European Communities (Amendment) Act (Hansard, 12 February 1996)

§ The Paymaster General (Mr. David Heathcoat-Amory)
I beg to move, That this House takes note with approval of the Government's assessment as set out in the Finance Statement and Budget Report 1996–97 for the purposes of section 5 of the European Communities (Amendment) Act 1993. The purpose of the debate and the motion is to satisfy section 5 of the European Communities (Amendment) Act 1993, which is sometimes called the Maastricht Act. It requires Parliament to approve the assessment of Britain's economic and budget provisions, which the Government then send to the European Commission. The information required is contained in the "Financial Statement and Budget Report", which the House will know as the Red Book. Since the introduction of the unified Budget, that report has contained the Government's tax and spending plans and has described how they are related to our economic and political objectives. Chapter 1 of the Red Book states that the report "will form the basis" of the report required under section 5.
In the past, the Opposition have had difficulty understanding that section 5 debates are not held to approve the Government's economic strategy. That strategy was debated after the Budget statement and continues as part of the Finance Bill proceedings.
My hon. Friends will take pride in the figures in the Red Book and in the stable macro-economic framework, sustainable growth, low inflation, falling unemployment and the firm grip on public expenditure demonstrated in those tables and pages. Those factors were all central to the Budget strategy and have already been approved by the House.
This evening's debate is about the transmission of that information to the European Commission in order to comply with our treaty obligations, and I invite the House to approve the figures.

§ Mr. William Cash (Stafford)
Will my right hon. Friend give way?

§ Madam Speaker
Order. The Minister is apparently not giving way.

§ Mr. Peter Shore (Bethnal Green and Stepney)
According to the motion, the House is invited to take note "with approval" of the Government's assessment as set out in the "Financial Statement and Budget Report". I must say two things straight away. First, I do not approve of the figures and forecasts in the Red Book; secondly, still less do I approve of the treaty obligations under the Maastricht treaty that we have entered into and to which the motion is related.
I do not think that the House and the country have fully understood that, while the Government—in my view, properly—at least negotiated an opt-out from the full acceptance of stage 3 of economic and monetary union and the single currency, they did not opt out of stages 1 and 2 of economic and monetary union. This evening, we are debating our obligations to economic and monetary union under stages 1 and 2.
755 I wish to draw attention to the obligations that are placed on us by our acceptance of stages 1 and 2 of the treaty. First, and this is the reason for the debate tonight, article 103 states: For the purpose of this multi-lateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy". It further states: the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the Member States". If the Commission does not like what it sees and if the figures do not conform to what has been agreed, it can put proposals to the Council that may acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public. Straight away, we have a bit of coercion in stage 2 of economic and monetary union.
The obligations on us go far beyond the obligation to make reports about our economic policy and to have them monitored and invigilated, because we also come under the terms of article 104c, which, as the House knows, deals with the subject of "excessive government deficits". That article states that the Commission shall examine compliance with budgetary discipline on the basis of … two criteria". I think we are all familiar with those criteria—that the public sector borrowing requirement should not be more than 3 per cent. of gross domestic product, and that the ratio between national debt and GDP should not be higher than 60 per cent.
Article 104c also contains a formidable arsenal of coercive measures that are available to the Commission and the Council if in their judgment our progress towards the 3 per cent. borrowing requirement for GDP is inadequate. If it is inadequate, the Council may make recommendations by qualified majority vote and, furthermore, it can make public its recommendations if the member state does not comply.

§ Mr. Tony Marlow (Northampton, North)
Will the right hon. Gentleman give way?

§ Mr. Shore
I hesitate to give way, because I realise that the House will have many demands on the limited time available.
Article 109m, which the House has never properly considered, applies now, and it states: Until the beginning of the third stage that is, during stages 1 and 2— each Member State shall treat its exchange-rate policy as a matter of common interest. The Government are making a report to the Council of Ministers, and presumably they made a similar report last year. What communication have the Government had with the Commission on progress towards economic union? What observations has the Commission made on the fact that the Government's public sector borrowing requirement, standing this year at 4.75 per cent., is well in excess of the reference figure of 3 per cent. contained in the treaty? What have the Government done to treat their exchange rate policy as 756 a matter of common interest"? Have they deliberately, as it were, operated on the exchange rate so that it is not a floating exchange rate, but a managed one shadowing the ecu and the currencies of the European Community?
Those are important matters, because they directly affect not only the macro-economic policy, our competitiveness through the exchange rate and our interest rates, because we are also pledged to price stability, but the crucial balance between public expenditure and taxation. The idea that that decision, which has belonged to Chancellors of the Exchequer ever since we have been an independent country, should be in thrall to the opinions of the Commission and the majority of the Council of Ministers is unacceptable to us.
Is that not why we have seen not merely cuts in public expenditure and increases in taxation in the past two years, but why the Government, whatever the immediate argument might be about the size of our PSBR last year, this year and the next, are hellbent on conforming with the criteria in the Maastricht treaty so that they will be able to join the third stage of economic and monetary union just as soon as the decision is made in 1998?
The Chancellor said in a reply to a question that I put to him on Thursday: I am a strong advocate of getting down towards a balanced budget and of low inflation. They happen to be the Maastricht criteria as well"— happen to be— but as we move towards achieving them it is doing no harm to this country's economy."—[Official Report, 8 February 1996; Vol. 271, c. 452.] That may be true this year, but what about the next two or three years? What about the circumstances in which, once we are caught within the frame, we have to keep our borrowing requirements below 3 per cent.?
My objection is not only to the effect that is having on British policy but to the general deflationary effects that the constraints of economic and monetary union are having on the economic policies of virtually all our European neighbour states. Two months ago, Paris was in a state of riot as Parisians objected to the growing deflation to which President Chirac has unfortunately agreed in his arrangements with Chancellor Kohl. Just a week ago, Germany announced its highest unemployment figure for more than 50 years at 4.1 million. It is desperately worried about the problem of having to face the challenge of the competitiveness of countries whose currencies are free or floating and not pegged.
I remind the House, in case hon. Members have not seen it, of the interesting statement made by the former socialist Finance Minister of Spain, Miguel Boyer, as reported in The Times on 9 February. He said: Never has so much damage been done to so many by so few fanatics". He summed up by saying: I do not share the dream of many technocrats and certain elite politicians of maintaining to the death a fiction about dates and conditions of convergence, hoping to catch nations by surprise with economic and monetary union, the significance and costs of which they do not know. It is clear that a new mood is developing across Europe—a recognition of the nonsense, the madness and the unacceptability of adopting rules that will govern our economic lives and that have been conceived by arbitrary 757 decisions in Brussels and elsewhere in Europe. I believe that options are available to the Government and that we must set our ambitions much higher than simply keeping out of an economic and monetary union and a single currency. We should do all in our power—we have the opportunity to do so—to veto the wretched business throughout Europe.

§ Mr. Barry Legg (Milton Keynes, South-West)
This is a timely debate upon the issues of convergence and the monetary union. Paragraph 4.10 of the Red Book, which sets out the Government's policies on the matter, states: The general government financial deficit—which is also the measure used to monitor budget deficits under the European Union excessive deficits procedure—is forecast at £33½ billion for 1995–96, 4¾ per cent. of GDP. By 1996–97, it is forecast to be close to the 3 per cent. reference level for deficits used in the excessive deficit procedure. That policy sounds fairly innocuous, but it contains economic, political and democratic perils. If we look a little further than the United Kingdom, we find that those perils are manifesting themselves even more strongly in France and in Germany.

