TREATY ON EUROPEAN UNION

HC Deb 25 March 1993 vol 221 cc1279-333

Amendment proposed [24 March]: No. 81, in page 1, line 9, after 'II', insert '(with the exception of those Articles and Protocols set out in Schedule [Second stage for achieving economic and monetary union.])'.—[Mr. Denzil Davies.]

Question again proposed, That the amendment be made.

The Chairman of Ways and Means (Mr. Michael Morris)

I remind the Committee that we are also considering the following: Amendment No. 83, in page 1, line 9, after 'II', insert '(other than Article 109h)'.

Amendment No. 170, in page 1, line 9, after 'II', insert '(except Article 73e on page 14 of Cm 1934)' Amendment No. 171, in page 1, line 9, after 'II', insert '(except Article 73f on page 14 of Cm 1934)'. Amendment No. 172, in page 1, line 9, after 'II', insert '(except Article 73g on page 14 of Cm 1934)'. Amendment No. 196, in page 1, line 9, after 'II', insert 'except Article 3a(2) on page 10 of Cm 1934'. Amendment No. 200, in page 1, line 9, after 'II', insert 'except Article 73g(2) on page 14 of Cm 1934'. Amendment No. 204, in page 1, line 9, after 'II' insert 'except Article 109e(2(a)) on page 25 of Cm 1934'. Amendment No. 206, in page 1, line 9, after 'II', insert 'except Article 109e(5) on page 25 of Cm 1934'. Amendment No. 207, in page 1, line 9, after 'II', insert except Article 109(f)'. Amendment No. 210, in page 1, line 9, after 'II', insert 'except Article 109m(1)'. Amendment No. 211, in page 1, line 9, after 'II', insert 'except Article 109m(2)'. Amendment No. 319, in page 1, line 9, after 'II', insert '(except Article 3a(3) on page 10 of Cm 1934).'. Amendment No. 333, in page 1, line 9, after 'II', insert '(except paragraph 5 of Article 109e on page 25 of Cm 1934)'. Amendment No. 363, in page 1, line 9, after 'II', insert 'except Article 3(a) Paragraph 3 as referred to in Article G on in page 10 of Command Paper number 1934'. Amendment No. 366, in page 1, line 9, after 'II', insert 'except Article 73b as referred to in Article G on page 13 of Command Paper number 1934'. Amendment No. 367, in page 1, line 9, after 'II', insert 'except Article 73b as referred to in Article G on page 13 of Command Paper number 1934'. Amendment No. 368, in page 1, line 9, after 'II', insert 'except Article 73c as referred to in Article G on page 13 of Command Paper number 1934'. Amendment No. 369, in page 1, line 9, after 'II', insert 'except Article 73D as referred to in Article G on page 14 of Command Paper number 1934'. Amendment No. 370, in page 1, line 9, after 'II', Insert 'except Article 73H as referred to in Article G on page 15 of Command Paper number 1934'. Amendment No. 380, in page 1, line 9, after 'II', insert 'except Article 109g as referred to in Article G on page 27 of Command Paper number 1934'. Amendment No. 381, in page 1, line 9, after 'II', insert 'except Article 109i as referred to in Article G on pages 27 and 28 of Command Paper number 1934'. Amendment No. 382, in page 1, line 9, after 'II', insert 'except Article 1091 as referred to in Article G on pages 29 and 30 of Command Paper number 1934'. Amendment No. 409, in page 1, line 9, after 'II', insert '(except the Protocol on the Convergence Criteria referred to in Article 109j of the Treaty establishing the European Community on page 112 of Cm 1934).'. Amendment No. 440, in page 1, line 9, after 'II', insert '(except from "(79)" to "force" on page 58 of Cm. 1934)'. Amendment No. 51, in page 1, line 10, after '1992', insert 'but not Article 109c in Title II thereof'. Amendment No. 60, in page I, line 10, after '1992', insert 'but not the Protocol on the statute of the European Monetary Institute.'. Amendment No. 205, in page 1, line 10, after '1992', insert 'except Article 109e of Title VI of Title II thereof'. Amendment No. 208, in page 1, line 10, after '1992', insert 'but not Article 109j of Title VI of Title II thereof'. Amendment No. 209, in page I, line 10, after '1992', insert 'but not Article 109k(1) of Title VI of Title II thereof'. Amendment No. 225, in page 1, line 10, after '1992', insert 'but not the Protocol on the Transition to the Third Stage of Economic and Monetary Union'. Amendment No. 400, in page I, line 13, after 'Community', insert 'with the exception of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland on pages 114 to 116 of Cm 1934.'. Amendment No. 444, in clause 2, page 1, line 19, after 'intends', insert 'not'.

Amendment No. 35, in clause 2, page 1, line 23, at end add '; but in circumstances where convergence in economic performance as established in Article 109 has been achieved and where other major member states have decided to move to the third stage, the proposal for the United Kingdom to do so shall be placed before Parliament for affirmation.'. Amendment No. 42, in clause 2, page 1, line 23 at end add 'and the decision in principle so to move has first been approved by a separate Act of Parliament'. Amendment No. 420, in clause 2, page 1, line 23, at end add 'and unless Her Majesty's Government has reported to Parliament on its proposals for the co-ordination of economic policies, its role in the European Council of Finance Ministers (ECOFIN) in pursuit of the objectives of Article 2 as provided for in Articles 103 and 102a, and the work of the European Monetary Institute in preparation for Economic and Monetary Union.'. Amendment No. 39, in clause 2, page 1, line 23, at end add— '(2) As from the beginning of the year 1993 the Secretary of State shall—

1. (a) not less often than once in every six months, lay before Parliament a report stating what, if any, steps are being taken by the United Kingdom with a view to moving to the third stage, and
2. (b) seek Parliamentary approval for any such steps as are being, or are proposed to be, taken with that objective in view.'.

New clause 56—Convergence for economic and monetary union: reporting fulfilment— 'In complying with the requirement to submit information under Article 103(3), Her Majesty's Government shall report annually to Parliament on the extent of its fulfilment of the criteria set out in Article 109j, and shall include within its reports a statement on the implementation of a programme to improve economic performance, including measures for investment and employment measures to realise the objectives of Article 2.'. Amendment No. 82, new schedule:—

'SECOND STAGE FOR ACHIEVING ECONOMIC AND MONETARY UNION

1. (1) Article 109e.
2. (2) Article 109f.
3. (3) Protocol on the Statute of the European Monetary Institute.'.

6 pm

Mr. Stephen Byers (Wallsend)

On a point of order, Mr. Morris. You will remember that, when the Committee met on 4 March, in response to a point of order by my hon. Friend the Member for Hamilton (Mr. Hamilton) about whether you would be in a position to permit a further debate on the protocol on social policy, you said that the nearer we get to a Division the better your position would be to judge whether to accede to requests for a further debate. As we have had the opportunity of spending 20 of the past 26 hours in Committee on the Bill, I assume that we are now substantially nearer to a Division. Do you intend to allow a further debate on social policy and, in that context, are you minded to rule new clause 74 in order?

The Chairman of Ways and Means (Mr. Michael Morris)

I shall comment only on the substantive point that the hon. Gentleman raised. I am well aware of the Committee's concern about this matter, but I stand by my undertaking to make an announcement in good time.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

At our last sitting, we made good progress on the treaty's implications for Britain of economic and monetary union. Under the first group of amendments, we considered the implications for monetary policy of stage 3, if we choose to go that far.

Under the second group, we considered the implications for fiscal policy at stage 3. This group concentrated on the obligations and implications for our national law of the interim stage—stage 2 of the process of economic and monetary union. For Britain, stage 2 is different from stage 3 because, as the right hon. Member for Llanelli (Mr. Davies) rightly said at the beginning of the debate, we have a treaty obligation to move to stage 2 at the beginning of stage 2, which is envisaged in the treaty to be 1 January 1994. In addressing the question of obligations in stage 2, therefore, we are indeed addressing the obligations that will rest on Britain from the beginning of stage 2.

The right hon. Member for Llanelli said, I think, that he saw no clear divide between stage 2 and stage 3 within the treaty. I do not think that he meant to suggest that there was not a clear divide between the legal obligations that arise under stages 2 and 3, because it is clear from any reading of the treaty that there are fundamental and radical differences in the legal obligations. In stage 2, in so far as there is a Community monetary institution, it is the European Monetary Institute, not the European system of central banks. It is clear from the treaty that stage 2 envisages that monetary policy will remain a national Government responsibility.

In stage 2, as we discussed in an earlier group of amendments, the treaty's provisions on deficits do not have the teeth that are envisaged in stage 3. If one looks at the treaty's text on stage 3, one finds that, by that time, the EMI will have dissolved itself and become the European system of central banks. It is clear that, for at least 10 of the 12 member states, stage 3 involves a single currency and does not therefore involve national responsibility for monetary policy. It also involves clear enforceable powers in the deficit provisions that we discussed earlier.

It does not seem to be a sustainable argument that there is not a clear divide in terms of legal obligation between stage 2 and stage 3. I think that the right hon. Member for Llanelli was seeking to develop the argument that the web of obligations that is envisaged under the treaty is "seamless", and that the obligations that arise in stage 2, which are identifiably different from the obligations under stage 3, elide into each other in a way that does not allow for an effective break-point. He sought to argue, therefore, that it would be impossible for us to opt out of stage 3 because of the indivisibility of the obligations that arise between stages 2 and 3.

It must be accepted in all parts of the House that there is a clear and fundamental difference between the obligations as defined in stage 2 and those as defined in stage 3. The question is whether the United Kingdom protocol effectively allows us a break-point so that we can choose whether we move from the stage 2 obligations, which we have accepted, to the stage 3 obligations, which in the Government's contention we have not yet accepted.

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney)

The hon. Gentleman has a fair case: the protocol makes it clear at what stage the break-point is reached. I am puzzled by the first paragraph of article 109j, which proposes that the Commission and the EMI will report on the progress of all member countries in moving towards EMU. That is not excluded from the process under the protocol, but it is under paragraph 2, because the United Kingdom will have to notify the Council before the Council makes an assessment under article 109j. Paragraph 1 of article 109j, which proposes a pretty formidable process, is not broken by the protocol.

Mr. Dorrell

I understand that the provisions of paragraph 1 of article 109j apply to all 12 member states, but the obligation under that paragraph is for the Commission and the EMI to report to the Council. I shall deal later with the nature of the convergence obligations that rest on individual member states. That is indeed a substantial issue, and I should like to go through that for the Committee so that it can be fully understood.

Sir Trevor Skeet (Bedfordshire, North)

My hon. Friend has been dealing with the obligations that arise under stage 2, but there are a few others, such as responsibility for maintaining some connection with the EMS—he has already said that he proposes to rejoin at the first opportunity—and his obligation to exchange rates.

Mr. Dorrell

My hon. Friend is right that I have not sought to give an exhaustive list of the obligations that arise in stage 2. I sought to draw out three of the obligations that are clearly different between stages 2 and 3 to substantiate my proposition that are that there are clear and identifiable differences of obligation between the two stages. The question is whether we can make an effective choice not to move, if we choose not to do so, from stage 2, for which we have a treaty obligation, to stage 3, for which, the Government contend, we have no obligation.

Mr. Christopher Gill (Ludlow)

Will my hon. Friend give the Committee a categorical assurance that the British opt-in will not be overturned by the European Court?

Mr. Dorrell

My hon. Friend can be assured that the protocol, which has been accepted by all 12 member states, would not be overturned by the European Court—for two reasons. First, no party would wish to take us to the European Court over that issue; secondly, the protocol is robust in law and makes clear the implications that are supposed to flow from it.

Mr. Tim Renton (Mid-Sussex)

Will my hon. Friend give way?

Mr. Dorrell

Let me just finish dealing with the last intervention.

The terms of the protocol are clear. The first sentence reads: The United Kingdom shall notify the Council whether it intends to move to the third stage

Mr. Renton

I am following with interest what my hon. Friend is saying, and I listened to much of the speech made by the right hon. Member for Llanelli (Mr. Davies) in the early hours of the morning. While there was much that he said with which I did not agree, at one point I thought that he was on, at least, interesting ground—the starting of the process leading towards the independence of the central bank.

I understood my hon. Friend to say clearly this morning that there was no intention of starting towards that process. I agree with moving towards an independent central hank, because I think that it would be better if monetary policy were run by a central bank that was more or less independent of us politicians. That is by the way. In this, at least, there is an elision between stages 2 and 3, to use the elegant word that my hon. Friend has just used. It is hard to envisage a process whereby we do nothing in this respect while we are holding our horses and deciding whether to move on to stage 3.

Mr. Dorrell

I hope that my right hon. Friend will forgive me if I do not answer that question now. I intend to address it later, as I agree that it was one of the substantial points that came up in the debate.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my hon. Friend comment on the information that the Treasury Select Committee received in Spain, France and Germany, where we visited the Finance Ministers and central bankers? They were all of the view that, if the pound continued to float and, as they put it, obtain an unfair competitive advantage, that would be contrary to their idea of the single market, and that they would use all political and legal pressures available to them to get us back into the ERM as quickly as possible. It is possible that, if we do not go back into the ERM after 1 January of next year, we shall come under severe pressure from our European allies.

Mr. Dorrell

I propose to make a little further progress in my speech before replying to my hon. Friend's point, so I shall have to give him the answer that I gave my right hon. Friend the Member for Mid-Sussex (Mr. Renton). That is, that I intend to cover precisely that ground because I know that it is of concern to hon. Members. However, I shall do so at the point in my speech when I intended to deal with it because that is the best way to develop the argument.

The question is whether there is a break-point that allows use effectively to exercise the choice contained in our protocol. For 10 of the 12 member states, it is clear that there is no break-point. Stage 2 is envisaged, as I think it was put by the hon. Member for Great Grimsby (Mr. Mitchell) in a letter to me, as a bridge to stage 3. Ten of the 12 member states of the Community are under an obligation to cross that bridge, because they have a treaty obligation to join stage 3.

That is not the same as saying that there is no clear divide between the two stages. As I have said, radically different legal consequences flow from whether one is in stage 2 or stage 3. However, they are clearly obliged to move from stage 2 to stage 3, according to the terms of the treaty. For the United Kingdom and Denmark, however, the position is different. I hope that the Committee will forgive me if I do not enlarge at great length on the position of Denmark. I imagine that we are more interested in the position of the United Kingdom.

Not only are there radically different legal consequences for the United Kingdom, as for all other member states, between stage 2 and stage 3, but we have, as a result of the protocol and the provisions of our domestic law, a clear right to choose—subject to the provisions of the Bill, which require that the House of Commons passes an Act of Parliament before the Government can communicate the decision to join—whether we move from stage 2 to stage 3. That is the difference between us and the other 10 member states.

I shall deal now with the legal obligations that arise during stage 2. The key question during stage 2 is monetary policy. Some, like the right hon. Member for Llanelli, have argued that the effect of the terms of the treaty is to pass significant, if not all, amounts of monetary authority, even at stage 2, to the European Monetary Institute. I shall go through the treaty next so as to show that I do not believe that that is true.

Mr. Denzil Davies (Llanelli)

rose—

6.15 pm

Mr. Dorrell

If I have misrepresented the right hon. Gentleman, I shall be happy to give way.

Mr. Davies

I did not say that. I said that the monetary institute was obviously going to prepare the way for monetary union, and had a considerable part to play. I accept that, until one gets to stage 3, the member states have the main jurisdiction.

Mr. Dorrell

In that case, I shall not dwell on the point at any length. I thought that the right hon. Gentleman was arguing that, at stage 2, there was a significant qualification of the monetary responsibility of major states. If the Committee accepts that, until we get to stage 3, the monetary authority in each member state is that member state's national monetary authority, I need not develop that argument at length.

I simply refer any hon. Member who is interested in that subject to article 3 of the EMI statute, the general principles article, which clearly states that anything in it is without prejudice. On page 104, article 3 states: The EMI shall carry out the tasks and functions conferred upon it by this Treaty and this Statute without prejudice to the responsibility of the competent authorities for the conduct of the monetary policy within the respective Member States. Earlier, we debated the effect of article 8, page 107, of the EMI statute, headed "Independence", which covers the independence of the members of the council of the EMI. I conceded in interventions in the speech of the right hon. Member for Llanelli that that article was not a model of clear drafting. However, its effect is to safeguard the existing responsibility, within national law, of the members of the council of the EMI, in exactly the same way as is currently provided for in the Committee of Central Bank Governors. It is only the council as an institution that undertakes not to take instructions from community institutions or governments of member states.

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

Will the Minister clear up a concern that I have about the review of monetary and financial situations of the member states? Am I right in thinking that, during stage 2, the monetary committee, as set out in article 109(2) on page 24, will have the right and the power to review the monetary and financial situations of all 12 states, whereas, when we reach stage 3, the monetary committee is to be dissolved and, in its place, we have an economic and financial committee? Is that committee responsible only for the reviewing of the monetary and financial situation of the 10 countries that have signed up to stage 3? Will it have the right to examine the financial circumstances of Denmark and the United Kingdom?

Mr. Dorrell

Both the monetary committee and the economic and financial committee have the right to examine the conditions in all 12 member states, because the monetary committee, re-formed under article 109c, is exactly the same body as currently exists, is regularly reported on television, and has its roots in the treaty of Rome. The functions of the monetary committee in the indents to which the hon. Gentleman was referring are not changed from the present arrangement; it is only the later indents that add new tasks to the activities of the monetary committee—that is, the last two indents of paragraph 1 of article 109c.

Mr. Michael Spicer (Worcestershire, South)

Before my hon. Friend leaves the question of monetary restraints in the second stage, could he say something about article 109m, the question of the common interest as it affects the exchange rate, and the effect that that would have as a constraint on monetary policy, where the exchange rate is apparently being put first, and the monetary policy is subservient?

Mr. Dorrell

I hope that my hon. Friend will forgive me if I return to article 109m when I am addressing the question of the ERM. I am now concerned with the responsibility of the EMI and the extent to which it is a monetary authority.

I have sought to argue that the EMI is not in any meaningful sense of the term a monetary authority. If the Committee looks at article 109f(2), it will see clearly set out the tasks of the EMI in stage 2, and the two leading ones are to strengthen co-operation between national central banks and the co-ordination of the monetary policies of member states with the aim of ensuring price stability. We do not need at the moment to go into the question whether price stability is desirable. It is a co-operation and co-ordination role; it is not a policy-making role.

