European Community (Convergence Criteria) (Hansard, 21 April 1998)

§ The Economic Secretary to the Treasury (Mrs. Helen Liddell)
I beg to move,
That this House takes note with approval of the Government's assessment as set out in the Financial Statement and Budget Report 1998–99 for the purposes of section 5 of the European Communities (Amendment) Act 1993. The purpose of this debate is to satisfy section 5 of the European Communities (Amendment) Act 1993, popularly known as Maastricht Act. The Act requires that Parliament approve the Government report which is the basis of information that is sent to the Commission or the Council for the purposes of articles 103 and 104c of the Maastricht treaty. The articles relate to the broad economic guidelines and excessive deficit procedure respectively. The debate takes place thanks to the diligence of my right hon. Friend the Member for Oxford, East (Mr. Smith)—now the Minister for Employment, Welfare to Work and Disability Rights—when in opposition.
Section 5 of the Maastricht Act specifies that the Government should report to Parliament for approval an assessment of the medium-term economic and budgetary position in relation to public investment expenditure and the social, economic and environmental goals set in article 2 of the treaty. Those goals include sustainable and non-inflationary growth, respecting the environment, a high level of employment and social protection, raising the standard of living and the quality of life and economic and social cohesion.
The "Financial Statement and Budget Report" published in March is an appropriate vehicle for that. It clearly sets out how the Government intend to set their social, economic and environmental objectives and the position on public investment. For the first time, it also includes an environmental assessment of the Budget measures as well as providing a broad overview of how the Budget package is designed to address the economic problems facing the country.

§ Mr. William Cash (Stone)
Will the Minister admit that the Government's conduct of economic policy and the constraints on public expenditure which are causing such pain to her constituents and others, and to the trade union movement, are due to the Government's pursuing the Maastricht criteria?

§ Mrs. Liddell
No, I will not. However, I shall admit to a deep sense of gratitude to the hon. Gentleman for the great assistance he gave my party in the general election. My hon. Friends and I are well aware of the great benefits derived from his inestimable service to the Labour party this time last year.
To return to the subject of tonight's debate, my right hon. Friend the Chancellor announced in the Budget a package of measures to secure economic stability, reward work, encourage enterprise and create a fairer society. The Government's macro-economic policies will secure economic stability; the extension of the new deal programmes and radical tax and benefit reforms will promote employment and make work pay; and the overall 697 commitment to fairness will support families with children, tackle child poverty, improve the environment and ensure that the tax system is fair.
The Budget saw a further extension of policies to put economic management on a more stable, longer-term footing. The Government have tightened fiscal policy considerably and have put the public finances on a long-term sustainable basis. Fiscal policy was tightened significantly in 1997-98 and the March Budget locked in that fiscal tightening for future years. The Government are well on track to meet their fiscal rules. The general Government financial deficit was estimated to have been only 0.75 per cent. of gross domestic product in 1997–98 and it is forecast to turn to surplus by 1999–2000. That demonstrates that the Government are taking a prudent approach to fiscal policy to avoid repeating the mistakes of the past.
The fiscal framework is being developed further to apply a similar approach to that for monetary policy. My right hon. Friend the Chancellor announced that the Government are to legislate for a code for fiscal stability which will set out the requirements for an open, transparent and accountable approach to managing the public finances. Coupled with the changes already announced to monetary policy, that will ensure that macro-economic policy will be set in the context of a stable long-term outlook.

§ Mr. Bernard Jenkin (North Essex)
May I remind the Minister that we are debating whether or not we should take note of the Government's fiscal and Budget forecasts with regard to submitting them to the European Monetary Institute as part of our convergence plan? Will she address the issue of monetary union instead of using the debate to justify another advertising campaign on behalf of the Government's economic policy, which owes much to the success of that of the previous Administration?

§ Mrs. Liddell
The hon. Gentleman should turn his attention to fiction. I will refer to monetary union in due course because I cannot resist the opportunity of seeing what version of Opposition policy we will get this evening. If the hon. Gentleman—who has long-standing Scottish connections—will adhere to the injunction, "Haud your wheesht," I will get round to it.
The Budget moved forward the Government's aim of encouraging work. Unemployment remains high, yet there are hundreds of thousands of unfilled vacancies. Moreover, around one in five working-age households have no one in work, and the number of people who want a job stands at the highest level in the EU. It is clear that structural problems are hindering an efficient functioning of the labour market and, at the same time, blighting the future for hundreds and thousands of families.

§ Mr. Jenkin
On a point of order, Mr. Deputy Speaker. The motion refers to taking note of the Budget report
for the purposes of section 5 of the European Communities (Amendment) Act 1993. 698 Surely that restricts the discussion to the relevance of the report to monetary union and the convergence criteria and does not legitimise a general discussion about welfare to work or the number of people available for work.

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
The hon. Gentleman's interpretation is incorrect. This is a wide debate on the Government's economic policies.

§ Mrs. Liddell
Thank you, Mr. Deputy Speaker. I am sorry that the hon. Member for North Essex (Mr. Jenkin) is hurting so much at the Government's success. If he wishes to withdraw for a while and come back, he will be able to listen as his hon. Friends demonstrate the extent to which unity in the Conservative party contributed to the Labour victory at the last election.

§ Dr. Liam Fox (Woodspring)
The Minister referred to the lower rates of unemployment in the UK as compared with continental Europe. To what does she attribute the lower rates of unemployment in the UK?

§ Mrs. Liddell
The hon. Gentleman was not listening. I referred to the fact—

§ Mr. John Bercow (Buckingham)
The Minister is playing for time.

