HC Deb 13 July 1992 vol 211 cc811-26 3.30 pm
The Prime Minister (Mr. John Major)

With permission, Madam Speaker, I shall make a statement about the economic summit in Munich and the summit of the conference on security and co-operation in Europe in Helsinki last week. I represented the United Kingdom at the economic summit, with my right hon. Friends the Foreign Secretary and the Chancellor of the Exchequer. The Foreign Secretary also attended the Helsinki summit.

The economic summit met against the background of a world economy that is still sluggish. The difficulty of achieving non-inflationary growth was uppermost in our discussions. We would all like to see faster growth. Recovery has been slower in coming than anyone anticipated but the conclusions, which are in the Library of the House, record both our desire for stronger sustainable growth and our view that it can be achieved only through sound monetary and fiscal policies. Unless we get inflation down and keep it down there will he no lasting growth.

The single biggest contribution that can be made to recovery throughout the world is a GATT settlement. A settlement would give a sharp non-inflationary boost to the world economy. The OECD has concluded that it would be equivalent to a $195 billion gain in annual incomes. More than $90 billion of that would accrue to developing and former communist countries. It would boost the economic transformation of eastern Europe and the former Soviet Union, encourage developing countries to persevere with their reforms, and check protectionism in world trade.

A GATT settlement is essential, and I make no apology for having put it high on the agenda at Munich and insisting that it was discussed in detail. In the light of this year's reform of the common agricultural policy, the remaining gap between the European Commmunity and the United States on the crucial agricultural issues is a small one. I believe that it can be bridged and the communique contains a firm commitment to a result this year.

At the economic summit last year I pledged to attend the Rio conference and urged others to do the same. On my return, I suggested an eight-point follow-up action plan. That plan, which is set out in the conclusions, was accepted by the G7.

We also had a meeting with President Yeltsin, days after Russia had reached an agreement with the International Monetary Fund. The imminence of the Munich meeting undoubtedly helped to clinch that agreement. It opens the way for the IMF to release the first $1 billion credit tranche. That, in turn, opens the way to a debt-rescheduling agreement. I was able to announce that the United Kingdom is ready to make available $500 million of export credit cover for the former Soviet Union.

Russia faces massive difficulties. Inflation is running at well over 150 per cent., the fiscal deficit is rising and will be well over 10 per cent. of GDP for the rest of this year, and the pace of reform has slowed down in several areas. Translating reforms on paper into reforms in operation is proving difficult. President Yeltsin assured us of his determination to put renewed impetus behind the reform programme. With the IMF programme in place it will be easier to monitor progress and to propose remedies, but none of us should underestimate the huge nature of his task: it is literally unparalleled and we all have a stake in his success.

The United Kingdom has urged for some time that the Munich summit should take an initiative on the safety of nuclear power stations in the former Soviet Union and eastern Europe. Members of the Community pledged themselves at Lisbon to provide significant resources. The G7 agreed on an action programme and to create a fund to supplement existing bilateral efforts to ensure a co-ordinated and targeted approach.

The political declaration adopted at Munich underlines, in respect of the former Soviet Union, the general theme of help for self-help. It calls for a resolution of the northern territories dispute. The declaration also calls for the indefinite extension of the non-proliferation treaty at the 1995 extension conference and underlines the need, in the face of the growing demands on them, to strengthen both the United Nations and the CSCE.

The CSCE played a crucial role in the 1970s, setting human rights standards which the communist world could not ignore. The role of the CSCE in monitoring human rights, especially minority rights, remains. The CSCE must also take on new roles as well. At last week's meeting we agreed a number of new roles for the CSCE covering: the earlier warning of political conflicts; the need for a new mechanism to improve the peaceful settlement of disputes; the establishment of a high commissioner for national minorities; and the CSCE role in peacekeeping.

No mechanisms can provide solutions if people are not willing to use them. It will take more than one or two conferences to resolve many of the ethnic conflicts that were frozen under communist rule and which are now coming aggressively to life again. But progress was made at that meeting, for example, on the issue of troop withdrawal from the Baltic states and on the handling of Yugoslavia.

The overall priority in Yugoslavia is to try to get the parties to negotiate. In that task, Lord Carrington's efforts are of crucial importance, and were underlined and endorsed at the Helsinki meeting. In the short term, our priority is the provision of humanitarian relief to Sarajevo and beyond. Britain already has 300 medical personnel as part of the UN force in Croatia. We have so far flown 28 humanitarian flights to Sarajevo. HMS Avenger will take part in an operation to monitor sanctions, jointly agreed at Helsinki by NATO and the Western European Union. The feasibility of establishing a land corridor to Sarajevo under UN auspices is being explored. If such an operation were feasible, Britain would be prepared to consider providing air cover for it. We would not supply ground troops.

Everyone who has seen the recent news reports has been shocked and moved by the suffering children in Sarajevo. At the end of last week, we told the United Nations High Commissioner for Refugees that we stood ready to evacuate children from Sarajevo to the United Kingdom for medical treatment, or to send medical teams to Yugoslavia to provide treatment on the spot.

