EMU (Economic Convergence) (Hansard, 3 March 1999)

§ Dr. Vincent Cable (Twickenham)
I am grateful for the opportunity to present this Adjournment debate. It was very clear from the Prime Minister's statement on the euro last week that we are moving into new terrain in the debate on Europe. The pace is accelerating, and I think that it is important that as many hon. Members as possible are able to contribute to the argument.

§ Mr. Eric Forth (Bromley and Chislehurst)
There are not many here today.

§ Dr. Cable
Perhaps 9.30 am is a little early for some of the right hon. Gentleman's colleagues—and maybe for some of mine, too.
In the past week, we have identified several areas of concern about where the new Government process is leading. Some of us have talked to our local business communities—I spoke yesterday to my local chamber of commerce—and I think that the reaction to the changeover plan in general has been rather positive. However, there are questions about what that plan will mean.
There is a new formula in terms of the months involved in the changeover—the X + 4 + 30 + 6, as I think we must learn to call it. The question is what is X: how long will it be before the changeover process begins? As the Minister knows, the Liberal Democrats have long argued that that period should be as short as possible because of the need for an early political mandate.

§ Mr. Alan Clark (Kensington and Chelsea)
On a point of order, Madam Speaker. A minute ago, the hon. Member for Twickenham (Dr. Cable) mentioned as an aside that 9.30 am is a bit early for our colleagues to attend the Chamber. As that remark will go into the Official Report, I should also point out that the number of Conservatives in the Chamber exceeds the combined number of hon. Members from all other parties.

§ Madam Speaker
I am really not into the numbers game. There are sufficient hon. Members present to carry on the debate.

§ Mr. Denis MacShane (Rotherham)
Further to that point of order, Madam Speaker. We should also place on record that that is the first time that that has happened this Parliament.

§ Madam Speaker
At least I am always here.

§ Mr. John Bercow (Buckingham)
Further to that point of order, Madam Speaker. I know that you are always 994 anxious for the factual record to be correct, so it should be placed on record that, during consideration of the treaty of Amsterdam in Committee, the Conservative presence—as the hon. Member for Rotherham (Mr. MacShane) well knows—was invariably greater than that of Labour.

§ Madam Speaker
I can see that many hon. Members have a good sense of humour. We are starting the day very well.

§ Dr. Cable
Conservative Members have made their point about the quantity of Conservative participation in the debate, so I hope that that will be matched by the quality of their speeches—judging from experience, I rather doubt it.
My second introductory point relates to the concern expressed by business about how precisely the changeover plan will work given uncertainty about the lead-in time. However, an even bigger issue has begun to be raised in some of the testimony to the Treasury Select Committee in the past week. As the Government have moved ahead with their business preparations, the macroeconomics underlying the Government's approach to entry have been left behind.
I refer the House to the comments of two witnesses who appeared before the Committee. The Governor of the Bank of England acknowledged openly that there was a potentially serious conflict between his goals, as currently defined by the Chancellor of the Exchequer, in pursuing domestic inflation objectives and those that he would have to pursue if he were seeking economic convergence. He made it clear that, until he received a fresh mandate from the Treasury, he could not begin to address that problem.
It was also clear from his testimony yesterday that the Minister for Trade and Competitiveness in Europe, Lord Simon, had great difficulty defining what a future competitive exchange rate would be when we join EMU. That is also a great concern to much of manufacturing industry. Major areas of economic policy have not yet caught up with the speed of the Government's actions in terms of business preparation. I shall try to focus on some of those issues in this debate.
The Liberal Democrats believe that the vehicle for joining EMU that the Government have set in motion may have a gearbox but it also needs a steering wheel. It is all very well to say that we must achieve economic convergence, but the Government must make it clear how economic convergence will be achieved and sustained. Today, I shall offer a series of specific and pragmatic proposals as to how the Government might take that aim forward.

§ Mr. Ian Bruce (South Dorset)
I thank the hon. Gentleman for giving way so early in his speech. Is there not a strange dichotomy in this situation? The Chancellor of the Exchequer is not allowed to interfere with the independence of the Bank of England, and the euroland nations are not entitled to interfere with the central bank. However, our Chancellor is able to speak to the governor of the central bank and suggest that he should increase interest rates in euroland because the bank is currently effecting competitive devaluation of the euro for short-term gains in Europe.

§ Dr. Cable
I agree with the hon. Gentleman to the extent that I believe that the model of independence that 995 has developed in the United Kingdom is very satisfactory. I think that the hon. Gentleman and his colleagues were bitterly critical of that structure when it was introduced a year ago.
I shall address the point for which the hon. Gentleman provided a cue. The first issue that we need to deal with is the extent to which the position of the Bank of England might now need to be changed. I start from the assumption—Liberal Democrat Members strongly believe this, as I am sure do Government Members, and perhaps we even have a convert on the Conservative Benches—that the Bank of England's independence is desirable and its creation was a valuable step forward.
Despite many reservations among Members on the Liberal Democrat Benches and Labour Back Benches, many of the fears about that independence have not been realised. It is difficult to believe, for example, that a politically inspired series of interest rate cuts by the Bank of England over five months would have been accepted by the markets. The experiment has been extremely successful so far and we are anxious that the spirit of independence should be retained whatever changes to arrangements take place.
It is clear, however, that the Bank of England now faces the dilemma of how to take into account European convergence. The Bank's terms of reference now state that the objectives of the Monetary Police Committee are to consider inflation and other Government objectives, but the Bank is making it clear that those objectives do not, at this stage, include European convergence. There is a large blind spot about how to address that issue.
I have a modest suggestion for the Economic Secretary, which involves a series of steps that the Government might now begin to take. When the Chancellor introduces the Budget next week, he should modify the terms of reference within which the Monetary Policy Committee operates and instruct it to take convergence into account. That does not necessarily mean immediately shadowing an exchange rate or any other objective, but the committee should monitor economic convergence and begin to discuss the problem with other relevant Departments, especially the Minister's own.
It is important that the Bank of England's independence is maintained in that process, but at some point we must confront the dilemma that the objectives of convergence may well involve moving interest rates in the opposite direction from that of domestic inflation. Over the next few months, for example, the objective of convergence might best be achieved by cutting interest rates to bring down the pound. On the other hand, a recovery in the United Kingdom economy may require interest rates to go up. That dilemma must be resolved, and it can be done only by using the Treasury's fiscal policy.
A careful process must evolve whereby monetary and fiscal policy can be considered together without compromising the Bank's independence. I hope that the Minister will reflect on that and suggest how she and the Government expect the process to work. It is difficult to believe that it can simply be left until the next Parliament, so we suggest that the process may be set in train whereby the terms of reference of the Governor of the Bank of England are modified to allow him to begin to take convergence into account.
996 The second issue on which I want to focus—the role of sterling and the exchange rate—is potentially much more difficult, but it must be addressed.