Mr. Peter Hain (Neath)

I am grateful that the Minister is just as generous about giving way in normal debating hours as he was in the middle of the night.

On the specific points about the powers of the EMI and the argument that he is advancing, which puts up a Berlin wall between stages 2 and 3, which I dispute, I draw his attention to article 109j, on page 28, and in particular to the point that is made in the opening sentence: The Commission and the EMI shall report to the Council on the progress made in the fulfilment by the Member States of their obligations regarding the achievement of economic and monetary union. We are still in stage 2, but the EMI is reporting on the progress that is being made in fulfilling obligations regarding stage 3. There seems to be a clear contradiction in the Minister's argument there, which shows that the argument that some of us have been seeking to advance—that stage 2 is a precursor to stage 3 and is almost umbilically linked to it—is correct.

Mr. Dorrell

I have not sought to argue that there is not an umbilical link. I have accepted the proposition that, to use a different metaphor, it is a bridge across which we have to pass to get to stage 3. The question is whether this country is under the same obligation as the other member states of the Community to pass over that bridge. The only obligation which arises under article 109j is an obligation to produce a report. The convergence criteria which are set out in that article and are refined in the protocol are criteria against which the report will be judged. That article, in itself, does not impose an obligation on any member state to satisfy those criteria.

I will come back to the question of convergence criteria, how they have developed and how they apply to individual member states later in my speech.

Ms Diane Abbott (Hackney, North and Stoke Newington)

The Minister insists on using the analogy of a bridge; he says that stage 2 is a bridge over which member states have to pass. Would not a better analogy be a moving train, and is not the real question whether this is a moving train that we can leave at intersections between stages 2 and 3?

Mr. Dorrell

I am rather wary of analogies about trains and platforms on the whole subject of the European Community. So, if the hon. Lady will forgive me, I will stick to the bridge.

Mr. Bill Walker (Tayside, North)

Like my hon. Friend, I am not too happy about trains, but I want to ask him about bridges. Surely the question is how long the bridge is and at what point we expect to be on the bridge, and where on the bridge, at any given time. Any careful reading of article 109j shows very clearly, in my view, that, if this were to go to the European Court, it would determine clearly what point on the bridge we were supposed to be at.

Mr. Dorrell

I will, if I may, make a little more progress in my speech, because I suspect that members of the Committee are beginning to think that I am playing into the long grass with no intention of finding the ball again. That, I can assure them, is not true.

Mr. Barry Legg (Milton Keynes, South-West)

One point that needs clarification is the fact that the first sentence of article 109j clearly states that member states have obligations. So I hope that we all accept that member states have obligations within stage 2.

Mr. Dorrell

Member states certainly have obligations within stage 2. Indeed, as I shall come on to discuss when we look at the question of convergence criteria, all member states have some obligations in this regard. The point that I shall seek to argue in a minute is that the obligations with regard to convergence criteria that rest on the two member states that have an opt-out from stage 3 are different from the convergence obligations that rest on the other 10 member states.

I come now to the point raised with me by my right hon. Friend the Member for Mid-Sussex (Mr. Renton), the former Chief Whip, whom I always treat with great respect. He asked me to address the question of the independence of national central banks and whether it was true that we would be able to pursue the policy that I described as our policy—to maintain our existing arrangements for the Bank of England unless and until we decided to make the choice to move to stage 3. I will take the Committee through the relevant texts which the Government believe safeguard our right to leave the Bank of England in its present condition indefinitely, unless and until we choose to move to stage 3.

The first text that the Committee needs to examine is article 108, which says: Each Member State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation including the statutes of its national central bank is compatible with this Treaty"— in other words, provides for independence.

Article 109e provides: each Member State shall, as appropriate,"— those were the two words that were regularly missed out by those asking me about these provisions earlier in the debate— start the process leading to the independence of its central bank, in accordance with Article 108"— the article that we have just examined. The Committee could be forgiven for concluding that the significance of the words "as appropriate" is a little obscure, but those two words were written in to accommodate the fact that the United Kingdom, under its protocol, has no obligation to move to stage 3, and therefore no need to provide for the independence of its central bank within the terms of the treaty.

The key phrase is "as appropriate". It is the inclusion of those words which exempts the United Kingdom from what would otherwise be a treaty obligation to initiate a process to provide for the independence of the central bank.

6.30 pm

Mr. Austin Mitchell (Great Grimsby)

I cannot understand the compatibility between that and the other provisions of the treaty. The protocol on certain provisions relating to the United Kingdom says: 1. The United Kingdom shall notify the Council whether it intends to move to the third stage before the Council makes its assessment under article 109j(2). We turn to article 109j which says: The Commission and the EMI shall report to the Council on progress made in the fulfilment by Member States of their obligations regarding the achievement of economic and monetary union. That is in stage 2, and we will not be going into stage 2 until we give notice that we are not going into stage 3. This is before we have given that notice, and it says that the obligations shall include an examination of the compatibility between each Member State's national legislation, including the statutes of its national central bank and Articles 107 and 108 of this Treaty.

Mr. Dorrell

The hon. Gentleman correctly observed that the United Kingdom is under an obligation to give notice before the examination, which takes place, not under article 109j, paragraph 1 which we have been examining, but under article 109j, paragraph 2. That obligation arises from paragraph 1 of the protocol. Paragraph 10 of the protocol provides that, if the United Kingdom does not move to the third stage, it may change its notification at any time after the beginning of that stage.

In other words, the position is that we have to give notice before the examination under article 109j, paragraph 2, takes place. If we decide in that notice to join stage 3, clearly that is a commitment and we sign up to the obligation. If we decide not to join, that is without prejudice to our right to change our minds at a later date.

Mr. Mitchell

But the obligation and the examination of our national legislation including the statutes of the central bank, arise under article 109j(1), which we accept before article 109j(2) comes into force. It is under 109j(2) that we shall be giving notice.

Mr. Dorrell

Article 109j(1) does not of itself give rise to obligations. It provides that the Commission and the EMI report on the performance of member states against obligations which arise from outside that article. The argument that I am advancing is that, because of the inclusion in article 109e(5) of the phrase "as appropriate", the United Kingdom does not have an obligation to provide for the independence of its central bank.

Mr. Legg

We are getting to the heart of this point about the United Kingdom's obligations under stage 2. I think that references to the protocol and the United Kingdom option at this stage are probably not appropriate. The United Kingdom, to coin a phrase, is on a level playing field with other member states during stage 2. It may never exercise that opt-out. It is only when the United Kingdom exercises the opt-out that the United Kingdom becomes in a different position from the other l1 member states. That is what is at the heart of stage 2. If my hon. Friend is telling us that the United Kingdom Government intend to exercise their opt-out, as they could do, on 1 January 1994, I should be most interested to hear that.

Mr. Dorrell

No. I have said many times in the course of our debates that the United Kingdom Government do not intend to reach a decision about the desirability of joining a single currency or not doing so until we are far better informed about the nature of the circumstances in which that decision had to be made.

Mr. Budgen

On the construction of the words "as appropriate" in article 109e, paragraph 5, those are words to which my hon. Friend attaches considerable importance, but the important question there is surely who decides "as appropriate". Is it a subjective decision which is taken by the British Government, perhaps even assisted by the British Parliament; or is it a test of appropriateness which may be imposed upon us by some form of majority will, by the remainder of the countries of the EEC? It is by no means clear that it is a decision which is exclusively within our national power. Knowing, as we all do, the resentment felt against the United Kingdom because of the advantages gained by having a floating pound, it seems to me to be highly likely that "as appropriate" will be "as appropriate" as judged by the other countries.

Mr. Dorrell

All I am seeking is to explain the interpretation that was placed on the words that were written into the treaty by the people who signed it. The writing of the words "as appropriate" in that section of the transitional provisions chapter was intended to accommodate the fact that the United Kingdom protocol gave us a clear opportunity to make a decision later whether we were going to join the single currency or not.

Mr. Gill

May I remind my hon. Friend of the answer that he gave me when I intervened previously, when he said that he could not think that there would be any other nation that would wish to take this nation to court over the justiciability of our opt-out? Is the Minister saying that he cannot envisage circumstances under which other nations of the Community recognise that we have a competitive advantage as a result of the floating exchange rate referred to by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), and that they would not therefore wish to take us to court to invalidate the opt-out?

Mr. Dorrell

The point I was seeking to make was that our Community partners unanimously signed up to a United Kingdom protocol which says, in terms, that the United Kingdom is not obliged to join stage 3. The more important of the two points I made in reply to my hon. Friend's earlier intervention is that we are absolutely confident that the protocol is enforceable at law, that its terms are clear, and that there cannot be any reasonable doubt of what the people signing the treaty meant the words to mean.

I want to move on now to deal with convergence, because it is another of the issues which have been raised and about which there is concern in some parts of the Committee. My first point is to stress that the concept of convergence is not new in Community law. It was not invented at Maastricht, or even in the years before Maastricht. When I asked for a trace of the development of the concept of convergence, I was taken back to article 2 of the treaty of Rome, which was signed 36 years ago today.

Article 2 of the treaty of Rome says: The Community shall have as its task, by establishing a common market and progressively approximating the economic policies of member states to promote the Community, and so forth. Progressive approximation of economic policy of member states was there in article 2 of the treaty of Rome. It was developed by a Council decision dated the 18 February 1974, which provided in loving detail that the Council was going to hold three meetings yearly to examine the economic situation in the Community, to adopt guidelines for the economic policy of the Community which each member state had to follow in order to achieve harmonious economic development and so forth. I will not read the whole decision to the Committee, but in that decision of February 1974, there is not the slightest doubt that there was a clear political will to establish a machinery by consent to take the concept of convergence significantly further.

That decision was replaced on 12 March 1990 by a further Council decision headed "Decision on the Attainment of Progressive Convergence of Economic Policies and Performance during stage 1 of Economic and Monetary Union". Once again, I shall not burden the Committee with the precise commitments and provisions of that decision. It was clearly intended to promote the concept of convergence. In fact, it is the Council decision that first introduced the concept of multilateral surveillance, which finds further expression in the treaty. The principle of convergence criteria—the principle that, as a member state of the Community, we have accepted obligations going right back to the treaty of Rome to approximate our economic policies alongside those of other member states—is not new, and it should not come as a surprise to the Committee.

Mr. Tony Marlow (Northampton, North)

It may or may not come as a surprise to the Committee, but I am sure that my hon. Friend knows that, in the past, this has always been a pious statement of intent. In terms of achieving anything, there is much more divergence than convergence, and it looks as if that will continue to be the case for a year or two. What is new is that the Commission has the right to initiate beastly reports, which can be put to the Council. By a majority vote, we can have our wrists slapped-a totally undignified state for a sovereign nation like the United Kingdom to find itself in. This is not the slightest bit necessary unless we decide to go for stage 3. Why is it happening so early?

Mr. Dorrell

It is not true to say that there is something new about the idea that the Commission may launch inquiries into the activities of member states. Article 3 of the decision of March 1990 says: Multilateral surveillance shall focus on the macroeconomic and micro-economic and structural policies. This surveillance will be conducted by the Council on the basis of reports and analyses submitted by the Commission. These shall include:—indicators of economic performance, including monetary and budgetary policies such as supply and demand trends, price and cost developments, employment, regional development, financial markets, public finance, monetary aggregates, interest rates, exchange rates and external imbalances. That is a pretty impressive list, which is already the basis of reports submitted regularly by the Commission to the Council and considered regularly, before ratification of Maastricht, at meetings of ECOFIN.

Mr. Ron Leighton (Newham, North-East)

Is not the difference that dates are now being set and that Governments are expected to do something? Especially now that we are in recession, attempts by Governments to satisfy convergence criteria will be very deflationary and extremely damaging.

Mr. Dorrell

It is not part of my argument that there is no difference. For the moment, I am seeking to establish that we had already travelled a substantial way down the road of convergence before getting to Maastricht. What is the nature of the new obligations assumed at Maastricht? Here, I want to develop a point that I made a moment ago. The convergence obligations that rest on the 12 member states as a consequence of Maastricht are divided. The convergence obligations of the 10 member states that are committed to moving to stage 3 are different from those of the other two member states—the United Kingdom and Denmark—which do not have an obligation to move to stage 3.

Mr. Budgen

The recommendations and findings of this committee, if published, might have a very considerable and adverse effect upon the Government's capacity to borrow large sums of money. The £50 billion that the Government propose to borrow next year is massively outside the convergence provisions. I know that my hon. Friend, in his loyal way, would have made a great deal of the then Labour Government's borrowing requirement—much smaller than the current figure—and of their humiliation at the hands of the IMF. Does not my hon. Friend agree that we shall suffer humiliation at the hands of our European partners, and will not this make it even more difficult to raise such an enormous amount of money?

6.45 pm

Mr. Dorrell

I should like to make a minor point of detail. My hon. Friend is not quite right to say that the Budget deficit of the period 1974–79 was lower than the one that we are running now. In fact, at that time it peaked at more than 9 per cent—[Interruption.] It is projected to be just over 8 per cent., which is less than 9 per cent. This is a nit-picking point.

Mr. Budgen

The important point is the market point.

Mr. Dorrell

My hon. Friend is on to a good point when he says that there is clearly a difference between a report being prepared and considered in private in ECOFIN and a report being made available, with opinions expressed to the wider world. That arises mainly as a policing mechanism under the budget deficit provisions, which we discussed in the debate on an earlier group of amendments.

As I said in that debate, the purpose of those budget deficit provisions is to recognise that, if we move to stage 3, each nation state in a single currency area will have an interest in reasonable official deficit performance on the part of the other nation states in the area. If official borrowing in a part of a single currency area were to go out of control it would lead to market distortions and possibly to market disturbance, which would damage the interests of member states other than the one that was running the excessive deficit.

Mr. Bill Walker

I should like to draw my hon. Friend's attention to article 109k(6), which says quite clearly: Articles 109h and 109i shall continue to apply to a Member State with a derogation. Does that mean that at stage 2 we would have an IMF-type obligation, particularly with regard to our balance of payments?

Mr. Dorrell

Articles 109h and 109i deal with balance of payments assistance. They are already in the treaty. Of course, they will become otiose at stage 3, as it will not be necessary to give balance of payments assistance to one part of a single currency area.

Sir Trevor Skeet

I am following this argument very closely indeed. The Minister has been developing a point about the revision of the treaty of Rome under article 2. But the final revision, which appears in this treaty, says: The Community shall have as its task…a high degree of convergence of economic performance". There is a convergence obligation, which will go right through state 2.

Mr. Derrell

My hon. Friend confirms the point that I was seeking to make. There is indeed a Community convergence obligation. The word used in 1957 was "approximation", which I have interpreted as having substantially the same meaning as "convergence". There has been a commitment to convergence since the day the Community was established. As the Community has developed, more meat has been put on the concept of convergence, and we now have a clearer understanding of its meaning.

Dr. Lynne Jones (Birmingham, Selly Oak)

rose—

Mr. Dorrell

I want to make a little more progress. I have already been speaking rather longer than was ray intention. However, I promise that I shall give way to the hon. Lady before finishing.

I want to consider the nature of the convergence criteria that are the consequence of the Maastricht treaty. The 10 member states that are committed to stage 12 are committed to crossing the famous bridge. The conditions set out in article 109, which are elaborated in the protocol, take the form of conditions precedent for the establishment of a single currency.

The obligation that rests on the 10 member states which are obliged to join the single currency is an obligation to match those convergence criteria because they are under an obligation to join the single currency. They are therefore committed to the criteria, and there is a clear date and mechanism for their establishment. In the case of ourselves and Denmark, there is not a treaty commitment to join a single currency. So there is not a treaty base obligation to satisfy those specific convergence criteria. That is not to say that this country is not subject to a commitment to converge. I have already accepted that it is.

Nor would I argue that the Maastricht treaty makes no difference to our convergence criteria. I accept the proposition of my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) in an earlier debate that the words will be interpreted in context. It is true that the convergence criteria set out in the treaty will influence an understanding of the nature of this country's convergence commitment. But it is significantly different from the convergence commitments of those 10 member states which have a treaty obligation to move to stage 3, because we have not committed ourselves to the enforcement mechanisms of the convergence criteria to which they have committed themselves.

Mr. Shore (Bethnal Green and Stepney)

We have committed ourselves to an obligation to converge, and we have accepted coercive measures which will operate if we do not converge. One such coercive measure is the weapon of publicity and public condemnation. So we are being, as it were, forced to converge, even if it is not the same kind of coercion as the treaty obligation imposes on the other 10.

Mr. Dorrell

The right hon. Gentleman accepts that there is a fundamentally different convergence commitment resting on this country compared with the other 10 member states.

Mr. Andrew Smith (Oxford, East)

I wish to follow up a point made earlier by my hon. Friend the Member for Newham, North-East (Mr. Leighton). I accept that the nature of the obligation is different for the 10 than for the two, but there are obligations on the two in the sense that if the United Kingdom wished to move to the third stage, we would, by a certain date under the provisions of the protocol and the treaty, have had to have done certain things.

I put to the Minister the example of the protocol and convergence criteria which would require member states to have been in the narrow band of the ERM without severe tensions for two years. Is it not a fact that if we were to move at the earliest opportunity to stage 3—that is, by the first examination—we would have had by 31 December 1996 to have been for two years in the narrow band of the ERM, so that we would have had to have taken the decision to enter the ERM by 31 December 1994?

Mr. Dorrell

It depends on the date on which stage 3 comes into force, and there is not a fixed date in the treaty. To satisfy the convergence criteria, one must have achieved the objectives for a given time before the point is reached at which one joins stage 3. So the answer to the hon. Gentleman's question is that it depends on the date on which stage 3 comes into effect, and there is no fixed date in the protocol which commits us to reach a conclusion on our opportunity to change our mind.

Several hon. Members

rose—

Mr. Dorrell

I will not give way again. I have permitted many interruptions, and I am anxious to conclude my remarks. [Interruption.] I recall promising to give way to the hon. Member for Birmingham, Selly Oak (Dr. Jones).

Dr. Lynne Jones

I think the Minister accepts that we are obliged to try to meet the convergence criteria, whether or not we decide to go on to stage 3. That implies that we should be joining the ERM or at least pegging the pound to the ecu.

