entitled, through their democratic systems, to say at one time whether they have a preference, for instance, for a high level of inflation or a high level of unemployment. They are entitled to express their economic preferences, and they are not to be forced into a common mould.
§ 11.56 p.m.
§ Mr. Denzil Davies
In the short time left, perhaps I may deal briefly with the proposal by the Commission to establish guidelines for monetary aggregates and deficit financing. This is also an important part of the Commission's proposals.
It seems to the Government that the proposals for guidelines for monetary aggregates and deficit financing are impractical. We cannot see how such guidelines could be put into practical effect. Apart from that, leaving aside the practicality of the matter, it seems to us also that the Commission does not seem to realise that, once one is seeking to establish guidelines on monetary policy and deficit financing one is moving into the realm not only of monetary policy but of fiscal policy and exchange market intervention. That would be to encompass the whole field of economic activities.
Attempts to oblige different countries to run their economies so as to comply with a series of arbitrary numbers for a variety of different and immediate objectives offer no prospect of any real benefits and could lead to thoroughly inappropriate responses to economic changes as they occur.
§ Mr. Hugh Dykes (Harrow, East)rose—
§ Mr. Davies
I cannot give way. I have only two minutes left.
815 There is, of course, much in this document which can be commended. The Community can make a contribution to improving the international monetary system, which is in great difficulty, but I am bound to say that I cannot see how any kind of union can be achieved without a central Government. That is basic.
§ Mr. Deputy Speaker (Mr. Bryant God-man Irvine)
Everyone who has appeared on the list I have compiled when he caught my eye has made a speech. As far as I know, with the possible exception of one or two, each has said everything that he wanted to say.
§ Mr. Marten
Further to that point of order, Mr. Deputy Speaker. I have not. I should like to have made a speech, but out of courtesy I did not rise.
§ Mr. Davies
As I was saying, I do not see how one can achieve any kind of monetary or economic union without a central Government or a central State. It may be a desirable thing to have a central European Government or State, but that is another argument. Then the question of monetary aggregates and exchange rate policy and the rest would follow. But I do not see how one can determine these matters—
§ It being one and half hours after the commencement of Proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).
§ Question agreed to.
That this House takes note of EEC Commission Documents Nos. COM (77) 620 final, R/2355/77 and R/415/78 on Economic and Monetary Union and Co-ordination of National Economic Policies.