§ Mrs. Liddell
We have an hour and a half to discuss this matter, and I have now taken a number of interventions. The hon. Gentleman is clearly anxious that I should proceed so that his hon. Friends can become involved in the debate, so I am quite happy to take no further interventions.
One of the Government's key policies is to reduce unemployment. Another is to make sure that we have an adequate statistical base for measuring unemployment, after the fiddles perpetrated by the previous Government.
The welfare-to-work package is of great significance to my constituents and to those of my hon. Friends. For too many years we have seen families locked into a cycle of poverty as a result of unemployment—and for the past 18years that situation has deteriorated. It is essential that we move forward, and that we move people from welfare into work. The March Budget extended the scope of the package to encompass additional groups excluded not just from the labour market but from a prosperous society. Those people were excluded by the previous Government consciously and deliberately—they called it "a price worth paying".
Coupled with the extensions to the welfare-to-work programme, the Budget also introduced the start of radical reform of the tax and benefits system. It was clear that the previous system was not offering the right incentives; it discouraged many from working by high marginal deduction rates. The Budget introduced a package of measures that will result in the number of people facing marginal deduction rates falling more than 70 per cent., from 750,000 to only 250,000.
The protection of the environment is at the heart of the Government's objectives for the tax system. The core principles of sustainable development lie at the heart of many of the Budget measures, as we heard earlier this evening. An environmental assessment of the Budget was published in the "Financial Statement and Budget Report" for the first time. 699 The Budget continued the policy of increasing road fuel duties by 6 per cent. in real terms, as well as introducing a range of other measures to ensure the protection of the environment. Moreover, the Government reaffirmed their commitment to exploring the scope for using the tax system and other mechanisms such as regulation, with consultations on the industrial use of energy and the extraction of aggregates.
The Budget also addressed the problem of underinvestment, which has at least partially accounted for the United Kingdom's relatively low gross domestic product per head. The measures to promote economic stability should increase investment, and the Budget also introduced major changes to the corporate and capital taxation systems aimed at further promoting investment.
The Government are committed to worthwhile public sector capital investment—the private finance initiative has a key role to play in that. When we were elected, we instituted and carried out a thorough review of the initiative; introduced legislation where necessary; set up a task force; and pushed through a small number of significant projects. Progress under the PH has been rapid, and projects with a combined capital value of more than £1.5 billion have been signed since the general election. From 1998-99 to 2000-2001, some £11 ¼billion in new investment is expected as a result of the revived PFI.
It is important that we send details of the economic policies set out in our Budget to the Commission and the Council. That will enable us to meet our obligations under the treaty to provide information to facilitate the process of economic surveillance and co-ordination provided for in articles 103 and 104 of the treaty. There is nothing new in that—full arrangements for economic surveillance at Community level have been in place for more than 20 years.
The Government support the principle of independent examination of our economic performance by a number of international bodies, including the Organisation for Economic Co-operation and Development, the International Monetary Fund and the Group of Seven. The information will be used to facilitate the process of discussion and co-ordination of economic policy between member states of the European Union. That process enables best practice to be shared and issues of common interest to be discussed.
The Government believe that the process of economic surveillance and co-ordination is valuable. Sharing information and discussing issues of common interest promotes the adoption of sound policies and forms the basis for a positive and constructive approach. That will help us to strengthen the European economies, and it will be particularly important at the beginning of the single currency. We shall secure Britain's influence in resolving the economic problems that Europe faces if we play our full part in these discussions. That will help us to lead in a way that is right for Britain and, we believe, right for Europe.
The Government's new positive approach to Europe is already beginning to pay dividends. We have been able to focus Europe's attention on the job creation agenda. Last year, the Chancellor launched the "Getting Europe to Work" initiative, and member states are now preparing action plans to reduce unemployment by targeting 700 employability, flexibility and entrepreneurship. That will be a feature of the European Council meeting in Cardiff in June.

§ Mr. Bercow
Will the hon. Lady give way?

§ Mrs. Liddell
I shall not give way at the moment, as there have already been complaints that I am taking too much time, and I have a number of substantive points to make. However, I am glad that some hon. Members seem to have had a pleasant evening.
Our achievements during our presidency of the European Union show what can be done by working closely with the other member states, as was highlighted by the Prime Minister's half-term report on the United Kingdom presidency. The Chancellor's initiative on economic reform was endorsed by EU Finance Ministers at the informal ECOF1N in York last month, and member states committed themselves to specific action to improve Europe's employment policies and markets, signing up to the principles of open markets and free competition.
As I noted earlier, sharing information and discussion of economic policies will be particularly important at the beginning of the single currency. I know that Conservative Members are anxious to discuss the single currency, and we are interested to hear their views on the matter, regardless of how many there may be.
The Government assessed UK membership of the single currency against five key economic tests and concluded that there is not at present sufficient convergence to be sure that the British economy would have stability and prosperity in economic and monetary union, so we have decided not to participate in the single currency at its launch in 1999 and have notified our European partners accordingly.
Nevertheless, we want the single currency to be a success. It will affect us whether we participate or not. Our economic future is bound up with that of our European partners. The majority of our trade is with the European Union, so it is in our interest to ensure that the potential benefits can be realised.

Several hon. Members
rose—

§ Mrs. Liddell
I see that the very mention of Europe has provoked the predictable Pavlovian response among Conservative Members.

§ Dr. Fox
On a point of order, Mr. Deputy Speaker. The Economic Secretary might inadvertently mislead the House. The Foreign Secretary said in the previous debate on the subject that the majority of the United Kingdom's trade was outwith the European Union.

§ Mr. Deputy Speaker
The hon. Gentleman knows that that is not a point of order for the Chair.

§ Mrs. Liddell
I see that Conservative Members have changed their minds and now want me to speak for as long as is humanly possible, preventing Back-Bench Members from taking part in this time-limited debate.
It is important that economies have the ability to react more flexibly to changes in economic circumstances. That is one of the reasons why we have been pushing so hard 701 for economic reform. Sharing information will help to ensure that the single currency succeeds, and that will bring benefits to the UK and other countries.

§ Mr. Cash
On a point of order, Mr. Deputy Speaker. At the beginning of her speech, the Economic Secretary denied that the Government's economic policies had anything to do with the Maastricht criteria, but she has just said exactly the opposite.

§ Mr. Deputy Speaker
What right hon. and hon. Members say in the House is not a matter for the Chair, provided that it is at least within the rules of order. I might also say to those on the Opposition Benches that we shall make more progress if they listen to the debate.

§ Mrs. Liddell
Your point is an interesting one, Mr. Deputy Speaker. Indeed, if the hon. Gentleman had listened, he would have heard me say quite clearly that our economic policy is not determined by compliance with the Maastricht criteria. The very fact that we meet many of the Maastricht criteria is something that the House is entitled to discuss.

§ Mr. Owen Paterson (North Shropshire)
rose—

§ Mrs. Liddell
I will not take any more interventions. I want to make progress, because I am anxious to hear what Conservative Members have to say on these matters. It is always illuminating to find out what the policy on Europe is today and which section of the Conservative party is in the ascendancy.
This motion, if approved, will enable the United Kingdom to meet our treaty obligations. We will provide information and participate fully in the important process of multilateral surveillance and economic co-operation, as provided for in articles 103 and 104c of the treaty. I hope that the House will support the motion.

§ Mr. Gary Streeter (South-West Devon)
I thank the Economic Secretary for leaving me a few moments to make some remarks. First, I must commiserate with her for having been sent to the House this evening in place of the Paymaster General, who took this debate last year. I suppose that it is an increasing embarrassment to the Government to have a Minister they cannot bring to the House.

§ Mrs. Liddell
If the hon. Gentleman had done his research, he would have found that I am the Minister at the Treasury with responsibility for European affairs, and I was grateful to the Paymaster General for taking the debate last year because I was engaged in the Standing Committee of the Finance Bill. That was not a particularly good start, as the hon. Gentleman got his facts wrong in his first sentence.

§ Mr. Streeter
It is amazing the number of excuses that the Government will come up with to hide the Paymaster General from the scrutiny of the House.
The report that the Government will send to the European Commission as a result of the motion is a classic piece of new Labour political wizardry. It is the 702 triumph of packaging over substance. It has a snappy title, "New Ambitions for Britain"—perhaps, the only surprise is that it is not, "New Ambitions for Cool Britannia"—it has a heart-warming photo on the front cover of happy children, revelling, no doubt, in the prospect of their first visit to the millennium dome in 2000, and it contains many fine words and warm sentiments. The Economic Secretary mentioned some of them. The report talks of encouraging work, promoting enterprise and creating a fairer society. At first glance, no doubt, those charming gentlemen and ladies in Brussels who will be reading it would be forgiven for believing that all in Britain's economic garden is rosy. Like new Labour itself, however, the reality is very different.
The report masks a dangerous underlying reality, and it is this: as a direct consequence of decisions that the Government have taken since 1 May 1997, the golden economic legacy left to them by the outgoing Conservative Government is being squandered step by step—frittered away. The economic ship of state that was sailing so magnificently under the previous Conservative Government has now turned into turbulent waters, perhaps even heading for the rocks. That legacy of low inflation, steady growth, rising living standards, falling unemployment and strong exports is seriously under threat because of economic mismanagement by the Government.