Mr. Dorrell

I do not accept that. I made it clear that I regard the protocol as giving this country a clear choice, on the terms set out in the protocol, whether to join the single currency at a date of our own choosing. The opportunity for this country is that, under the terms of the treaty, we have the opportunity to influence the nature of the single currency. That is the main chance negotiated by the Prime Minister at Maastricht which I am keen for this country to safeguard.

Mr. Cash

On a point of order, Mr. Lofthouse. The Minister makes certain allegations about the date on which the single currency comes into effect. Under the protocol which is adjacent to our opt-out, it is clear that it comes into effect on 1 January 1999. We cannot veto it, and it is irrevocable and irreversible, so—

The First Deputy Chairman

Order. That is in no sense a point of order for the Chair, and the hon. Member knows it.

Mr. Andrew Smith

It is over 25 hours since we began debating the economic groups of amendments. I have said before that it is appalling that, on issues of such importance, we are forced by a combination of the Government's preference and a deal done by the Government with the Liberal Democrats to discuss the issues in a condensed way when hon. Members are tired and we do not have a full opportunity to explore many important matters. Whatever view hon. Members take of the treaty or the Bill, this is a disgraceful way in which to handle such important matters.

I need not detain the Committee for long, not least because much of the territory of the debate overlaps the discussion of earlier groups of amendments. My right hon. Friend the Member for Llanelli (Mr. Davies) took us on a prolonged, perceptive and entertaining tour of the transitional provisions and the protocol of the European Monetary Institute. So entertaining was he that, despite the hour, we were disappointed when, in midstream, he leapt from article 8 to article 23 of the protocol.

My right hon. Friend made great play of the Financial Secretary's description of the Red Book as a set of multi-annual programmes. That was an apposite phrase, considering that this year we have had a multi-annual Budget containing multi-annual tax increases, providing for increases this year, next year and the year after that.

A consistent theme throughout my right hon. Friend's speech dealt with a question which the Government have refused to answer—whether they propose to take the steps necessary to move towards stage 3 of economic and monetary union. When, if at all, do they intend to take that decision? I had hoped that the Financial Secretary would give at least a hint of an answer.

Nor could the Financial Secretary give more clarification of the position of the poor old Governor of the Bank of England under article 8 of the protocol on the European Monetary Institute. He left us with the curious understanding that each of the governors could take instructions from their member states as individual members of the Council, but that none of them could take instructions in their collective capacity as members of the Council.

That was unconvincing and was typical of those whom my right hon. Friend the Member for Llanelli called the Januses on the Government Benches. The measure means either that the governor can be instructed or he cannot. To imagine the capacity in which he can be instructed as a member of the Council is fanciful beyond credibility.

Mr. Leighton

I got the impression from the Minister's response that he is rather agnostic about what we are debating. Does my hon. Friend support the convergence criteria? Does he think that they make sense, considering that they are all monetary in form? They are not concerned with real convergence in terms of growth, output and employment.

Mr. Andrew Smith

I made it very clear in responding to the previous debates that, taking all these criteria together, considerable reinterpretation and reapplication of the criteria is necessary and I intend to develop this point further towards the end of my contribution.

Mr. Austin Mitchell

I am grateful to my hon. Friend because he is generous in giving way, but we are eager on these Benches to know how many basic Labour party principles are going to be chucked away in our enthusiasm for this monstrosity of Maastricht. Would we as a Labour Government, if we were in power, or do we as a Labour party in Opposition, want to invoke the protocol, or do we want to move straight away with the others, as opportunity allows, to stage 3 and to full monetary union?

Mr. Smith

I can best answer that by citing the policy approved by the Labour party conference, which is: Conference believes that the Maastricht treaty, while not perfect, is the best agreement that can currently be achieved. That is the basis of our policy and of our approach. I have been through on a number of occasions, and I will return to it later in my speech, the particular importance that we attach to the provisions of article 2a and the goals of high employment and social protection.

7 pm

Mr. Hain

My hon. Friend has laid great stress—and he has done so with considerable coherence—on the need for flexibility in interpreting the targets, convergence criteria and so forth. Does he apply the same flexibility to that Labour party motion?

Mr. Smith

I do not, because all of us are lectured on the Labour party manifesto and, as members of the party, it is incumbent on us to take very seriously the policy passed by our party, especially something, I might add, that was passed by such an overwhelming majority.

Ms Diane Abbott (Hackney, North and Stoke Newington)

All of us sitting behind my hon. Friend are impressed with his reverence for party conference decisions—

Mrs. Gwyneth Dunwoody (Crewe and Nantwich)

And we will remind him of it.

Ms Abbott

—but does he agree that when conference passed that resolution the text of the treaty was not before it?

Mr. Smith

I think that hon. Members knew full well what they were voting for when they voted for that resolution. [Interruption.] It is not as though arguments within our party, as well as among the public at large, on many of these issues have not continued for some time. I have great confidence and trust in the good sense of ordinary Labour party members when they vote for resolutions at conference.

Mr. Ken Livingstone (Brent, East)

rose—

Mr. Smith

I would like to make some progress with my contribution.

I agreed strongly with the points made in the excellent speech of my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts), a speech which was all the more impressive as its quality betrayed no hint that he had been here all night, waiting to make it. The core of his argument was that Britain will be better able to take effective action for sustainable growth, for jobs, for investment and for environmental protection if we do so within the framework of Maastricht than if we attempt to do so outside it. That is the crucial choice.

Of course there are many things in the Maastricht treaty that we do not like. Of course many of these criteria must be subjected to further interpretation. Of course the whole question of the pace of progress towards economic and monetary union must be carefully examined. But, when it comes down to it, the choice is whether we are better off and can better serve the people of this country in moving towards the goals to which we all aspire by being part of the Maastricht process or whether we should turn our faces against it. Like my hon. Friend the Member for Attercliffe, I believe that we would better serve the people by being part of Maastricht.

My hon. Friend the Member for Attercliffe also rightly pointed out that the Government were directly responsible for many of the weaknesses in the treaty which have been the subject of debate in this group, not least because the Government squandered a great deal of negotiating capital, for example, on securing the wholly damaging opt-out from the social chapter which we on the Opposition Benches are determined to continue to seek to reverse.

Let me turn to our Front-Bench amendments in this group, which have not been a focus of the debate so far. They are important and I want to stress them. Amendment No. 35 would ensure that in the event of the United Kingdom satisfying the necessary economic convergence conditions and other member states deciding to move to stage 3, Parliament would have an automatic opportunity to decide whether this country should proceed to stage 3 and full economic and monetary union. We regard that as a very important amendment and wish to press it to a vote.

As the treaty and the Bill stand, it will be up to the Government to decide whether to propose to move to stage 3. It is left open to them simply to choose not to do so if they so wish. In this way, Parliament could be excluded from a decision which would or could consign the United Kingdom to the second division in Europe. It is surely right, whether or not the Government wish to proceed to stage 3, that the House should have the opportunity to express its view on this decision. That is why we regard the amendment as so important.

Amendment No. 420 is also important in seeking to strengthen and clarify the role of the European Council of Finance Ministers, ECOFIN, in the formulation of economic policy. I do not intend to go over all the arguments and discussions that we had in the night on the importance of ECOFIN. This amendment seeks to ensure that the Government do everything possible to see that the economic objectives of article 2, for which ECOFIN has responsibility under articles 102a and 103, are fully realised.

Should the amendment be carried, the Government would have to inform Parliament of their contribution to ECOFIN in the co-ordination of economic policy and in the achievement of a high level of employment and social protection provided for in article 2, as well as reporting on the work of the European Monetary Institute in preparation for economic and monetary union.

These matters are important. We have argued all along that the overall responsibility for economic policy must remain with elected Ministers, accountable to the European Parliament and to their own national Governments and Parliaments. ECOFIN must become art effective political counterpart to the European central bank. I therefore strongly urge the Committee to support that amendment.

Mr. Marlow

The hon. Gentleman said a few minutes ago that some of the provisions of the treaty needed amending. He has now made a suggestion. He says that ECOFIN must have political control. How will he secure those amendments to the treaty? How will he ensure that ECOFIN gets economic control? These are very detailed provisions in the treaty. How confident is he that, once the treaty is ratified and becomes the bible of the Commission and the European system of central banks, he will be able to get any change out of it? And if he cannot get any change out of it, why does he take it on trust and vote for it now?

Mr. Smith

These amendments do not seek to amend the treaty. They seek to amend the Bill and therefore to determine how the Government—this Government or a future one—should behave in operating the provisions of the treaty, and that is very important indeed, just as, for example, in the previous group, the effect of new clause 56 would have conditioned the information that the United Kingdom supplied to the Commission for the purposes of the evaluation of our compliance or otherwise with the excess deficit procedure. These are not trivial matters: they are important matters both of substance and of signalling the way in which we on the Opposition Benches believe that the treaty might be implemented so as to serve the best 16interests of the British people as well as of the people of the rest of Europe.

Mr. Cash

I am sure that the hon. Gentleman is going in the right direction in trying to improve political accountability; for heaven's sake, Conservative Members regard that as probably the most important central question. We do not want our monetary affairs to be taken over by unelected, unaccountable bankers, but that is what will happen, and that is what the Government are allowing.

Nevertheless, what the hon. Gentleman has just said does not solve the problem. He must bear in mind the fact that the treaty itself has been implemented in European law and that that basis will determine the manner in which it is implemented in the United Kingdom under section 2 of the European Communities Act 1972. I am afraid that the hon. Gentleman is putting the cart before the horse. He has fallen into a trap and his argument has collapsed. He is saying, "We would like to have a system in the United Kingdom that would enable us to implement what we wanted."

Unfortunately, when the matter gets to the House of Lords and, subsequently, to the European Court of Justice, the hon. Gentleman will find that he has been caught and will have to do what the European Community has already decided by treaty. That is the problem that the hon. Gentleman is up against—although I entirely agree with the direction in which he is moving.

Mr. Smith

If the hon. Gentleman agrees with the direction in which the amendments are going—even if he does not accept the reason for which they were tabled—I suggest that the best way of expressing that view is to vote for them. In his lengthy intervention, however, I detected signs of what we already know: that he is absolutely opposed to the way in which the European Economic Community, and subsequently the European Community, has developed. The hon. Gentleman makes no secret of the fact that he objects to the idea of a more closely integrated European Community.

Mr. Cash

The hon. Gentleman cannot get away with that. I have always wanted the European Community to work effectively: indeed, the Foreign Secretary invited me to write a paper on the future of Europe for the Conservative manifesto committee. In that paper, I said that I wanted the Community to work—and, moreover, I voted for the Single European Act. I will not allow the hon. Gentleman to get away with the suggestion that I do not want the European Community to work simply because I do not want this crazy treaty, which will make Europe dissolve and implode.

Mr. Smith

If the hon. Gentleman wrote the part of the Conservative party manifesto that dealt with this issue, he clearly made a bigger hash of it than those who drafted the original Maastricht treaty, given the consequent division and confusion in Conservative policy on such matters. [Interruption.]

The Second Deputy Chairman of Ways and Means (Dame Janet Fookes)

Order. We cannot have seated interventions criss-crossing; it makes for confusion.

Mr. Smith

Thank you, Dame Janet.

Let me return to the amendments and new clauses that we wish to press to a vote. New clause 56 aims to ensure that the Government are accountable to Parliament in their fulfulment of the criteria for economic and monetary union. It would require them to observe the need for proper programmes to achieve the objectives of article 2 as they pursue those criteria.

At the heart of the amendments and new clauses, and those in earlier groups, are the provisions of article 2, the bridge between stages 2 and 3 and the way in which those stages can be tied to article 2—which, after all, sets the European Community's task. Article 2 asks for sustainable and non-inflationary growth…a high level of employment and of social protection, the raising of the standard of living and quality of life". The Labour party believes that those aims are crucial to progress towards economic and monetary union. Through all the amendments and new clauses to which I have referred, we seek to tie the United Kingdom's interpretation of policy under the treaty more closely to the goals that I have quoted, so that there can be no doubt about the force for social and economic progress that we want our participation in the Community to realise.

7.15 pm

Mr. Legg

We have heard some excellent speeches, particularly that of the right hon. Member for Llanelli (Mr. Davies). He told us a good deal about stage 2, the obligations involved in it and the convergence criteria that we are required to follow. By covering so much of the ground, the right hon. Gentleman has made it much easier for me to make my speech.

Let me begin by addressing article 109j—which has been subject to some debate in the Committee—and article 109e. Article 109j sets out the stage 2 obligations for member states: they cover price stability, Government deficits and membership of the exchange rate mechanism. I commented during my intervention on the Financial Secretary's first speech that under stage 2 the United Kingdom has the same obligations as all other member states. Under the protocol, we have the possibility of exercising an opt-out during stage 3 so that we do not move to a single currency; but that will not happen until stage 3. We may or may not exercise the opt-out. I contend that, until we do so, we shall be on a level playing field with all the other member states.

Yet again my hon. Friend the Financial Secretary has shown a positive attitude, suggesting that Britain wants to be at the heart of Europe and to play a full role in stage 2. The wish to ensure that Britain can influence developments that are happening at that time confirms my view that we are at one with the other 11 states in regard to stage 2.

I know that Ministers such as my hon. Friend the Financial Secretary—and, indeed, the Economic Secretary—often say that the criteria involved are admirable in themselves. Price stability? All Conservative Members agree that we want low inflation. Low Government deficits? Again, Conservative Members generally approve of that. The Committee must, however, accept the overall scheme of the treaty. In fact, the convergence obligations are secondary; the primary obligation is economic and monetary union. We are going through the process of convergence so that we can take part in, and be a full member of, economic and monetary union. That is the rationale of the treaty.

Sir Trevor Skeet

The convergence obligation arises from article 2, but does not my hon. Friend agree that a number of subordinate obligations are involved—for instance, the obligation to return to the exchange rate mechanism at the earliest opportunity? Obviously, we cannot subscribe to the conditions in article 109j unless we are within that arrangement. Moreover, we must have an exchange rate obligation.

Mr. Legg

My hon. Friend has raised a number of interesting and vital points, with which I shall deal later.

Let me retun to our obligations in the treaty, including our obligation to achieve economic and monetary union. My hon. Friend the Financial Secretary claimed that the treaty made no major change in economic obligations; he even suggested that member states should have foreseen all this when the treaty of Rome was signed 36 years ago today. Surely my hon. Friend the Financial Secretary is overstretching his argument.

Mr. Denzil Davies

I ask a question which perhaps I should have put to the Financial Secretary, who was arguing, apparently, that the conditions did not apply to the United Kingdom because there were conditions precedent, as it were, for those who wanted to enter stage 3. Has the hon. Gentleman noticed that the four criteria are described as criteria, and that to enter stage 3 it is necessary to fulfil the necessary conditions? Can he find anything that links the conditions to the criteria?

Mr. Legg

No, I cannot. The right hon. Gentleman makes an extremely good point.

Mr. Budgen

Will my hon. Friend give way?

Mr. Legg

I shall make a little progress and then I shall be pleased to give way to my hon. Friend.

In the Maastricht treaty we are seeing something quite different from that which was in the treaty of Rome. Article 2 of the treaty of Rome dealt with progressively approximating the economic policies of member states. That was loose terminology. We are now changing the objectives under article 2 to include that of economic and monetary union. It must be emphasised once again that the United Kingdom opt-out does not relate to economic and monetary union. Instead, it is a potential opt-out from stage 3, the single currency.

Mr. Budgen

My hon. Friend takes up the point made by my hon. Friend the Financial Secretary about our obligation under the treaty of Rome. When we first went into the treaty of Rome in 1972 we entered the snake, albeit for a short time. I think that it was for about two months. That was a preliminary attempt to get the United Kingdom into a fixed exchange rate mechanism. As the Committee knows, we came out of the snake. The danger that we now face is that many more legal pressures can be exerted upon us to re-enter the exchange rate mechanism.

Mr. Legg

My hon. Friend has made a valuable intervention. I shall speak about our membership of the exchange rate mechanism later in my speech.

All 12 member states are working towards the objective of economic and monetary union. Article 5 of the treaty of Rome puts obligations on member states to fulfil the tasks that are set out in articles 2 and 3 of the Maastricht treaty. The United Kingdom has an obligation under article 5 to facilitate the achievement of the Community's tasks, one of which is now economic and monetary union. It would seem that the other member states, possibly with the exception of Denmark, are keen to get on with economic and monetary union and do not wish to see one or two other members seeking to undermine their attempts to achieve that goal within the context of the treaty.

Furthermore, under article 5, the United Kingdom has an obligation to abstain from any measure that could jeopardise the achievement of the objectives of the treaty. That means that the United Kingdom must have the objective to abstain from taking actions in its economic, monetary and foreign exchange policies that could jeopardise the attainment of economic and monetary union which is being pursued by the other members of the Community.

Mr. Marlow

I draw my hon. Friend's attention to the speech made last night by my hon. Friend the Financial Secretary. We are, of course, committed to economic and monetary union, but that does not necessarily mean a single currency. There are other ways of achieving economic and monetary union. Perhaps my hon. Friend will tell the House what those other ways might be and what chance we might have of achieving or implementing them.

Mr. Legg

I ask my hon. Friend to be patient. I hope to deal with his point and others in a way that will ensure that they have the necessary cogency.

The Treasury has said that article 109m changes only slightly what is in the treaty of Rome. My hon. Friend the Financial Secretary did not follow that route this evening, and that may be significant. He followed it, however, in Committee on 14 January. When the Treasury submitted a memorandum on the ratification of the Maastricht treaty to the Select Committee on Treasury and Civil Service Affairs, it, too, referred to article 109m, and tried to argue that there was no effective change from our obligations under the treaty of Rome.

I maintain that the common interest that is set out in article 109m is a stronger obligation than the common concern that existed under the treaty of Rome. Secondly, and even more importantly, when it comes to common interest, we must assess "common interest" and the meaning of it within the context and colouring of the Maastricht treaty. We find that common interest is clearly set out in the treaty, but what is it? It must be economic and monetary union. There is the obligation in article 109m that our exchange rate is treated as a matter of common interest to the other member states, with those states striving to achieve monetary union and wanting the United Kingdom to play its part in that process.