§ Mr. Nicholas Budgen (Wolverhampton, South-West)
Does my hon. Friend agree that he is being most ungenerous? The Chancellor, during his Budget speech, particularly commended his Budget on the basis that it would conform to the convergence criteria. Those of us who have known the Chancellor for a long time know that, for at least 30 years, he has been in favour of further integration into the European Community. His Budget was but a step in that direction. I think my hon. Friend ought to be more generous to my right hon. and learned Friend.

§ Mr. Legg
My hon. Friend has certainly known my right hon. and learned Friend the Chancellor of the Exchequer much longer than I. I would not seek to quarrel with him on those points. I believe that there are no automatic pilots with respect to economic policy; there are no two or three criteria that one can follow in economic policy to produce economic success. The world is not like that. If we look to continental Europe and, in particular, to what is happening in France and Germany, we see the follies of blindly attempting to follow convergence criteria.
We see the folly of following deflationary policies—both in fiscal and monetary terms. In continental Europe, fiscal conservatism, fiscal consolidation and inflation competition are all taking place at the same time. The terms of the convergence criteria on inflation require member states to be in the top three countries—or as close as possible to the top three countries—in inflation terms. France and Germany have suffered from overtight monetary policies over the past few years.

§ Mr. Cash
Does my hon. Friend agree that the reply that the right hon. Member for Bethnal Green and Stepney (Mr. Shore) received from the Chancellor of the Exchequer shows that it may be, by chance, that we will comply with those criteria, but that overlooks the fundamental fact that this is a legal framework which is 758 binding upon all the member states under articles 2, 103 and 104c? As a result, we are bound to comply with these criteria, irrespective of whether we want to do so. That is the greatest problem. If we are to retain our determination to achieve our own objectives, we should do so on our own terms and not because it is imposed upon us.

§ Mr. Legg
My hon. Friend is absolutely right when he says that those are legal obligations that we willingly placed on ourselves—legal obligations under British and European law. I know that my hon. Friend spent some time studying the treaty when we debated it in the House. If we closely examine our legal obligations, specifically article 104c, we find that there is considerable flexibility for interpretation in the excess budget deficit procedure.
Most hon. Members probably believe that there is a 3 per cent. limit to budget deficits, and that countries that enter the single currency will have to meet the 3 per cent. deficit criteria, but that is not the position. A country does not need to have a deficit within 3 per cent. to achieve economic convergence and move to a single currency.
Article 104c says, about the definition of the Government deficit requirement, 3 per cent. or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value". Under the Maastricht treaty, that is the definition on which a group of politicians will decide whether we move to a single currency. They will sit in judgment and decide whether Europe's economies have converged sufficiently. They do not have to consider 3 per cent. They need only ask, "Is it close? Is the excess over 3 per cent. only exceptional and temporary?"

Several hon. Members
rose—

§ Mr. Legg
I give way to my hon. Friend the Member for Northampton, North (Mr. Marlow).

§ Mr. Marlow
I think my hon. Friend can put his nightmare on one side, because I believe that it will not happen. No Conservative Government will take Britain into European monetary union. The economies of France and Germany are so destroyed and distorted that the political will would not endure a sufficient time to take them into economic and monetary union.
Perhaps my hon. Friend would go one further and look at Italy. Does he realise that the debt in Italy is such that to pay the annual interest on that debt costs Italy more than paying for defence, education, social security and health put together? Is there any chance that Italy will be able to join monetary union?

§ Mr. Legg
I am grateful to my hon. Friend for those points. I know that he is a close follower of European affairs, and I am sure that it will not have escaped his notice that Mr. Weigel, the German Finance Minister, commented clearly on Italy's financial position in the autumn; it is obvious that the Germans do not want the Italians in the single currency. They accept the argument that my hon. Friend has made, that Italian debt is far too high. I am sure that, when the decision is made in 1998, Italy will not be part of the single currency.

§ Mr. Budgen
I am sure that my hon. Friend responds most politely to my hon. Friend the Member for 759 Northampton, North (Mr. Marlow), who, of course, is well known as an intellectual with a detailed interest in the minutiae of European politics, but many of us who take a more relaxed and ill-informed view of European politics approach those things with a certain amount of diffidence and say that it is difficult enough to understand the politics of our country without necessarily understanding the politics of what are now the great multitude of members of the European Union.
Is it not possible for us to say, "Perhaps they do want to join a single currency. Perhaps, for reasons of their history and their economies, it is right for them to join a single currency. We rather doubt that it will be in their long-term interests, but it is not for us, in our diffidence and uncertainty, to express an opinion about what is good for them"? Is it not important for us to express an opinion about what is right for our country, and is it not right for us to say—

§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. Interventions should be short.

§ Mr. Legg
I am grateful to my hon. Friend for those comments. We cannot altogether forget those countries and their economic affairs because, in 1998, the Prime Minister of this country must sit down with the other Heads of Government and make a judgment about the Italian economy. He has to make a judgment.

§ Mr. Budgen
Why?

§ Mr. Legg
It is a requirement under the terms of the Maastricht treaty, which is the law of the land. I should have thought that my hon. Friend would appreciate that by now. The Prime Minister of the United Kingdom will have to make a judgment about the Italian economy in 1998, and he will have to cast a vote when it comes to deciding whether Italy should join the single currency. I suspect, that if the Government cast a vote, it will not be in favour of Italy joining the single currency. That, however, is the procedure that we have agreed. In that sense, the Maastricht treaty has brought Europe closer together.
Convergency criteria are creating deflationary pressures on the continent. Unemployment in France is over 12 per cent. The figures from Germany last week were extremely worrying and disturbing. More than 4 million are unemployed in Germany. These two countries are trying to achieve the criteria, including a budget deficit of 3 per cent. At the same time, however, they are pursuing restrictive monetary policies that are impeding growth in their economies. In having overshot their deficit levels, their growth is much lower than expected—it is only about 1.5 per cent.
The required criteria cannot blithely be followed. If monetary policy is overtight, unemployment increases and the budget deficit rises steadily. The process then becomes self-defeating.

§ Mr. Nigel Spearing (Newham, South)
I happen to agree with the hon. Gentleman's most recent point. Earlier, however, he suggested that there was a degree of flexibility. Does he agree that article 104c(2)(b) sets out two criteria? The hon. Gentleman quoted the first, which is to some degree an exception. The second, which is to some extent in parallel, states: 760 whether the ratio of government debt to gross domestic product exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace. Is that not also a constraint that adds to the difficulties that the hon. Gentleman has mentioned?