§ Mr. David Winnick (Walsall, North)
If all was so absolutely rosy in the garden, why on earth did the Conservative party suffer its most humiliating defeat this century?

§ Mr. Streeter
Many people are now asking themselves exactly the same question. Everyone is entitled to make a mistake with their vote once in their lives.
The excessive strength of the pound is at the heart of that economic mismanagement, as we all know. It is causing British manufacturers and exporters severe competitive difficulties. Their products are being priced out of overseas markets because of the excessive strength of the pound. As we all know, in international trade these days, deals are won or lost at the margins. The strength of the pound and that extra burden on the prices of our products can make or break a deal. The performance of sterling is crippling our exporters. From our constituencies, we all know that throughout the country, large, small and medium-sized firms are feeling the pinch. That will affect jobs and people are beginning to suffer.
Recent newspaper headlines—too late, of course, to be included in that glossy report—tell the sorry tale. The Daily Mail on 17 April, under the headline,
Recession warning as exports crumble", says:
The BCC survey is stark confirmation of the fears expressed by manufacturers over the last few months. They say that the series of rises in the cost of borrowing since Labour won power last May has added to sterling's strength to such an extent that their earnings from overseas have been devastated. The steel industry has been particularly affected. Some firms have reported 40 per cent. reductions in export earnings over the last 18 months. There are now fears of plant closures and job losses. Thank you, new Labour.
703 On Friday, under the heading,
Pound surges as exports plummet", The Independent reports:
Confirming other evidence of the weak state of manufacturing in the first few months of this year, the survey reported a fall in home and export orders and sales, slower employment growth and lower investment intentions. The export figures for manufacturing had only been worse once in the history of the survey. Small and medium sized businesses were being hit hardest, the Chambers of Commerce said. Deteriorating cash-flow was a particular problem for the smallest. Small businesses are being hit by this Government.
The strength of the pound is not hitting only the manufacturing sector. The Guardian is, perhaps, a paper more to Labour's liking, although with new Labour, that may not be so true any longer. Last week, under the heading,
Sterling woe spreading to services", it reported:
Industry leaders yesterday begged the Bank of England to call a halt to interest rate rises as new evidence showed that the pain caused by the strong pound has spread from manufacturing into the services sector. Export sales and orders for UK firms have slumped to a seven-year low, according to the latest quarterly economic survey from the British Chambers of Commerce. Manufacturers are suffering export losses, while the services sector, which has until now shown little signs of slowing down, recorded its lowest positive ratio for six years of firms expecting export growth. Beneath the glitz, gloss and spin of the Red Book is the harsh reality that British manufacturing companies, exporters and even service sector companies are being battered by Labour's economic mismanagement, while domestic demand continues to increase. As my right hon. Friend the shadow Chancellor said recently:
The Chancellor claimed he would end the cycle of boom and bust. But he is the first Chancellor to give us both at once. Manufacturing in recession, while domestic demand risks overheating. Although the Government will not take responsibility for anything, they cannot avoid the stark truth that the strength of the pound arises largely from their decisions.

§ Mr. Denis MacShane (Rotherham)
While the hon. Gentleman is castigating Administrations, can he give us his view of the fact that the pound sterling rose against the deutschmark by 20 per cent. between May 1996 and May 1997? It has risen a worrying further 10 per cent. since. Between May 1990 and May 1997, the pound sterling changed in value against the deutschmark no fewer than 87 times. Is he proud of that stewardship?

§ Mr. Streeter
The Opposition are not against a strong pound. We are against the excessively strong pound over which the Government have reigned for the past 11 months. Nowhere in the report is there a confession that Labour policies have put us in that difficulty.
The Prime Minister apologised for Labour sleaze before Christmas. The Secretary of State for Health apologised this week to nurses because he could not afford their pay increase. Why cannot the Chancellor or the Economic Secretary apologise to British exporters, companies and people for the fact that Labour policies have placed them in this mess? There were at least three huge blunders.

§ Mr. Bercow
Does my hon. Friend agree that the threat of a soft euro is serving further to increase pressure in 704 the direction of excessively strong sterling, and that it is precisely the Prime Minister being so feeble in failing to tell the rest of the European Community that a soft euro is unacceptable that strengthens the pressure on sterling, to the great detriment of British manufacturing and service industry?

§ Mr. Streeter
My hon. Friend is right and he anticipates the third of the three blunders that I am coming on to describe. He is right to make that point.
The first blunder was to hand over interest rate management to an independent Bank of England. Of course a group of professional bankers and economists, when asked to focus exclusively on hitting a specific inflation target, will always err on the side of caution. Of course interest rates will be kept artificially high to make sure that the target is reached. We warned the Government that that would happen, and happen it has, but as usual, they would not listen.
Even Neil Kinnock said in this House that anyone could reach an inflation target if they were prepared to level the economy to do so. Perhaps these days, Neil Kinnock is not quoted by new Labour Members. Someone who actually believed in something would not be in fashion with new Labour. He absolutely got it right. One can hit inflation targets if one is prepared to level the economy to do so. We warned that giving independence to the Bank of England on interest rate policy was a mistake, and now the country is paying the price of that mistake. The Chancellor continues with his "not me, Guy" approach. It is time that he took responsibility for monetary policy, as he was elected to do.
The second blunder is that the Chancellor has helped to create conditions for a consumer boom by encouraging people to spend rather than to save. In his previous Budget, he introduced a swingeing tax on people's personal pensions. Is he surprised that they then go out not to save but to spend? He should be making saving for retirement a priority. Instead, he penalises it.

§ Mr. Dennis Canavan (Falkirk, West)
If the hon. Gentleman were the Chancellor of the Exchequer just now, with full power over monetary policy, what would he do with what he alleges is the over-strong pound?

§ Mr. Streeter
If the hon. Gentleman would just listen to my speech, I am giving him the answers to that very question. If he will listen and take some heed, perhaps some good will come out of this debate tonight.
The Red Book demonstrates that over the lifetime of this Parliament, the percentage of the nation's income being saved will fall from 11 to 9.5 per cent. What a terrible indictment it is—

§ Mr. Jim Fitzpatrick (Poplar and Canning Town)
Answer the question.

§ Mr. Streeter
To encourage people to save is part of the answer. Botched plans to tamper with personal equity plans and tax-exempt special savings accounts demonstrate the Government's willingness to penalise thrift, and people have got the message—[Interruption.]

§ Mr. Deputy Speaker
Order. I am sorry to interrupt the hon. Gentleman. I say to Labour Members what I said 705 to Opposition Members earlier. The debate will be conducted better if we do not have sedentary interventions.