Mr. Cash

I much like my hon. Friend's style. He is taking us, with relentless but clear and cogent force, along the route of reality. I am sure that he will recall the protocol that is adjacent to the one that is supposed to be our opt-out. I am sure that he will agree with me that that makes irreversible and irrevocable that which is due to come into effect on 1 January 1999, come what may. Does he accept, like Chancellor Kohl, that there are those in the Community—most of them in the other member states—who say yes to economic and monetary union, but go on to say that that carries with it political union? That is where the rub comes. We are being taken in that direction.

Mr. Legg

My hon. Friend has made a significant point. It is one that has been made to me by members of the Bundesbank council. They say that there must be a political union alongside monetary union. Chancellor Kohl has made his position clear. Those who go to the Library and consult the Financial Times of 4 January will see set out the Chancellor's commitment to political union and his recognition that monetary union will work only with political union.

The United Kingdom's obligations in the context of the exchange rate mechanism are a source of concern to many of my hon. Friends. Article 109m is directly relevant in this respect. The other member states regard our exchange rate as a matter of common interest to them. I am sure that it will not have escaped the attention of Treasury Ministers that many of our Community partners have been somewhat startled and dismayed by Britain's exit from the ERM. A perusal of the press of the past six months since white Wednesday will elicit a range of comments by our European partners expressing this concern. The French Finance Minister, for instance, cannot understand why we are out and considers it necessary for us to return to the ERM. He cannot see how Britain can ratify the treaty and stay out of the mechanism.

7.30 pm

One does not have to be particularly sophisticated, reading between the lines, to understand the concerns of the Irish Finance Minister, Prime Minister, and Foreign Secretary, at the time of the Irish devaluation, about the financial problems that Ireland faced following Britain's exit from the ERM—especially in view of Ireland's close trading links with the United Kingdom.

Pedro Perez, Spain's Economic Minister, spoke even more forcefully on 23 October about Britain's exit from the ERM. He said that there could not be a single market without a single currency and that there could not be two systems in Europe—an exchange rate mechanism for some countries and a floating currency for others.

When Mr. Delors addressed the European Parliament, he made some trenchant remarks, without naming Britain, about countries that seek to devalue and thereby achieve a competitive advantage. We know, however, that many of our partners and members of the Commission are trying to play things fairly quietly at the moment, because ratification of the treaty is still in the balance.

Under the Maastricht treaty, member states that are unhappy with Britain's exchange rate policy will have the opportunity to do somethiong about that—

Mr. Cash

The Chancellor of the Exchequer has arrived.

Mr. Legg

I am sure that he does not want to intervene, however, even though he probably has first-hand experience of some of the unhappiness felt by our partners and by Finance Ministers on the continent.

Mr. Marlow

Will my hon. Friend give way to the Chancellor if he will confirm to the Committee that, if we were to re-enter the exchange rate mechanism when article 109m is in force, we would, at a later stage—if the economy demanded it—be able to leave again?

Mr. Legg

I thank my hon. Friend, but I must make some progress. It is certainly true that the treaty will provide the opportunity for our partners to press us, first informally and then more publicly, to return to the ERM. If Treasury Ministers resist that pressure, there are stronger powers in the treaty to compel Britain to return to the mechanism. The matter will not be solely in the hands of the Chancellor of the Exchequer during stage 2.

Mr. Iain Duncan-Smith (Chingford)

Listening carefully to my hon. Friend it occurs to me that we are in the midst of a dispute about the Government's position in respect of stage 3—a dispute between us and Ministers. Bearing in mind the comments of other member Governments so far, when stage 2 has arrived and stage 3 is imminent, who will be forced to decide on the interpretation of our position? It will surely not be our Ministers; it will be the European Court of Justice that will be called to make the decision.

Mr. Legg

My hon. Friend makes one of his now customary interventions in which he puts his finger precisely on where we stand. The intervention will not be for Treasury Ministers or Members of Parliament. Ultimately, it will be for the European Court—

Mr. Bernard Jenkin (Colchester, North)

A political body.

Mr. Legg

I think that we have already explored that aspect. Certainly, the court will have the power to decide, but I suspect that we will not be taken to the court to compel us to return to the mechanism. The mere suggestion will be enough to ensure that Britain does so.

I believe that many Ministers, perhaps even the Chancellor himself, feel as stongly about membership of the ERM as I and many of my hon. Friends do. The experience of the British economy, of British business and of the British people in the ERM was damaging—[HON. MEMBERS: "Disastrous."] Many right hon. and hon. Members share that view—

The Second Deputy Chairman

Order. I remind the hon. Gentleman that he should be addressing me and that he should bear in mind the practical consideration that his voice will be heard better if he faces the microphones insted of turning away from them—a thought that may not have occurred to him.

Mr. Legg

Thank you, Dame Janet, that is most helpful of you. I am afraid that I was distracted by some sedentary interventions.

Under stage 2, many provisions of the treaty will bring us closer to other countries of the Community in terms of economic policy making. As many hon. Members have said, we will find that we have common economic policies. The Treasury issued a rather strange statement to the Select Committee on Treasury and Civil Service in November 1992. It was about the operation of article 103.1, which concerns the Council of Ministers geting together to devise common economic policies for Europe. The Treasury line on that has been that, if some of the policies or guidelines drawn up under the article are of a sort that Britain would not like—setting out a timetable for a return to the ERM, say, or guidance about budget deficits—the United Kingdom can somehow block them in the Council of Ministers. It can block and spoil the overall economic policy devised by the Council of Ministers. That does not seem to be very much like being at the heart of Europe.

I take seriously the comments from the Government Front Bench about wanting to be at the heart of Europe and wanting to exercise influence. I do not believe that Britain will adopt the role of blocker or spoiler in Europe in stage 2 and in the coming years. I believe that Britain will sit down at the table with its partners and accept the reality of the treaty, the obligations in the treaty, and that it will operate accordingly. Regrettably, I believe that that will be extremely damaging to the British economy.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to previous experiments with fixed exchange rate regimes. To strengthen and legislate for this process, and to include in the supreme law of the European union the requirements to fix exchange rates must, in the current economic circumstances in Europe, be one of the most foolish and unwise economic decisions to be taken in Europe in the 20th century.

The statesmen of Europe, who do not recognise the economic changes in Germany, the costs of reunification, the implication of the borrowing requirement in the unified German state, and the effect that those factors have in transmitting their consequences to other member states through a fixed exchange rate, are playing fast and loose with the economic prosperity of the peoples of Europe. They are also threatening recession, unemployment and worse. The concept of the Maastricht treaty and its obligations are not an appropriate agenda or statutory framework that we should adopt in the mid or late-1990s.

Ministers have suggested that Britain might be able to continue to float its exchange rate during stage 3. Hon. Members should be aware that that idea is even more unlikely than the possibility that Britain can continue to float its exchange rate freely during stage 2. The idea that other member states like France, which had irrevocably fixed their currencies to the deutschmark, would then be content to see Britain floating its exchange rate and obtaining what they would consider to be unfair competitive advantages as a result is clearly inconceivable.

When we move to stage 3, and those other member states have irrevocably locked their currencies, they will expect the United Kingdom—if it decides to exercise the opt-out—to be playing a part in ensuring that monetary union is successful. They will certainly not be prepared to see Britain floating on the margins. I am sure that the requirements to return to the mechanism and to operate on the narrow bands of the exchange rate mechanism will be fully enforced.

We must then face the reality of the opt-out in stage 3 with Britain locked in the narrow bands against the European ecu. Britain would have no representation on the governing council of the European central bank, which would set interest rates for the ecu, while Britain was tied to the ecu within a narrow band. The governing council of the European central bank would effectively set interest rates for Europe as a whole. Is my hon. Friend the Financial Secretary really offering us that tonight as an attractive proposition resulting from the opt-out?

Mr. Cash

Does my hon. Friend recall that in the middle of the night I produced a document which had been leaked to me? That document stated quite explicitly that advice was being tendered, apparently to Ministers, after white Wednesday on 23 September last year, which clearly stated that the conclusion was that sterling should go into the narrow band. Does not my hon. Friend find that a very chilling observation?

Mr. Legg

Yes, that is a chilling observation, but hon. Members should not be surprised by it. In 12 months' time, I hope that hon. Members will not come to Members like me and express surprise if events such as that described by my hon. Friend the Member for Stafford (Mr. Cash) occur.

7.45 pm

Mr. Budgen

Why on earth should that be chilling? The Government have consistently said that they wish to approve the Maastricht treaty. They claim that they have democratic authority for that, having discussed it fully at the last general election and because there is widespread support for it. Plainly, we must return to the ERM as quickly as possible to fulfil our obligations on 1 January 1994. It would be monstrous if we were not trying to get back into the ERM.

Presumably, we will hear from the Government tonight a clear indication of how they believe the ERM has worked to the benefit of the British people during the two years we were a member of the ERM. If this is only the preliminary period, we must assume that the Government regard it as having been a very successful one.

Mr. Legg

Once again, my hon. Friend has made a valuable point.

I conclude with an argument which is not often heard in this Committee, but which is put forcefully in the Corridors and elsewhere in the House. That argument seems to be particularly attractive to right hon. and hon. Members on the Conservative Benches and even to Ministers. That argument is that there is no need to worry about the Maastricht treaty because its provisions will not be put into effect. The treaty is so deeply flawed and runs so strongly against the economic fundamentals to which I have referred that people say, "Don't worry. Support the treaty: it will not work." What a gamble that is to take with the future of the British people.

Sir Trevor Skeet

The people should have a say.

Mr. Legg

As my hon. Friend says, they should have a say in that gamble.

I urge all hon. Members to act with caution in this matter. They should not rely on assurances that what I have described will not happen. Hon. Members who visit our partners discover that there is a strength, will and determination for those things to happen. There is a strong commitment on continental Europe to economic and monetary union. There are many, what I would call unionists rather than federalists and they are strongly committed to such concepts. Hon. Members must weigh in the balance the benefits of the treaty against its risks, which are considerable.

The House has many honest federalists, with certain views about Europe and Britain, who have put their case clearly and powerfully. I respect those people. It is a good process to indentify what Europe would be like under the Maastricht treaty. If the case for Maastricht was spelt out and the British people gave their full-hearted consent to the treaty, I would be happy to work to try to achieve their vision of the future. My great fear, however, is that those people will not realise the implications of the treaty. We will face continuing disillusionment, unhappiness and lack of success in our affairs for many years.

Mr. Christopher Gill (Ludlow)

Will my hon. Friend give way?

Mr. Legg

I will not take any more interventions.

I urge hon. Members to be cautious and not to gamble with the future of the British people. They must realise that what they are doing now is ratifying the supreme law of the European union.

Mr. Leighton

We are faced with an odd situation. The Government did not want a conference at Maastricht and they did not want the treaty. They have not said that they are in favour of monetary union or a single currency and they claim that they can exercise an opt-out from the treaty. I do not know how valid that option will be. As far as I am aware, the Opposition do not want an opt-out. They are all in favour of monetary union and a single currency. This odd situation is what psychiatrists term role reversal.

My hon. Friend the Member for Oxford, East (Mr. Smith) relies upon article 2 of the treaty for the basis of his support of it. We cannot take comfort from that article, because the treaty of Rome has a general, motherhood-and-apple-pie clause that contains vague good intentions, but what good has it done us? We now have between 17 million and 18 million people unemployed in the Community—the unemployment black spot of the world—so what good have those words done us?

I do not think that any socialist can support the Maastricht treaty. I base that claim on article 105 of chapter 2, with which I am sure my hon. Friend the Member for Oxford, East is familiar. Article 105(1) states: The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2. That is without prejudice to price stability and I do not believe that there can be any doubt that article 2 is subordinate to price stability.

Mr. Clive Betts (Sheffield, Attercliffe)

I believe that article 105 then goes on to provide a commitment to article 3a, which is in the treaty simply for the purpose of delivering article 2. One could read that part of article 105(1), which relates to article 3a, as unqualified support for article 2. I accept that the treaty is badly worded, but there are different ways of reading it.

Mr. Leighton

I do not believe that article 105 is badly worded; it is specific and states: The primary objective of the ESCB shall be to maintain price stability. There is no ambiguity about that. It could not be clearer. The objectives laid down in article 2 are set without prejudice to the objective of price stability.

When this matter was raised before, one of my hon. Friends asked me whether I was in favour of price instability. Other things being equal, we would, of course, like low inflation, but since when has it been the sole policy of the Labour party to argue for price stability? Any fool can reduce inflation by destroying the economy, creating mass unemployment and bringing about a recession. That is what the Government have done, but they have now had to pull back.

The "Bank Briefing" for November 1992, published by the Bank of England, referred to price stability and stated: Had the United Kingdom remained in the ERM, it is quite possible that price stability would have been achieved during next year"— which means this year. Although clearly desirable in itself, price stability attained so quickly might have intensified the problems of domestic debt inflation. Some easing of policy was, therefore, desirable. We could have had that wonderful price stability, but it was causing so much trouble that it was dropped as official Labour party policy. My hon. Friends on the Opposition Front Bench should note that we want some price stability and low inflation, but we have other aims. We want balance of payments equilibrium, growth in the economy and high employment.

Article 2 makes no mention of high employment. Thousands of words, as well as protocols, have been printed about Euro-monetarism and price stability, but there is no mention of high employment, apart from a passing reference in article 2, which is itself subordinate to the idea of price stability. That must be anathema to socialists, and it is on that basis that I oppose the treaty.

The convergence criteria are all monetary; they are about inflation and budget deficits. There is nothing about real convergence, real growth and real people. Flesh and blood will be subordinated to the theory of money. Money will be the master, not the servant. I cannot for the life of me understand how the Labour party could support such an idea.

Mr. Budgen

I suspect that an observer of this protracted but useful debate would say to himself, "Well, they have, with great difficulty, defined what the position will be under stage 2, which is plainly the ERM with a large number of additional constraints added to it." No doubt that observer would say to himself how grateful he was for the elegant guidance that the right hon. Member for Llanelli (Mr. Davies) had given to the Committee to help us to decide the possible extent of those additional obligations.

The practical man listening to the Committee's deliberations, however, would say, "Surely, these chaps"—I must be careful—"these persons are not going to recommend going into stage 2 unless it is obvious that stage 1 was a great success, because stage 2 is stage 1 with knobs on."

If we had found that stage 1 was such a great success, we might think of going forward, tentatively, to stage 2. If, however, stage 1 was a vast disaster which brought poverty, sadness and unemployment to the British people and was still exercising its most malign influence upon our economy, surely we would think rather carefully before going forward to a worse condition than that provided for in stage 1.

The disgrace of the Government's position is that they cannot say that the ERM was a success. They cannot do other than admit that the present condition of the economy does not result from the Government's wisdom, forethought, brilliance, or anything of that sort. We may reasonably hope for some recovery in the economy, not because of the Chancellor of the Exchequer's brilliance but because of the good fortune that speculators speculated against the pound and threw us out of the ERM, and because our central bank, having lost £3.5 billion of taxpayers' money, took the view that we could not afford to buy our pounds any more and stay in the ERM. The ERM was an absolute disaster. It is important to understand that the state of the economy when we came out was near to being in a credit crunch.

8 pm

Perfectly sensible, kindly, respectable business men ask, "Aren't you wasting an awful lost of time making a nuisance of yourself to the Government? Don't you think it would be better to think of ways in which you can help the Government to resuscitate the economy?" But most of the problems that business men have stem from the ERM. They ask, "What are you doing with the clearing banks? Why don't you get the clearing banks to lend more money to small builders?" The reason that clearing banks cannot lend any more money to small builders is that the clearing banks and the small builders are on the verge of going bust.

The clearing banks went in for a lot of silly and excessive lending between 1986 and 1988, a period when we were shadowing the deutschmark and when what could be described as the most disastrous Chancellor in recent history was talking about an economic miracle. At that time, the banks were lending far too much money to commercial property. They are now finding that their credit base is severely eroded, so severely eroded through the large losses that they suffered because of high interest rates that they cannot come to the aid of small business, as no doubt they would wish to do. That, I repeat, all stems from the ERM.

I remind my hon. Friend the Financial Secretary that it used to be the theory of the Conservative Government that we were, broadly speaking, monetarist, and that a change in the money supply took between 18 months and two and a half years to come through into the real economy. There has been a remarkably large relaxation of monetary policy since 16 September. It is not at all surprising that that relaxation is not yet fully showing itself in the economy.

But the irony is that, if we ratify the Maastricht treaty, only when we are under a legal obligation to go into stage 2 on 1 January 1994 shall we be finding that the relaxation, consequent upon our good fortune on 16 September, is starting to work through. We shall then find ourselves under a legal obligation to abort the good fortune of the monetary relaxation that has occurred since 16 September. The green shoots will be nipped off once again by the frost of economic and monetary union in its incipient stages.

Surely we should be explaining to those confused people who hoped that that was all part of being at the warm, friendly heart of Europe that that is the basis for yet more deflation to be imposed upon us by the Bundesbank, which will give rise to yet more trouble in our lending institutions.

Mr. David Winnick (Walsall, North)

I am grateful to the hon. Gentleman, who always argues his case on these matters so well, for giving way. Does he agree that the conventional wisdom at the time—some of us, certainly including me, and, I am sure, the hon. Gentleman too, argued against it—was that the ERM was a necessity for the British economy and that it would be wrong for Britain for us to remain outside. That was the argument put by the Government and, unfortunately, by some Opposition Members. It was said that it was an inevitable step—the same argument that is being used on integration under the Maastricht treaty. Have we not been proved right, at tremendous cost to the British economy, on the ERM, and will we not be proved right again if, as the hon. Gentleman says, we go into stage 2 and return to the ERM?

Mr. Budgen

That was not much of a critical question. The hon. Gentleman was simply intervening to say that he agreed with me, albeit that he used rather different language.

Mr. Allan Rogers (Rhondda)

I too congratulate the hon. Gentleman on marshalling his arguments and putting them forward in such a congent manner, as he always does. In doing so, he is projecting an image of being an objective commentator on the economic scene. Can he list the number of times and the occasions on which he objected or voted against the Government who introduced the policies that he is now condemning?

Mr. Budgen

I am consistent on that. I opposed the shadowing of the deutschmark between 1986 and 1988 and I voted against the ERM on every possible occasion. I do not remember ever being ill; I have quite good health. As far as I remember, I have voted against this European economic entanglement on every possible occasion. That does not mean that I am right, but it does mean that I have been consistent.