§ Jacqui Smith (Redditch)
Does the hon. Gentleman accept that his suggestion that the only way in which to achieve convergence criteria is directly to target them is contrary to what was discussed in the Select Committee yesterday and to the clear statement from Lord Simon that the Government's current policies on the Bank of England's independence and long-term fiscal stability are precisely those that should lead to convergence? Does not he accept that it is not necessary to have a strict objective of convergence, but that it is important that we put into place the policies that will achieve that aim?

§ Dr. Cable
The hon. Lady has helpfully put her finger on the underlying fallacy in what the Government are trying to achieve, which helps me to make my point more strongly. I understand current Government policy to involve, as she says, pursuing a series of objectives which will hopefully land us at precisely the right exchange rate when it is politically convenient to enter EMU.
Theory and practice do not add up. It has been clear in the past few months, and for a much longer period before that, that foreign exchange markets do not work as the Government believe them to work. Government policy holds that, providing that interest rates are gradually cut to European levels over the next few years, the British exchange rate with the euro will gradually glide down to a convenient rate, but we know that foreign exchange markets do not work in that way. The Governor of the Bank of England admitted that last week, when he said that he was perplexed about what was happening to the exchange rate and did not understand the mechanism. That was a confession not of incompetence but of a lack of understanding.

§ Mr. David Ruffley (Bury St. Edmunds)
Will the hon. Gentleman tell the House whether the Liberal Democrats have an exchange rate objective, and if not, why not?

§ Dr. Cable
Yes, I shall suggest how we might pursue an exchange rate objective, and that is the purpose of this part of my speech. I shall suggest not that we should pursue a single interest rate, which I think is what the hon. Gentleman wants me to say, but that we need a policy commitment on the exchange rate. He is right to imply that there is a basic point of logic in this matter, and I shall try to suggest how that objective might usefully be pursued.
The problem remains—this reinforces the point made by the hon. Member for Redditch (Jacqui Smith)—that the Government are hoping that interest rate cuts will gradually glide to a level that will enable British manufacturers to be competitive indefinitely, but we know from the workings of foreign exchange markets that that simply does not happen. There is a danger that, without a more proactive policy, we shall be landed with an exchange rate that is totally uncompetitive and inappropriate.
In those circumstances, the Government may well have fulfilled all their five tests and have the political mandate from a referendum, but we would have the wrong exchange rate. One lesson that we should have learned 997 from the period of the exchange rate mechanism—our analysis of that corresponds with the views of some Conservative sceptics—is that if we are entering such a project, the exchange rate must be right.
How do we then resolve the problem—I am responding to the question asked by the hon. Member for Bury St. Edmunds (Mr. Ruffley)—of having an exchange rate objective? It cannot be done simply be sticking one's finger in the air, picking up an exchange rate and saying that it will be appropriate for ever. That would be absurd, and I do not begin to suggest it. However, we must do more than take the totally passive approach adopted by the Government.
There are two elements to the issue. First, the Government must widen their imagination and think in terms of broad bands, within which the exchange rate can fluctuate, rather than single points. We remember that in the old ERM, there was potential for fluctuation by 15 per cent., which gave a good deal more freedom of manoeuvre than the previous Government allowed themselves. Bands would make the problem of fluctuation more manageable.
The second step that the Government could take—they could do so now—would be to begin consultation with industry, academics and politicians of different parties to try to establish what would be a comfortable, sustainable competitive exchange rate or range of rates. Within this Parliament, there has been one example of the Government dealing rather neatly with such an economic problem, when they had the task of fixing a minimum wage. That is interference in the market and could have gone badly wrong, but the Government took soundings, did economic analysis and came up with a recommendation that was detached from them but which they could none the less adopt.
I suggest that the Government should now initiate consultation and reports on relative prices, technical measures, purchasing power parity and a sustainable exchange rate, about which there are many studies. They could then come up with a recommendation for an appropriate level or range of exchange rates. That would have several advantages. It might, for example, influence the market, although we do not know that. It would certainly be very reassuring to British industry, which would know that the Government were seriously concerned about the stability and competitiveness of the exchange rate and were not leaving it to pure chance. Most important, it would provide the Government with some political ammunition—when we eventually have to set the exchange rate within EMU, it will be a political process decided partly by the level that other members of the European Union think appropriate. We would be seen to have undertaken a proper scientific exercise, looking carefully at what exchange rate range was appropriate for the UK. That is the kind of early process that the Government could helpfully set in train. It would involve not setting a fixed objective but setting in train a process of creative thinking about the problem.

§ Mr. Forth
Has the hon. Gentleman thought what the result of that process might be? Let us suppose that the process took place and that there were agreement on the ideal exchange rate from the UK's point of view, if we were ever stupid enough to adopt the euro. Would not that signal to our partners what our negotiating position would be? What does the hon. Gentleman think would be 998 the reaction if our partners did not allow us to join at anything like that rate but insisted on one that could damage the UK's interests?

§ Dr. Cable
The second point is the crucial one. I do not understand the right hon. Gentleman's problems with it. Surely it is right that the British should signal in advance what we perceive our national interest to be. In the case of the exchange rate, it is not an uncompetitive one such as we have had in recent months; nor is it one that is provocatively cheap, which would trigger domestic inflation. It seems perfectly right that we should be transparent about this.
I am also effectively suggesting—it may be surprising to hear this from a Liberal Democrat—another test of convergence. That test should be the exchange rate. We believe strongly that EMU would benefit Britain but, equally, we believe that it should be done the right way and at the right exchange rate. It would be disastrous to enter in the wrong way and at the wrong exchange rate. I am suggesting a hurdle, or test, which the Government have not yet set themselves but which they should satisfy. If that were done, there would be a much greater prospect of our meeting our negotiating objectives in Europe and of our carrying British public opinion, especially industrial opinion, with us. I am therefore suggesting another test that the process of convergence would have to meet, and I am not inhibited in doing so.

§ Mr. Ruffley
Does that mean that the Liberal Democrat party is advocating shadowing the euro?

§ Dr. Cable
No, I am not suggesting that we shadow the euro. I did not mention shadowing the euro, and the Government have ruled it out. I am suggesting that we establish a process to define explicitly what an appropriate band of exchange rates would be when we eventually enter the EMU mechanism. It could take place through a gradual process of crawling, through shadowing or many other ways. All I am suggesting is that instead of there being an empty core at the heart of the Government's economic policy, we address the issue explicitly for political and economic reasons.

§ Mr. Laurence Robertson (Tewkesbury)
Does not the hon. Gentleman remember the pain caused to people with mortgages and businesses in this country when, yes, the Conservative Government tried to shadow the deutschmark and to remain in the exchange rate mechanism? Does not he remember that when we entered there were DM2.95 to the pound, and that the rate then dropped before regaining that level? Does he accept that it was not the rate that was wrong but the system?