If it is possible to treat the children on the spot, near to their families, with people around them who speak their language and in relatively familiar surroundings, that is obviously the best way. We have told the International Red Cross that we are willing to fly out medical personnel at very short notice if needed. I hope to meet the United Nations High Commissioner for Refugees in London later this week to see what further action is needed.

Mr. Neil Kinnock (Islwyn)

I thank the Prime Minister for his statement on the Munich and Helsinki summits. The G7 communique recognises that Too many people are out of work … The potential strength of people, factories and resources is not being fully employed … unemployment creates great hardship", and that the world would gain greatly from stronger, sustainable non-inflationary growth". Since that is all self-evident, will the Prime Minister tell us why absolutely no positive measures for economic expansion were proposed or adopted at the Munich summit? Can he tell us why, yet again, there were no concrete proposals for the co-ordinated growth policies which are now so obviously necessary if the world economy is not to sink into prolonged stagnation?

After two full years of recession in Britain, is it not clear that the policies which the Prime Minister follows suppress rather than eradicate inflation and are preventing growth rather than achieving non-inflationary growth? Is it not equally plain that the continuation of those policies will perpetuate recession and unemployment?

At the G7 summit, the Prime Minister, with the other leaders, recognised the need for more investment in training in infrastructure and in research and development. Will the Prime Minister explain how the commitments that he made at Munich are consistent with the statement by the Secretary of State for Employment last week that resources for training and enterprise councils are to be cut? Will he also tell the House how his commitments at Munich can be reconciled with persistent reduction in the real value of research and development funding and with the neglect of infrastructure by the Conservative Government in Britain?

On the issue of Russia and the other states of the former Soviet Union, is the Prime Minister aware that the value of the aid offered to the former Soviet Union is minuscule by comparison with the enormous benefits which are in prospect for everyone as a result of the end of the cold war? While recognising that it is necessary to act to prevent realisation of the threat of hyper-inflation in Russia and the other states of the former Soviet Union, does the Prime Minister agree that the hurdles which have been placed in the way of the Russian Government's receiving assistance from the west are so large that they will effectively prevent the necessary assistance from being given? Does the Prime Minister recognise that, if strong and stable support is not provided to the former Soviet Union, a terrible political, economic and environmental price could be paid, not only by the people of those states but by the wider world?

With regard to the hideous problems of what was Yugoslavia, on which the Prime Minister spent quite a deal of his statement, I welcome his announcement that medical aid and medical treatment will be available in Britain for children from Sarajevo who cannot be treated in their own area. While everyone must want the most substantial humanitarian aid programme to be sustained and delivered to the wretched people of the republics, and while the most intense sanctions are justified, the Prime Minister and his colleagues have been right to counsel severe caution in relation to military intervention. Will he be sure to continue that approach and to insist that any action which proves necessary is undertaken only under the auspices of the United Nations?

When the Prime Minister reflects on the ineffectual results of the Munich summit, does he not think that it would now be sensible to suspend G7 meetings until the leaders of seven of the strongest economies in the world are willing to take action which is significant enough to live up to the splendour of the summit occasions? Does the Prime Minister not recognise that there can scarcely have been a summit at which the results for the world fell so far short of the needs of the world, and that the paralysis of policy is a source of potentially dangerous disappointment and disillusionment for all who seek answers from the leaders of democracies?

As one who continues to believe in the great potential of co-ordinated and co-operative action by the leading democracies, may I record my regret at having to speak of the Munich summit in such negative terms, and my even greater sadness that the occasion earned only that response?

The Prime Minister

I am grateful for some of the right hon. Gentleman's observations, and I will deal with the points that he raised.

I share the right hon. Gentleman's view that at the Munich summit there were some successes and some disappointments. In some areas, I should have liked to see stronger progress—not least on the Uruguay round, in respect of which I made it clear to my fellow heads of government that I believed that we could have made more progress. For many of the reasons implicit in what the right hon. Gentleman has said, it would have been desirable if we had done so.

However, there was progress at the summit: there was progresss in the programme to develop safety in the field of nuclear power, in carrying forward the agreement at Rio, in helping the lower and middle income countries with their debt, and in pushing ahead yet further the Trinidad terms. There was progress also, of course, in the meeting with President Yeltsin. I refer not least to his remarkable statement on debt-equity swaps, which may open up great possibilities both for Russia and for business enterprises with the former Soviet Union. Although there were areas in which the G7 summit might have achieved more, it is unreasonable to say that it achieved nothing. The meeting was well worth while—not least because, if people meet to discuss and examine problems, they will all find themselves in a better position to deal with those problems in the future.

On the subject of aid to the former Soviet Union, $1 billion is being dispensed immediately under the IMF agreement, but a total of $18 billion is available through the G24. What has been agreed, and wholly accepted by the Russian Government, is that that ought to be dispensed against progress on the reform packages. Had we dispensed aid and assistance without reform, we should have dispensed a great deal already—and it would have achieved little, if anything at all. The right hon. Gentleman was right to talk about the dangers of hyper-inflation, which are real and explicitly recognised by Prime Minister Gaidar and President Yeltsin.