Mr. Rogers

I was not thinking particularly of the hon. Gentleman's voting record in relation to Europe, although I presume that he voted with the Government on the single market issue.

Mr. Budgen

No.

Mr. Rogers

If he says that he did not, I accept that. The hon. Gentleman talks about the Government's policies and the bank's inability to lend to small businesses, but when did he ever raise his voice against the Government's economic policies?

The Second Deputy Chairman

Order. I hope that we can keep to the substance of the debate.

Mr. Budgen

I respectfully agree, Dame Janet. I would simply say to the hon. Gentleman that I have done my incompetent best to raise these arguments fairly consistently over the years. I am sorry if I have not brought them to his attention, but I have done my best to bring them to other people's attention from time to time.

However, the Committee is interested not in my record but in the effect of the Government's disastrous policy on the British economy. The point that I wish to make as firmly as I can is that the only intellectually respectable argument that the Government could put forward tonight would be to say that the ERM had been a success and that, because of the success of stage 1, they wanted to build on that and move to stage 2.

The ERM has been a proven disaster. It has been a disaster in that it has cost us £3.5 billion in lost resources. It has been a disaster in that it has been a proximate cause of 3 million people being unemployed and has caused a credit crunch from which it will take us many years to recover. It has been a disaster in that it has created untold sadness for many people in the south-east who find themselves locked into houses that are now worth far less than the cost of their mortgages. It has been an utter disaster, which has been pursued not for economic reasons, but for political reasons.

Only a Government who were completely impervious to their mistakes and to the appalling humiliation of 16 September could have the effrontery to say, "Never mind all these proven disasters. Let us go into stage 2 at least at the beginning of January, cutting off the freedom that we have enjoyed since 16 September. Let us chastise the British people with a system that is even worse than the ERM."

Sir Russell Johnston (Inverness, Nairn and Lochaber)

I have noticed over many years that debates on the European Community seem to attract to a disproportionate extent those who are generally opposed to progress in the Community. At the end of debates, one gets a rather lop-sided view of the balance of opinion, and the Committee is following that trend. I do not say that in praise of those who hold the views that I hold; on the contrary, the critics are more loyal in their appearance and in their contribution. I hope that the hon. Member for Wolverhampton, South-West (Mr. Budgen) will forgive me for not following directly his remarks, which I have heard him enunciate so fluently so often.

Although I disagree with the hon. Member for Milton Keynes, South-West (Mr. Legg) about Maastricht, I admit that he made a direct, forthright and logical speech. I thought that his catalogue of attitudes and responses within the rest of the Community to our economic and monetary union opt-out dealt most effectively with the Government's presentation, which is that they have somehow secured a unique discretion without losing any influence. I do not think that that is right.

Mr. Jenkin

Does the hon. Gentleman agree that the whole basis for the Government's position on the Maastricht treaty is that we are winning arguments all around Europe and that the direction of the Community will be away from a federal Europe? The speech by my hon. Friend the Member for Milton Keynes, South-West gave one example of one area of policy in which there is no evidence to support the Government's view that they are changing the mood of the European Community. Does the hon. Gentleman agree?

Sir Russell Johnston

I completely agree with that. The hon. Member for Milton Keynes, South-West quoted a number of individuals. One can quote many more. At one point in the Committee, Martin Bangemann was quoted endlessly as if he had suddenly said something startling, new and different. I have known him for years and he has been saying the same thing non-stop. It is the same with all the others.

Nevertheless, the Liberal Democrats remain committed to the things that the hon. Member for Colchester, North (Mr. Jenkin) and the hon. Member for Wolverhampton, South-West are against. Our position has been and remains distinct both from the position of the Government and from the position of Labour Front-Bench Members. For different reasons and to different degrees, both find the prospect of full economic and monetary union and the development of the ecu difficult to accept, although both have moved a long way.

The arguments against EMU have a great tendency to be based on emotion as much as on economics, although, in my humble and not very informed opinion, much of economics has a theological aspect to it. People believe passionately in certain economic solutions on the basis of certain theories which sometimes they find it difficult either to prove or to disprove. I believe that the arguments for EMU and for the single currency have an irresistible logic, whereas many of the contrary arguments tend to be conducted at a rather surreal level.

Mr. Bill Walker

The hon. Gentleman's integrity in terms of his views on Europe cannot be in doubt anywhere. Does he base his views on EMU and on all the other matters to do with political and economic union on the belief that they will be good for the people of the United Kingdom and good because they will help us as a trading nation to trade better? If he does, how does he square that with the fact that the Japanese appear to trade better than any of us do, although they do not enjoy any of the so-called benefits?

8.15 pm

Sir Russell Johnston

The situation in Japan and the situation in the United Kingdom are dramatically different. The arguments about access to a large market are part of the arguments that have been used throughout in respect of the United Kingdom's membership of the Community. A new trading pattern has developed as the old trading patterns with the Commonwealth have slowly declined. Japan's industrial structure is so different that it is difficult to make direct comparisons.

Much of the argument focuses on the points raised by the hon. Member for Northampton, North (Mr. Marlow), the main intervener, who has now vanished. He always talks about national sovereignty, which affects people's thinking about what is possible economically. Many people's thinking is based on a complex of beliefs which are still held almost as a matter of religious faith. It is believed that we are better, that we are more efficient, that we have better laws, that we are more democratic and that we are more able to trade in the world than to be successful in the Community.

It is difficult to argue with all those ideas, because people believe in them deeply and passionately. I recognise that because I have been listening for the best part of 20 years to the arguments of those who are against Europe. It is not that I do not know the arguments, or that I do not respect the people who hold them. I have reached the conclusion that I shall never persuade them, and they may have reached the conclusion that they will never persuade me—[Interruption.] One sometimes wonders why we continue to debate the matter.

Mr. Winnick

It is called democracy.

Sir Russell Johnston

I suppose that democracy is about peaceful persuasion.

In the history of the Community, we have been guilty of many missed opportunities. The opt-out, which is a major part of our debate today, is one such missed opportunity and another example of our excluding ourselves from mainstream developments as a result of economic weakness, of shortsighted nationalism and of political delusion.

For those reasons, when the Bill first came into Committee, we tabled amendment No. 400 which aimed to delete the protocol and, as a consequence, the United Kingdom's opt-out from stage 3 of EMU. Such an amendment would now have the consequence of wrecking the treaty, so we shall not press it to a Division. However, we support the Labour party's amendment No. 35, which seems to be a positive contribution, because it would allow parliamentary affirmation before moving to stage 3, which would be perfectly reasonable if the economic convergence criteria laid down in article 109 were established.

We shall not support Labour's amendment No. 420 or new clause 56. We do not feel that they are necessary, despite the arguments advanced by the hon. Member for Oxford, East (Mr. Smith), to which I listened carefully.

Long before Maastricht, we were in favour of a single currency. The arguments in favour of economic and monetary union, such as the elimination of exchange rate uncertainty, are well rehearsed. I do not accept the catalogue of ills that the hon. Member for Wolverhampton, South-West attributed to our membership of the exchange rate mechanism. During our period of membership, like myself, he spoke to many business men, who are quite given to writing to one about these matters. They emphasised that they wanted to know what price they could offer in advance. They wanted some stability rather than the loss that resulted from unpredictability.

I am rehearsing old arguments, but it is recognised that the collapse of black Wednesday was related not to the intrinsic weaknesses of the system but to the fact that the level at which we joined was too high to sustain and to our subsequent refusal to realign although the opportunity to do so existed. It is not altogether fair to make the accusations that the hon. Gentleman made. Considerable savings would be made by the elimination of transaction costs, the obvious example of which is for the individual but it is also noticeable for business.

The ecu undoubtedly would become one of the world's three major currencies, with the dollar and yen. I shall quote Sir Leon Brittan, which I do not do often.

Mr. David Harris (St. Ives)

Why not?

Sir Russell Johnston

I shall not go into that.

In 1990, Sir Leon said: Birmingham is considerably closer to Calais than to Glasgow. But even when the internal market is fully in place, selling from Birmingham to Calais is going to be more complicated, slower and more expensive than selling to Scotland, simply because, although we have a single market, we do not yet enjoy the benefits of a single currency. I accept that argument.

The benefits of EMU, in addition to the ones outlined above, which are specific to a single currency, are based mainly on the assumption that this will render economic policy more effective by having it conducted, or major elements of it conducted, at a more appropriate level—by which I mean supranational level—and because economic policy will in any event be heavily influenced by the Community countries that are most successful. It is increasingly clear that macro-economic policy can no longer be effectively controlled independently by individual European Community states. Black Wednesday was not the only example of that.

We are unequivocally committed to a federal union. The Maastricht treaty, despite the Government's denial, represents a significant step towards such a European union. The hon. Member for Milton Keynes, South-West quoted Chancellor Kohl, saying that political union is meaningless without economic and monetary union. That is undoubtedly true. The Government's recognition of that was reflected in their lack of enthusiasm for a supranational structure and their desire instead to concentrate on intergovernmentalism, which led to the three-pillared structure of the treaty.

The core of the treaty, including the economic sections, is clearly within the supranational institutional core of the Community, which makes our opt-out all the more tragic. I take the Minister's point about continuing to participate in policy making on EMU, but, like the hon. Member for Milton Keynes, South-West, I think that a semi-detatched position does not increase one's influence.

We must recognise that the problems facing economic and monetary union are great indeed. Many circumstances have changed since the treaty was first negotiated, and the timetable in particular will have to be reviewed. One cannot be optimistic about the possibility of maintaining it. The convergence criteria—inflation performance, Government debt, membership of the narrow band for two years and the durability criteria reflected in long-term interest rates—may prove to be too strict within the confines of the current timetable. Last year, if I remember correctly, only two countries met those requirements—France, which is not looking forward to such a good position now, and Luxembourg. Even Germany did not meet them. Clearly there can be no monetary union without the deutschmark; that would be quite unthinkable. The problems will be overcome only if member states work together to resolve the reorganisation of the ERM, the problems of the timetable and the difficulties caused by convergence criteria. The economic and political advantages to be gained by full economic and monetary union in the interdependent world in which we live seem well worth fighting for.

The opt-out and our non-commitment to move to stage 3 occupied much of the Financial Secretary's speech. We regret the opt-out and, logically, regret the unwillingness of the Government to take the other consequential steps, particularly making the Bank of England independent as a prelude to the establishment of one European Community central bank.

It is not often that I agree with the hon. Member for Wolverhampton, South-West about European issues, but his interventions on the basis of his experience with the Treasury and Civil Service Select Committee in France, Spain and Germany were very apposite and foreshadowed what we certainly fear; that our opt-outs will either relegate us to some subordinate position or compel us to adhere to or to shadow what other people determine.

Sir Trevor Skeet

I have listened to the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston) at length. Perhaps he will excuse me if I do not pursue him. Having been up all night, one is wilting a bit at this stage, so I shall cover the main points that I have in mind.

The most significant feature of last night's debate was that we covered three important groups of amendments on the banking system, economic policy and deficits, EMU, and traditional and second and third stages in the course of 24 hours. That is absolutely critical to the Government, because the success or failure of Maastricht will depend on monetary union and a single currency. It might have embarrassed the Government considerably if the arguments that we have been advancing appeared in local newspapers and on local radio. It is interesting that, of the 24 groups of amendments, only three relate to the economy, banking and the two stages. It is almost unique that these matters have been swept aside. After all, we are the representatives of the public and we are putting the arguments to them. If they cannot hear us because it is not recorded, they will not read them because Hansard is read probably only by ourselves.

There is another interesting point. Stages 1 to 3 will take us virtually from today through to 1 January 1999. We know that, under article N, we shall be renegotiating the treaty in 1996. Why are we legislating so far ahead when there are so many difficulties involved in passing the treaty? It would have made more sense not to have legislated to cover that period and instead looked at it carefully and decided, in 1996, whether we wanted all the convergence to go ahead to lead us to a single currency.

8.30 pm

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen)—who has left the Chamber—spoke about rejoining the ERM. I agreed with his analysis. We have no alternative. It is obligatory that we rejoin the ERM. The wording of some of the articles show that it is one of the criteria. For example: The observance of the normal fluctuation margins provided for by the Exchange Rate Mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other Member State". If that is one of the criteria, and we are outside the exchange rate mechanism, we shall have to get into it again to qualify for stage 3. That is only reasonable.

There is another way to look at it. According to article 109m: Until the beginning of the third stage, each Member State shall treat its exchange rate policy as a matter of common interest. That is an obligation that arises under the treaty.

The obligation on the EMS and the exchange rate mechanism is important. However, there are certain subsidiary obligations. Convergence, which I regard as extremely important, arises from article 2. Hon. Members who have spoken in the debate have raised that point on several occasions, so I shall not go over the same ground. I have spoken of article 109m, which sets out the exchange rate obligations, but I have not mentioned article 102a, which contributes to the achievements or the objectives of the treaty. That is another obligation that cannot be avoided. Article 103 says that we must agree with the economic policy of the union.

Let us have a look at those two. Article 102a says: Member States shall conduct their economic policies with a view to contributing to the achievements and objectives of the Community". That is an obligation because member states "shall" do something. There is no way to avoid that. Article 103 says: Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of article 102a. All those articles set out obligations under stage 2. They apply to the United Kingdom fully, as they apply to all the continental states. We have the option to opt into stage 3 if we wish to do so. Then, things alter, because we go over to the protocol and there are general dispensations and derogations at a future date which may be of advantage to us.

The interesting point about the debate in the past 24 hours is that many matters of concern to us—given that many people in Europe will be excited if we do not fulfil our obligations—are incompatible with Community obligations. For example, that is true of the floating of the exchange rate under both stages 1 and 2. If the other nations ventilate their complaints, that could lead to litigation before the European Court of Justice, which in turn could force the United Kingdom back into the ERM. I shall not go into it fully, but I shall set out some of the implications of a breach of that. The court could order us to return and impose a fine under article 171. There could be retaliatory action. All that would arise from that article.

Mr. Dorrell

This may be something of an abuse of our procedures, but I want to correct a statement that I made earlier in answer to an intervention from the hon. Member for Oxford, East (Mr. Smith). He asked me whether he needed to decide next year whether we would join the single currency. I replied that we had no such need and that our protocol allows us to exercise our option to join a single currency either at the time of the original report under paragraph 2 of article 109j or at any time after the start of stage 3. I also said that the convergence criteria were assessed for the period before the start of stage 3. That was wrong. The convergence criteria are assessed under the convergence protocol for the period before the submission of the report.

Sir Trevor Skeet

I am obliged for that clarification. If we decided to opt into stage 3, the protocol will begin to apply. Certain clauses will not apply to the United Kingdom. It is entirely different with regard to the ERM. The Minister has said that the Government would return the United Kingdom to the ERM when it was convenient to do so. However, that is conditional upon us returning at an early date.

Mr. Bill Walker

The Government have always said that we would return to the ERM when the conditions were right. In stage 2, the conditions are put in there under the statutory obligations.

Sir Trevor Skeet

That is correct. On one occasion, I heard the Chancellor say that the ERM was the best thing that he had ever entered. At a later date, he decided that he would have to come out of it. The Prime Minister shared that view. It is a big man who can think again and decide that it is best to get out. However, we are caught by the treaty and our obligations. If the other member states feel that, because of the size of the exchange rate and because we have a floating rather than a fixed currency we have an advantage, they can make complaints before the court and so force us back into the ERM, which could be damaging for the United Kingdom.

Those who qualify for going into the third stage cannot be identified at the moment. The conditions for the successful applicants are set out in article 109j. We know them well. They include inflation at the correct level, a satisfactory budget balance, a reasonable level of general Government debt and long-term bond yields at a certain rate. Figures that I got from the Treasury in February this year show that only one country would qualify—France. We cannot have entry into the third stage if only France is capable of doing so. The Bundesbank is important to Germany and to the whole Community. Germany is a bigger nation than ours, with 70 million people, and will obviously have to be there.

Established criteria mean something. We either walk through the portals and get into stage 3, or we are frustrated and cannot get in. That is a twin-speed Europe. It is no use saying that we will not have a twin-speed Europe; it is inevitable from the very conditions laid down in article 109j. Some nations will be getting away much faster than others, and at this stage it looks as though the United Kingdom may be in the slow lane. I hope not. I believe that several years ahead we may be able to improve our chances. At the lower end of the list there will be Portugal and Spain; at the higher end there will be Germany and France, and probably Luxembourg, the Netherlands and Belgium. That would make a fairly strong unit. This need not unduly upset the United Kingdom, which is extremely resourceful and has shown its resourcefulness over the years.

Switzerland is an example worth noting. It was invited to join the Community, but refused to do so, on the ground that it was extremely successful outside the Community. Its living conditions are excellent. Austria, too, is doing well. But many other countries would like to get into the Community at some stage in the game.

I ask the Committee to bear in mind the fact that we are but 12 nations, and two have a right of exemption in stage 3. When we add another four countries by 1996, and probably another four after that, what will be the situation in Europe? Will the Community collapse, or will it be held up by its own braces? I am very concerned about this, and I believe that more information should be made available to the public so that they can come to the right conclusions in time.

The Financial Secretary has said that he is quite prepared to go back into the ERM, on his own conditions, when the time is ripe for the United Kingdom. But we have heard other versions of this. We have heard that the time will be ripe only when German interest rates fall. I believe that the Prime Minister has said, too, that the time will be ripe only when the flaws in the situation are removed. What are the flaws? They have never been identified.

Schlesinger has said that there are no flaws and that he is quite prepared to abide by existing arrangements. Others have suggested that perhaps the yen and the dollar should be admitted before we get to stage 3. I do not know; I am concerned and I think that we should look into the whole matter very carefully before we make the final move.

I will say one thing with absolute certainty: while I agree that there is a two-speed Europe and there is likely to be one, I would not like to see a Bonn-Paris axis. That could be as dangerous as the situation that we had many years ago.