§ Mr. Legg
I do not think that it is that strong a constraint. Again, it is a matter of judgment. The ratio is sufficiently diminishing and approaching the reference level at a satisfactory pace. There is tremendous scope for judgment over such phraseology.
If the hon. Gentleman doubts that, I suggest that he talks to German politicians about the prospects for Belgium joining the single currency. German politicians say, "Of course, the Benelux will have to join the single currency." Belgium's debt level is about 130 per cent., but that is not considered to be an impediment. Luxembourg, the only country meeting the criteria, has the same currency as Belgium. In that context, the politicians will not see an impediment in 1998 in bringing in the countries that they believe have sufficiently converged.
So we have deflationary policies on the continent. At the same time, we have the franc fort policy. We all know that it is an extremely damaging policy for the French economy. It is dragging down economic growth in France and driving up unemployment. Why does France continue to pursue such crazy economic policies? Why do the French not look over the continent? Why do they not look to the United Kingdom, where we have a floating exchange rate?
Why do they not recognise that, when the UK came out of the exchange rate mechanism, unemployment started to fall, exports started to increase and there were no worries about the exchange rate with the dollar? Why does France not say, "Floating is the right way to go. Let us abandon the franc fort policy and get our interest rates down"? The base rate is 7 per cent., and inflation is less than 2 per cent. Why does it continue to inflict such punishment on the economy and on the French people? The answer is political: there is a political will in France and Germany to have monetary union.
An objective analysis of the economic criteria and their consequences would lead to a rejection of the whole concept. There is no such analysis because of the political will behind the concept. When French or German politicians are challenged on the subject, they accept that there is economic nonsense in the system, but they then say, "But of course there must be political union as well." The German Chancellor and the President of the Bundesbank are completely frank about it.
We have had the message loud and clear from continental politicians, so why do not we hear it, and say, "Not only is economic and monetary union bad economically, it is not the right course for Britain politically; we do not want further political integration and a European super-state"?

§ Mr. Cash
My hon. Friend makes a fundamental point. Therefore, does he agree that the only way that we can get out of the situation is not merely to wait for a collapse and the disorder that would follow, but to take the opportunity of the intergovernmental conference to 761 renegotiate the treaty and lead Europe back to common sense? We should do that to get away from the madness that is now infecting the whole of the European Union.

§ Mr. Legg
My hon. Friend makes a valuable point.

§ Mr. Budgen
Will my hon. Friend give way?

§ Mr. Legg
Perhaps I may be allowed to deal with the intervention by my hon. Friend the Member for Stafford (Mr. Cash). It is time for Britain to take a lead on this important issue. That would not only help our partners to abandon the economic nonsense upon which they are engaged, but enable them to look more closely at the political consequences of their action.
The French Government still believe that there is a good prospect of Britain joining the single currency. From the British and French points of view, there would be nothing better than to make our position clear and say no to a single currency. The French would then understand that, if they wanted to go into a single currency, they would be going in with Germany.

§ Mr. Bernard Jenkin (Colchester, North)
Perhaps my hon. Friend would clarify one matter. Some of my colleagues suggest that this problem will go away because the convergence criteria cannot be satisfied and that, at the very least, France and Germany will probably seek a delayed start date to economic and monetary union. Does my hon. Friend share that opinion, or does he think that, because of their political objectives, France and Germany will drive ahead, come what may?

§ Mr. Legg
I think that France and Germany will drive ahead because of their political motives.

§ Mr. Budgen
Will my hon. Friend give way?

§ Mr. Legg
Perhaps I could finish dealing with the point before giving way.
Many times in the past, this project seemed to have been derailed. In the Danish referendum, the Danish people voted against the whole project, but it was afterwards put back on the rails. We thought we saw the break-up of the exchange rate mechanism in August 1993, but the ERM was reconstructed with 15 per cent. bands and the project went on. As I have said, political will and legal obligations are driving this project and I cannot see it being derailed unless Britain explains the economic and political disadvantages.

§ Mr. Budgen
Why do we have to keep waiting for it to be derailed in Europe? Many people concede that it may be right for some European countries. It would be a great impertinence for us to tell them what was right for them. Surely it is the role of political leaders in this country to decide what is right for Britain and simply to say, diffidently and kindly, "It may be right for you but it is wrong for us."

§ Mr. Legg
My hon. Friend makes a good point. The British Government should certainly say that they consider that the single currency is wrong for Britain and 762 for the British people. However, we cannot look at ourselves as an economic island. Many of our exports go to France and Germany. In the Red Book, my right hon. and learned Friend the Chancellor has forecast that we will have 3 per cent. economic growth this year. I believe that that is extremely unlikely. One of the reasons is that economic growth in France and Germany is so poor because those countries are following their current policies. I see no harm in Her Majesty's Government talking about not only the constitutional but the political aspects.
Economic and monetary union would be damaging economically. I do not believe that the idea of a single currency will work, even between Germany and France. Last week, we had an extremely serious development in the concept of the single currency. The Bundestag acted to reduce the mobility of labour in Europe. It passed a law ensuring that foreign workers could not be paid less than German national workers. That will impede the mobility of labour in Europe.
When one is committed to the concept of a single currency, to take measures to reduce mobility of labour is highly irresponsible in economic terms. It is particularly so, given that the German Government and people do not want to raise their taxes to make higher levels of fiscal transfer payments around the single currency area.

§ Mr. David Shaw (Dover)
My hon. Friend has suggested that the mechanism is being driven by a political, not an economic, agenda. He and I are both accountants. Does he suggest that the only way in which economic and monetary union between France and Germany is likely to come about, especially if it is to involve some other countries, is if the convergence criteria are fiddled? A number of countries cannot meet the criteria in the next five, 10, 15 or possibly 20 years. If that is the case, the only way in which economic and monetary union can come about is by fiddling the books.

§ Mr. Legg
Like my hon. Friend, I am extremely reluctant to predict precisely economic conditions in the coming few years; to predict deficits or inflation levels for any country. However, I think that he has grasped the point that the only way in which the criteria are likely to be followed and monetary union is likely to take place is if there is flexibility and, in my hon. Friend's terms, the figures are fiddled and countries do not stick to the letter of the legislation. That is a great danger.
If the treaty were inspired by a desire to achieve true economic and monetary union, we would not have these odd convergence criteria. We would look at all sorts of convergence criteria within the real economy. We would look at levels of unemployment, how financial markets worked in different countries, trade flows and so on if the desire was genuinely economic. If it were genuinely economic, would we need the criteria? If countries are coming together, markets will produce convergence. If we trade more and more with Germany or with France, convergence will take place naturally. It is not for states to enforce convergence on themselves and other states.
I believe that the EMU project is political. It is politically damaging. It is damaging for democracy. In France, President Chirac was elected on a manifesto that involved promises of lower taxes and a pledge to cut unemployment. Within six months of taking office, he has 763 reverted to the disastrous policies of Francois Mitterrand. He has put at the forefront of his policies the reduction of the budget deficit and adherence to the franc fort. Those are dangers for democracy, with politicians having the same agenda, and an agenda in France which is not in the interests of the French people.
Pursuit of the convergence criteria is economically damaging across Europe and politically dangerous for Europe. If we are to avoid what I believe to be the catastrophe of a single currency, we need to exercise a countervailing political will. My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made a good point—that Britain must be firm and exercise countervailing political will to save Britain from the single currency and to help our partners to realise the dangers they face.

§ Mr. Denzil Davies (Llanelli)
The hon. Member for Milton Keynes, South-West (Mr. Legg) referred to Germany. I do not know to which German politicians he has been speaking, but certainly Mr. Waigel wishes to lay down a law that, once we get to 3 per cent., we find another peak ahead and have to get to 1 per cent. If we cannot get to 1 per cent., we are denied regional development grants and payments out of the budget.

§ Mr. Legg
That perfectly illustrates my point about political union. It cannot stop at monetary union. The Waigel proposals are an example of the political union that will have to follow. There will have to be central direction of fiscal policy following on from a single monetary policy.