We did discuss unemployment and the only way in which it will come down. Non-inflationary growth is the key to providing lasting job opportunities. That is true in relation to the growth of employment and the improvement of training opportunities. Throughout the G7 there was a commitment to policies to free innovation and enterprise to create employment opportunities. That is the only way in which we can satisfactorily proceed.

On Yugoslavia, I am grateful for what the right hon. Gentleman said about the aid offered to children. I also believe that he is entirely right to be cautious about military involvement on the ground in Yugoslavia. I assure him that that is the Government's position. The conflict is unlike any that we have seen in recent years and it is not one that is likely to be resolved readily by external troops on the ground. In any event, were there to be intervention, the right hon. Gentleman is right to suggest that it should be done under the auspices of the United Nations.

Mr. David Howell (Guildford)

In relation to the Bosnian horror, will my hon. Friend accept that his great caution about getting involved in Balkan entanglements is wholly to be commended? Will he also recognise, however, that one way or another—through air cover, naval operations or the United Nations—we seem to be starting to become entangled in that area? Does he agree that, as things unfold, it is vital for us to distinguish clearly the objectives of international involvement as between humanitarian operations, even if they involve force, and prtotecting the integrity of the Bosnian state, which is a quite different objective? Finally, does he agree that, having settled those clear and limited objectives, it is vital to ensure maximum co-ordination among the powers and the minimum of individual flamboyant gestures, which merely create difficulties and lack of co-ordination in Bosnia?

The Prime Minister

I entirely agree with my right hon. Friend. In particular, I do not think that flamboyant gestures are of help at this time. There is a need for care, caution and co-ordination, and I promise my right hon. Friend that we have those objectives in mind.

Mr. A. J. Beith (Berwick-upon-Tweed)

When the Prime Minister was arguing at those rather unproductive conferences for non-inflationary growth, did he hear floating to him across the seas the siren voices of those in his own party who believe that we should devalue sterling and never mind the inflationary consequences? Did it occur to him that the countries with which he was dealing have not suffered recession so long and so deeply as we have, and that the policies which gave us that earlier and deeper recession were supported by those now calling on him to devalue—the massive Lawson credit boom and the failure to invest in key areas in the supply side of the economy?

The Prime Minister

The internal political situation in the United Kingdom did not feature high in our discussions while we were looking more generally at the problems of the world economy. The right hon. Gentleman will know that I believe that the exchange rate mechanism is an anti-inflationary discipline, and I believe that it is the right one. My right hon. Friend the Chancellor set out our position with admirable clarity last Friday.

Mr. Hugh Dykes (Harrow, East)

I thank my right hon. Friend for his statement and the United Kingdom initiative on Yugoslavia, particularly the proposal to help the children in that tragedy.

Does my right hon. Friend agree that those who have been calling for instability of exchange rates and, therefore, higher inflation, are the very people who, several years ago, were very much against our joining the exchange rate mechanism at a more propitious moment when some of today's problems would not have arisen?

The Prime Minister

I am not sure that I can add to what I said to the right hon. Member for Berwick-upon-Tweed (Mr. Beith). No one expected that an anti-inflationary policy would be easy in every respect; it never has been, and it is not now. It is absolutely imperative, however, that we do not duck the necessity of bringing inflation down to a level below that of our competitors—as low as we can get, to nil if possible—and seek to keep it there. It is from that basis that we shall be best able to secure sustainable growth, not in the short term but in the long term.

Mr. Tony Benn (Chesterfield)

Does the Prime Minister recognise that although we support humanitarian measures and note his caution about military involvement, he must answer a specific question before the House goes into recess at the end of the week? Will he assure the House that there will be no military involvement in Yugoslavia—by land, sea or air forces, or bases under our control—without the consent of the House of Commons? A long history shows that it is easy to get into conflict but difficult to get out of it, and memories of similar conflicts go back a long way. Will he give the House a specific assurance that British troops and bases will not be involved until the House has heard the case for it from the responsible Minister and has had an opportunity to register its feelings?

The Prime Minister

As the right hon. Gentleman knows, we already have 300 personnel in Bosnia and I made it clear a moment ago that we have no plans to put further personnel there. However, I cannot be certain precisely what will happen during the recess and I would be unwise to give a blanket assurance to the right hon. Gentleman. I cannot do so because I simply do not know what events will occur. I am extremely cautious about further involvement in Yugoslavia for the reasons which the Leader of the Opposition set out and which I fully endorse. Nevertheless, I cannot give the right hon. Gentleman a banket assurance about what may happen in future circumstances which are not yet known.

Mr. John Biffen (Shropshire, North)

I warmly welcome my hon. Friend's remarks about the Uruguay round and the general agreement on tarrifs and trade. When my right hon. Friend made his economic appraisal and judgment at the Munich meeting, did he conclude that German interest rates are at an appropriate level? If so, and as our interest rate policy can now be characterised as "Waiting for Helmut", when does he expect those interest rates to fall?