§ Dr. Cable
We shall simply have to disagree on that point. It was the rate that was fundamentally wrong. However, the hon. Gentleman has raised an important issue relating to the third aspect on which I make a suggestion to the Minister, which is how we deal with the problem of mortgages. Before the hon. Member for Buckingham (Mr. Bercow) jumps to his feet, I hope that he will allow me to finish this point. I have been fairly generous in allowing interventions.
How we handle mortgages and the housing market is important. It has been brought home to me clearly in the discussions that I have had with business that the 999 Government have not focused as clearly as they should have on what the changeover plan should be. It was clear from Lord Simon's address yesterday to the Treasury Select Committee that the Government have scarcely begun to think about it. It is a serious problem that needs to be addressed as part of the changeover.
The problem, as critics of EMU point out, is essentially that if there is a common interest rate across Europe, we encounter the potential one-size-fits-all problem. However, that is not a fixed item; it can be dealt with, and we can try to manage it. Clearly, manufacturing industry is less sensitive to interest rates if companies are dependent on equity and have securitised bonds and do not rely on buying on short-term interest finance. In the housing market, the one-size-fits-all monetary policy could be dealt with if house purchasers were much less dependent than they are today on variable interest mortgages.
If we are to join EMU, there is a broad national interest in trying to make sure that the British housing market is much less dependent on variable interest rate mortgages. We can see from the Irish example, which involves a similar housing market structure to that of the UK, that, unless we address this problem, there is the potential to enter a period of booms and slumps, which is avoidable.
Why have the Government not tackled the mortgage issue in their changeover plan? I suspect that the reason is that it is not in the interests of the banks and building societies that they do so. If we move to a system of fixed interest mortgages, the banks then carry interest rate risk, which they do not at present—they simply pass it on to their customers. It will require a powerful Government initiative to make that change.
I suggest that the Government begin to think of opening discussions with banks and building societies about how rapidly they can move to a system based predominantly on long-term fixed interest mortgages rather than variable mortgages, and perhaps to think about how the regulatory system has to change to accommodate that.

§ Mr. Bercow
I am most grateful to the hon. Gentleman for giving way; he has been exceptionally generous in accepting interventions. He suggests a palliative to deal with the problem of mortgage rates and their variability, but it simply does not meet the needs of the case. Why does he think it desirable that national Parliaments should, under the terms of the treaty and the terms of entry into EMU, be permanently deprived of the right to make representations to the European central bank about its conduct of monetary policy and the level of its interest rate?

§ Dr. Cable
As the hon. Gentleman well knows, were we to be part of EMU, Britain would participate in the management of the European central bank. That is how the system works. I believe, as I am sure Labour Members believe, that the European central bank could profitably develop in various ways. For example, it could learn from the idea of pursuing a more symmetrical monetary policy objective and from British experience. However, the fundamental issue of sovereignty is one about which I disagree with the hon. Member for Buckingham. That is a fact of political life.
1000 How could the Government adapt the mortgage system so that the housing market was less exposed to the difficulties caused by booms and slumps which could arise in a unified monetary union? As I suggested, the first step is to be much more proactive in talking to the providers of mortgages about how they change to a different system. Another step could be to examine the way in which the regulation operates. There is no reason why regulators of building societies and banks should not require building societies and banks to offer their customers—not only new customers but existing ones—a comparable mortgage on a fixed-rate basis. Whatever the mechanism, it is clear that the Government have to be a little more positive than they have been so far—there is not a single word in the changeover plan about how to handle the problem.
Largely thanks to interventions, I have spoken for rather longer than I wished. Nevertheless, there is a great deal more to be said on this subject. Many other hon. Members wish to contribute to the debate, and I look forward to hearing them.

§ Mr. Denis MacShane (Rotherham)
rose—

Hon. Members
Hear, hear.

§ Mr. MacShane
I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this debate. It is appropriate that the House continues, on Wednesday mornings and via other Adjournment debates, to consider this very important issue. It is an issue about which the British people have not been properly informed—[Interruption.]

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
Order. The ovation has gone on long enough.

§ Mr. MacShane
I shall try to limit my remarks to 10 minutes, in order that Tory hon. Members may relax after their excitement simply because I rose to my feet, and compose their thoughts to get their speeches ready to persuade the British people that their interests do not lie in Europe, and that the cause of little England, isolationism and xenophobia is alive and well in the Conservative party.
I am not quite sure which Conservative party is in front of me. I understand that the shadow Chancellor's position is that Britain is prepared and likely to enter the euro in six or seven years' time. [HON. MEMBERS: "No."] Ah, I see that that is not so. Well, in 10 years' time? [HON. MEMBERS: "No."] No, not in 10 years' time. In 20 years' time, perhaps? [HON. MEMBERS: "No."] I see; not at all. We have the party of no never, no how. I remember a campfire song like that from my youth. I do not know where the rest of the Conservative party is. Perhaps those hon. Members do not choose to take part in such a debate.
Last week, we saw the Conservative party as the party of tax harmonisation. I attended Trade and Industry questions, during which the hon. Member for Ludlow (Mr. Gill), one of the nicest euro-sceptics—there are some nice ones among that pretty rotten bunch—demanded that the Government instantly harmonise duty on diesel with the rest of Europe. Before my very eyes, the party of no never, no how became the party of fiscal harmonisation.
1001 We have a significant problem with tobacco and alcohol smuggling. I grew up on that wonderful Kipling poem: Brandy for the parson, baccy for the clerk … Watch the wall, my darling, while the Gentlemen go by! That was about smuggling in the 18th century.

§ Mr. Keith Simpson (Mid-Norfolk)
Which school did the hon. Gentleman attend?

§ Mr. MacShane
St. Joseph's primary school in Wealdstone, if the hon. Member is really interested.
There is a serious problem of many people, especially young men, becoming mini criminals by participating in smuggling. I say in all candour to my hon. Friends on the Front Bench that they can double or triple the number of Customs and Excise men, put them on horses, give them mobile phones, or do whatever they like, but as long as the wide differences in duty on diesel, tobacco and alcohol remain, we shall continue to face such serious problems.
Smuggling is just one aspect of the debate about our relationship with Europe. I make no secret of my views; they are that Britain should be a full and leading member of the European Union. We should take advantage of the single market for economic reasons. I find it at best a semantic contradiction to claim that one can be part of a single market, but stay for ever out of the euro.
The Chancellor has laid down economic tests that are in the nation's interest. The Prime Minister has promised that triple lock of decisions in the Cabinet, Parliament and then, most importantly, in a referendum of the people, on whether we enter the euro. Leading up to the referendum, it is essential that debate is informed and intelligent. Achieving that will be quite difficult, given the behaviour of those who are passionate in their belief that Britain should be permanently disconnected from Europe.
I had some experience of such a belief this very morning. Yesterday, Le Monde, a French newspaper, published an article of deep unoriginality that I wrote, in which I described the Prime Minister's historic statement in the House on Tuesday last week, pointing out that preparations are being made for a transfer to the euro, and arguing—I believe this very strongly, and continually take this message to European capitals whenever I am lucky enough to visit them—that, if Europe is to move forward, it must substantially reform its labour market to increase flexibility and the spirit of entrepreneurship and enterprise. I wrote that Europe, too, must learn from the dynamism of the United States.