§ Mr. Davies
That may be the case. I merely make the point that it is in the interests of many in Germany, and certainly of business men, to devalue the deutschmark. For years, the German economy has benefited from a slightly undervalued mark. Once unification took place, interest rates had to rise and, if one can talk about undervaluation or overvaluation in a free market, the mark is now probably overvalued. That is something that the Bundesbank has tried to avoid over the years.
With an overvalued mark, German exports to the economic area of Europe will suffer. There is a certain schizophrenia—if I may use that word—in Germany as German business men wish for a weaker currency. There is no doubt that the euro, if it happens, will be weaker than the current value of the mark.
To some extent, this debate is about paragraph 4.10 of the Red Book. It refers to The general government financial deficit". In a curious phrase, written carefully by the Treasury, there is then a dash and the paragraph continues, which is also the measure used to monitor budget deficits under the European Union". Perhaps even when I was at the Treasury many years ago there was something called the general Government financial deficit, but it certainly was not computed in accordance with a European system of accounts. We get the feeling that the Treasury is a little worried about suggesting that paragraph 4.10 exists because of the Maastricht treaty, but it is there for no other reason. There is no need to compute those figures according to something called the general Government financial deficit.
764 I want to make a pedantic point to the Paymaster General. We do not have the figures for the calendar year 1995. With the Maastricht treaty, the final hurdle to be overcome will be the figures for the calendar year 1997, which will come out some time in 1998. We are on calendar years. According to the Commission, its estimate of Britain's general Government financial deficit for 1995 is 5.1 per cent. of gross domestic product. In paragraph 4.10, we are told that for 1995–96—which goes into the fiscal year—the Government's deficit will be 4.75 per cent. It then says that it is forecast to be close to 3 per cent. in 1997.
As 1995 is over, and it is not terribly difficult to work out the figures, could we have tonight, if possible, the figures for the general Government financial deficit for the calendar year 1995? On the Commission's figures, which were forecast before the end of the year, the average for the 15 countries of the European Community for 1995 was 4.7 per cent. of gross domestic product. The British figure was 5.1 per cent. slightly higher than the 5 per cent. forecast for France. Will the Minister tell us the present position? Those ridiculous figures are to be entrenched—indeed, are entrenched—in law. I do not know what the deficit in Britain should be this year or next year. Perhaps it is correct to estimate 3 per cent., 1 per cent. or 8 per cent. Nobody can judge what the figure should be. Nobody wants to borrow too much if possible. Why entrench such figures in law?
I believe that there was an attempt in the United States by Mr. Newt Gingrich and others to try to entrench the concept of a balanced budget into the American constitution of all places. The attempt was thrown out because the Americans could not possibly stomach the concept that economic fashion and figures for it should be entrenched in their marvellous constitution. Yet that is what we are doing. We are entrenching figures that have been plucked out of the air by fanatics, as my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) said, in a fundamental law—a kind of natural law—of the European Community. Not only will they be law; they cannot really be changed—they can be changed only after 15 countries agree that they should be changed.

§ Mr. Cash
Does the right hon. Gentleman accept that, if the arrangements are met for entering stage 3—if the Maastricht criteria are fully complied with—a central bank will be created, the governors of which will not be allowed to seek or take instructions from their member states? Does that not add a great deal to what he is saying?

§ Mr. Davies
As the hon. Gentleman and the House will be well aware, the whole premise is that the power is reserved for the European central bank. A few weeks ago, I read a rather pompous editorial—I think that it was in The Independent—which suggested that it would be marvellous if the European central bank fixed interest rates for the whole economic community. How on earth can one fix one rate of interest for that whole area with its diverse economies? Presumably that is what the bank would have to do. Otherwise, it might have to set different rates for different areas.

§ Mr. Marlow
The right hon. Gentleman talks about fanatics fixing the figures in law. Is it not a cause of great chagrin to him that among those fanatics are his own Front-Bench team?

§ Mr. Davies
Certainly not—I would never suggest such a thing of either my hon. Friend the Member for North 765 Warwickshire (Mr. O'Brien) or, indeed, my hon. Friend the Member for Neath (Mr. Hain), who could never be described as a fanatic in any capacity. I repudiate that charge completely.

§ Mr. Budgen
On the general problems of how excessive deficits might work out, let us suppose for the sake of argument that we were in the single currency and we had a war—over the Falklands, for instance—which initially did not turn out very well, cost us a great deal of money and we had to run a very large deficit for two or three years. Let us also suppose for the sake of argument that many of the Latin countries in the European Union disapproved of the war.
Would we not find ourselves exposed to very considerable pressure from people who disapproved of that war to change our national policies so as to conform with their idea of what happened to be a reasonable deficit? Am I wrong in thinking that that could be a major infringement—

§ Mr. Deputy Speaker
Order. The hon. Gentleman is wrong to make interventions lasting well over a minute.

§ Mr. Davies
I shall not answer the hon. Gentleman's intervention in detail, but I should have thought that, once one had transferred levers of economic policy and economic power from one's own Government, one's capacity to wage war must be extremely limited. I do not believe that one can divorce economic matters from matters of defence and foreign policy.

§ Mr. Spearing
A few moments ago, my right hon. Friend talked fantastically and ridiculed the idea of setting a single interest rate for the whole Community. Does he agree that people who insist on the beneficial effect of a single market will probably insist that that may well be the aim? They will claim that without it there will not be the great level playing field for competition that they crave.

§ Mr. Davies
That may indeed be the case. I am not clear in my own mind whether the European central bank will fix one interest rate or more than one. I presume that it will fix one for the whole area. We talk about a single currency, but if we get to 1999 and only two or three countries—France, Germany and Luxembourg—have met the necessary criteria, we shall not have a single currency. We may have something called the euro, which is merely one currency in a very large area. That, too, creates problems.
My right hon. Friend the Member for Bethnal Green and Stepney has been in correspondence with the Prime Minister and the President of the Commission regarding one of the other convergence criteria—membership of something called the European monetary system. Clearly, my right hon. Friend will deal with the matter in another debate and I do not want to steal his thunder, even if I could. I simply ask the Paymaster General what is happening to that criterion.

§ Mr. lain Duncan-Smith (Chingford)
It has disappeared.

§ Mr. Davies
It has not disappeared, because it is mentioned in the treaty. I am a pedantic lawyer, and I believe in law, words and treaties. I do not think that treaties should be torn up. Article 109j refers to 766 the observance of the normal fluctuation margins provided 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". In reply to my right hon. Friend, the Prime Minister said that he did not know what had happened to it. Jacques Santer does not seem to know either.

§ Mr. Duncan-Smith
It has gone.

§ Mr. Davies
It cannot have gone; it is in the treaty. We can make it go if we wish, but only by amending the treaty. The Commission does not know what to do. Presumably, the embryo bank does not know either, but it has to produce reports on the basis of those criteria.
Articles about the European Union tell me that it is based on the rule of law. Indeed, in Luxembourg a splendid building—the European Court of Justice—was built to the rule of law. It has an Advocate General, judges, rapporteur judges, registrars and a legal secretariat. It is a veritable empire of the rule of law.
There is clearly a problem, because in 1988 neither the Commission nor anyone else will know what to do about this criterion.

§ Mr. Legg
That is what they want.