The Prime Minister

That is predominantly a matter for the Bundesbank and the Germans, not for me. I remind my right hon. Friend that, since we have become members of the exchange rate mechanism, the United Kingdom has cut its rates nine times while the Germans have raised theirs four times.

Mr. Stuart Bell (Middlesbrough)

The House will welcome paragraphs 37, 38 and 39 of the Helsinki communique, dealing with security and co-operation in the Mediterranean. We would welcome the creation of such a body in addition to the conference on security and co-operation in Europe as we know it today. Does the Prime Minister agree that difficulties would arise in relation to the peace process in the middle east and United Nations involvement in Cyprus if a new body were created in the middle east where, according to the communiqué, the problems are entirely different?

The Prime Minister

I think that we can carry on with both. I see no particular difficulty in doing that. As the hon. Gentleman mentions Cyprus, I should say that I hope to see President Vassiliou of Cyprus later this evening and the United Nations-sponsored talks between the separate parties in Cyprus will continue in New York later this week. Some progress has been made, but there is clearly some way to go. The prospects for moving towards a settlement in Cyprus are better today than they have been for some time.

Sir Peter Hordern (Horsham)

Does my right hon. Friend accept that the decision to concentrate on the GATT negotiations during our presidency is of great importance and to be widely welcomed? If no further progress can be achieved, however, does it not bring into question the very existence of the common agricultural policy as a means of support for farmers?

Does my right hon. Friend also accept that no easy fix can be gained by devaluing sterling within the exchange rate mechanism and that to do so might bring about a financial accident?

The Prime Minister

I entirely agree with my hon. Friend's second point. Throughout the years, we have seen that currency devaluations—in this country or elsewhere—lead only to short-term gains which are rapidly eaten up. We then find ourselves in a less competitive position. I therefore agree entirely on the importance of maintaining the value of the currency. On my hon. Friend's earlier point, we must continue to do all that we can to reach a GATT settlement as speedily as possible. The agreement that has been reached on the common agricultural policy will help us towards reaching a GATT settlement, and the expectation that one will be reached this year is well founded. I believe that the United Kingdom could reach a settlement within a single day, so close are we to a settlement, others find themselves less readily able to agree to a settlement, but I have no doubt that, with the right political instruction, the negotiators could swiftly reach a settlement of the Uruguay round.

Mr. Peter Shore (Bethnal Green and Stepney)

Surely the Prime Minister recognises that the current world economic problem is not inflation but deflation. In the Munich declaration, he committed himself to policies to assist growth and employment. If there is to be any relationship between ends and means, he must do something about the exceptionally high real rates of interest which are now squeezing the life out of British industry, and also about the exchange rate, which simply is not competitive. Why does the right hon. Gentleman not recognise those facts? Why does he not do something to assist the British economy, and to arrest the process which is plunging us into ever deeper recession?

The Prime Minister

If the right hon. Gentleman is right about the exchange rate not being competitive, I fail to see why our exports are running at record levels. As for his earlier point about inflation and deflation, he will know that on more than one occasion since the second world war Governments have reflated at precisely the wrong moment, and recreated exactly the problems that they were seeking to solve. We are not prepared to do that again.

Mr. Tim Rathbone (Lewes)

Like my hon. Friend the Member for Horsham (Sir P. Hordern), I welcome the accent that my right hon. Friend has placed on the importance of GATT. He mentioned the narrow gap between GATT and the common agricultural policy. Can he give an idea of any initiatives that he hopes to launch to bring about the political directions that he mentioned when replying to my hon. Friend?

The Prime Minister

The GATT negotiations for the European Community are conducted by the Commission. We currently hold the presidency of the European Council, and I assure my hon. Friend that we shall press the Commission to reach an agreement within Europe, and to negotiate on the essential difficulties which remain with the Americans as speedily as possible.

Mr. Alex Salmond (Banff and Buchan)

To follow the question asked by the right hon. Member for Shropshire, North (Mr. Biffen), as there must have been some discussion at the G7 summit about the prevailing level of interest rates in western Europe, and as the Prime Minister must have made some observations about it to the German Chancellor. would the right hon. Gentleman care to confide in the House about those observations? Does he accept that the position of sterling within the exchange rate mechanism is the only restriction on our policy of reducing the real level of interest rates?

The Prime Minister

When we remained outside the exchange rate mechanism, our interest rates went up to 15 per cent. and stayed at that level for some time. Since we joined the mechanism, our interest rates have fallen by a third—from 15 per cent. to 10 per cent.—while German interest rates have risen. The interest rate differential with Germany is now about ⅓ per cent.—the lowest for more than a decade. As for long-term interest rates, which are so critical for investment, the gap between the United Kingdom and Germany on 10-year rates has more than halved since we joined the exchange rate mechanism. As I said to my right hon. Friend the Member for Shropshire, North (Mr. Biffen), the United Kingdom has cut its interest rate nine times while Germany has raised its rate four times.

Sir Richard Body (Holland with Boston)

During the discussions, did my right hon. Friend raise the issue of the present trade barriers against eastern Europe?