§ Mr. Laurence Robertson
Will the hon. Gentleman give way?

§ Mr. MacShane
I mean no discourtesy, but I would rather finish my speech to allow other hon. Members to speak.
I do not propose to read the article, which was in French, into the record, although I would be happy to hand out copies of it. It is deeply banal, yet I was woken at midnight because the Daily Mail, which described me as a senior aide—chance would be a fine thing—has said that I have revealed the Prime Minister's secret plan to take Britain into the euro. I was then telephoned by the Financial Times, the Press Association and The Star 1002 in Sheffield, which are all getting excited about an article that is in no way odd—I mean off-message. It corresponds entirely with the Government's position.
It is a paradox that I do not think that I could get such an article published in any paper in this country. In the 1930s, the editor of The Times confessed in his diary that he spent every waking moment keeping anything hostile to Nazi Germany out of the paper. I sometimes think that some of today's editors spend every waking moment ensuring that anything positive about Europe is kept out of their papers.
The discussion with the British people about the euro presents a serious problem—even in many of our so-called pro-European papers, such as The Guardian and The Independent. Many of their most distinguished commentators are hostile to economic and monetary union. Hamish McRae, whose writing I admire, was very critical of EMU in The Independent yesterday. Anne McElvoy is another such hostile commentator. The Times has seconded two of its excellent columnists, Mary-Ann Sieghart and Janet Bush, to David Owen's last great attempt to find a successful niche in British politics. As someone who is broadly in favour of the euro, the fact that David Owen is against it is the best news that I have received all year.
The proposal that we should have nothing to do with the euro and Europe does not add up. I tested that idea in two ways in my constituency. The first was of course during the election campaign, when the editor of The Times wrote an article in which he said: Don't vote for this dangerous man", and Sir James Goldsmith placed advertisements everywhere, which read: Don't vote for this dangerous pro-European, MacShane". As a result, my majority went up. It tripled from when my by-election opponent was the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), who campaigned in favour of capital punishment and held my majority down. He fought the general election in a safer seat, campaigning against the euro, and my majority rose.
In my constituency, we organised a fascinating experiment among the Rotherham Chamber of Commerce, Training and Enterprise, local business, the local training and enterprise council and the college of information.

§ Mr. Barry Gardiner (Brent, North)
Will my hon. Friend give way?

§ Mr. MacShane
I have not taken interventions from Conservative Members, so I shall not do so from my hon. Friend. I would like to end my remarks soon so that others may make speeches.
During the Rotherham euro week, there was dual pricing in Tesco and all the shops, and we distributed questionnaires on the euro in schools, eliciting 3,000 responses. The week went down very well. The Rotherham and South Yorkshire Advertiser, a fine and excellent journal, published its price in euros for the week. To begin with, the people of Rotherham sensibly asked, "What the heck's going on with this Mickey Mouse money? This is a bit silly". But, by the end of the week, they were enjoying it. Since then, seminars that the chamber of commerce has organised on the euro have 1003 been flooded with applications from representatives of small businesses who want to learn about it. There is a hunger for information.
The British economic community has been told a lie for the past 10 years: that Europe was none of its business, that everything that happened in Europe was negative, and that nothing emanating from anywhere in Europe was of any help to it. However, the plain fact is that we sell more to the tiny Netherlands than to all the Asian market. If any of our businesses increase sales to almost any mature European market by just 0.1 per cent., they will make more money for the United Kingdom than massive export wins that are paid in devalued Asian currencies. The European market will expand. Anyone who travels to Prague, Budapest or Warsaw will see the strength and confidence of those economies and their desire to join the euro.
I appeal not for debates in the House, but to the press to allow an informed, unhysterical, pro and anti debate. The antis have many of the finest writers, some of the best speakers and command a disproportionate amount of space in the debate. But there are three reasons—the three S's—why the euro matters: stability, security and society.
As the hon. Member for Twickenham mentioned, the euro will bring stability, with a stable inflation rate and stable interest rates, instead of the peaks and troughs that allow none of our businesses or house buyers to plan properly. It will provide security in the new global world economy, where fluctuations of currencies—the holy grail of the part of the Conservative party that is present in the Chamber—can deeply destabilise economies.

§ Mr. Alan Clark
Will the hon. Gentleman give way?

§ Mr. MacShane
No. I am coming to the end of my speech.
It is essential that we search for economic security for the British people because they are the ones whom we represent.
Finally, yes, there is a European project for a society that seeks, perhaps imperfectly, to include all in it. As the French Prime Minister, Lionel Jospin says, yes to the market economy, no to the market society.
I wonder whether Conservative Members who read The Wall Street Journal and get many of their ideas from that excellent newspaper read the wonderful article by Charles Murray a few weeks ago that described what was happening in the United States: the break-up of families, the creation of an underclass, the exclusion of millions of people from health care, the need for the American model to be based on an ever widening gap between top and bottom.
I admire much in the United States. I am pro American. We must learn from its dynamism and creativity. Tomorrow, I will publish a pamphlet on ownership, which pays tribute to innovative forms of ownership in the United States, if I may get a modest plug in for another publication, but the European model, with its idea of access to health, education and housing for all, is one which we should stick by. That is another buttressing reason why I unashamedly say that Britain's future lies in Europe.
1004 If the British people in a referendum say yes to the euro, that will be good for Britain. I welcome the referendum debate because we need a great debate to drain once and for all the anti-European poison that has been injected into the British body politic by too many of the anti-Europeans in the Conservative party who are in the Chamber.
The great talents of those in that historic party who are in the Chamber—I see an array of future volcanoes waiting to burst into life—will be allowed to find expression only when they realise that our nation's future is inextricably linked to Europe, and that Britain must lead in Europe, instead of being an offshore island that is isolated from the future of the 21st century.

§ Mr. Tim Loughton (East Worthing and Shoreham)
I congratulate the hon. Member for Twickenham (Dr. Cable) on securing the debate and, perhaps even more, congratulate the hon. Member for Rotherham (Mr. MacShane) on a stocking filler of a contribution: it filled in for the reluctance of his colleagues to make any contribution to the debate. I for one am much more enlightened about the South Yorkshire press than before he spoke.