§ Mr. Davies
That cannot be so, because the treaty must be based on the rule of law. Treaties have to be interpreted, and the only body that can tell us whether a criterion has been met must be the European Court of Justice. When the European Union sought to come to an agreement with the European Free Trade Association, the first agreement was thrown out by the European Court of Justice. In fact, the Commission asked the court to give a declaratory judgment. I am sure that in the continental system it is perfectly possible to get a declaratory judgment. I suggest to the Paymaster General that the Government would be doing everyone a favour by sending the matter to the European Court of Justice for a declaratory judgment as to whether this criterion is in or out.

§ Mr. Legg
The point that the right hon. Gentleman is making adds to my argument that politicians will seek to interpret the criteria as flexibly as possible. They are not supposed to, but that is what they will want to do. What sort of judgment does the right hon. Gentleman think is likely from the European Court of Justice, when part of its objective is to achieve ever closer union?

§ Mr. Davies
I do not know—perhaps we should reserve that matter for another occasion. I understand what the hon. Gentleman is saying, but I am merely trying to be helpful to the Government. The poor Prime Minister does not know, Jacques Santer does not know—nobody knows. The people who should know, however, are the judges in the European Court of Justice.

§ Dr. Norman A. Godman (Greenock and Port Glasgow)
Is my right hon. Friend aware that the judges in the European Court of Justice frequently disagree among themselves? In a recent case, Advocate General Karl-Otto Lenz offered a 23-page opinion that was totally rejected by his fellow judges. That is not all that uncommon.

§ Mr. Davies
My hon. Friend is not a lawyer, and I can see that he is not an expert on European law. If he were, 767 he would know that the judges are separate from the Advocate General. The Advocate General is a concept imported from the French system; I believe the French translation of Advocate General in the conseil d'état is "the Government commissar". From time to time, the court overturns decisions from the Advocate General, but the contrary has mainly been the case in the past 20 years.
Let us not digress, however. All I am saying is that we should give these guys a chance, as it is their job to tell us whether the criteria apply or not.

§ Mr. Marlow
The convergence criteria are set out in a protocol. The right hon. Gentleman will be aware of protocol 6, which says: The Council shall, acting unanimously … lay down the details of the convergence criteria … which shall then replace this Protocol. How does the right hon. Gentleman react to that?

§ Mr. Davies
I do not understand that very well, either. Perhaps that is a subsidiary question that we could send at the same time to the Court of Justice for the judges to answer. The Paymaster General should consider that the only body within this troika of institutions—the Council of Ministers, the Commission and the Parliament—that can adjudicate is the court.
Finally, I find it quite extraordinary that, in an age when the slogan very often is "Power to the people", when politicians are held in considerable disrespect, when people feel that they are losing power and when we have a global economy, we are debating proposals that would entrench undemocratic power in various institutions. I should have thought that, as politicians, our concern should be that there is a gap developing between us and the public. This proposal would merely make it worse, as it removes all hope from general elections and all possibility of democratic change. I do not know what the Paymaster General can do on the matter, because it is law already. Perhaps he could send that to the European Court as well.

§ Sir Teddy Taylor (Southend, East)
The time is late, and I apologise to you, Mr. Deputy Speaker, for keeping you up late, as I know how hard you work. On the other hand, I usually turn up at this time, first because Governments usually do nasty things after 10 pm, and secondly because I find that the gentlemen of the press who often report these matters have all gone home, despite the fact that something rather devious is happening.
It is always a pleasure to follow the right hon. Member for Llanelli (Mr. Davies). He is an optimist, whereas I, as he knows, am very much a pessimist. The issue he raised is fundamental—what happens in 1998 if we have to find new criteria? If we look at the treaty, we see that every member state that wanted to join apparently had to have fixed exchange rates for two years. We were told that that was irreversible, but we know now that it has been totally scrapped.
Article 6 of the protocol on page 218 of the treaty states that if we want to create new criteria, we must do it by unanimity. To that extent, it would appear that Britain has some kind of veto. But I can honestly say to the right hon. 768 Gentleman—whose attendance and commitment I never doubt—that Members who think that that is the case can forget it.
I received a letter this morning from the Economic Secretary to the Treasury, whom I asked a question on that point in a debate that we had some weeks ago. I asked what will happen when we come to consider the issue of new criteria, and my hon. Friend replied in her letter that the Heads of Government will decide in spring 1998 which countries qualify. Basically, she said that as the exchange rate mechanism no longer operates within the same bands as it did when the treaty was drafted, it is not clear how the criteria may be interpreted, but the Government do not believe that we need an interpretation now.
When 1998 comes, it will not be a case of unanimity for new criteria. Member states will sit around and decide. Britain will not have a veto: no country will have a veto. As happens time after time, hon. Members think that they have been given assurances. They think that something is in writing, and that they can go to the courts, but basically it is all a dead loss.
I am sorry that the Chancellor of the Exchequer is not present. We had a debate on economic and monetary union on a Wednesday morning—we talked of nothing else—but, sadly, the Chancellor was unable to attend. I am told that he is busy in the mornings. Now we are having another debate on a vital issue. I should have thought that the Chancellor could be present. While I have immense respect for the Paymaster General, I feel that the House deserves some factual guidance on issues such as this.
My constituents thought that they were voting for someone who would support Conservative policies. No doubt people who voted for Opposition Members—respected Members, when they stood for election—thought that they were voting for Labour economic policies.

§ Mr. Jenkin
And the same applies to Liberal Democrats.

§ Sir Teddy Taylor
I am sure it does. They have some policies on this, as on everything else.
Article 103 shows us the position in regard to economic policy. Broad guidelines for all member states are laid down, on advice from the Commission, by the majority of the Council of Ministers. The purpose is to check on whether Britain is following the guidelines. Nothing could be clearer: if we do not do so, we shall get a rocket from the Commission. That is set out clearly in paragraph 4.
I am sure that the Minister will not say this, because he is one of the honest guys, but other Ministers might say, "Do not worry about it. It is just guidance." However, whether people vote Conservative, Labour, Liberal Democrat, Scottish National party, Communist, Trotskyite or anything else, the economic policy of the UK Government must be in accordance with broad guidelines laid down by the Council on the advice of the Commission. People should be told what is happening.
I wish to blazes that, instead of sending the Commission this ridiculous Red Book, the Government would give some idea of the damage being done to the 769 United Kingdom by European Union policies. What has happened to our trade as a result of EU membership? Is it or is it not true that, since we joined the EU, where we used to have a positive balance of trade, our accumulated deficit is now £100,000 million? That is a vast amount, and great damage has been done to the UK economy, not through our fault but because of the burdens that we have had to incur.
When will the Government tell us the truth about the common agricultural policy? They have put lovely words in the Red Book, saying that expenditure is up this year and they are sorry about it, but there are balancing items. Is it or is it not true that the cost of the CAP this year—1996—is £9,000 million more than it was in 1994? That is a massive increase. Time and again, stupid Agriculture Ministers—along with people speaking at party meetings, and even Liberal Democrats at their conferences—say that reform is upon us and the cost is falling. The plain fact is that it is going up and up.
I was appalled to see in the Red Book—I do not think that we can possibly send this to the Commission—that contributions this year will unfortunately be higher, although they will be lower thereafter. I have seen Red Books for about 31 years. Every year in which we have been in the EU people have said, "Unfortunately, the position is worse this year, but do not worry—it will be better next year." It is like the Bob Marley song: "Don't you worry about anything baby, because everything's going to be all right."
This year, the figure will be £2.89 billion—£5 every week for every family. If the Government send the Red Book without revealing the damage that the EU is doing to Britain, they will not be giving an honest assessment.
My last point concerns the massive burden on Britain of all the directives. I am honestly sick—and I have been here for 31 years—of hearing Ministers say that the burden of EU administration is going down, that it is less this year than it was the year before and it is going to be even less next year. We know the facts. We have seen the superb pamphlet produced by some of my hon. Friends, which points out the dangers to the economy of that mass of legislation.
I wish that the Labour party, most of whose members I honestly respect as good, hard-working people, and the Conservatives—who are indeed waking up—would start to ask themselves, "What the blazes are we doing to our people?" What about the poor people of France, where extra unemployment is being created every day because of a mad policy of artificial exchange rates?
If only we had more Ministers like my right hon. Friend the Paymaster General—who, in all sincerity, is one of the good guys—instead of some of the twits on both sides of the House, who would tell people the truth. Is it true that our economic policy is now guided by Europe, no matter who people vote for? Is the cost of the common agricultural policy going through the roof? Is it true that our country is being damaged and that our poor friends in Europe are suffering? Is it true that, no matter what hon. Members think, they can control, when 1998 comes, a little group of Ministers will decide who goes forward to economic and monetary union? It is time we played straight and told the truth and it is time that the nation woke up.