§ Mr. Streeter
I am grateful, Mr. Deputy Speaker. Consumer spending will continue to rise, bringing higher interest rates than would otherwise be the case.
The third blunder, and probably the most important, is the one to which my hon. Friend the Member for Buckingham (Mr. Bercow) alluded earlier. The Government are committing the cardinal sin of allowing a soft euro to be created. In the past few months, we have seen a flight out of continental currencies into sterling because investors fear that they will have a fudged and soft single currency. The British Government, during their presidency of the European Union, had the opportunity to ensure that each member state seeking to participate in the currency on 1 January 1999 had strictly complied with the convergence criteria set out in the Maastricht treaty.

§ Mrs. Angela Browning (Tiverton and Honiton)
My hon. Friend heard the Economic Secretary to the Treasury say just a little while ago that the key was to share information. Does he agree that one of the pieces of information and advice that the Government could do well to give, especially to Belgium and Italy, is on how to deal with short-term borrowings, which will almost certainly undermine the convergency criteria that the Government seem happy to rubber-stamp?

§ Mr. Streeter
My hon. Friend makes an extremely valuable point. It is a staggering fact that the Prime Minister has not had the strength and courage to stand up to the pressure from those countries to prevent them from weakening the euro in the way that is now clearly going to happen. Even a cursory glance at the figures shows that nothing could be further from the truth than the idea of strict convergence criteria being met by many of those applicant countries. Almost all of them failed the strict criteria on Government debt to GDP ratio, but we learn that the words of the treaty are to be interpreted flexibly, and our Government have agreed to that. There will almost certainly be 11 countries signing up for the euro on day 1, some of which will have qualified by taking part in the kind of gymnastics of which Olga Korbut would have been proud.
No wonder a French Minister last week compared the prospects of a soft euro to the launching of the Titanic. French Ministers are aware of the relevance of the Titanic, but it seems that our Government are more keen to do the full Monty. No wonder investors have no confidence in the strength and integrity of the soft euro, and no wonder sterling continues to rise as a result. Is it not ironic that new Labour is prepared to stand up to hard-working and deserving British nurses and to fund their pay rise over a period of time and not in full, but is not prepared to stand up to politicians on the continent who want to ram through a fudged single currency, irrespective of the dangers to all of us, by using powers more appropriate to the captain of the Titanic?
It is the British people who are paying the price of Labour incompetence. Jobs will be lost in the manufacturing sector, so I ask the Economic Secretary what the point is of spending billions of pounds of 706 taxpayers' money on subsidised jobs for the long-term young unemployed through the front door, while pursuing economic policies that scupper thousands of British jobs through the back door. What is the point of that? The report does not give the full picture, but one thing is certain: unless the Government learn their lessons quickly, next year's report is likely to make extremely grim reading.
That brings me to my second point. On page 129, the report refers to the net contribution to the European Union made by the United Kingdom. As the calculation of our contribution is in ecu and as the pound is strong, as we have already mentioned, that net contribution has come down in terms of sterling. Naturally, we welcome that. The Conservatives are and always have been prepared to see this country pay a fair price for our membership of the European Union, but it must be a fair price and part of the guarantee of that fair price is the UK rebate that Baroness Thatcher won at Fontainebleau in 1984.
Throughout many of the countries in the EU Germany, France and Holland in particular—d of steam is building up about the British rebate, and it is likely to come under threat in the next six to 12 months, once the lacklustre British presidency finally fizzles out at the end of June. The Economic Secretary will understand the public interest in that matter and the great public concern that will be felt if our rebate is diminished in any way. Therefore, I give her the opportunity tonight to make it clear to the House and to our European partners that there are no circumstances in which the present Government, for at least the lifetime of this Parliament, will permit any reduction in the UK rebate, no matter what pressure is put on them; and that they will use their veto, if necessary, to protect our rebate. I shall give way to allow the hon. Lady to respond.

§ Mrs. Liddell
I am delighted to answer the hon. Gentleman's point. In no circumstances would we be prepared to see any movement in our abatement. We are determined to stick by the abatement. I have made that perfectly clear in debates in Committee and I am happy to do so on the Floor of the House.

§ Mr. Streeter
The House will be delighted to hear that confirmation from the Economic Secretary, which is the one I hoped she would give. The Opposition will hold her and the Prime Minister to account for the commitment and undertaking that they have given this evening.
By the time the ink was dry on this glossy report, it was out of date—overtaken by the consequences of Labour's economic misjudgments since 1 May. By all means, let it be sent to Brussels, but it does not tell the true story of the real challenges facing the British economy and the bleak future of thousands of British workers, thanks to Labour's economic mismanagement.

§ Mr. Tony Benn (Chesterfield)
I have not participated in the debate on Europe since the election, because my view on the matter is known: I voted against the Maastricht treaty, and I am opposed to the single currency.
The reason I speak in this debate is that it is held against the background of a clear Government statement of intent to join the single currency, when the conditions 707 are appropriate. The convergence report is a progress report—the Government ask us, not only to note, but to approve the progress they are making toward entry into the single currency when the referendum has occurred. We are told that that will be after the next election, but, if Rupert Murdoch alters his view, it might come earlier.
Two passages in the report are of importance, not just in a debate of this kind in the House, but to many people outside. On page 6, the report refers to
Denmark, Spain, Ireland, the Netherlands, Portugal, Finland and the United Kingdom. It says:
These Member States need to exercise firm control over domestic price pressures with regard to, inter alia, wage and unit labour costs. Support is also required from fiscal policies, which need to react flexibly to the domestic price environment. If I were a nurse whose pay claim had been phased, I would ask why. If a nurse asked me that question, I would reply, "The answer is in this book, because it is a requirement that these controls be exercised in order to equip us for the single currency." I come from Derbyshire, where we are rate-capped, and if, in Derbyshire, people ask me, "Why is Derbyshire, which suffered so much under the previous Government, being rate-capped?" I would answer, "Because of page 6 of the convergence report."
We must relate these arguments to real life. We cannot speak as though we were amateur economists; we must relate them to the real lives of those we represent. The reality is that the framework, set by the European Monetary Institute and adopted by the Government, is forcing a squeeze on people, who will suffer as a result.
My second point—I do not want to take too long—relates to the independence of national central banks. On page 12, the report says clearly that a list of practices by Governments or Parliaments are
incompatible with the Treaty and/or the Statute if they endanger institutional independence—that is, from Governments or Parliaments. So here, tonight, we are being asked to accept that we have no right in the following areas. We have no right to give instructions to central banks or their decision-making bodies, not just on interest rates but on anything that they do. Eddie George is free—protected by the treaty from any pressures that may be put on him by the Government elected overwhelmingly by the people in May 1997.
Indeed, it would be incompatible with the treaty to
approve, suspend, annul or defer decisions of national central banks; or to
censor a national central bank's decisions on legal grounds". Whatever the legislation might be, the courts would not be allowed to take action that would hamper the independence of the central banks. Indeed, we cannot
participate in the decision-making bodies of a national central bank with a right to vote". Therefore, if the Chancellor appoints people to the Monetary Policy Committee and they vote on a matter, they are in breach of the Maastricht treaty. Finally, third parties could not be
consulted (ex ante)"— in advance—
on any national central bank decision. 708 Tonight, not only are we approving a policy— which is causing hardship to many people because of the restriction on public expenditure, and because, as has been said, the currency valuation affects jobs—but we are being asked to approve an abandonment of our right ever to do anything in those areas that might relieve those pressures.