I suggest to the Committee that, before rushing to ratify the treaty, we think of some of the strange consequences that could overwhelm us. Russia now is on the brink of civil war—but I will not go too far down that road, Mr. Morris. There are other significant movements in Europe. The former Yugoslavia is upside down and is developing some resources, which will be discussed in the next series of amendments. I will not go too far down that road, because you might check me, Mr. Morris. I am always willing to oblige and, if I am wrong, I will make myself right. There are complications in Europe. We do not know what the situation is likely to be in France with a new right-wing Government. I will not go too far down that route, because I would be checked then also.

We are dealing with the three stages. On the acceptance of Maastricht, we will be in stage 1. On 1 January 1994, we will be in stage 2. We will amble on like everybody else through all the conditions, convergence principles, and so on, complying with the treaty, and complying with the small print, which many people have not been prepared to follow. Then we will come up to stage 3. Shall we go in or shall we remain outside?

We will have no option. We will come to that point and the Prime Minister will say that it is right for the United Kingdom to enter the third stage. By that time the spring will have sprung. It will be irrevocable. There will be fixed exchange rates and we will be tied to Europe, tied to the most powerful country. The most powerful country, of course, will be Germany; it is very competitive and it can destroy our economy.

8.45 pm

Mr. Irvine Patnick (Lords Commissioner to the Treasury)

rose in his place and claimed to move, That the Question be now put.

Question put, That the Question be now put:—

The Committee divided: Ayes 277, Noes 195.

Division No. 212]	[8.46 Pm
AYES
Adley, Robert	Bottomley, Rt Hon Virginia
Ainsworth, Peter (East Surrey)	Bowden, Andrew
Aitken, Jonathan	Bowis, John
Alexander, Richard	Brandreth, Gyles
Alton, David	Brazier, Julian
Amess, David	Bright, Graham
Ancram, Michael	Brooke, Rt Hon Peter
Arbuthnot, James	Brown, M. (Brigg & Cl'thorpes)
Arnold, Jacques (Gravesham)	Browning, Mrs. Angela
Arnold, Sir Thomas (Hazel Grv)	Bruce, Ian (S Dorset)
Ashby, David	Bruce, Malcolm (Gordon)
Ashdown, Rt Hon Paddy	Burns, Simon
Atkinson, Peter (Hexham)	Burt, Alistair
Baker, Nicholas (Dorset North)	Butterfill, John
Baldry, Tony	Campbell, Menzies (Fife NE)
Banks, Matthew (Southport)	Carlile, Alexander (Montgomry)
Banks, Robert (Harrogate)	Carlisle, Kenneth (Lincoln)
Bates, Michael	Carrington, Matthew
Batiste, Spencer	Channon, Rt Hon Paul
Bellingham, Henry	Chapman, Sydney
Beresford, Sir Paul	Churchill, Mr
Blackburn, Dr John G.	Clarke, Rt Hon Kenneth (Ruclif)
Booth, Hartley	Clifton-Brown, Geoffrey
Boswell, Tim	Coe, Sebastian
Bottomley, Peter (Eltham)	Colvin, Michael

Congdon, David	Hunt, Sir John (Ravensbourne)
Conway, Derek	Hunter, Andrew
Coombs, Anthony (Wyre For'st)	Jack, Michael
Coombs, Simon (Swindon)	Jackson, Robert (Wantage)
Cope, Rt Hon Sir John	Johnson Smith, Sir Geoffrey
Cormack, Patrick	Johnston, Sir Russell
Couchman, James	Jones, Gwilym (Cardiff N)
Curry, David (Skipton & Ripon)	Jones, Ieuan Wyn (Ynys Môn)
Dafis, Cynog	Jones, Nigel (Cheltenham)
Davis, David (Boothferry)	Jopling, Rt Hon Michael
Day, Stephen	Kellett-Bowman, Dame Elaine
Deva, Nirj Joseph	Kennedy, Charles (Ross,C&S)
Dickens, Geoffrey	Key, Robert
Dorrell, Stephen	Kilfedder, Sir James
Douglas-Hamilton, Lord James	King, Rt Hon Tom
Dover, Den	Kirkwood, Archy
Duncan, Alan	Knight, Mrs Angela (Erewash)
Dunn, Bob	Knight, Greg (Derby N)
Durant, Sir Anthony	Knight, Dame Jill (Bir'm E'st'n)
Eggar, Tim	Knox, David
Elletson, Harold	Kynoch, George (Kincardine)
Emery, Rt Hon Sir Peter	Lait, Mrs Jacqui
Evans, David (Welwyn Hatfield)	Lamont, Rt Hon Norman
Evans, Jonathan (Brecon)	Lennox-Boyd, Mark
Evans, Nigel (Ribble Valley)	Lester, Jim (Broxtowe)
Evans, Roger (Monmouth)	Lidington, David
Evennett, David	Lightbown, David
Faber, David	Lilley, Rt Hon Peter
Fabricant, Michael	Lloyd, Peter (Fareham)
Fairbairn, Sir Nicholas	Llwyd, Elfyn
Fenner, Dame Peggy	Luff, Peter
Field, Barry (Isle of Wight)	Lynne, Ms Liz
Fishburn, Dudley	MacGregor, Rt Hon John
Forsyth, Michael (Stirling)	MacKay, Andrew
Forth, Eric	Maclean, David
Foster, Don (Bath)	Maclennan, Robert
Fowler, Rt Hon Sir Norman	McLoughlin, Patrick
Fox, Dr Liam (Woodspring)	Madel, David
Fox, Sir Marcus (Shipley)	Maitland, Lady Olga
Freeman, Roger	Malone, Gerald
French, Douglas	Mans, Keith
Gale, Roger	Marland, Paul
Gallie, Phil	Marshall, John (Hendon S)
Garel-Jones, Rt Hon Tristan	Marshall, Sir Michael (Arundel)
Garnier, Edward	Martin, David (Portsmouth S)
Gillan, Cheryl	Mates, Michael
Goodson-Wickes, Dr Charles	Mawhinney, Dr Brian
Gorst, John	Mayhew, Rt Hon Sir Patrick
Grant, Sir Anthony (Cambs SW)	Mellor, Rt Hon David
Greenway, Harry (Ealing N)	Merchant, Piers
Greenway, John (Ryedale)	Milligan, Stephen
Griffiths, Peter (Portsmouth, N)	Mills, Iain
Grylls, Sir Michael	Mitchell, Andrew (Gedling)
Gummer, Rt Hon John Selwyn	Monro, Sir Hector
Hague, William	Montgomery, Sir Fergus
Hamilton, Rt Hon Archie (Epsom)	Moss, Malcolm
Hamilton, Neil (Tatton)	Needham, Richard
Hampson, Dr Keith	Nelson, Anthony
Hanley, Jeremy	Neubert, Sir Michael
Hannam, Sir John	Newton, Rt Hon Tony
Hargreaves, Andrew	Nicholls, Patrick
Harris, David	Nicholson, David (Taunton)
Haselhurst, Alan	Nicholson, Emma (Devon West)
Hawkins, Nick	Norris, Steve
Hayes, Jerry	Onslow, Rt Hon Sir Cranley
Heald, Oliver	Oppenheim, Phillip
Heath, Rt Hon Sir Edward	Ottaway, Richard
Heathcoat-Amory, David	Page, Richard
Hendry, Charles	Paice, James
Heseltine, Rt Hon Michael	Patnick, Irvine
Hicks, Robert	Patten, Rt Hon John
Higgins, Rt Hon Sir Terence L.	Pattie, Rt Hon Sir Geoffrey
Hill, James (Southampton Test)	Pawsey, James
Hogg, Rt Hon Douglas (G'tham)	Peacock, Mrs Elizabeth
Horam, John	Pickles, Eric
Hordern, Rt Hon Sir Peter	Porter, Barry (Wirral S)
Howard, Rt Hon Michael	Portillo, Rt Hon Michael
Howarth, Alan (Strat'rd-on-A)	Powell, William (Corby)
Howell, Rt Hon David (G'dford)	Rathbone, Tim
Hunt, Rt Hon David (Wirral W)	Redwood, John

Richards, Rod	Thomason, Roy
Riddick, Graham	Thompson, Sir Donald (C'er V)
Rifkind, Rt Hon. Malcolm	Thompson, Patrick (Norwich N)
Roberts, Rt Hon Sir Wyn	Thornton, Sir Malcolm
Robertson, Raymond (Ab'd'n S)	Thurnham, Peter
Robinson, Mark (Somerton)	Townsend, Cyril D. (Bexl'yh'th)
Rowe, Andrew (Mid Kent)	Tracey, Richard
Rumbold, Rt Hon Dame Angela	Tredinnick, David
Ryder, Rt Hon Richard	Trotter, Neville
Sackville, Tom	Twinn, Dr Ian
Sainsbury, Rt Hon Tim	Tyler, Paul
Scott, Rt Hon Nicholas	Vaughan, Sir Gerard
Shaw, David (Dover)	Viggers, Peter
Shaw, Sir Giles (Pudsey)	Waldegrave, Rt Hon William
Shephard, Rt Hon Gillian	Walden, George
Shepherd, Colin (Hereford)	Waller, Gary
Shersby, Michael	Ward, John
Smith, Tim (Beaconsfield)	Wardle, Charles (Bexhill)
Soames, Nicholas	Waterson, Nigel
Spencer, Sir Derek	Wells, Bowen
Spicer, Sir James (W Dorset)	Wheeler, Rt Hon Sir John
Spink, Dr Robert	Whitney, Ray
Spring, Richard	Whittingdale, John
Sproat, Iain	Widdecombe, Ann
Squire, Robin (Hornchurch)	Wiggin, Sir Jerry
Stanley, Rt Hon Sir John	Wigley, Dafydd
Steen, Anthony	Willetts, David
Stephen, Michael	Wolfson, Mark
Stern, Michael	Wood, Timothy
Stewart, Allan	Yeo, Tim
Streeter, Gary	Young, Sir George (Acton)
Sumberg, David
Sykes, John	Tellers for the Ayes:
Taylor, John M. (Solihull)	Mr. Timothy Kirkhope and
Taylor, Matthew (Truro)	Mr. Robert Hughes.
Temple-Morris, Peter
NOES
Abbott, Ms Diane	Connarty, Michael
Adams, Mrs Irene	Cook, Frank (Stockton N)
Ainger, Nick	Corbett, Robin
Ainsworth, Robert (Cov'try NE)	Corston, Ms Jean
Anderson, Donald (Swansea E)	Cryer, Bob
Anderson, Ms Janet (Ros'dale)	Cummings, John
Ashton, Joe	Cunliffe, Lawrence
Barnes, Harry	Cunningham, Jim (Covy SE)
Barron, Kevin	Darling, Alistair
Battle, John	Davidson, Ian
Bayley, Hugh	Davies, Bryan (Oldham C'tral)
Beckett, Rt Hon Margaret	Davies, Rt Hon Denzil (Llanelli)
Bell, Stuart	Davis, Terry (B'ham, H'dge H'l)
Benn, Rt Hon Tony	Denham, John
Bennett, Andrew F.	Dewar, Donald
Bermingham, Gerald	Dixon, Don
Betts, Clive	Dobson, Frank
Boateng, Paul	Donohoe, Brian H.
Body, Sir Richard	Dowd, Jim
Boyce, Jimmy	Dunwoody, Mrs Gwyneth
Boyes, Roland	Eagle, Ms Angela
Bradley, Keith	Eastham, Ken
Bray, Dr Jeremy	Enright, Derek
Brown, N. (N'c'tle upon Tyne E)	Etherington, Bill
Budgen, Nicholas	Field, Frank (Birkenhead)
Burden, Richard	Flynn, Paul
Byers, Stephen	Foster, Rt Hon Derek
Caborn, Richard	Fraser, John
Callaghan, Jim	Fyfe, Maria
Campbell, Mrs Anne (C'bridge)	Galbraith, Sam
Campbell-Savours, D. N.	Gapes, Mike
Canavan, Dennis	Garrett, John
Cann, Jamie	George, Bruce
Carlisle, John (Luton North)	Gerrard, Neil
Carttiss, Michael	Gill, Christopher
Cash, William	Godman, Dr Norman A.
Chisholm, Malcolm	Godsiff, Roger
Clapham, Michael	Golding, Mrs Llin
Clarke, Eric (Midlothian)	Gordon, Mildred
Clelland, David	Gorman, Mrs Teresa
Clwyd, Mrs Ann	Grant, Bernie (Tottenham)
Cohen, Harry	Griffiths, Nigel (Edinburgh S)

Griffiths, Win (Bridgend)	Mudie, George
Grocott, Bruce	Mullin, Chris
Gunnell, John	Murphy, Paul
Hain, Peter	Oakes, Rt Hon Gordon
Hall, Mike	O'Brien, William (Normanton)
Hanson, David	O'Hara, Edward
Heppell, John	Olner, William
Hinchliffe, David	Pendry, Tom
Hogg, Norman (Cumbernauld)	Pickthall, Colin
Home Robertson, John	Pike, Peter L.
Hood, Jimmy	Pope, Greg
Hoon, Geoffrey	Powell, Ray (Ogmore)
Howarth, George (Knowsley N)	Prentice, Ms Bridget (Lew'm E)
Howells, Dr. Kim (Pontypridd)	Prentice, Gordon (Pendle)
Hughes, Kevin (Doncaster N)	Prescott, John
Hughes, Roy (Newport E)	Primarolo, Dawn
Hutton, John	Quin, Ms Joyce
Illsley, Eric	Randall, Stuart
Ingram, Adam	Rogers, Allan
Jackson, Glenda (H'stead)	Ross, Ernie (Dundee W)
Jackson, Helen (Shef'ld, H)	Ross, William (E Londonderry)
Jessel, Toby	Rowlands, Ted
Jones, Barry (Alyn and D'side)	Ruddock, Joan
Jones, Lynne (B'ham S O)	Sheldon, Rt Hon Robert
Kaufman, Rt Hon Gerald	Shepherd, Richard (Aldridge)
Keen, Alan	Shore, Rt Hon Peter
Kennedy, Jane (Lpool Brdgn)	Short, Clare
Khabra, Piara S.	Skeet, Sir Trevor
Kilfoyle, Peter	Skinner, Dennis
Knapman, Roger	Smith, Andrew (Oxford E)
Lawrence, Sir Ivan	Smith, Llew (Blaenau Gwent)
Leighton, Ron	Spearing, Nigel
Litherland, Robert	Stott, Roger
Livingstone, Ken	Taylor, Mrs Ann (Dewsbury)
Lloyd, Tony (Stretford)	Trimble, David
Lord, Michael	Turner, Dennis
Loyden, Eddie	Vaz, Keith
McAllion, John	Walker, A. Cecil (Belfast N)
McAvoy, Thomas	Walker, Bill (N Tayside)
McCartney, Ian	Walker, Rt Hon Sir Harold
Macdonald, Calum	Walley, Joan
McKelvey, William	Wardell, Gareth (Gower)
Mackinlay, Andrew	Wareing, Robert N
McLeish, Henry	Watson, Mike
McMaster, Gordon	Wicks, Malcolm
Madden, Max	Wilkinson, John
Maginnis, Ken	Williams, Rt Hon Alan (Sw'n W)
Mandelson, Peter	Winnick, David
Marek, Dr John	Winterton, Mrs Ann (Congleton)
Marshall, David (Shettleston)	Winterton, Nicholas (Macc'f'ld)
Marshall, Jim (Leicester, S)	Worthington, Tony
Martin, Michael J. (Springburn)	Wray, Jimmy
Michie, Bill (Sheffield Heeley)	Wright, Dr Tony
Milburn, Alan
Miller, Andrew	Tellers for the Noes:
Molyneaux, Rt Hon James	Mr. Jon Owen Jones and
Morley, Elliot	Mr. Alan Meale.
Morris, Estelle (B'ham Yardley)

Question accordingly agreed to.

Question put accordingly, That the amendment be made:

The Committee divided: Ayes 80, Noes 275.