§ Mr. Mike O'Brien (North Warwickshire)
This debate has been worth attending if only to hear the hon. Member for Southend, East (Sir T. Taylor) quote Bob Marley.
I shall deal first with the domestic economy and then monetary union and convergence. Whatever the Minister says, Britain is foundering a long way from the economic miracle proclaimed by the Government and of which the Paymaster General invited us to be proud. Inward investment last year was only 40 per cent. of its 1989 peak. The tiger economies are growing by 8 per cent. while Britain averaged 7.1 per cent. in non-oil growth between 1979 and 1993—the worst growth record of any post-war Government.
When the Tories say that we have never had it so good, the trouble is that many of our competitors are having it much better. Our growth is lower than was predicted last year; business investment is half what was predicted last year; borrowing is higher than was predicted last year and tax revenues are falling.

§ Mr. Jenkin
Why is it that, whenever Labour spokesmen get the opportunity to discuss the real issues of economic and monetary union, they want to talk about something else?

§ Mr. O'Brien
As I said, I will come to Labour's position on EMU in some detail. I realise that the hon. Gentleman will not be interested in the damage that has been done to the British economy—the loss of jobs and businesses, the way in which our economy has been undermined by the Government—because he does not have a fundamental concern for the British people or the economy.
Let us consider the claim by the Conservatives that Britain is the enterprise capital of Europe. There are 15 countries in the EC. How well does the UK measure up to its competitors?

§ Mr. Budgen
Will the hon. Gentleman give way?

§ Mr. O'Brien
I shall give way after I have told the House how Britain fares. On growth, Tory Britain is the third slowest-growing economy in Europe. On inflation, Tory Britain has the fifth highest figure after Portugal, Spain, Italy and Greece. On long-term interest rates, Tory Britain has the sixth highest in the EC, which reflects our weak economy and lack of investment. Tory Britain has a trade deficit in manufacturing—a tragedy for a manufacturing economy.
Tory Britain has the lowest proportion of young people aged between 15 and 24 in education in Europe. On unemployment, Tory Britain has the seventh highest unemployment level overall and the fourth highest for men. On job growth, Tory Britain has the fifth lowest over the period 1979 to 1994. On investment, in Tory Britain investment per head is the fourth lowest in the European Union. On prosperity, GDP per capita is the ninth lowest in Europe. Britain in the wider world has fallen from 13th to 18th place in the international prosperity league.

§ Mr Budgen
rose

§ Mr O'Brien
I give way to the hon. Member for Wolverhampton, South-West (Mr. Budgen) so that he can deal with that indictment of the Tory Government and their record in Europe.

§ Mr. Budgen
Would the hon. Gentleman concede that there has been a clear division in the Government's economic policy between what happened before 16 September 1992 and what has happened since? For about two years, there was an extremely harsh squeeze, when the money supply dived down to a very low level and a great number of businesses went to the wall. Things have looked up enormously since then. The economy has expanded and the money supply has been allowed to expand somewhat—some would argue, too much—recently. But we have had a period of sustained growth and falling unemployment and most people make a clear division between those two periods.

§ Mr. Deputy Speaker
Order. I am not sure whether the hon. Gentleman is making his third speech this evening.

§ Mr. O'Brien
I accept what the hon. Member says. There are divisions in the Government and in Government policy. After all, the Prime Minister, as Chancellor, brought Britain into the exchange rate mechanism, presumably a policy that the hon. Gentleman would condemn. Consider the way in which the Prime Minister has been running the economy, with 1 million fewer people in employment since he became Prime Minister.
The Red Book discloses Britain's economic recovery. It was so precarious that the Chancellor had little room for manoeuvre on tax cuts in the Budget. He ended up with a combination of a penny off income tax and putting £9.5 billion on borrowing next year. The public sector borrowing requirement forecast for 1995–96 has been revised upwards from £23.5 billion in the Treasury summer forecast and from £21.5 billion in the Budget before last. It is now £6.5 billion higher than expected in 1995–96, at £29 billion. It will be £9.5 billion higher than expected in 1996–97, and £10 billion higher in 1997–98.
The reason that the economy is in such difficulties is clear. Throughout the past 16 years, the Conservatives have neglected investment, squandered the proceeds of North sea oil and, in a display of boom and bust economics, put us into the two worst recessions since the war. That in turn has damaged the ability of industry to respond to recovery.
The Budget forecast for investment growth in 1995 is now 1 per cent. The recovery—such as it was—is in danger. It was based upon an export-led drive, fuelled by a—

Several hon. Members
rose—

§ Mr. Deputy Speaker
Order. It is clear that the hon. Gentleman at the Dispatch Box is not giving way.

§ Mr. O'Brien
I may give way a little later, but not at the moment.
The recovery was fuelled by a 20 per cent. devaluation of the pound, following our ignominious withdrawal from the ERM, but there is still a limit to how long we can run an economy on devaluing our currency.
772 The Government have not dealt with some of the long-term problems of the British economy. They have just put off resolving them until after the next election, when Labour will have to deal with them. It is the ordinary families of Britain that the Government have really let down—the workers on the assembly line or in the office. For them, right-wing economics has too often meant few or no wage rises in the name of competitiveness, job insecurity to make labour flexible and the fraying of the safety net. Middle and lower-income people are spending more hours working, less time with their children and bringing home an income inadequate to meet housing and other costs. They saw the Government impose the biggest tax hike this century in the year after the 1992 elections, beating even Geoffrey Howe's 1981 Budget when personal allowances were not indexed.
The overall tax burden will be 36.5 per cent. next year, up from 34.75 per cent. in 1992—more than when Labour left office. It is forecast to rise each year until the end of the century, reaching 37.5 per cent. by 2000. That is the burden of Tory failure paid by the British people.

§ Mr. Marlow
I wonder whether we could get back to the topic of the debate. This is a major constitutional debate about economic and monetary union.
Could the hon. Gentleman say why his party, which is going to turn the constitution of the United Kingdom upside down, totally ignores the major constitutional issue of the day, which is the powers that we have already transferred to Brussels and the powers that would be transferred to Brussels if those on the Labour Front Bench had their way and transferred our currency, sovereignty, control over our exchange rates and interest rates and control over taxation? Will the hon. Member come to the point and tell us what he thinks about it, what he would do about it and why his party is going down a narrow road on constitutional issues and missing out that major constitutional point? It will not be missed out when the election comes.