§ Mr. Llew Smith (Blaenau Gwent)
I believe that my right hon. Friend is right to say that we would not have the rights, as a Parliament, to instruct the European central bank on issues such as unemployment, but surely it goes further. Not only would we not have the right, but it would be positively illegal if we tried to influence the European central bank on issues such as unemployment, low pay and poverty.
If that is the case—if Parliament no longer controls economic policy making—surely, at elections, the people will then find that the people they can vote for are not the people who take the decisions. The people they want to have an opportunity to vote for—the bankers—will be taking the decisions. Surely that makes a mockery of parliamentary democracy.

§ Mr. Benn
I object to these arrangements, not as a British person but as a European, because they destroy democracy in Germany and France, too. For example, the German people will be unable to influence the decision of their bankers. My hon. Friend referred to the limitation on our opportunity, as a nation, to try to influence the European central bank, but it applies also to attempts to influence our own Bank.
To summarise, we are tonight consenting to an act of unilateral economic, industrial and financial disarmament. From now on we are saying to our electors—who are, after all, the people who have sent us here and can remove us, because we are still candidates—"You can remove us next time, but you will never be able to change the policies that may lead you to want to remove us."
That is a big question. It is something that we do not often discuss, and if we do, sometimes in the heat of the day and in argument we get strong and personal, because it is a matter which cuts across political allegiances. It is a European, and a democratic, question.
We are all, inevitably, influenced by our own experience. The earliest election that I remember was that in 1931, when the conflicts within the Labour Cabinet on whether the gold standard should apply led to the fall of that Government. My father lost his seat in that election. He had the unhappy experience of fighting Aberdeen, whose electors were cautious when the Post Office scare appeared, Aberdonians being known for their caution.
In the 1930s, I remember vividly Hitler coming to power when there were 5 million or 6 million unemployed in Germany. I bought "Mein Kampf' when I was 11. I have it on my shelf at home. Unemployment leads to despair, and despair destroys democracy, just as political impotence destroys democracy. If, when we vote, we cannot change anything, that destroys democracy. There are now 15 million unemployed in the European Union. I am not saying that what happened in the 1930s will return, but we are dealing with big questions.

§ Mr. Cash
Will the right hon. Gentleman give way?

§ Mr. Benn
No. I promised that I would be brief, and I will.
709 We are dealing with the question whether it is legitimate in countries that boast of democracy for the electors to elect a Government and a Parliament that can influence the form of their own lives. It applies throughout the EU. This is not a British objection—I would feel just as strongly if I were a Frenchman, a Spaniard, a Greek or from any other country.
We shall have more of this when we come to the debates on the single currency, but it is important to put down a marker now, before we go along quietly approving things which are already taking place, beginning with the independence of the Bank of England, and denying those who sent us here the rights that they are entitled to expect when they cast their vote. For those reasons, I shall not be able to support the motion tonight. It runs counter to my deepest convictions, and that is a view that I hope people will understand, even if they do not agree with it.

§ Dr. Liam Fox (Woodspring)
Tonight, the "Financial Statement and Budget Report" is about the United Kingdom handing its homework in to Europe, hoping that the European Commission will give us a gold star for our performance during the past year. Yet we have a Budget with two different agendas. First, there is the running of the domestic economy and the Prime Minister's insatiable appetite for re-election at all costs, and, secondly, there is the Chancellor of the Exchequer's agenda, which is preparation for monetary union. At some point, those will come into conflict, and I look forward to the political consequences.
The Prime Minister claims credit for anything that is good, taking more power to himself, and the Chancellor the Exchequer gives any responsibility away. While the Prime Minister plays God himself, the Chancellor plays Pontius Pilate, and an interesting play it will be at some point, but it will certainly be devoid of passion.
The first question that we need to mention following the Economic Secretary's opening speech this evening concerns the Government's initial economic act in the Parliament, which was independence for the Bank of England. Hon. Members on both sides of the House will accept the importance of transparency in making monetary policy decisions. The Monetary Policy Committee should make its reasoning clear and publish its minutes, but the Chancellor should make the ultimate decision, because it is the Chancellor who is responsible, not only for monetary policy ultimately, but for fiscal policy, and the long-term and wide-ranging effects on the economy.
To allow the one instrument that the Chancellor had to pass into the hands of the Bank of England so that he now has no control is surely a reckless political act, given the consequences that we are now seeing of what an over-conservative Bank of England might do.
However, in all frankness, it is not all doom and gloom. The very basis on which the Conservative party came to power in 1979, and the entire ethos of Baroness Thatcher's Government, was that if we had another Labour Government, at least we would never have another socialist Government. The Government may be erring on the side of conservative caution. Conservative Members can gain a little comfort from that, although some Labour Members are having to live through their worst nightmare.
710 Some of the phrases used by the Economic Secretary give us cause for concern, even if we are not frank enough to laugh at them. She spoke of economic stability and referred to promoting employment. They are meaningless soundbites and are utterly incomprehensible, given the Budget. The Government must understand that they cannot govern by soundbites, because their actions have an impact on the real economy, real people, real inflation, real unemployment and real manufacturing. They do not understand such concepts after such a long time in opposition.
As my hon. Friend the Member for South-West Devon (Mr. Streeter) said, the Government inherited a golden economic legacy: low inflation, falling public debt and falling unemployment. When I asked the Economic Secretary why we have low unemployment whereas unemployment rates in Europe are much higher, no answer was I given. She cannot bear to hear the answer to that question. There is low unemployment in this country because we made the necessary supply-side reforms during 18 years of Conservative government. That was not easy: they were achieved not by photo opportunities and soundbites, but by tough policies that hurt, which were not politically easy for us to implement and which had a cost. Those reforms made us unpopular, but we made them because we believed that they were right. They have given us a tremendous economic advantage in our trade worldwide.

§ Mr. Cash
Does my hon. Friend agree that one of the reasons why the economy that the Government inherited was so good was that we came out of the exchange rate mechanism? The Leader of the Opposition has rightly apologised for the mistake that we made in entering the ERM and for the manner in which we conducted our membership of it. We would never enter it again, whereas the Government most emphatically would.

§ Dr. Fox
I entirely agree with my hon. Friend. There has been an indecent obsession with currency as more than just another commodity, which is what it is. Currency reflects a wide range of economic circumstances. If we make a single commodity the be-all and end-all of our economic policy, we shall have the same problems that we had when we tried to have fixed exchange rates in the ERM. The Government refuse to rule out rejoining the exchange rate mechanism in the coming years.
It is true that many other economies have managed to live with a strong currency over a period of time. However, the problem that we have is that our currency does not reflect our economic strength. Our currency is over-inflated because of the Government's mismanagement. They gave away the main instrument for controlling inflation: interest rate policy.

§ Mrs. Teresa Gorman (Billericay)
I support my hon. Friend's remarks. The Bank of England is having to raise interest rates to control inflation because the Government have transferred vast sums from people's savings into spending. We should never lose sight of the fact that Government spending causes inflation.