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

§ Mr. Loughton
May I just start my speech before taking interventions?
The most remarkable thing about the debate on the very important subject of EMU is that it has taken a Liberal Democrat Adjournment debate to get that discussed in the Chamber. Last Tuesday's announcement was described in The Independent, about which we have heard much already, as a momentous day for our island race. Blair turns up it went on to say. In that announcement, the Prime Minister referred to the whole euro project as "an intensely political act." He reassured us that the Government had resolved the political issues in favour of the principle of joining"—[Official Report, 23 February 1999; Vol. 326, c. 181.] yet we have had one short statement from the Prime Minister and questions lasting just 67 minutes in total in the Chamber on that most important subject.
On the continent, a different debate is going on. Speaking to the European Parliament in January, Joschka Fischer said that the introduction of the euro was an essential counterpart to making political union the goal of the European Union. He said: The introduction of a common currency is not primarily an economic but rather a sovereign and thus eminently political act", yet our Prime Minister tells us that he is interested only in the economic advantages.
Joschka Fischer went on: Political union must be our lode star from now on. The EU would suffer an institutional heart attack unless it moved to full political integration. In November, Chancellor Schröder said: Only through the further development of a political union would we succeed in forming a Europe that is close to its citizens. 1005 The debate in Europe is on an altogether higher plain, where everyone openly views the euro as merely a rung on the ladder to full political integration. That is what the debate here should be about, yet we have had just 67 minutes in the House to scrutinise the decision of the Prime Minister and Government to rush in with the changeover plan.

§ Mr. Bercow
My hon. Friend wisely points out the fact that, on the continent, it is recognised that the European single currency is principally a political project. Would he also care to reflect on the frankness and candour of the former Spanish Prime Minister, Felipe Gonzalez, who said in May 1988 that the single currency was the greatest abandonment of sovereignty since the foundation of the European Community? He went on to say that it was an instrument for the project of European integration. Does not that tell us all we need to know?

§ Mr. Loughton
I am grateful to my hon. Friend for that intervention. He is right; he is much more able at remembering quotes. The same goes throughout the continent, but not in this country.
The euro changeover plan would mean the withdrawal of sterling notes and coins in the space of just 34 months. The Prime Minister set out clinically and methodically, with no regard for the sensitivities of the British public, the details of the plan. It involves an enormous upheaval and enormous cost for industry, business and the people of the UK, but the Government cannot quantify or publish the figure—they cannot even quantify the estimated cost of the plan for Government Departments. However, on the balance of probabilities, Britain is unlikely to join the euro in the foreseeable future if a yes in the referendum remains an unassailable component of the Government's intentions.
Poll after poll shows that a great majority of the British public are against giving up sterling, despite the Government's softening up exercise, spending £7.5 million, so far, of public money on an advertising campaign, and trying to lull the public into thinking that joining the euro is little more than a convenience—they will not have to change their currency at Thomas Cook when going on a booze cruise to Calais, and it will lead to the importation of cheaper cars from the continent. As we know, that is just the tip of the iceberg.
A total of 315,906 people have so far called The Sun to voice their opposition to the euro. The comprehensive British and social European attitudes poll that was conducted last November, the most comprehensive opinion survey of its kind, which was funded by the Government, showed that only 55 per cent. of the UK public support even membership of the EU, down from 77 per cent. in 1991. The poll concluded that a majority of the British public would not cede Britain's national decision-making powers to the EU on a single policy, from agriculture to pollution.
What if a referendum comes up with a no vote? What preparations and what resources are the Government directing now to meet that much more likely eventuality? The Government seem mesmerised by preparing almost exclusively for the euro. What about the rest of the world? It is a fact that only 18 per cent. of this country's gross domestic product is down to the EU. The rest of it is in the UK and further afield overseas. Yet 100 per cent. Of 1006 British industry, British business and the British people will bear the costs of preparing for the euro, as advocated by the Prime Minister last week.
We are constantly reminded that it is in no one's interest if the euro fails, and I certainly agree with that. Equally, and perhaps more so, it is in no one's interest if the dollar fails. The dollar is the currency of 80 per cent. of the world's financial transactions. It is the currency of 60 per cent. of the world's commercial transactions.
We are often accused—we almost heard it a short time ago from the hon. Member for Rotherham—of being little Englanders. However, the siege mentality of Europe and the EU is quite breathtaking. The United States is virtually singlehandedly playing the role of the importer of last resort to salvage the problems in the far east, and is constantly complaining that Europe is not pulling its weight.
We are told that TINA is back—there is no alternative. Last Tuesday, the Prime Minister said quite clearly: Our intention is clear: Britain should join a successful single currency". We have joined effectively in all but name, regardless of all the problems and uncertainties surrounding our joining up.
In his statement last week the Prime Minister alluded to this. He said: Of course we believe that the common agricultural policy needs reform … levels of unemployment in Europe are … too high … long-term structural reform is necessary."—[Official Report, 23 February 1999: Vol. 326, c. 179–931.] But, regardless, Britain should join a successful single currency.
In January, the German Foreign Minister said that qualified majority voting posed no threat to the Germans as Germany would always be able to assemble a blocking minority of EU Members to stop any proposals that they did not like. Therefore, they would be in favour of abolishing the veto. But, regardless, we are told, Britain should join a successful single currency.
In January also the spokeswoman of the SPD in Germany, Ingrid Matthäus-Maier, told British Members of Parliament that forcing Britain to accept tax harmonisation would be the price for joining the single currency, even though it has been estimated that this could increase the UK tax burden by about 20 per cent. But, regardless, Britain should join a successful single currency. That is despite the threat to the eurobond market in London from the harmonisation of withholding tax, which will inevitably overnight drive the eurobond market to Zurich and New York, as it did in reverse back in the early 1980s, under a draft directive of article 100, with the loss of thousands of jobs in the City. The eurobond market supports $2,000 billion-worth of lending to corporates world wide.
The Government's failure to realise that financial markets especially are global and that local controls cannot be imposed in isolation is quite breathtaking. But, regardless, Britain should join. That is despite Oskar Lafontaine openly admitting his intention to shift the burden of taxation on to companies, mobile capital and environmentally polluting activities and encouraging the harmonisation of Europe to sustain each country's capacity to tax capital and preserve employment.
In the UK, we have learned the lesson that mobile capital moves when taxed. The success of the London financial markets is down to the knowledge that capital 1007 can be moved out at the flick of a switch when things get rough. The Government are constantly boasting about reducing tax rates on companies, in contrast to the higher corporate tax burden in Germany. In the UK, the social security charges on employers account for about 6 per cent. of their GDP. On the continent, the average is double that—12 per cent. However, Oskar Lafontaine was referred to in The Daily Telegraph last month, in an article entitled, "Tony Blair and I march in step on Europe".
Chancellor Schröder also admitted that the true purpose of tax harmonisation is to staunch the investment flight from Germany rather than setting its own house in order by reforming punitive tax rather than the regulatory system.
If Britain were to be dragooned into this process, the public sector would most likely grow from about 40 per cent. of GDP at present to as much as 49 per cent. All the gains made by successive Governments over the past 20 years would be reversed. The plans of the Finnish, who take over the presidency of the European Union later in the year, are to table formal proposals to modify the treaty of Amsterdam to further tax harmonisation. But, regardless, we are told, Britain should join. That is despite all the talk of harmful tax competition between EU states. That is a paradox if ever there was one.
German companies are continuing to invest in the UK rather than in Germany. Foreign companies invest eight times more in the UK than they do in Germany. Mr. Henkel, the head of the German chamber of industry, said only last month: We should not try to eliminate competition between EU countries. We should not forget that Europe competes against North America, South America and Asia. We will not be able to survive this competition if we are all following the German example. Let us not forget that the UK has created more new jobs in the past six years than the whole of the euro zone put together. In Germany, unemployment last month rose to 4.45 million, about 11.5 per cent. It is predicted to stay above 4.1 million for the rest of this year. The response of the largest union in Germany, IG Metall, has been to put in a 6.5 per cent. pay claim. Last week, Allianz, Europe's largest insurer, threatened to move its key businesses out of Germany if the German Government pressed ahead with tax reforms targeting insurance companies. But, regardless, according to the Prime Minister, Britain should join.
Despite attempts to grab the United Kingdom's rebate of £2.1 billion under Mr. Lafontaine—it is referred to as a correction mechanism, apparently—regardless, Britain should join, despite the continuing furore over EU fraud and the missing £3 billion, despite the very real threat of deflation within the euro zone and despite the German attempts to devalue the euro and influence the European central bank—only this week the euro fell to a new low. That was over what was described in the Financial Times as policy disarray as Oskar Lafontaine again tries to influence the ECB so early on. That theme was taken up by the International Herald Tribune, as no doubt the hon. Member for Rotherham will have seen in scouring the press. An article entitled, "Initial 1008 lustre of new money begins to fade for Europe" ended with a comment from the Federal Reserve head, Alan Greenspan that the euro will be an interesting experiment. It has not yet been tested"— obviously— It is going to take years before there is really significant tests on that system. But, regardless, apparently, Britain should join.
Despite all the uncertainty, despite all the threats of harmonisation to the UK plc, despite all the structural weaknesses in the EU and despite the fact that we just do not know where the experiment is leading, the Prime Minister has decreed that we should move up a gear and make haste to join this untested experimental currency as soon as the minor irritation of a referendum is out of the way. Regardless, Britain should join a successful single currency.
If the changeover plan was instead an Ealing comedy, it would be called, "Carry on Regardless".