§ Mr. O'Brien
I wished to rise before the hon. Member completely lost his cool. The position of the Labour party on European economic and monetary union is quite clear. We approve the principle of economic and monetary union, but we have questions about the practicalities which still need to be resolved. In principle, Labour believes that in the longer term a move towards economic and monetary union through the creation of a single currency will produce significant benefits for the people of Britain and Europe.
In particular, a single currency would remove the cost of currency transactions, which have been variously estimated. It is hoped that it would boost inward investment by reducing exchange rate risks and, in the longer term, would create a more stable economic environment for industry by reducing currency speculation.

Several hon. Members
rose—

§ Mr. O'Brien
Unlike the Government, the Labour party has a clear principle to guide it when it assesses the criteria for and practicalities of entry into a single currency. We must get the circumstances right, and that is 773 what is important for us. Labour will take a hard-headed, businesslike view of the costs and benefits of a single currency. Wrongly approached, a single currency could damage the British economy.

Several hon. Members
rose—

§ Mr. Deputy Speaker
Order.

§ Mr. Cash
What a sham.

§ Mr. Deputy Speaker
Order. If the hon. Gentleman does not like what he is listening to, he can go outside and have a rest. In the Chamber, hon. Members will listen to any contribution from any hon. Member. Those who do not like it can go elsewhere.

§ Mr. O'Brien
I am grateful, Mr. Deputy Speaker.

Hon. Members
Give way.

§ Mr. Deputy Speaker
Order. We should not have this catcall of "Give way." The hon. Gentleman has told the House that he will give way a little later. I suggest that hon. Members wait until that point.

§ Mr. O'Brien
Labour's criteria for judging the issue are clear. We believe that convergence of the real economic performance of member states is a vital precondition of economic and monetary union. Convergence must be based on improved levels of growth, jobs and productivity, and not just on monetary objectives alone. That is why we have long argued that the Maastricht convergence criteria need to be applied flexibly and that real economic convergence is of primary importance.
Labour also believes that, on entry, we should be confident that British industry will be able to compete effectively in a single currency. Further, Labour wants the Economic and Finance Council of Ministers to be developed as the political counterpart of the proposed European central bank to give the public a voice in shaping economic policies.
We also say that the move towards a single currency must be based on the consent of the British people, whether that consent be given by referendum or by general election. What is necessary is to ensure that popular consent is present. A referendum is one means of obtaining consent, but it is not a substitute for government. The Government must lead, and they must have a principled view on that issue. The Government lack a view and clear principles on that issue and, as a result of the divisions in the Government, they are becoming isolated and marginalised in Europe.
Labour's first commitment in Europe is to jobs for our people. We back the Swedish proposal to write into the Maastricht treaty a clearer commitment to full employment. Labour's vision is not of a Europe just for bureaucrats or politicians. Our view is of a Europe that is a community for ordinary people. We want workers to have better rights at work., and that is why we will sign the social chapter and join our European partners in introducing a minimum wage. We are proud of that 774 policy. We want the unemployed to have jobs, and that is why we put economic convergence before monetary criteria for joining the EMU.
Labour has a clear vision of the sort of Europe that we want to create. We oppose any unitary, federalist or centralised European state. We seek co-operation between member states in a common enterprise. We want power decentralised through subsidiarity, and we reject the idea that the European Union is a threat to our culture, language or character.

Several hon. Members
rose

§ Mr. O'Brien
We have a firm belief that Britain will not only hold its own in the European Union—

§ Sir Peter Tapsell (East Lindsey)
On a point of order, Mr. Deputy Speaker. You assured us a few minutes ago that, as a consequence of a pledge given earlier by the hon. Member for North Warwickshire (Mr. O'Brien), he would give way. He is obviously approaching the end of his speech and he has not yet honoured that pledge. Do you think that you could encourage him to give way at least once?

§ Mr. Deputy Speaker
I assure the hon. Gentleman that I did not assure anyone that there was any promise of the hon. Member for North Warwickshire (Mr. O'Brien) giving way. I said that the hon. Gentleman might give way later. It is entirely up to the hon. Gentleman whether he chooses to give way, and to whom.

§ Sir Peter Tapsell
I invite the hon. Gentleman to give way just once.

§ Mr. O'Brien
I gave way to the hon. Member for Northampton, North (Mr. Marlow), but as the hon. Member for East Lindsey (Sir P. Tapsell) is so persistent, and I am generous, I will give way to him.

§ Sir Peter Tapsell
I am most grateful. The hon. Gentleman has made an interesting speech and he said that the Labour party was in favour, in principle, of economic and monetary union, but had many difficulties about the practicalities. He went on to spell out some of those difficulties. It is perfectly clear from what he said that those difficulties could be overcome only if the Maastricht treaty was substantially renegotiated. Is he saying that a future Labour Government would seek to renegotiate substantially that treaty?

§ Mr. O'Brien
Our position relates to the criteria on which we will judge moving forward on European economic and monetary union. The hon. Gentleman should heed the following words: There is no more important issue facing the European Community than the path we choose towards economic and monetary union. We are all committed to this goal. That is what the Prime Minister said. The hon. Member for East Lindsey should also take note of the following words: No truly unified market can exist without a single currency. A close association of monetary policies will be needed if the single market itself is not to be put at risk. 775 That is what the Deputy Prime Minister said. Is that Conservative policy? Hon. Members may shake their heads, so let me put five clear questions to the Government and the Paymaster General, which he can consider in the White Paper that he is trying to put together.
First, do the Government agree with the Chancellor, who said that a single currency is not a threat to the nation state"? Secondly, do they think, like the Deputy Prime Minister, that a single market needs a single currency? Thirdly, can they say whether, in the unlikely event of them being re-elected, a single currency will be a possibility in the next Parliament, given that the economic conditions are right? Fourthly, if the economic conditions were right, would they in principle be in favour of persuading the country that it was right to join a single currency? Fifthly, are they prepared to agree with the following statement: Some observers hope—and others fear—that economic and monetary union as set out in the Maastricht Treaty will be a step in the direction of a federal Europe … I believe that such … fears are unrealistic. Do they agree with that statement by the Prime Minister? I do not think they do. I do not think that they know what they want. I do not think they know where they are going.
The country needs principle and direction. It will get it from a Labour Government, and it will not get it until we have one.