§ Dr. Fox
Perhaps I am more transparent than I give myself credit for, but my hon. Friend anticipates my next point. When the Government came to power in 1997, there was growing domestic demand, not least as a result 711 of windfall gains. They should have taken money out of the short-term economy, but they did the exact opposite and taxed savings. They made it less likely that people will take money out of the economy in the short term by putting money aside for themselves in the longer term. It is a catastrophe, a strategic economic mistake for which the Government and, more important, the people of this country will pay a high price in the years to come.
That will be coupled with the other economic mistake that the Government are making, by introducing a minimum wage. [Interruption.] The hon. Member for Poplar and Canning Town (Mr. Fitzpatrick) laughs—perhaps he has also had a good evening. The number of people who, by receiving the minimum wage, will have a direct inflationary impact on the economy will be small, but in large areas of the public sector, such as the national health service, it will not be those who receive the minimum wage who will have an inflationary effect, but those who want to retain the differentials. People who are on a wage just above the minimum will say, "Those below me have just had an 8 per cent. wage rise, so I expect to get the same." The Government will create that inflationary pressure. That is the inflationary pressure about which my hon. Friend the Member for South-West Devon spoke, and the Government will have to deal with it, although they seem incapable of doing that.
The bigger picture is our relationship with Europe, and an indecent obsession with a one-way route towards a united states of Europe is at the heart of the debate. People are becoming increasingly obsessed with every aspect of the European economy, including monetary, trading and political aspects. We must be realistic about Europe. Since 1990, only two European countries have maintained their share of world trade. Italy has held its share steady and the United Kingdom has marginally increased its share. Every other European Union nation has had a diminution in its share of world trade. The Government are asking us to link ourselves more closely to the European economy when the importance of that economy in world terms is shrinking.

§ Mrs. Liddell
Perhaps the hon. Gentleman will answer one simple question. Who signed the Maastricht treaty?

§ Dr. Fox
It is depressing and appalling that the Government refuse to take any responsibility for what they are doing. We are putting detailed arguments about the future of our economy, about those who are employed in it, about the wealth and pensions of our people, and about our trading position and relationship to Europe. The best that the Economic Secretary can do is to say, "Who signed the Maastricht treaty?" She knows as well as we do that the previous Government signed it and that they were fully supported by the Labour party, which included her.

§ Mrs. Liddell
I was not here.

§ Dr. Fox
That is a sad sign of the economic and intellectual level of Treasury Ministers.

§ Mr. Jenkin
I heard the Economic Secretary make the sedentary remark that while her party supported the Maastricht treaty, she did not. She is obviously disclaiming all personal responsibility for the Maastricht treaty.

§ Dr. Fox
I shall not be tempted down that route. My hon. Friend knows that it is entirely possible for Labour 712 to believe two opposites not just before lunch but simultaneously at any time of the day. Only in a party that has had more thoughts go through its waistband than through its head since the general election would that be possible.

§ Mr. Nicholas Winterton (Macclesfield)
rose—

§ Dr. Fox
I shall give way to my hon. Friend in a moment.
Not only is Europe's share of world trade declining but, as the right hon. Member for Chesterfield (Mr. Benn) has said, Europe has high unemployment. We are not debating a small difference in unemployment between this side of the channel and the other: large numbers of people are involved. One third of young people in Spain are unemployed, and Germany is nearing a post-war unemployment record. France has a huge number of unemployed people. How long can political peace be kept when unemployment is rising so hugely, and for what? It is not for some great economic advance, but for the political dream of a small political intelligentsia, or so-called intelligentsia. That cannot be the way to maintain stability in Europe.
A dangerous game is being played, and we must try to inject a note of realism into the debate. If we do not, there will be dire consequences not just for the United Kingdom but for the whole of Europe. Much of the good that has been achieved in Europe is in danger of being swept away by the political arrogance of those who think that they know better.

§ Mr. Winterton
The right hon. Member for Chesterfield (Mr. Benn) made an excellent speech, and my hon. Friend is building an unbeatable case against the single currency. Does he share my suspicion that the Government are using high interest rates and the problems that they create for industries across the spectrum, from agriculture to manufacturing, to blackmail people into supporting a single currency as the only way to get lower interest rates, although that is a totally false prospectus?

§ Dr. Fox
I am persuaded up to a point by my hon. Friend's case, but it gives the Government the benefit of the doubt on economic competence, which I do not believe they possess. They are now out of control in terms of both the domestic economy and the European argument. They do not know where they are. They have become destabilised and lack equilibrium. None of what we have heard tonight convinces me that the Government have any idea how they will gain control again.
There are only two possible routes for Europe to take: it can be either a free-market Europe or a fortress Europe. We in the United Kingdom have always seen the European Union as a stepping stone to world trade liberalisation. This week's comments by Newt Gingrich show that he is one of the people who wants wider trade liberalisation. We in the UK have always wanted that.
When we convinced people to vote for membership of the European Economic Community, it was because we believed in trade liberalisation. It was to be part of a common market. An ever-expanding common market must be the first step to greater trade opportunities, but some of our European partners do not see it that way. 713 They view the European Union as a means of protecting themselves from harsh economic world competitive conditions.
Those two routes are not compatible. There will be either a free-market Europe or a fortress Europe, and we in the UK must understand what the parameters of our European policy are to be if we are not to disadvantage our long-term economic and trading position.
We are always told, "We can't be left behind"—that is always the excuse. When we refused to sign the social chapter in the Maastricht treaty, of which the Economic Secretary is so fond, we were told, "You must sign it because we shall be left behind." Indeed, we were left behind. We were left behind the high unemployment to which the right hon. Member for Chesterfield referred; we had low unemployment. We were left behind the inflexible economies that now afflict Germany, France, Spain, Portugal and Italy; we had a flexible economy, which has responded extremely well.
When the Government try to take credit for falling unemployment, it is the ultimate hypocrisy. We have falling unemployment because we made our supply-side reforms to create a flexible economy, in the teeth of Labour opposition. The Prime Minister voted in the House of Commons against every policy that he now goes to Europe on and that he tells our European partners they must follow. It is utter humbug. I know that those policies are incredibly distasteful to Labour Members, but not many of them bother to vote against the Government.
The convergence criteria are the ultimate farce. At some point, some day, somewhere in the European Union, we shall have to recognise that these are the emperor's new clothes. The convergence criteria are a complete farce. Bringing Belgium and Italy into the single currency can do nothing but make it unstable, and that instability will give no comfort to anyone on any side of the political debate in the UK, because a bad single currency will be bad for the European economy and, consequently, for the UK.
Although—the Economic Secretary has again failed to get her figures right—most of our trade is outside the European Union, as the Foreign Secretary confirmed, a large proportion of it is within the EU. It is in our interest to have a successful economic EU, but the soft currency that is now threatened pushes sterling up further and threatens the European economy itself.
If we have a soft currency—because Italy and Belgium are members of the single currency—it will be largely because we have a Prime Minister who is more fond of photo opportunities, getting his horses and getting a good reception in Europe than taking a long-term view of this country's economic well-being. If we end up with a soft currency, it will be because the Government have failed to take hard decisions. That will earn the contempt of generations to come.
The final point made by the Economic Secretary was on an issue on which I have asked her many written questions—the hon. Lady will be well aware of this—and it concerns the currency of denomination of trade. Why are the Government so obsessed with getting to the convergence criteria, when the evidence produced by the Treasury and the Economic Secretary's answer to me only weeks ago showed that the currency position in 1989, 714 when Britain traded 89 per cent. in sterling and dollars and only 4 per cent. in deutschmarks, has not changed over the past 10 years? There is no economic logic in linking ourselves with a European currency in which we do hardly any trade. Most of our trade is done in sterling and dollars.
In fact, it is worse than that.