§ Mr. Gardiner
I am grateful to the hon. Gentleman for giving way, and particularly for doing so at the precise moment that he did, because that was his 18th use of "regardless". I swore that if he reached 17, I would intervene.
In fact, the conditions and tests that my right hon. Friend the Chancellor of the Exchequer has laid down ever since he assumed the role of Chancellor, and the tests which were reiterated by my right hon. Friend the Prime Minister in his statement to the House only last week, make it clear that it is not the case that Britain, regardless, will join the single European currency. It is even acknowledged by the hon. Gentleman that it would only be regardless in joining a successful currency. That is not to make any sense whatsoever. It is to make a tautologous statement—

§ Mr. Deputy Speaker
Order. The hon. Gentleman must make a brief intervention, not a mini-speech.

§ Mr. Loughton
I think that the hon. Gentleman should reread the Prime Minister's statement and the subsequent questions last week. I was determined to beat the Chancellor of the Exchequer's record for mentioning prudence or financial prudence some 17 times in his Budget last year, and I have done it by a margin of one.
There is little sign of economic convergence between the United Kingdom and Europe; there is every sign of economic divergence. The "one size fits all" policy of the euro zone will lead to serious strains in Ireland, for example. In the past two years, Dublin house prices have risen by 82 per cent. The cost of living in Ireland is soaring; in response, interest rates have been halved. Company profits in Ireland are under pressure as companies become uncompetitive. It is a recipe for boom and bust, if ever I saw one.
The truth is that the Government have made up their mind, and are working on ways of getting round the minor irritation of the fact that the British people do not agree. Slowly but surely, we are being spoon fed the mantra of inevitably in the exercise.
Just last week, in The Spectator, Bruce Anderson said that the "inevitably of gradualism" is the Government's policy. It is changeover by stealth. All that guff about 1009 "if the economic criteria are right" is subterfuge. As far as the Government are concerned, it is a matter, not of "what if", but of "what when". I fear that such arrogance, in prejudging a referendum, is becoming all too much a hallmark of the Government.
Last Tuesday, the right hon. Member for Yeovil (Mr. Ashdown) welcomed the truth that the Government had crossed the Rubicon, albeit only by the "tiniest millimetre"—which any study of classical history would show to be something of a paradox. Nevertheless, from my study of the late-Roman republic, I was reminded that the phrase was made famous, in 49 BC, by Julius Caesar, who put himself above the law—some parallels may become clear—overturned Rome's constitutional framework, and became a dictator. He cared little for the democratic processes of the Senate, and attended the chamber rarely. By declining to stand down his army at the banks of the Rubicon, he challenged the authority of the Roman people, to promote his own personal self-embellishment and grand design for the map of continental Europe.

§ Mr. Bercow
Brutus.

§ Mr. Loughton
Candidates for Brutus may well be in the Chamber later today, on the Treasury Bench.
Five years of civil strife ensued across most of mediterranean Europe, culminating in assassination of the arrogant tyrant—at the hands of his erstwhile allies—while on a rare visit to the now emasculated senate.
The imperial age followed. The constitution of the republic was lost for good. Parliamentary accountability, such as it was in classical Rome, never recovered, as power was vested in the body of the emperor.
The Prime Minister may have more of a Napoleon complex than a Julius Caesar complex. Nevertheless, I trust that, last week, in crossing his Rubicon—as it was described—the Prime Minister has not unleashed a repeat of history.

§ Jacqui Smith (Redditch)
After hearing the speech of the hon. Member for East Worthing and Shoreham (Mr. Loughton), I fear that—not having had the benefit of a classical education, unlike some Conservative Members—I might be at a bit of a loss on that matter. However, I hope that I do have an understanding of economics, which is probably more relevant to this debate.
I thank the hon. Member for Twickenham (Dr. Cable) for initiating the debate, and welcome the opportunity of discussing the issue. I welcome especially the opportunity of considering the Government's performance in meeting the criteria that will have to be met if we are to achieve convergence. I share the Government's wish to achieve that aim, as I believe that membership of the single currency will bring significant economic benefits to the United Kingdom. The Government appreciate those benefits.
I also hope that the debate might give us some opportunity to consider Conservative Members' views on the benefits and future of the single currency. Unfortunately, the hon. Member for East Worthing and Shoreham gave us only a lengthy reiteration of all the old 1010 Conservative scare stories about Europe, and paid very little attention to the arguments on economic and monetary union.
Many of the untruthful scare stories promulgated by the hon. Member for East Worthing and Shoreham have nothing to do with the single currency. If the stories have any basis in reality, which is questionable, they would have more to do with membership of the European Union than of the single currency. Are we therefore to assume, from what we have heard today from Conservative Members, that they have gone even further and are actively—

§ Mr. Alan Clark
Will the hon. Lady give way?

§ Jacqui Smith
No, I shall not be taking any interventions.
Are they actively advocating withdrawal from European Union?

§ Mr. Bercow
Will the hon. Lady give way on that point?

§ Jacqui Smith
No, I shall not. Is that the Conservative position? Perhaps the Opposition spokesman will tell us.

§ Mr. Alan Clark
The hon. Lady has asked a question. Will she give way?