Division No. 213]	[9 pm
AYES
Abbott, Ms Diane	Carlisle, John (Luton North)
Adams, Mrs Irene	Carttiss, Michael
Ashton, Joe	Cash, William
Barnes, Harry	Chisholm, Malcolm
Benn, Rt Hon Tony	Clapham, Michael
Bermingham, Gerald	Cohen, Harry
Biffen, Rt Hon John	Connarty, Michael
Body, Sir Richard	Corston, Ms Jean
Boyce, Jimmy	Cryer, Bob
Budgen, Nicholas	Cummings, John
Burden, Richard	Cunliffe, Lawrence
Callaghan, Jim	Davidson, Ian
Canavan, Dennis	Davies, Rt Hon Denzil (Llanelli)

Davis, Terry (B'ham, H'dge H'l)	Martin, Michael J. (Springburn)
Dunwoody, Mrs Gwyneth	Michie, Bill (Sheffield Heeley)
Etherington, Bill	Molyneaux, Rt Hon James
George, Bruce	Olner, William
Gerrard, Neil	Parry, Robert
Gill, Christopher	Ross, William (E Londonderry)
Godman, Dr Norman A.	Sheldon, Rt Hon Robert
Godsiff, Roger	Shepherd, Richard (Aldridge)
Gorman, Mrs Teresa	Shore, Rt Hon Peter
Grant, Bernie (Tottenham)	Skeet, Sir Trevor
Hood, Jimmy	Skinner, Dennis
Howarth, George (Knowsley N)	Smith, Llew (Blaenau Gwent)
Hughes, Roy (Newport E)	Spearing, Nigel
Jessel, Toby	Tapsell, Sir Peter
Jones, Lynne (B'ham S O)	Trimble, David
Kennedy, Jane (Lpool Brdgn)	Walker, A. Cecil (Belfast N)
Knapman, Roger	Walker, Bill (N Tayside)
Lawrence, Sir Ivan	Watson, Mike
Leighton, Ron	Wilkinson, John
Livingstone, Ken	Williams, Rt Hon Alan (Sw'n W)
Lord, Michael	Winnick, David
Loyden, Eddie	Winterton, Mrs Ann (Congleton)
McAllion, John	Winterton, Nicholas (Macc'f'ld)
McAvoy, Thomas	Wray, Jimmy
McKelvey, William	Wright, Dr Tony
Madden, Max
Maginnis, Ken	Tellers for the Ayes:
Marshall, David (Shettleston)	Mr. Alan F. Bennett and
Marshall, Jim (Leicester, S)	Mr. Ted Rowlands.
NOES
Adley, Robert	Congdon, David
Ainsworth, Peter (East Surrey)	Conway, Derek
Aitken, Jonathan	Coombs, Anthony (Wyre For'st)
Alexander, Richard	Coombs, Simon (Swindon)
Alton, David	Cope, Rt Hon Sir John
Amess, David	Cormack, Patrick
Ancram, Michael	Couchman, James
Arbuthnot, James	Curry, David (Skipton & Ripon)
Arnold, Jacques (Gravesham)	Dafis, Cynog
Arnold, Sir Thomas (Hazel Grv)	Davis, David (Boothferry)
Ashby, David	Day, Stephen
Ashdown, Rt Hon Paddy	Dickens, Geoffrey
Atkinson, Peter (Hexham)	Dorrell, Stephen
Baker, Nicholas (Dorset North)	Douglas-Hamilton, Lord James
Baldry, Tony	Dover, Den
Banks, Matthew (Southport)	Duncan, Alan
Banks, Robert (Harrogate)	Dunn, Bob
Bates, Michael	Durant, Sir Anthony
Batiste, Spencer	Eggar, Tim
Bellingham, Henry	Elletson, Harold
Beresford, Sir Paul	Emery, Rt Hon Sir Peter
Blackburn, Dr John G.	Enright, Derek
Booth, Hartley	Evans, David (Welwyn Hatfield)
Boswell, Tim	Evans, Jonathan (Brecon)
Bottomley, Peter (Eltham)	Evans, Nigel (Ribble Valley)
Bottomley, Rt Hon Virginia	Evans, Roger (Monmouth)
Bowden, Andrew	Evennett, David
Bowis, John	Faber, David
Brandreth, Gyles	Fabricant, Michael
Brazier, Julian	Fairbairn, Sir Nicholas
Bright, Graham	Fenner, Dame Peggy
Brooke, Rt Hon Peter	Field, Barry (Isle of Wight)
Brown, M. (Brigg & Cl'thorpes)	Fishburn, Dudley
Browning, Mrs. Angela	Forsyth, Michael (Stirling)
Bruce, Ian (S Dorset)	Forth, Eric
Bruce, Malcolm (Gordon)	Foster, Don (Bath)
Burns, Simon	Fowler, Rt Hon Sir Norman
Burt, Alistair	Fox, Dr Liam (Woodspring)
Butterfill, John	Fox, Sir Marcus (Shipley)
Campbell, Menzies (Fife NE)	Freeman, Roger
Carlile, Alexander (Montgomry)	French, Douglas
Carlisle, Kenneth (Lincoln)	Gale, Roger
Carrington, Matthew	Gallie, Phil
Channon, Rt Hon Paul	Garel-Jones, Rt Hon Tristan
Churchill, Mr	Garnier, Edward
Clarke, Rt Hon Kenneth (Ruclif)	Gillan, Cheryl
Clifton-Brown, Geoffrey	Goodson-Wickes, Dr Charles
Coe, Sebastian	Gorst, John
Colvin, Michael	Grant, Sir Anthony (Cambs SW)

Greenway, Harry (Ealing N)	Mellor, Rt Hon David
Greenway, John (Ryedale)	Merchant, Piers
Grylls, Sir Michael	Milligan, Stephen
Gummer, Rt Hon John Selwyn	Mills, Iain
Hague, William	Mitchell, Andrew (Gedling)
Hamilton, Rt Hon Archie (Epsom)	Monro, Sir Hector
Hamilton, Neil (Tatton)	Montgomery, Sir Fergus
Hampson, Dr Keith	Moss, Malcolm
Hanley, Jeremy	Needham, Richard
Hannam, Sir John	Nelson, Anthony
Hargreaves, Andrew	Neubert, Sir Michael
Harris, David	Newton, Rt Hon Tony
Haselhurst, Alan	Nicholls, Patrick
Hawkins, Nick	Nicholson, David (Taunton)
Hayes, Jerry	Nicholson, Emma (Devon West)
Heald, Oliver	Norris, Steve
Heath, Rt Hon Sir Edward	Onslow, Rt Hon Sir Cranley
Heathcoat-Amory, David	Oppenheim, Phillip
Hendry, Charles	Ottaway, Richard
Heseltine, Rt Hon Michael	Page, Richard
Hicks, Robert	Paice, James
Higgins, Rt Hon Sir Terence L.	Patnick, Irvine
Hill, James (Southampton Test)	Patten, Rt Hon John
Hogg, Rt Hon Douglas (G'tham)	Pattie, Rt Hon Sir Geoffrey
Horam, John	Peacock, Mrs Elizabeth
Hordern, Rt Hon Sir Peter	Pickles, Eric
Howard, Rt Hon Michael	Porter, Barry (Wirral S)
Howarth, Alan (Strat'rd-on-A)	Portillo, Rt Hon Michael
Howell, Rt Hon David (G'dford)	Powell, William (Corby)
Hughes Robert G. (Harrow W)	Rathbone, Tim
Hunt, Rt Hon David (Wirral W)	Redwood, John
Hunt, Sir John (Ravensbourne)	Richards, Rod
Jack, Michael	Riddick, Graham
Jackson, Robert (Wantage)	Rifkind, Rt Hon. Malcolm
Johnson Smith, Sir Geoffrey	Roberts, Rt Hon Sir Wyn
Johnston, Sir Russell	Robertson, Raymond (Ab'd'n S)
Jones, Gwilym (Cardiff N)	Robinson, Mark (Somerton)
Jones, Ieuan Wyn (Ynys Môn)	Rowe, Andrew (Mid Kent)
Jones, Nigel (Cheltenham)	Rumbold, Rt Hon Dame Angela
Jopling, Rt Hon Michael	Ryder, Rt Hon Richard
Kellett-Bowman, Dame Elaine	Sackville, Tom
Kennedy, Charles (Ross,C&S)	Sainsbury, Rt Hon Tim
Key, Robert	Scott, Rt Hon Nicholas
Kilfedder, Sir James	Shaw, David (Dover)
King, Rt Hon Tom	Shaw, Sir Giles (Pudsey)
Kirkhope, Timothy	Shephard, Rt Hon Gillian
Kirkwood, Archy	Shepherd, Colin (Hereford)
Knight, Mrs Angela (Erewash)	Shersby, Michael
Knight, Greg (Derby N)	Smith, Tim (Beaconsfield)
Knight, Dame Jill (Bir'm E'st'n)	Soames, Nicholas
Knox, David	Spencer, Sir Derek
Kynoch, George (Kincardine)	Spicer, Sir James (W Dorset)
Lait, Mrs Jacqui	Spink, Dr Robert
Lamont, Rt Hon Norman	Spring, Richard
Lennox-Boyd, Mark	Sproat, Iain
Lester, Jim (Broxtowe)	Squire, Robin (Hornchurch)
Lidington, David	Stanley, Rt Hon Sir John
Lilley, Rt Hon Peter	Steen, Anthony
Lloyd, Peter (Fareham)	Stephen, Michael
Llwyd, Elfyn	Stern, Michael
Luff, Peter	Stewart, Allan
Lyell, Rt Hon Sir Nicholas	Streeter, Gary
Lynne, Ms Liz	Sumberg, David
Macdonald, Calum	Sykes, John
MacGregor, Rt Hon John	Taylor, John M. (Solihull)
MacKay, Andrew	Taylor, Matthew (Truro)
Maclean, David	Temple-Morris, Peter
Maclennan, Robert	Thomason, Roy
McLoughlin, Patrick	Thompson, Sir Donald (C'er V)
Madel, David	Thompson, Patrick (Norwich N)
Maitland, Lady Olga	Thornton, Sir Malcolm
Malone, Gerald	Thurnham, Peter
Mans, Keith	Townsend, Cyril D. (Bexl'yh'th)
Marland, Paul	Tracey, Richard
Marshall, John (Hendon S)	Tredinnick, David
Marshall, Sir Michael (Arundel)	Trotter, Neville
Martin, David (Portsmouth S)	Twinn, Dr Ian
Mates, Michael	Tyler, Paul
Mawhinney, Dr Brian	Vaughan, Sir Gerard
Mayhew, Rt Hon Sir Patrick	Viggers, Peter

Waldegrave, Rt Hon William	Wigley, Dafydd
Walden, George	Willetts, David
Waller, Gary	Wolfson, Mark
Ward, John	Wood, Timothy
Wardle, Charles (Bexhill)	Yeo, Tim
Waterson, Nigel	Young, Sir George (Acton)
Wells, Bowen
Wheeler, Rt Hon Sir John	Tellers for the Noes:
Whitney, Ray	Mr. Sydney Chapman and
Widdecombe, Ann	Mr. David Lightbown.
Wiggin, Sir Jerry

Question accordingly negatived.

The Chairman

We now move to the group on foreign and security and amendment No. 227. Mr. William Cash? Mr. Spicer? Mr. Gill? Mr. Cran? Mr. Shepherd? [Interruption.] Mr. Shepherd.

Mr. Rogers

On a point of order, Mr. Morris. Before you called Mr. Shepherd, I had moved the amendment formally.

The Chairman

The hon. Gentleman did not.

Mr. Rogers

Yes, I did. I stood and moved it formally.

The Chairman

I am afraid that the hon. Member cannot do that. It is not the procedure. I have to go through the list of people who are attached to the amendment. Mr. Shepherd has the floor to move the amendment.

Mr. Richard Shepherd (Aldridge-Brownhills)

Then I move it formally as well.

Amendment proposed: No. 227, in page 1, line 9, after 'II', insert 'except Article 238'.—[Mr. Richard Shepherd.]

The Chairman

With this, it will be convenient also to discuss the following: Amendment No. 231, in page I, line 9, after 'II', insert 'except Article 228'.

Amendment No. 232, in page 1, line 9, after 'II', insert 'except Article 228a'.

Amendment No. 30, in page 1, line 9, leave out 'and IV' and insert 'IV and V.'.

Amendment (a) to amendment No. 30, in line 1, at end add '(except Article J.2 of Title V)'. Amendment (b) to amendment No. 30, in line 1, at end add '(except Article J.4 of Title V)'. Amendment (c) to amendment No. 30, in line 1, at end add 'but not Article J.1 in Title V thereof'. Amendment (d) to amendment No. 30, in line 1, at end add 'but not Article J.3 in Title V thereof'. Amendment (e) to amendment No. 30, in line 1, at end add 'but not Article J.5 in Title V thereof'. Amendment (f) to amendment No. 30, in line 1, at end add 'but not Article J.6 in Title V thereof'. Amendment (g) to amendment No. 30, in line 1, at end add 'but not Article J.7 in Title V thereof'. Amendment (h) to amendment No. 30, in line 1, at end add 'but not Article J.8 in Title V thereof'. Amendment (i) to amendment No. 30, in line 1, at end add 'but not Article J.9 in Title V thereof'. Amendment (j) to amendment No. 30, in line 1, at end add 'but not Article J.10 in Title V thereof. Amendment (k) to amendment No. 30, in line 1, at end add 'but not Article J.11 in Title V thereof'. Amendment No. 224, in page 1, line 9, leave out 'and IV' and insert 'IV and V'.

New clause 5—Foreign, security and defence policy— 'The Secretary of State shall lay before Parliament a report of any case in which decisions taken, or proposed to be taken, by the Union in the course of implementing a common foreign, security and defence policy (pursuant to Article B in Title I of the Maastricht Treaty) are in his opinion inimical to the best interests of the United Kingdom.'.

Mr. David Howell (Guildford)

The amendments relate to the part of the Bill—and the relevant part of the treaty—concerning provisions on a common foreign and security policy. Article J of the treaty states: A common foreign and security policy is hereby established which shall be governed by the following provisions. The provisions follow.

This is supposed to be the part of the treaty, and the part of the Bill relevant to the treaty, in which the full machinery of the Community—and the machinery of the Commission—are to be kept at bay. We are presented here with one of the pillar elements of the treaty, which will be governed by intergovernmental co-operation rather than by the machinery of the Community. We should first examine the degree to which the Community machinery will indeed be kept out of the creation of a common foreign and security policy.

9.15 pm

Dr. Godman

I thank the right hon. Gentleman for giving way with his characteristic courtesy. Will he confirm that states making formal application for membership of what will be the European union must accept common security and defence policy as it stands?

Mr. Howell

"Confirm" is too strong a word, but I understand that will be the case, although states may seek certain derogations in the negotiations leading to their membership. Broadly speaking, the hon. Gentleman is right: they will be embraced in this part of the union, and will be covered by the pillar of intergovernmental operations that is supposed to deliver a common foreign policy.

Mr. John Wilkinson (Ruislip-Northwood)

At the Edinburgh summit, did not the Danes explicitly secure a derogation on defence? Denmark is not a member of the Western European Union, and it does not want the defence obligations contained in the treaty.

Mr. Howell

What Denmark did and not get at the Edinburgh summit is a very interesting, almost surreal subject. The decisions about derogation for Denmark were not made by the Community; they were decided by the individuals who happened to be present as members of the European Council of Ministers, but not in their capacity as Community members. Oddly enough, however, the decision—which was not a Community decision—that Denmark should have those derogations was then recorded in the minutes of Community affairs.

The set of derogations for Denmark has an almost Hamlet-like, almost ghostlike, quality. No one is quite sure what the Danes have or have not secured for themselves, apart from feeling that they are in some way not bound by these matters.

Mr. Nigel Spearing (Newham, South)

rose—

Mr. Rowlands

rose—

Mr. Howell

I want to proceed with my speech. I have already given way twice in two minutes.

First, I want to examine the extent to which we shall see a separation between the activities of the Community machinery—particularly the activities of the Commission—and the activities of the Council of Ministers, acting in its intergovernmental role of dealing with foreign affairs. That requires examination, because the Commission has competences in external affairs. Those external affairs are meant to be of a commercial and economic nature, and indeed they are; but a large proportion of all foreign policy issues are intimately, inextricably linked with commerce and external financial matters. We must ask to what extent it will be possible, in practice, for a separation to be maintained between the foreign policy issues that do not impinge on the competence of the Commission and the Community, and the foreign policy issues that are inextricably woven together in both economic and non-economic matters.

It will be difficult, first, because, as I have said, up to 80 per cent. of all foreign-policy issues touch on commercial, economic and financial matters. Secondly, as the treaty makes clear, the Commission will have a seat on the Council of Ministers. It will have certain rights to initiate ideas and proposals in the Council on issues of foreign policy. I hope that we can ensure that, as the treaty develops and emerges, that does not lead to a gradual erosion of the pillar that we are discussing until it becomes a mere needle and eventually evaporates altogether, so that foreign policy and common security policy, in practice, become the bailiwick of the Community machinery.

That would be a pity, and it would go flatly against what some of us want to see, which is that the pillar elements in the treaty—the intergovernmental elements—far from being eroded and weakened, need to be strengthened so as to foster what my right hon. Friend the Foreign Secretary calls an alternative model for European development. If we are to develop that, it is a strengthening of the pillars, rather than a weakening and erosion, that we need to see.

Another difficulty is that the treaty insists in its early articles, long since debated, that there should be one institutional framework in which all activities, whether the intergovernmental pillar ones that we are discussing or the many issues that have already been discussed at great length in Committee, should be contained. That is a concept that we shall need to challenge as we begin to reform and revise the treaty in the period leading up to 1996, when I hope that there will be a major contribution, not least by Government and the United Kingdom, to a new constitution for Europe that will be rather different from the one that we shall find immediately after the completion of the Maastricht process.

If we are to see a common foreign policy handled in a sensible, pragmatic way, and not turned into a mish-mash and blur of the sort that I shall outline later, leading to serious foreign policy errors, it is important that in due course we should move away from a single institutional framework that embraces all the activities of European nations, large and small, ancient and not so ancient—in other words, one massive structure or network. That would be a wrong starting point, and certainly a wrong finishing point. It is important for us to recognise that in future there can be different institutional frameworks to deal with different issues. Foreign policy and, I suspect, security and defence policies are different in their texture from some of the other issues that are embodied in the Rome treaty, the Single European Act and the Maastricht treaty.

Mr. Spearing

I think that the right hon. Gentleman has reached the kernel of an important issue. Has he noticed that in the title that he is discussing there are at least 20 references to the Council, and we know that the Council will be the pivot of a single foreign and security policy? The right hon. Gentleman is the Chairman of the Select Committee on Foreign Affairs, who will be much involved in the matters that we are discussing. That being so, I am glad that he is contributing to the debate. Has the right hon. Gentleman questioned any Minister on how the separation between intergovernmental and other issues will be dealt with in the general council of the Council, which is sometimes called the Foreign Council, by a single organisation in the Council, and a single organisation under COREPER? Surely that is the unity that he has said that he fears.

Mr. Howell

The answer is yes. The Select Committee on Foreign Affairs has so questioned Ministers, and it hopes in due course to report to the House of Commons on its conclusions. Perhaps I should not go into too much detail about the conclusions we draw, but the evidence that has emerged suggests that it is very difficult to draw a permanent, hard and fast line between these two vast areas of foreign policy; and that the dangers of blurring and coincidence are considerable. We shall have to think of ways—they are not embodied in this treaty—of ensuring the continuation of the intergovernmental process by which we set great store and which is said to give this treaty a different flavour from previous European treaties. That process must be preserved and strengthened.

Secondly, not only do we want to avoid a single institutional framework but we note—perhaps we need to reinforce—the absence of any great convergence of foreign policy interests between the different powers and member states of the Community. We must be very careful not to try to impose a false convergence of foreign policy outlook on the interests of member states. If we do impose one, it will lead to unfortunate results and we will be pushing against reality, which is going the other way.

The truth is that, just as the economies of the member countries are not, alas, converging—in many ways they are diverging—so the politics and foreign policy concerns of the Community countries, although they overlap and there are areas of common interest that make a good case for working closely together in intergovernmental cooperation, are also growing apart. Changes of emphasis and contrasts of emphasis in foreign policy are becoming sharper as we move into the 1990s than they were in the 1980s. One has only to take a brief Cook's tour of continental Europe to see how these divergencies are growing. Unless we take them into account and understand them—as Keynes used to say, we must deal with what is really happening, not with what the theory says should be happening—we do not have much hope of establishing an effective framework for our foreign common policy.