§ Mr. Fitzpatrick
Sit down.

§ Dr. Fox
The hon. Gentleman is telling me to sit down because he does not like to hear complicated arguments that are not conducted in monosyllables.
If we go into a single currency when we are still trading mainly in dollars, we shall hand over a trading advantage to our European competitors. While they will have the security of not having currency fluctuations outwith the European Union and the currencies in which it trades, we shall still be subject as much to euro-dollar fluctuation as we are to sterling-dollar fluctuation. That will be a major disadvantage to this country unless the currency of denomination of trade changes fundamentally.
Many good things have occurred in Europe over recent years and the Government's policies risk throwing them all away. Blind adherence to the political and economic fashion of an economic and European political intelligentsia risks many economic fallouts, including political instability within Europe and economic catastrophe in this country. I urge the Government, while they still have time, to take the tough decisions, to try to get the single currency to be strong and not to risk a catastrophe in the European economy that will impact on this country. If they allow that to happen, they will risk the contempt of generations and they will deserve it.

§ Mr. Austin Mitchell (Great Grimsby)
I do not intend to follow the hon. Member for Woodspring (Dr. Fox) because it is sad to see a new generation of Conservatives denying the realities of their own Government of the 1980s and 1990s. I was one of those who tramped through the Lobby against the Maastricht treaty and against the decisions of the Conservative Government in conspiracy with the Labour party.
The convergence document is one of the greatest works of fiction I have seen since I participated in the internet story in the Grimsby Evening Telegraph. It was called "Future Perfect" and I made a contribution of 500 words. It is now to be published as a book. That was a great work of science fiction and this document is a great work of economic fiction. Attempting to reduce this Euro-farce to the pathetic level of party political games serves no useful purpose.
We have a real problem. Essentially, in trying to go ahead with monetary union, which is the only way to build the sort of political union that is wanted, the exchange rate is being used as a political instrument. That is distorting the exchange rate and its purposes and damaging consequences will result. If two economies—one extremely powerful and well invested and the other weaker—are put together without the cushioning of the exchange rate between them to insulate the economy and to take the shocks rather than the shocks occurring to wage rates and living standards, the stronger economy rips the weaker economy apart. It is as simple as that. That is the reality. 715 If there is to be monetary union, there have to be defined characteristics in terms of the strength of the economies. Europe has characteristics that are defined in monetarist terms—inflation rates and debt levels. It is now going on from that initial mistake to fudge the very criteria that it set. The convergence document is a colossal fudge. The picture on the front of the Budget Red Book could be the President of the Commission, Jacques Santer, lying on the floor with a new generation of Britons looking down on him. It seems to be a case of, "Roll up, roll up. Everybody is welcome." It is rather like me, with my generously proportioned figure, trying to fit into a Paul Smith suit—because I desperately want to be new Labour, to be fashionable, to be trendy—to make me appropriate for new Labour. Frankly, I would have to lie down on the floor to pull up the trousers. I would have to struggle to get the zip up or to get the jacket to meet; I would have to wear a corset before I could wear the suit.
Europe is being pushed into the same situation by the convergence criteria, which are artificial. As soon as I breathed in my Paul Smith suit, it would rip apart at the seams. That is exactly what will happen with monetary union. It will have to be a success, because for years the unemployment rate in France has been between 12.6 and 12.8 per cent. One cannot go to the French electorate as a French socialist Government and say, "Hélas, on s'est trompé. Sans blague, on s'est trompé." One cannot express one's regrets and say that it was all a mistake. Governments have to persevere, and they will, but because the criteria have been fudged, it will all come apart quicker.
Everything is fudged. In fact, only little Luxembourg fits the criteria perfectly. By any calculation Germany exceeds the 3 per cent. target for its public sector deficit. The Italians have complied only by a one-off Euro tax, which will not be repeated next year. It is not repeatable. These deficits are not sustainable, because with high unemployment public spending will increase.
The inflation figures for Spain have been fudged. If long-term debt has to be 60 per cent. of gross domestic product, what about Belgium, where it is about 128 per cent., or Italy, where it is 125 per cent.? It is all very well to say that one has to make progress towards the target. Progress towards the 60 per cent. target seems likely over several decades, but is certainly not possible within any sensible time span. If those countries are to make progress, massive deflation will be imposed on them.
My right hon. Friend the Member for Chesterfield (Mr. Benn) was perfectly correct. We are being fitted into the same criteria, and that is having a disastrous effect on what we as a Labour Government want and need to achieve to serve our people. We want to expand the economy. We want to improve public spending. We want economic growth, yet for some reason we are trying to observe the Maastricht criteria. It is not the responsibility of a Labour Government to run a low deficit and start repaying debt.
Our responsibility is to solve the problems of the people, and that demands an expansion of the economy to generate public spending, not cuts to achieve something that is hypothetical. It is not the purpose of the people to make the Bank of England independent and give it control over interest rates, which have a disastrous effect on the exchange rate and on manufacturing, which is on the front line of intense international competition.
716 The purpose of the people is about jobs. It is not the purpose of a Labour Government—the people's Government after all—to set an inflation target, which at 2.5 per cent. is far too tight, above any other objectives, whether they be jobs, economic growth or anything that advances the causes of the people. This is monetarist folly. Why are we doing it? The only explanation seems to be a desire to fit into the Maastricht convergence criteria. We clearly will go ahead with monetary union, because people are not going to say, "Sans blague, on s'est trompé; tant pis." Will we observe the stability pact, with all the restrictions on public spending? As my right hon. Friend the Member for Chesterfield said, it has all the freedom of a rate-capped council. That is not the responsibility or the role of a Labour Government, who should be serving the people.
Why is the exchange rate being kept at its current high level? Why do we not intervene to bring it down? Why have we given the Bank of England control of the exchange rate before the Bank of England Bill has been passed, while we could still change the targets or intervene to bring down the exchange rate? Is it all some kind of preparation for monetary union? I honestly do not understand. It is either an amazing coincidence that we are adopting all these policies now, or it is a deliberate attempt to meet the convergence criteria.
We are embarking on this process which is nothing other than self-crucifixion because these policies are undermining and damaging the real economy of manufacturing and jobs. Next year, we shall face severe deflation just when we are going to the country in the May elections. While we are doing this, in Europe there is clearly a deliberate policy to depreciate the deutschmark. The deutschmark is being brought down to make it competitive. To offset the consequences of the deflation necessary to achieve the Maastricht criteria, the Germans are deliberately depreciating the deutschmark to make their exports more competitive on our market. That will lead to a widening of the balance of payments deficit with Germany, which has always been substantial.
If we did that, it would be called competitive devaluation. We would be castigated and hauled up for it. It would be considered monstrous that "les sales Anglais" were behaving in this traditional, perfidious Albion fashion, but because the Germans are doing it, it makes economic sense and is acceptable. That is a signal that the euro, when it comes, is going to be run as a soft currency to maintain expansion, to make it competitive and effective, and to ease the transition. We could cope with a hard currency, but the euro will be run as a soft currency. That will undercut us and worsen our trading position with Germany and, indeed, with the whole of Europe, which is already disastrous enough.
A soft euro is the scenario that I fear. I want to know from the Government what we are going to do when the euro is run as a soft currency. Are we going to maintain sterling at the current level and carry on with this destructive approach to British industry, watching the balance of payments deficit widen? We shall get no benefit at all in that situation. We are already getting very little benefit from the single market. It is interesting that since the single market was introduced, our trade outside it has expanded far more rapidly than our trade inside it.
It is clear that Europe's approach is to fudge and fiddle. The euro may work, I do not know; we certainly have to try to make it work. However, the Government need to 717 tell us whether, faced with a soft euro, a widening deficit, a challenge to jobs and employment, and the threat posed to our industry by the pound's exchange rate, we are going to keep the present exchange rate, or whether we are going to intervene to get it down. We have to do something. We cannot sail on towards the rapids as we are now, blithely saying that we are providing stability, even if stability means an exchange rate depreciation of 30 per cent. over less than two years, which is exactly what has happened.
What are we going to do about sterling and the exchange rate? Are we going to observe the stability pact and maintain the overtight control of public spending when the nation elected us to make things better? We were elected not to maintain the Maastricht criteria or to cut public spending, but to make better everything that had been affected by the anorexia and the cuts of 18 years of Tory government. Can we now embark on that job or are we putting the Maastricht criteria and the stability pact first? What will happen and how will we run the economy in those circumstances?
I do not want our Labour Government, with all our bright hopes and desires for improvement, to march back—as we are doing now—into the old deflationary trap of cuts to justify inflation and to maintain the exchange rate at an overvalued level. Industry is suffering from the decline that results from an overvalued exchange rate and all the sacrifice is imposed not on the fat cats that we could tax, but on the people of this county in pursuit of some European ideal that they do not share.