§ Jacqui Smith
No. I should like to finish my speech, so that the Opposition spokesman will have an opportunity to clarify the position.
The hon. Member for Twickenham asked whether we should establish further convergence criteria, and whether the Government are taking sufficient action to meet the current criteria. It might be worth while—as it is the subject of the debate—to review the Maastricht convergence criteria that will have to be met if we are to join EMU. An analysis of those criteria shows that the Government, in their stabilisation policies, have already met the criteria. Perhaps we should put a tick against those criteria.
As hon. Members have already made clear, however, the Government have decided that the Maastricht criteria are not the only ones that shall be considered in judging whether entry to the single currency is in the best interests of the United Kingdom economy. Although the point seems frequently to get lost in Opposition scare stories, that is the most important criterion in deciding whether entry to the single currency would be beneficial for the UK economy.
We should therefore consider the five tests that the Chancellor has set himself, and whether—as the hon. Member for Twickenham asked—the Government are taking active measures to ensure that the criteria are met.
The first criterion is sustainable convergence. It is a crucial test, and I shall deal with it later in my speech.
The second criterion is whether the UK economy is sufficiently flexible to cope with economic change. If we pool some of our economic sovereignty in Europe, thereby altering our ability to change monetary policy, it is important that we should have sufficient economic flexibility. The Chancellor has already placed emphasis on the supply-side of the economy—on productivity and 1011 new deal measures—to increase economic flexibility, so that, if we do enter a single currency, we are able to cope with economic change.
The third criterion is the effect of entry on investment. The hon. Member for Twickenham said that he had spoken to business people in his constituency about the issue. Very many other hon. Members have had similar discussions in our constituencies. The very strong and clear message that I have received is that business not only wants economic stability—which the Government are delivering—but is concerned about jeopardising investment opportunities if we do not at least seriously consider joining the single currency.
Many businesses in my constituency, for example, depend on Rover Longbridge for business. As a large manufacturer, Rover's attitude to the euro demonstrates that large business thinks that entry to the euro is very important to their long-term stability and investment plans.
The fourth criterion is the impact of entry on the financial services industry. Before 1 January 1999, many people said that the euro's beginning would cause economic meltdown and chaos, and that the project was impossible. In our Treasury Select Committee visits to the City and in other contacts with the City, we have learned that the City has coped well with the euro, although other opportunities could be realised by full membership.
The final criterion is whether membership will be good for employment. I have already touched on the measures that the Government are taking to ensure that the United Kingdom economy is sufficiently flexible to meet the criterion.
Convergence is very important. Ireland has shown the difficulties that arise from joining without sufficient convergence. However, as I said in my intervention on the hon. Member for Twickenham, the question is whether an explicit convergence target is necessary. I argue that it is not. Bank of England independence and a long-term approach to fiscal policy that will enable us to converge are more important.
I am disappointed that there has been no elucidation this morning of the Conservative position, although I still hope for some. There are important questions that need answers. Do the Conservatives believe that Britain should not join regardless of the economic considerations?

§ Mr. Alan Clark
On a point of order, Mr. Deputy Speaker. Is it in order for the hon. Lady continually to pose questions to the Conservatives and refuse any attempt by those of us who are present to elucidate?

§ Mr. Deputy Speaker
It is entirely in order. How the hon. Lady makes her speech is a matter for her.

§ Jacqui Smith
I am not sure whether that intervention suggests that the right hon. Gentleman does not have confidence in his Front Benchers' response on the issue.
There has been speculation in The Daily Telegraph on whether the Leader of the Opposition is going to sack the former Chancellor and the former Deputy Prime Minister. Perhaps we shall hear some comments from the Front Bench. Is the Conservative policy to rule out membership 1012 for 10 years, for six or seven years, or for ever? Are they concerned about the economic interests of the country? We need to know. The Government's position has been made clear. I welcome the opportunity to contribute to the debate and I look forward to some elucidation from the Opposition Front Bench.

§ Mr. John Whittingdale (Maldon and East Chelmsford)
I congratulate the hon. Member for Twickenham (Dr. Cable) on obtaining the debate. This is one of the most important issues—if not the most important issue—facing the country, although one would not think so from the sparse attendance on the Labour Benches. I welcome the fact that we are debating the issue, but we believe that a one-and-a-half hour Adjournment debate on a Wednesday morning is wholly inadequate for an issue of such importance. Several of my hon. Friends sought to question the Prime Minister on the issue last week and were unable to do so. My hon. Friends the Members for Poole (Mr. Syms) and for Tewkesbury (Mr. Robertson) and my right hon. Friend the Member for Kensington and Chelsea (Mr. Clark) have sought to speak in the debate today, but there has not been time. I repeat the request made by my right hon. Friend the shadow Leader of the House for a full debate in Government time as soon as possible.
It is not just in this place that there should be a full debate. There may well be a referendum on whether it is in the interests of this country to join a single currency. There is already considerable discussion about that. The Prime Minister has acknowledged that there are constitutional as well as economic issues at stake. It is important that they should be spelt out.
I draw the Minister's attention to early-day motion 185, which calls on the Government to publish a White Paper on the constitutional, economic and political implications of joining a single currency. That motion has been signed by more than 100 Members of Parliament, including Labour and Liberal Democrat Members. Does the Economic Secretary accept that the political and constitutional implications are as important as, if not more important than, the economic ones? Will she undertake to publish a White Paper setting them out?
Such arguments were noticeably absent from the Prime Minister's statement last week, which, as my right hon. Friend the Leader of the Opposition pointed out, contained virtually no hard information. However, it confirmed the Government's wish to abolish the pound and join the single currency. The Prime Minister's much-vaunted love affair with the pound turns out to have been simply a marriage of convenience to get him past the general election. At the first opportunity, he has ditched sterling in favour of the euro. Of course, we are told that the final decision will be subject to a referendum, but it is clear beyond doubt that the Labour party and the Liberal Democrats are committed to taking us into a single currency. Only the Conservative party is opposed.

§ Mr. Gardiner
Will the hon. Gentleman elaborate on whether the Conservative party's fundamental objection is constitutional? If it is, does that rule out the economic considerations? If his party has decided that joining the single currency should not be countenanced on 1013 constitutional grounds, why does he refer to economic arguments, which must be spurious and surplus to requirements?