The Prime Minister

Yes, I did. I also said, particularly to my European colleagues, that I wanted the association agreements to be extended, and that I wanted association agreements with eastern Europe to be in operation before being individually ratified by all our European partners. That would be a great help to eastern Europe. Eastern Europe in the wider sense of G7 also figured significantly in our discussions.

Mr. Dennis Skinner (Bolsover)

How much do these summits cost? This is the first time that summits have merged into one another. They gallivant around the world three or four times a year; now they are running from Munich to Helsinki and hack again. We are seeing what is being described as a range of summits.

The Prime Minister said during the election campaign, "Elect a Tory Government and everything in the garden will be rosy." Now he says that our exports are high. If our interest rates have come down and Germany's have gone up, why is our rate of exchange against the German mark down to DM 2.85 today? Before the general election, it was well over DM 2.90.

Instead of gallivanting around the world, it is high time that the Prime Minister did something about this country. He should cut interest rates by two percentage points and get out of the exchange rate mechanism.

The Prime Minister

I do not think, after careful consideration, that I will take the hon. Gentleman's advice on the subject—

Mr. Skinner

I do not expect you to.

The Prime Minister

Then the hon. Gentleman will not be disappointed. He will be pleased to know that the costs of the Munich summit were largely paid by the German Government.

Mr. Paul Channon (Southend, West)

Does my right hon. Friend recall that the Uruguay round of the GATT negotiations began as long ago as the last British presidency, and that on that occasion there was an active role for our presidency in bringing the French in line with Community policy? Can he therefore say what initiatives he will take, as he intends to make this a high priority of the British presidency? Will he, for instance, hold a Council or a special series of Councils to reach agreement among Community countries?

The Prime Minister

I would certainly not exclude any of those options, but in the first instance it may be better to proceed by bilateral discussion with our European partners rather than by collective discussion. I assure my right hon. Friend that we shall take part in those discussions so as to put the European Community in a position to conclude the negotiations as speedily as possible.

Mr. Robert Sheldon (Ashton-under-Lyne)

Has the Prime Minister seen the comment which seems to have been made by a member of the Bundesbank to the effect that countries which find themselves in difficulty with German interest rates should consider devaluing their currencies? In the light of the meeting of the Bundesbank this Thursday, which may result in a further increase in German interest rates, what will the Prime Minister do to ensure that our interest rates eventually come down to a more sensible level?

The Prime Minister

I have not seen that comment, if it was made, but in any event, any decision on that is not for a German official to make.

Mr. Bowen Wells (Hertford and Stortford)

Will my right hon. Friend explain to the Opposition and to the House the relationship between lower inflation and higher employment?

The Prime Minister

As my hon. Friend invites me to point out, there is a clear relationship between low inflation, encouraging investment and the creation of jobs, and higher employment. Until we get that very low level of inflation, we shall not have the competitiveness and the job creation that we all want.

Mr. Alfred Morris (Manchester, Wythenshawe)

The Prime Minister will be aware of my parliamentary question to him for reply last week about the important recent communiqué of the Cairns group Ministers in regard to the Uruguay round. While I appreciate that he could not reply then, will he now make a statement specifically on the outcome of the G7 summit in terms of what the Cairns group Ministers are seeking?

The Prime Minister

The Cairns group was represented at the G7 summit by the Prime Minister of Canada, Brian Mulroney. I have no doubt that he will report back to the group. There are no real difficulties for the Cairns group in the conclusions of the summit or in the position taken on the GATT round. There is little of difficulty for the Cairns group in the present proposals for GATT; I believe that it could sign up to them speedily. There are some small difficulties, but they could be readily resolved.

The substantive difficulty holding up the GATT round is the agricultural difficulty between the European Community and the United States—essentially on internal support and external subsidies. Those are not the only issues at stake, but they are the two key issues. Once they are unlocked and agreement reached on them, the rest of the GATT round will fall speedily into place.

Sir Peter Tapsell (East Lindsey)

Does my right hon. Friend recall that when this country was last in a comparable state of recession, in 1981, we got out of the problem and set off a period of sustained growth by reducing interest rates, which we were able to do because the pound sterling was floating? Although it floated down at the time, almost to $1.50, it floated up again shortly afterwards and nobody talked about devaluation. Should we not now do the same as it is absolutely clear that the justification for the exchange rate mechanism is political and not economic?

The Prime Minister

I am afraid that I cannot share all my hon. Friend's views, although I know the force with which he holds them. Quite apart from the fact that the exchange rate mechanism is at the centre of our anti-inflationary strategy, there is a real risk that if we left the exchange rate mechanism the net result would be that interest rates would rise rather than fall. That would not be remotely helpful to the British economy. It would therefore not be right to leave the exchange rate mechanism and float sterling. It is right to maintain the exchange rate that we have because it will deliver the low inflation that for some years my hon. Friend and all my right hon. and hon. Friends have continually wished to see. We are making great progress on inflation and I have no intention of throwing it away.