§ Mr. Heathcoat-Amory
The hon. Member for North Warwickshire (Mr. O'Brien) has asked me five questions. I will answer all of them if he will give me a clear answer to any one of them in return. As those on the Opposition Front Bench are in the biggest muddle about their approach to economic and monetary union, I will instead endeavour to answer the points raised earlier in the debate.
All we had from the hon. Member for North Warwickshire was a Budget speech, which he read out at great speed, interlaced with some highly dubious international comparisons. Any responsible international comparisons use dates that are comparable in the economic cycle, as my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said. If one takes the years 1981 to 1993, a complete economic cycle, the United Kingdom grew almost as fast as Germany and faster than France, Italy and the European Union average.
My main purpose in the few minutes remaining to me is to endeavour to answer the points raised. The right hon. Member for Bethnal Green and Stepney (Mr. Shore) asked a few questions that have been echoed elsewhere in the House. In particular, he asked whether the information that we are providing to the European Commission could be used against us to require policy changes. He asked whether the fact that European economic policy is a matter of concern between member states imposes an obligation on us.
For many years, the economic policies of the constituent parts of the common market—now the single market—were a matter of concern. That concern dates back to the days when the right hon. Gentleman was a member of the previous Labour Government. Indeed, a council decision of 1974 provided a mechanism to strengthen economic convergence, and it has been developed over the years.
776 In fact, the Single European Act added an article with respect to economic and monetary co-operation. In turn, that led to the multilateral surveillance arrangements, about which I think the right hon. Gentleman was complaining. It is true that these can, and do, result in recommendations from the Council of Ministers to the United Kingdom. If my hon. Friend the Member for Southend, East (Sir T. Taylor) objects to that, I am afraid that I cannot meet his objection.
However, I assure my hon. Friend and the House that the recommendations do not tie the Government, as is made clear in the treaty. Article 189 of the treaty states: Recommendations and opinions shall have no binding force. That is an important distinction. Of course, that is true only of stage 2 of the economic and monetary union. It is also true that if we were to move to stage 3, the recommendations become binding in the way that they are set out in the treaty.

§ Mr. Shore
With respect, I believe that there is a distinction which the hon. Gentleman has not got quite right. It is true that severe penalties could be imposed upon us in stage 3 if we break the rules of the Community. In stage 2, there is provision for the Commission and the Council to recommend by a qualified majority vote to take a number of actions which could be to the disadvantage of the member states, particularly the United Kingdom. For example, they could make it plain that they condemn different aspects of Government policy, when they know very well what effect that would have on the international financial markets.

§ Mr. Heathcoat-Amory
These communications have not exceeded that status of a recommendation, and as such they are not binding upon us. I draw the hon. Gentleman's attention to such a recommendation, which related to the excessive deficit procedure, and which was received in July of last year. We can accept the recommendation because it simply stated that the United Kingdom should adhere firmly to its current budgetary policies. The council also took note of the policy of strict control of public expenditure and stressed that this should continue to be implemented. These recommendations are not binding, but they are to be welcomed.
My hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) complained about the rigour with which the convergence criteria were being applied, and the damage which he said was being caused to the economies of Germany and France. He also complained about the laxity with which the criteria were being applied and interpreted elsewhere. Indeed, he would not have been pleased to hear from the hon. Member for North Warwickshire (Mr. O'Brien) that the Labour party believes in a lax and liberal interpretation of those criteria.
The main point I wish to make is that the four listed criteria—inflation, long-term interest rates, deficits and exchange rate stability—are set out in the treaty. The treaty also refers to other factors which may be taken into account, such as the balance of payments, the development of unit labour costs and the development of a single market.

§ Mr. Malcolm Bruce (Gordon)
Will the Minister give way?

§ Mr. Heathcoat-Amory
If the hon. Gentleman will forgive me, I have only three minutes in which to complete the debate.
777 There is an important point there because Conservative Members know that labour market flexibility, which is not specifically laid out in the treaty but is a subject of growing interest to those who debate those matters, is a crucial ingredient in, and possibly an impediment to, the introduction of stage 3 of economic and monetary union.
In a single currency zone, the adjustment mechanisms of exchange rates and interest rates are removed or would be given up by the participating member states, so the strain of adjusting for different rates of development in different parts of the single currency area must be taken by the wage-price mechanism unless there are to be compensatory flows of structural funds, which undoubtedly would be beyond the scope of the present European budget to finance. It follows that the flexibility and responsiveness of markets is an important element in any decision that might be taken by this or any other Government whether to move to stage 3 of EMU.
The crucial fact to bear in mind is that we have an opt-out. We are not committed; we can watch the development and the unfolding of the implications without being committed.

§ Mr. John Redwood (Wokingham)
Will my right hon. Friend give way?

§ Mr. Heathcoat-Amory
I do respect my right hon. Friend's interest in the subject, but he must forgive me because of shortage of time.
I shall try to reply briefly to a couple of arguments made by the right hon. Member for Llanelli (Mr. Davies). There is nothing sinister about the fact that the general Government financial deficit is included in the Red Book. That is a widely used international measure, and it is included not simply at the behest of the European Commission. As regards the outturn for 1995, it is true that our accounting is on a financial year basis and most of the European Union accounts on a calendar year basis. In fact the figures are available, and the one that the right hon. Gentleman seeks will be published by the Central Statistical Office next month.
The right hon. Gentleman asked whether the fact that we are not members of the exchange rate mechanism alters the criteria that we or any other member state must fulfil to move to stage 3. It is true that the exchange rate mechanism no longer operates in the way foreseen when the treaty—

Division No. 51]	[11.42 pm
AYES
Alexander, Richard	Arnold, Jacques (Gravesham)
Amess, David	Baker, Nicholas (North Dorset)

Baldry, Tony	Knight, Rt Hon Greg (Derby N)
Boswell, Tim	Lawrence, Sir Ivan
Bottomley, Peter (Eltham)	Legg, Barry
Bowis, John	Lidington, David
Brandreth, Gyles	Luff, Peter
Bright, Sir Graham	MacGregor, Rt Hon John
Brooke, Rt Hon Peter	MacKay, Andrew
Browning, Mrs Angela	McLoughlin, Patrick
Budgen, Nicholas	Malone, Gerald
Burt, Alistair	Marland, Paul
Cash, William	Merchant, Piers
Clifton-Brown, Geoffrey	Neubert, Sir Michael
Congdon, David	Ottaway, Richard
Conway, Derek	Paice, James
Coombs, Simon (Swindon)	Pattie, Rt Hon Sir Geoffrey
Cope, Rt Hon Sir John	Shaw, David (Dover)
Cran, James	Spencer, Sir Derek
Currie, Mrs Edwina (S D'by'ire)	Spink, Dr Robert
Davies, Quentin (Stamford)	Sproat, Iain
Devlin, Tim	Stanley, Rt Hon Sir John
Duncan, Alan	Sweeney, Walter
Elletson, Harold	Tapsell, Sir Peter
Evans, Nigel (Ribble Valley)	Taylor, John M (Solihull)
Evans, Roger (Monmouth)	Thomason, Roy
Fabricant, Michael	Thompson, Patrick (Norwich N)
Fox, Dr Liam (Woodspring)	Townsend, Cyril D (Bexl'yh'th)
French, Douglas	Waller, Gary
Goodlad, Rt Hon Alastair	Watts, John
Griffiths, Peter (Portsmouth, N)	Wells, Bowen
Harris, David	Whittingdale, John
Hawkins, Nick	Widdecombe, Ann
Heald, Oliver	Wolfson, Mark
Heathcoat-Amory, David	Wood, Timothy
Hendry, Charles
Hughes, Robert G (Harrow W)	Tellers for the Ayes:
Hunt, Rt Hon David (Wirral W)	Mr. Michael Bates and
Jenkin, Bernard	Mr. Gary Streeter.
Knight, Mrs Angela (Erewash)

NOES
Bruce, Malcolm (Gordon)	Shore, Rt Hon Peter
Chidgey, David	Skinner, Dennis
Davies, Rt Hon Denzil (Llanelli)	Smith, Andrew (Oxford E)
Godman, Dr Norman A
Hughes, Simon (Southwark)
O'Brien, Mike (N W'kshire)	Tellers for the Noes:
Rendel, David	Mr. Nigel Spearing and
Salmond, Alex	Mr. Harry Barnes.