The Germans, for instance, have their own agenda: they are concerned with unification. They are also on the other side of the Community; they look eastwards, and, as they always have been, their concerns are with their relations with central and eastern Europe—and with the great turmoil which is Russia today. That is their primary concern. Many Germans think of nothing else and are not interested in other dimensions of foreign policy. We must not criticise them for that.

I am not sure what the French agenda is. The French are going through a political earthquake, and what France's foreign policy priorities will be after it I am not sure. The concern in many French circles, however, is partly with eastern Europe—our concern, too—but much more with the Maghreb. The French look across the Mediterranean to the great nations of Algeria and Morocco, bound up as they are with French history and emotions. The primary fear of the Quai D'Orsay is about the problem of what will happen in these countries. Will there be a growth of vicious fundamentalism along the north African coast, ousting the moderate regimes that are trying to come to terms with the modern world?

Mr. Winnick

Was not there a good illustration of the failure of the member states of the European Community to reach a common foreign policy when we were faced with criminal aggression in 1990 in the form of the Iraqi invasion of Kuwait? The need then, as the right hon. Gentleman realised at the time, was to take up arms to end the criminal aggression. If we had waited for a common foreign policy to emerge, Kuwait would probably still be occupied by Iraq, unless, of course, the United States had acted alone.

Mr. Howell

The hon. Gentleman has made a very good point, and other examples could be cited. There is no doubt that, in the particular case to which the hon. Gentleman referred, great forces were at work in the world which drew the allies together in a coalition that was subsequently blessed by the United Nations. It was not actually a UN force. The idea of a common European policy was secondary and almost invisible.

9.30 pm

The Minister of State, Foreign and Commonwealth Office (Mr. Tristan Garel-Jones)

Does my right hon. Friend agree that, during the events to which the hon. Member for Walsall, North (Mr. Winnick) referred, there was a consistent foreign policy on the part of EC countries through European political co-operation? However, there was no co-ordinated defence response from our European partners. That is one reason why the United Kingdom Government have taken the initiative in seeking to begin to develop, through the Western European Union, a defence dimension for Europe compatible with NATO. However, the political response during the crisis was there.

Mr. Howell

That is partly true, but if my right hon. Friend the Minister recalls the hectic days before the final decision to send troops into Kuwait, he will remember that there were a number of rather dramatic wobbles in the French approach to the matter, quite aside from the views from Bonn and Rome. In the end, a common foreign policy view may have emerged, but it was sadly something following the event rather than at the cutting edge of the event.

Before the intervention by the hon. Member for Walsall, North (Mr. Winnick), I was touring the Europe of today trying to illustrate the dangers of stamping too tight a mould on the concept of common foreign policy which, I do not dispute, is useful in certain circumstances. However, if it were a general demand for uniformity, that would be gravely mistaken.

I have already referred to Germany and France. Italy is also a puzzle today. There are those, including senior statesmen in Italy, who question whether Italy will even exist as a state in a few years. It is certainly in a difficult position in respect of formulating and pursuing clear foreign policy. The previous Italian Government had a sort of agenda, particularly in respect of the Balkans. However, that is hardly a sound basis for a co-ordinated foreign policy.

Similarly, I am uncertain about the perspectives and priorities of Spain. It seems that the Spanish socialist Government are approaching the end of their time. A new Government will emerge who will probably remain very committed to the European Community, although the high promises on the economic side are clearly not being met. There is considerable disappointment about that. I really would not like to comment on current Spanish policy priorities, but I do not feel any particular closeness between what the Spanish are saying and what we are saying and identifying as our priorities.

Even poor little Belgium, which seemed to be the acme of the common approach whether in monetary affairs, economic competences or foreign policy, now seems to be quivering on the bough. It faces considerable difficulties on the economic side and in respect of foreign and internal domestic policies.

We have our own foreign policy priorities, part of which relate to the European context. In respect of many of those priorities, we want to work closely with our continental neighbours, not least in establishing a common line in respect of what we can do—if anything can be done at all—about the chaos in Russia or whether we will see that vast federation splinter into 20 countries in the same way that the Soviet Union splintered.

We have a very different perspective at the western end of Europe from that of the Germans and perhaps of almost all our continental neighbours. I have one example that I should like to draw to the attention of the Committee. We have a connection with, experience of and involvement in the Asian scene, particularly that of the south-east, as a result of chance, history and commerce of a kind that is not shared by any of the other Community countries. There is no doubt that events are now shaping in Asia in a hectic way as China begins to become the great economic power that it was always bound to become one day. The Chinese economic regions of Guangdong, Fukian, Hong Kong and Taiwan are beginning to trade with each other and generate capital flows across south-east Asia on a scale that makes our efforts in Europe look puny. It has almost reached the point where the inter-regional trade in south-east Asia is greater than ours in Europe.

I do not want to pursue the sensitive and difficult issue of Hong Kong, but, partly because of that and our traditional interests concerned with our commerce and our involvement and attitude of mind to that region, we are extremely interested in that issue, and we have a great deal to offer.

I make no apology for grinding a favourite axe, but there is no doubt that we and the Japanese have an intimacy and an understanding that is probably unmatched throughout the Community. Fears are aroused in Europe about a Japanese trade invasion, but hopes are also expressed about Japanese investment—a curious ambiguity of sentiments.

There is no doubt that Britain has a particular role to play in interpreting Japan to the rest of the Community and the rest of the Community to Japan. I would be sad to see that unique role submerged or rolled into a common foreign policy of the Community. I accept that the Commission has competencies concerning external trade and negotiates with the Japanese, but it is important to consider security and foreign policies, which are of vast importance.

We will have to become increasingly concerned with the defence structure of Asia. We will have to consider the attitude of the Asians, particularly the Japanese, to Russia, of which they see a far more brutal side than our own. That is of crucial importance to us.

Mr. Mike Gapes (Ilford, South)

Is it not a fact that one of the problems of a relationship between the EC and Japan is its strong desire to become a permanent member of the United Nations Security Council? In the long term, our relationship will also be influenced by our relations, as Europeans, with Russia. The Japanese-Russian dispute over the northern islands, as the Japanese call them, is also important.

Surely it is absolutely impossible for us to have an important influence on the strategic debate within the EC unless we firmly endorse the processes towards the development of a common European policy on all aspects of security and international affairs.

Mr. Howell

I quibble only with the word "all" in the hon. Gentleman's intervention. Whether one can apply to all aspects the commonality, the commonisation—to conjure up a hideous word that is not in the dictionary—I rather doubt. The position of Japan vis-a-vis Russia is delicate and sensitive. The debate about its northern Islands is curious, especially when one considers how much territory the old Soviet Union conceded. It is hard for us to understand why the Russians want to hang on so grimly to such rather sad little islands. It is something, however, of great concern to Moscow and leads to extremely bad relations between that city and Tokyo.

Britain has a better understanding of some of the issues and how they might be resolved in a way to enable Japan to help Russia. If ever there was a natural matching, it must be between eastern Russia, a vast area of natural resources and commodities, and Japan, an island factory that uses them all up. That natural partnership does not exist at the moment because those countries detest each other. Perhaps we can help to overcome some of the problems.

Finally, I come to the saddest aspect of all of the attempts to put an over-zealous mould on the European foreign policies of EC members, and that is the Balkan fiasco. Here was an occasion when there appeared to be a European issue and the European nations said that not only was it a European issue, but that, in a sort of inverted way, as the tail came to wag the dog, we must invent a common European foreign policy and demonstrate that there was such a thing in order to deal with the Balkan issue. As a result, some fatal steps were taken, the costs of which, the penalties of which, the blood from which, we see now flowing before us on the television screens almost nightly.

I refer in particular to the decision, taken in the name of a common European foreign policy, to recognise as independent sovereign states Croatia and Bosnia—certainly in the case of Bosnia, flatly against the advice and overriding the criteria laid down by Mr. Badinter of the conseil d'etat, who was authorised to judge and assess whether those countries fulfilled the criteria to be recognised as independent sovereign states. He came to the conclusion that they were not, but they were recognised because, we were told, it was a choice between the common sense, particularly strong here in London and a view particularly held by my right hon. Friend the Foreign Secretary, with his vast practical grasp of these things, that it was wrong, and the demand that it had to be, because if everyone did not go along with the Germans they would do it anyway and that would bust up the common European foreign policy. Therefore, we had the extraordinary situation where unity was put before sanity.

Mr. George Walden (Buckingham)

My hon. Friend makes a valid point, but the situation is even worse than he expresses it, because there was a sort of unity of contradictions. Those who believed as a dogma in a common European foreign policy, and therefore wanted to demonstrate it in ex-Yugoslavia in the way that my right hon. Friend has described, were supported, paradoxically, by those who opposed, vehemently and dogmatically, a common European foreign policy and stressed much more the nationalism in Europe. Those people pressed strongly—I shall name no eminent names—without necessarily even knowing in some cases that there were Muslims in that part of the world, from an opposite side of the spectrum for the catastrophic recognition of parts of former Yugoslavia. Therefore, we had the terrible situation where two dogmas collided to produce the sort of catastrophe that my right hon. Friend has described.

Mr. Howell

My hon. Friend is right and the catastrophe has scarcely begun. There is no conceivable end in sight. We now see the heroic attempts—I do not want to denigrate them in any way—to try to create some order after each stage, as the situation gets more and more violent in the Balkans, being frustrated more and more frequently. We now have the realisation that the famous maps put forward by Lord Owen and Cyrus Vance are unacceptable and, according to, I think, the chief of the general staff in today's papers, unenforceable.

There never was a possibility of even an EC-UN solution being imposed on the Bosnian quagmire, the Bosnian "sponge" and the Bosnian tragedy. Some difficult lessons are yet to be learnt about that sad area before there is the slightest hope that the balance of terror will be so great that the bloodshed and the shooting will cease and it will be possible to police some action to halt the atrocious Serbian aggression in some areas and the atrocities of other groups of combatants in other areas. Basically there must be a recognition—and it will take much swallowing —that the Serbians have won the war. The question is whether any of us, Europeans together or apart, with the Americans or with the Russians, have the political will to roll back the gains that the aggressors have made.

9.45 pm

Mr. Patrick Cormack (Staffordshire, South)

Does it not give the most appalling signals of impotence that what has been recognised, rightly or wrongly, as an independent sovereign state is being subjugated by another sovereign state, with all the accompanying atrocities which are far worse than any since the second world war? United Nations soldiers, European soldiers and some British soldiers stand by—I make no criticism of them—while women and children are slaughtered in front of them. Is not that a damning indictment of our impotence?

Mr. Howell

It is a damning indictment of many things, including past mistakes, present impotence and failure to understand with our fingertips what is going on and what motivates people in that part of the world. We can either go on analysing the mistakes that have been made or we can say that we must try to do something constructive to halt the horrific problem that has been created.

We must ensure that both in the treaty and especially in the revision work that is to he done once the treaty is ratified we preserve and strengthen the pillars of intergovernmental co-operation. We put a question mark over the qualified majority voting. I was never in favour of that, although it is in the treaty. Even when joint action has been agreed, that system is a mistake. We must ensure that, when we build the European structure which will lie beyond Maastricht and which will have many qualities that are designed for a decentralised Europe, as my right hon. Friend the Foreign Secretary put in, we keep the pillars strong, pure and separate from erosion by ideas of imposing common foreign policy on all aspects of the diverse foreign interests of the different Community members, with the rich and encouraging differences that make up modern Europe.

Mr. Rogers

I thank the right hon. Gentleman who, I presume, is giving way. I hope that he will carry on and give us more of his expert advice. Does the right hon. Gentleman believe that structures should be set up on co-operation on these issues which are more elaborate than those proposed in the treaty and in the general context of the development of NATO?

Mr. Howell

I sensed that the Committee wanted to move on and I did not want to detain it for too long. My answer to the hon. Gentleman is no. More elaborate structures are not what we need. Clearer structures of intergovernmental co-operation can certainly be developed. We certainly need structures that have a more strongly entrenched element to prevent the constant trend towards centralisation. The language and vocabulary in the treaty beyond this treaty, which should be seen through but must be built on, should be less patronising and should recognise that power comes upwards from the people. We need such powers governing matters such as a common foreign policy, as well as the more centralised competences, rather than powers grandly devolved from the centre. We do not need elaborate structures.

Mr. Michael Lord (Suffolk, Central)

My right hon. Friend has given us a delightful explanation of the situation as he sees it, and in his usual precise and gentle way, he has taken to pieces the proposals that we are debating. Does he believe that the right way forward is to ratify the treaty and hope to take things forward in the direction that he wants, or does he think that that is the wrong signal and that now is the time to say, "We don't like the way it is going. We think that much of it is wrong and this is the point where we should stop and look at it anew"?

Mr. Howell

My hon. Friend tempts me, but, no, I do not. Elsewhere, far outside the House, decisions may be taken and events will occur—perhaps in Copenhagen on 18 May or in some constitutional labyrinth in Germany, where there are difficulties with ratification of the treaty—which may stop this part of the Maastricht process. It would be utterly wrong for us actively to seek to halt the Maastricht process and its implications.

Why do I think that? Because I want to see a reshaping of Europe in ways that will be far more congenial to the British temperate and attitudes and to the new applicants—the EFTA countries, the new democracies of eastern Europe and, dare I say it, even to millions of people in France, Germany and Italy. I want Britain to be involved in that and to recognise that, after 10 or 20 years of having been told that we must trail after the train of superior neighbours who will rush ahead otherwise, it is now the other way round and that, through our rather cooler thinking and our insistence on the derogations that we sought in the original Maastricht treaty—not least in the creation of the pillar of foreign policy separate from the Community—we may be in a position, if we can get the confidence in ourselves, which we always seem to lack at the crucial moment, to lead and shape the Europe of the 1990s.

Mr. Rogers

I accept the right hon. Gentleman's advice that it would be wrong to set up elaborate structures. The right hon. Member for Bridgwater (Mr. King) is present; when he was Secretary of State for Defence, Britain took the lead in setting up a rapid reaction corps. The Franco-German brigade is being developed and I should be interested to hear the views of the right hon. Member for Guildford on the development of a European security force.

Mr. Howell

I do not think that these are beginnings. Practical bilateral and intergovernmental arrangements are being made between Community countries. People always underestimate, because there is little rhetoric attached to it, the closeness of French and British co-operation. We hear tremendous speeches about the Franco-German brigade, but the reality is that French and British senior soldiers and military personnel are co-operating in a most intimate and effective way. Such intergovernmental co-operation is good and welcome

The NATO structure has been, to put it rather brutally, looking for a new role and new mission in the post-cold war world. I think that it will find one because it is a highly efficient model of intergovernmental co-operation. It is almost a supranational model, but it is a very subtle arrangement that we should perhaps think of copying in other areas. That NATO model has at its heart something which is very important: it is a transatlantic structure. What it tells us, the message of a successful NATO that it blinks at us, is that it is not just Britain but America that needs to be at the heart of Europe if we are to establish an effective European security structure to meet this extraordinary new world, in which we do not know where the next threat will come from.

Mr. Cash

My right hon. Friend has employed a seductive argument and put a great deal of emphasis on the separation of the pillars, but I am sure that he will agree that the Commission is associated with those activities. Furthermore, when one looks into the details a little more, one sees a problem. Under article J, the member states effectively subsume their security interests in a common position. It says: The Member States shall support the Union's external and security policy actively and unreservedly in a spirit of loyalty and mutual solidarity. They shall refrain from any action which is contrary to the interests of the Union or likely to impair its effectiveness as a cohesive force in international relations. The Council shall ensure that these principles are complied with. Does my right hon. Friend have any concern that, in going down that route, the wise words that he used about the value that can be placed on our pragmatism might be subsumed by the problem of our being locked into words that give too much emphasis to the union and to the Commission and effectively undermine the virtues of the policies that he has been advocating for so long?

Mr. Howell

That depends—this is where I differ from many of the things that my hon. Friend says—on the confidence with which one approaches those matters. He has described half the orange—the half that involves the Commission sitting round the table with the Council of Ministers. The Commission is apparently entitled to be another country and one with a considerable voice. There are dangers, as I began by saying, that the pillar dealing with certain foreign policy issues—not all—in a common way, an intergovernmental way, may be eroded, weakened and undermined by the sort of factors that my hon. Friend fears.

I say to my hon. Friend that he should not have too much fear. Let us go into the Europe of the next five years in a spirit of confidence that we can hold the line and indeed reverse some of the trends that we have seen rolling over us in the past 20 years. I believe that it can be done, but my hon. Friend does not.

Mr. Peter Mandelson (Hartlepool)

I found interesting, in the context of his speech, the right hon. Gentleman's remarks about NATO. I assume that he is aiming to conclude his speech by 10 o'clock. In the remaining three minutes, will he say something about the role of the Western European Union as an expression of the European Community's defence identity and whether it might have a peacekeeping role in tandem with the European Community's operations and interest in these matters?

Mr. Howell

The hon. Gentleman leads me to subjects beyond those on which I wanted to touch this evening. I do not want to keep the Committee any longer. As he knows, the problem with the WEU is that it is not an organisation in the sense that NATO is, and some of its members are not members of the Community, and some members of the Community are not members of the WEU. There would be real difficulties in trying to elevate that, as some of the Maastricht treaty architects wanted, into a European security force.

I hope that, when we have ratified Maastricht—I believe that we shall unless the Danes sink it—the intergovernmental quality will be not merely defended but vigorously upheld and developed so as to give us a strong European foreign policy mechanism, which allows us to have our differences of view and pursue those differences without being submerged in a Euro-blur or a ludicrous foreign policy adventure of the kind that has brought only bloodshed and tragedy to the Balkans. I see that many of my hon. Friends wish to contribute to the debate, and I hope that they will have the opportunity to catch your eye, Mr. Morris.

9.59 pm

Mr. Geoffrey Hoon (Ashfield)

I am grateful, Mr. Morris, that once again you have given me the opportunity to interest the Committee rather late in the proceedings.

I congratulate the right hon. Member for Guildford (Mr. Howell) and hope to interest the Committee in the next 60 seconds as much as he did for the duration of his speech.

It now goes without saying that the main security problems for western Europe are no longer the military threat from the former Soviet Union or any of its successors, or indeed from the other former Warsaw pact countries. The problems now are the dangers arising from economic, political and ethnic instabilities.

It being Ten o'clock, THE CHAIRMAN left the Chair to report progress and ask leave to sit again.

Committee report progress; to sit again tomorrow.