Mr. Denzil Davies (Llanelli)

Was there any debate in G7 about the damaging effect on industry and employment of the rather manic pursuit of price stability and zero inflation by some European leaders, especially the Prime Minister himself'? Does he agree that, with little prospect of wage increases, no prospect of house price increases, and the threat of unemployment, Essex man will not be too enthusiastic about price stability?

The Prime Minister

I seem to remember that remarks about Essex man just a few months ago proved spectacularly inaccurate. The right hon. Gentleman spoke about manic pursuit of low inflation. I would rather pursue low inflation than let inflation rip, with the consequences that we have seen before.

Sir Peter Emery (Honiton)

Will my right hon. Friend accept my congratulations on the quiet role that he played at both international conferences? It is necessary for that to be recorded. Does he recall that, before the Helsinki conference, the first of the parliamentary CSCE assemblies, meeting in Budapest, had 277 members representing 51 nations? Will he ensure that Britain plays a leading role in the establishment of that assembly so that Parliament may have a considerable say and the CSCE is not left just to officials or heads of Government?

The Prime Minister

Yes, I will certainly take on board my hon. Friend's points. Some valuable progress was made at the CSCE summit, especially the agreement that for the first time disputes within states can be addressed. That is a step forward. The decision to have a high commissioner for minorities, to monitor the treatment of minorities and to sound the alarm when things get worse, is a further useful innovation. The fact that the CSCE can now mandate peacekeeping activities will help to bring stability when political negotiations fail. Those are all moves forward, and they all came from the meeting at Helsinki.

Dr. Norman A. Godman (Greenock and Port Glasgow)

In terms of the humanitarian and peacekeeping initiatives in the former republic of Yugoslavia, will Her Majesty's Government impress upon those involved the urgent need to protect the interests of soldiers taken prisoner in the conflicts? I wrote to the Prime Minister only last week urging him to intercede in the dreadful case of three Croatian soldiers who were sentenced to death by Serbian military authorities after the most appalling torture had been inflicted upon them. It is right to protect children, but soldiers taken prisoner should surely be entitled to certain basic rights.

The Prime Minister

The hon. Gentleman makes a fair and good point. I promise to take it up and to raise the matters that he brings to our attention with the Red Cross and the United Nations. There should be no doubt among the combatants that the Geneva conventions apply.

Sir Fergus Montgomery (Altrincham and Sale)

Will my right hon. Friend confirm that, in discussing defence with our allies, he continued to emphasise the enormous importance that this country places on the NATO alliance? Will he reassure me that, if there is closer co-operation on defence matters at European level, our commitment to NATO will not diminish?

The Prime Minister

Yes, I can certainly give my hon. Friend that commitment. Of course, there was a NATO meeting on Friday as well as other meetings. There is no doubt that NATO has provided the defence of Europe for nearly 50 years and will continue to do so. All our experience shows that it would be damaging to European defence to undermine NATO, and the American pillar of NATO in particular. We have no intention of doing so, although we believe that it is right for European nations to take a greater proportionate share of the collective defence of Europe.

Mr. Nigel Spearing (Newham, South)

In respect of the ERM and the fixed exchange rate, is not the Prime Minister comparable with the driver of a moderately powered motor car driving up a hill which turns out to be rather steeper and longer than he thought, but who nevertheless refuses on principle to change down a gear? Would not the result be embarrassing to the driver, dangerous and embarrassing to the passengers, and dangerous to the other traffic on the road, and would not such a driver fail his driving test?

The Prime Minister

That is a very ingenious comparison, but I am afraid that I cannot agree with the hon. Gentleman. My response must be the same as that which I gave to the right hon. Member for Bethnal Green and Stepney (Mr. Shore). There have been too many instances where Governments—I make no party point—have changed their policy at the wrong moment and sought reinflation at a moment when they should not have done so. We are making genuine progress on inflation, in both the headline and the underlying levels of inflation. We shall not change our policies—not out of stubbornness, but out of conviction.

Sir Anthony Grant (Cambridgeshire, South-West)

Will my right hon. Friend accept from me, as president of the Guild of Experienced Motorists, that far more accidents are caused by drivers chopping and changing in panic from the course on which they are proceeding? With regard to the GATT negotiations, will my right hon. Friend ensure that in the case of protectionism and interest rates he and all Ministers spell out to little Englanders that there is no solution in isolation from the rest of the world, and that we would suffer from such a policy more than anyone else?

The Prime Minister

I am grateful to my hon. Friend. He is right, and particularly so on his last point.

Mr. D. N. Campbell-Savours (Workington)

Does the Prime Minister not draw a distinction between military action—that is to say, air cover—for the purposes of protecting humanitarian supplies flying into Sarajevo, and military action for the purposes of intervening with a view to resolving the dispute? Does he agree that in the case of the former there is no need to refer the matter to Parliament, but that there would have to be a parliamentary debate on the second option?