§ Dr. Vincent Cable (Twickenham)
I am grateful for the opportunity to say a few words in the last few minutes of a debate that has gained some distinction from the fact that hon. Members have spoken independently, without a party script. In particular, the right hon. Member for Chesterfield (Mr. Benn), with whose views I disagree, spoke briefly and cogently on the subject. The key difference between today's debate and other debates on monetary union is that we are dealing for the first time with reality rather than with a hypothetical project. In Britain it is not often appreciated that monetary union has been planned systematically, step by step, since the early 1970s. Anyone with sufficient clarity of vision can see that there was a real commitment to making it happen. It was not simply the invention of Chancellor Kohl and contemporary politicians; it has been planned for a long time. People in Britain—particularly Conservative Members—suffer from blindness, myopia or unwillingness to face up to that fact.

§ Mr. John Hayes (South Holland and The Deepings)
What about Parliament? Would the hon. Gentleman concede that the myopia of which he accuses Conservative Members—and presumably Labour Members too—is not the issue? The issue is that, although that agenda may well have been clear in the minds of the hon. Gentleman and others in Europe, it was never made clear to the people in Europe—not just in Britain. As the right hon. Member for Chesterfield (Mr. Benn) said, 718 the people in each of the countries in Europe were duped because that mission and message was not made clear to them honestly.

§ Dr. Cable
Like us, they have democratically elected Governments all of whom are campaigning within the context of a commitment to the European ideal and European monetary union.
The key issues that confront us, and the two particular matters that we need to address, are the extent to which the European countries have achieved the basic criteria for monetary union and the extent to which the British Government have progressed towards convergence.

§ Mr. Paterson
The hon. Gentleman has missed a critical point that was mentioned by the right hon. Member for Chesterfield (Mr. Benn) and my hon. Friend the Member for South Holland and The Deepings (Mr. Hayes). The project is provoking excitement among most unpleasant extreme political parties in Europe. In France, for instance, no main political party does not support the project, with the result that, in recent regional elections, there has been a sharp increase in support for Le Pen's national front party. Similarly, in Austria, only Jorg Haider's party stands for an independent Austria instead of the country' s being put into the pressure cooker of a united European state.

§ Mr. Deputy Speaker
Order. That was quite long enough for an intervention at this hour of the night.

§ Dr. Cable
I was about to progress from politics to the market, which is what Conservative Members believe in. The key point about convergence in Europe is not what is in the document or our individual judgments, but what happens in the markets. I do not know whether Conservative Members have been studying what is happening to long-term bond yields in Europe. One of the key points in recent months is that the differential between all the participating countries in EMU has disappeared. There is virtually no divergence between the long-term bond markets in Italy and Germany.
Another key factor is the relationship with our own market. The rate of the bond yield in Italy is now lower than in the UK or the US. What is the significance of that? What is the market trying to say? The market is telling us clearly—in a transparent, non-political way—that there is a greater prospect of long-term stability in Italy than in the UK or the US. The markets have indicated clearly that a process of convergence is taking place, and that is reinforced by the numbers.
We must make a balanced assessment of what the convergence process in Europe has produced. It is a mixed story, and there are particular areas—notably, public debt in Italy—where the conditions have not been satisfied. However, overwhelmingly, they have been. The key point relates to inflation, which is now—according to the convergence report—averaging under 2 per cent. across Europe; that is well within what we expected a few years ago. The standard deviation is very low, and it is inflation that really matters. Differences in price levels would create stresses within monetary union, but they have been eliminated.
The average public sector deficit within the European Union is now well under 3 per cent., and the differences between member states are very small. All member states, 719 except two, have had two years of stability—in many cases, many more years—within the framework of exchange rate stability. The key criteria have been met.
The Economic Secretary correctly sketched out those areas of economic policy in which we are moving in the direction of economic stability—our inflation objectives, the deficit, institutional development through a central bank, and the fiscal stability arrangements.
The one key element of instability left—it has been the core of the argument tonight—relates to the exchange rate. Conservative Members in particular deplore what they regard as the overvalued exchange rate. The key question is, "What do we do about it?" People have argued simultaneously for devaluation and for a strong currency. It is not clear what they want.
I suggest that we need two mechanisms to help us address the problem. First, the Government should made clear now roughly the rate of exchange at which Britain will enter EMU within a few years. One can argue that it could be in the range of DM2.80 to DM3. A pre-announcement of an exchange rate would have a stabilising effect on the market and would be a significant contributory factor to stability.
The final point that I wish to make—this is an element which brings together people on both sides of the argument—is that the process requires greater political legitimacy. That is why my party and I believe that we need a referendum—and we need it soon. A referendum could not only confer democratic legitimacy on monetary union, but could create the option for the Government to proceed with early entry, which is rapidly becoming a realistic and desirable objective.

§ Mr. Bernard Jenkin (North Essex)
It did not surprise me at all that the Economic Secretary failed properly to discuss the issue of convergence, given that the views of her own Back Benchers would have been at variance with her own. What she failed to mention—