The Prime Minister

In what I said earlier I clearly drew that distinction between the desirability of air cover, which we shall provide in the circumstances that I have set out, and the desirability of intervening on the ground. I have said that it is not our policy to produce troops, and that I do not anticipate that we shall do so. However, I cannot be certain what events will occur. There is no sign of an agenda that will mean that we have troops involved. Indeed, I have expressly said that it is not our policy to use troops. However, I do not think that it would be wise for any Prime Minister to give the blanket assurance sought by the right hon. Member for Chesterfield (Mr. Benn).

Mr. Jim Lester (Broxtowe)

My right hon. Friend mentioned discussions in Munich on the debt situation both of middle-income countries and of those which come under the Trinidad terms, which he proposed in a former incarnation. Will he give the House more information about the success of the policy on middle-income countries, which looks promising, and far more seriously on what progress is being made on the Trinidad terms, which are far more critical in view of their effect on the lives of impoverished countries?

The Prime Minister

Agreement was made that the Paris club would look at dealing with the debts of a number of lower-middle-income countries. I will let my hon. Friend have a note of which countries are involved. They will have to be dealt with by the Paris club on a case by case basis, but there was agreement that some progress can now be made. The summit welcomed the start that we had made on implementation of the Trinidad terms. Thus far, seven countries have benefited from 50 per cent. debt reduction and there will be more to follow.

Mr. Tam Dalyell (Linlithgow)

What did the Prime Minister mean in terms of practical help to Scottish Nuclear and others with twinning arrangements when he spoke about supplementary help to nuclear power stations in the Soviet Union and Bulgaria? In the corridors of Munich, did the Prime Minister have an opportunity to ask Mr. Kohl how it is that, for six whole months, the Bundeskriminalamt has sat on vital evidence about Lockerbie? Is not some explanation due from the German police as to whether that was sheer incompetence or wilfulness?

The Prime Minister

I had no discussions on the latter point. On the former point, about nuclear power stations, we agreed a programme of action covering operational safety improvements, technical improvements to plants based on safety assessments, and an improvement to regulatory regimes. The programme that we had in mind is also designed to improve longer-term safety by examining the scope of replacing less safe plants through alternative energy. It is a massive programme, and the amount of money committed to it is likely to be $680 million to $700 million. That will be partly paid for with bilateral contributions, the sum total of which is not yet certain. The balance will be met out of the multilateral fund. The purpose of having the multilateral fund is to be able to cover those areas which are missed in the individual bilateral agreements made between the Russians or other countries, as the case may be, and the donor countries.

Mr. Tony Marlow (Northampton, North)

If the Germans are prepared to be bad Europeans by screwing up all the other European economies through their cavalier attitude to the exchange rate mechanism, why should we be good Europeans and remain members of that mechanism? To put it another way, in this particular, if my right hon. Friend had evidence that being at the heart of Europe was to tear the heart out of the United Kingdom economy, what would he do about it?

The Prime Minister

My hon. Friend sets up a premise with which I am unable to agree. We are in the exchange rate mechanism because the Government judge that it is where we should be, in the interests of a counterinflationary strategy for the United Kingdom. That is why we are there. Nobody compelled us to go there. We took a judgment. My right hon. Friend the Prime Minister of the day and I. as the then Chancellor of the Exchequer, took the judgment that it was right to enter the ERM to bring down inflation and maintain the stability of our exchange rate.

My hon. Friend mentioned Germany. It is noteworthy that the Germans have maintained currency stability for a long time and, as a result, have produced an extremely powerful economy. I do not accept that the deutschmark is forever the benchmark of the exchange rate mechanism. That benchmark is the strongest currency in the mechanism, and we are determined that sterling will become an extremely strong currency. We cannot do that by cutting and running from the policy when it is beginning to succeed.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

The Prime Minister has referred to the managing of potential conflicts and the issuing of early warnings of such conflicts. Are there not already enough early warnings about possible imminent conflicts in other territories, such as Kosovo and Macedonia? How differently does the right hon. Gentleman think that we shall handle those matters from the way in which we have mishandled the Bosnian conflict?

The Prime Minister

I do not think that there have been early warning systems in quite the way now envisaged in the CSCE proposals. There are particular difficulties with a conflict which arises within what was a single country—the former Yugoslavia. Conflicts which arise between countries are obviously much more easily dealt with through external assistance. The proposals that we have set up will not solve or hold back every conflict, but they are certainly an advance and well worth developing.

Sir Dudley Smith (Warwick and Leamington)

As one of Parliament's representatives at the new CSCE Assembly, may I ask my right hon. Friend whether is is aware that at its recent meeting the CSCE was unanimous in its view that the strongest possible pressure should be brought to bear on all the warring elements in Yugoslavia, just short of direct military intervention?

The Prime Minister

Yes. I am grateful to my hon. Friend for drawing that point to my attention. Under the proposals, the CSCE will have the ability to mandate a range of peacekeeping activities in future, from monitoring to full-scale forces.

Mr. Ron Leighton (Newham, North-East)

At the G7 meeting, did the Prime Minister bear in mind that what caused our recession was the huge hike in interest rates? Does he understand that present real rates of interest—adjusted for inflation—are twice as high as when we joined the exchange rate mechanism? It is those high rates which are prolonging the recession, and we shall never get out of it while we have them. Will the right hon. Gentleman please consider using interest rates for the purpose of our domestic economy instead of for the arid dogma of the exchange rate mechanism?

The Prime Minister

We have to look at the interests of our domestic economy in the round, in both the medium and the long term, rather than in the short term only. That is precisely what the Government's policy does.

Mr. David Atkinson (Bournemouth, East)

May I congratulate my right hon. Friend on his proposals for a citizens' Europe designed to avoid ethnic conflicts in Europe in future? Can he give us further clarification about the proposed CSCE peacekeeping role as a last resort when all else fails? Does he mean peacemaking? If so, which organisation would do it—NATO, the WEU or the United Nations?

The Prime Minister

I would not draw a distinction between those bodies. The CSCE will have an enabling role and it could approach each or all of the organisations that my hon. Friend mentioned.

Mr. Robert N. Wareing (Liverpool, West Derby)

Does the Prime Minister agree that in relation to Yugoslavia, it is important always to be a stage or two ahead of the game? While we are rightly concerned with the problems in Bosnia- Herzegovina, should we not also be concerned about the problems of ethnic minorities in other areas of the former Yugoslavia? Did the CSCE address itself in any way to the problems of the ethnic minorities within Croatia, especially those who live in eastern Slovenia and Krajina? What is the Government's policy towards those parts of the country that we have now recognised?

The Prime Minister

The hon. Gentleman makes some important points, with which I agree. We intend to support Lord Carrington's proposals for autonomy. We are concerned about the minorities in almost all the component parts of the republic of the former Yugoslavia. On the point about keeping ahead of the game and determining policy, the hon. Gentleman may care to know that my right hon. Friend the Foreign Secretary will be visiting all the republics within the next few days.

Mrs. Angela Knight (Erewash)

What steps, if any, were taken at the G7 meeting to take forward the important environmental agreements reached at Rio?

The Prime Minister

Immediately after the Rio conference, I wrote to all the G7 heads of Government with an eight-point plan to follow up the agreements reached at Rio. That plan was endorsed at the Munich summit and will now be carried forward. Therefore, within the member states of the G7, a further momentum has been given to the agreements reached at Rio.

Mr. David Winnick (Walsall, North)

Is the Prime Minister aware that, despite what he has said, there is bound to be a great deal of concern about any further escalation of British involvement in what used to be Yugoslavia? However, people accept—I certainly do—that what is now being done in terms of humanitarian supplies is right. I am sure that it has the approval of the vast majority of people in this country.

In what circumstances will the House be recalled if there is an escalation of British involvement? In these few days before the House rises, it is important for the right hon. Gentleman to promise that the House will be recalled, should the event that I have described materialise.

The Prime Minister

I share the hon. Gentleman's concern about the way in which matters are developing in Yugoslavia; the position is worrying. We have watched the developments over a number of weeks. There can be no certainty that there will be no further flashpoints in other parts of the republics of the former Yugoslavia. However. as I have said, I do not envisage that, as a result of those flashpoints, British troops will be involved on the ground. If and when such a circumstance arises, I shall consider what action is appropriate.

Mr. John Wilkinson (Ruislip-Northwood)

During the G7 conference in Munich, was my right hon. Friend involved at any stage in discussions about the remarkable disparity in interest rates between the United States of America and the four European members of G7? If so, was it observed that if the United States—which is still, unfortunately, in recession—had persisted with the western European and British policy of high levels of real interest rates, it would now be in slump?

The Prime Minister

Those points were not discussed in the precise form suggested by my hon. Friend. It is true that interest rates are lower in the United States, although not so low as we might think from the discount rate and the rates at which people can borrow for business purposes. We must also take account of the size of the United States fiscal deficit and other aspects of its economy. It is equally true that, as the Americans have repeatedly reduced their interest rates over the past few years, that has not produced the kick start to the economy that many people expected.

Mr. Austin Mitchell (Great Grimsby)

From what the Prime Minister has said so far, can we deduce that he is setting his face against any reduction in interest rates because he believes that, at this stage in the war against inflation, we need a futile gesture such as the sacrifice of a further million jobs to ad to the million already lost since we joined the exchange rate mechanism? Is not the right hon. Gentleman showing all the prejudices of his predecessor, but none of her flexibility?

The Prime Minister

I know that my right hon. Friend will welcome the hon. Gentleman's tribute to her flexibility, which was not evident from him when she stood at the Dispatch Box. The hon. Gentleman should not misstate the Government's position on interest rates. We have reduced interest rates by five percentage points over the past two years. When it is appropriate, we shall reduce interest rates, but it must be when it is appropriate and when we can sustain the exchange value of sterling and still reduce interest rates. That must be the key part of the decision that we have to make. When it is appropriate, we shall, of course, reduce interest rates.

Several Hon. Members


Madam Speaker

Order. We must move on.

Several Hon. Members

On a point of order, Madam Speaker.

Madam Speaker

Order. As hon. Members know, I take points of order after Standing Order No. 20 applications.