§ Mr. Whittingdale
We have repeatedly made it clear that there are constitutional and economic problems with joining a single currency. That is why our manifesto for the next election will state that the next Conservative Government will not go into a single currency during the next Parliament. We have spelt that out time and again.
We have discovered that the Government are preparing to spend taxpayers' money to promote the cause of joining the single currency before and during a referendum campaign. The recent report of Lord Neill's Committee on Standards in Public Life explicitly said that taxpayers' money should not be used to influence the outcome of any referendum on UK membership. One of the key recommendations was that the Government should remain neutral and should not distribute literature at public expense—even purportedly factual literature—that set out or otherwise promoted their case. Yet already the Treasury officer of accounts has written to Departments saying that it is reasonable to spend money that is considered necessary to enable the general public to make an informed decision when they vote in a referendum. Will the Minister assure us that the Government will accept the recommendation of Lord Neill's committee and that taxpayers' money will not be used to produce literature promoting the Government's view?
The issue does not stop there. A recent health service circular advises NHS bodies that they should not enter into contracts with a supplier who has no plans to introduce euro-compliance into their software. The health service is to be forced to place orders not with the most cost-effective supplier, but with those who are euro-compliant. That will result in better value contracts being rejected and money that the health service desperately needs being wasted to satisfy the Government's obsession with joining the euro.
Last week's statement purported to set out details of the national changeover plan, but many fundamental questions remain unanswered. One of the most basic questions, referred to by my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton), is how much it will cost. The Government appear incapable of answering. The Prime Minister glibly referred in his statement to tens of millions of pounds having to be spent to make departmental computer systems euro-compatible, but there appear to be no detailed estimates. How much will the Government spend over the next three years on making the public sector euro-compliant? It is not good enough for the Prime Minister to say in a written answer to my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on Monday that it depends. We are talking about public money and Parliament has a right to know. It is clear that the cost to the economy as a whole of changing to the euro will run into billions of pounds.
Much has been made of possible savings in transaction costs, but they are likely to be wiped out for years to come by the cost of conversion. Again, there is hardly any mention of that in the Government's document. Instead, businesses are being urged to commit massive resources to preparing for the changeover, when it is highly possible that it may never occur.
The Government's document is also silent on another key requirement. Article 121 of the Amsterdam treaty states that it is a requirement of membership that the 1014 fluctuation margins provided for must be observed by the currency for at least two years before joining. That was one of the conditions for first-wave entrants. The European Commissioner has said that if and when the UK decides to join, we shall have to comply with the same conditions. The Prime Minister said last week that it was not his policy to shadow the euro. How does he intend to meet the condition so that we shall be in a position to join? The Economic Secretary understands such matters better than the Prime Minister does. Will she tell us whether the Government intend to instruct the Bank of England to seek to influence the exchange rate to shadow the euro, as the treaty requires? How does that square with the Bank's inflation remit, as the hon. Member for Twickenham asked?
Let me deal briefly with another key requirement for membership that the Government have set—economic convergence. We have already seen the fudging of the Maastricht criteria to ensure that all the first-wave applicants were successful. Will the Minister assure us that there will be no fudging of the Chancellor's five economic tests? If that is the case, how will she judge whether cyclical convergence has taken place? The Government's own document states that, over the past decade, the United Kingdom has become increasingly out of step with Germany, while the United States and United Kingdom cycles have been relatively synchronised. Has the Minister any evidence that is changing? Given the facts, how can the United Kingdom possibly be in a position to join in five years' time?
All those questions must be answered, but the Government have ducked them all. Instead of answering, they are trying to create the impression that entry is inevitable.
We have already observed the Government's skill at raising taxes by stealth; now they are trying to take us into a single currency by stealth. The truth is that a single currency would be against our economic interests, and against our national interest. That is not just our view. We now know that it is the view of the last Labour Chancellor; it is the view of the former leader of the Social Democratic party, which was allied with the party of the hon. Member for Twickenham, and—as every survey has shown—it is overwhelmingly the view of the British people.

§ The Economic Secretary to the Treasury (Ms Patricia Hewitt)
I congratulate the hon. Member for Twickenham (Dr. Cable) on his success in securing the debate, and on his thoughtful speech. I also congratulate my hon. Friend the Member for Rotherham (Mr. MacShane) on his witty contribution, which was, as he pointed out, entirely on-message. My hon. Friend the Member for Redditch (Jacqui Smith) made an intelligent speech, especially from the perspective of the business community. It was also interesting to hear a contribution—albeit somewhat confused—from a representative of the anti-European Conservative party.
The issue of British participation in the single currency is the most important issue with which the country is likely to deal for a generation. That is why, on taking office, the Government resolved to end the indecision and divisions that have isolated us from the debate in Europe, and sidelined our national interest. That is why, 1015 in October 1997, my right hon. Friend the Chancellor set out the Government's clear policy, a policy reiterated last week by my right hon. Friend the Prime Minister. We intend to join a successful single currency if it is in the country's economic interests. That remains our policy.
The hon. Member for Twickenham suggested that the Government should instruct the Monetary Policy Committee to take convergence into account, even if that meant, in certain specific circumstances, having to pursue a target contrary to the inflation target that is the committee's remit. Let me draw the hon. Gentleman's attention to the success of the new monetary framework that the Government have created. It has delivered falling long-term interest rates—they are now only 0.5 per cent. higher than those in the euro zone—and the lowest mortgage rates for 30 years.
We believe that the primary objective of the Bank of England must remain the delivery of price stability, as is clear from the inflation target that we have set for it. That is the Bank's responsibility, that is what British interest rates are intended to deliver, and that is what they should continue to deliver. It would be extremely foolish to confuse that inflation target with a different target, whether by reference to a general convergence target or, more specifically, by reference to an exchange rate target or exchange rate zones. That would remove the predictability and transparency of our new monetary policy framework, and would undoubtedly reduce its effectiveness.
Similarly, if—as some have suggested—we tried to shadow the interest rates of the European central bank, it would mean accepting a monetary policy that was right for the euro zone, but not right for the United Kingdom; and that would lead to more instability, not less.
The hon. Member for Twickenham referred to the structural differences in the housing market. Differences indeed exist in the housing market, and in the nature of housing finance: we pointed that out in the Treasury report on convergence. I stress, however, that the trend in the British housing market is now towards a much greater use of fixed-rate mortgages, whose advantages the hon. Gentleman rightly emphasised. The fact that 50 per cent. of new mortgages are being taken out at a fixed interest rate reflects the lower inflation expectations and the consequent lower risk now associated with fixed-rate mortgages. It also illustrates the success of our monetary policy framework.

§ Mr. Alan Clark
I thank the Minister for giving way. That contrasts with the behaviour of some of her hon. Friends.
1016 In her lucid and articulate exposition of the reasons for not shadowing the euro, the Minister defined precisely the reasons for not entering the euro. Was that a slip on the part of whoever wrote the speech for her?

§ Ms Hewitt
The reason why we should not shadow the euro, and the reason why we should seek to shadow the interest rates currently set by the European central bank, are exactly the reasons why we should not enter the euro at this stage. To do so would not be in Britain's interests, because it would mean setting an interest rate designed for conditions in Europe, not those in Britain. That is why we will enter a successful single currency only if there is a sustained and settled period of convergence, and if doing so would be good for the British economy and British jobs.

§ Mr. Bercow
Why does the Minister say that the Government do not propose to shadow the euro, when they have signed the treaty of Amsterdam, article 121 of which specifically requires that shadowing? The Chancellor's advisers know that; Gavyn Davies and the responsible European Commissioner know it. Does the Minister not know? If she does not, why does she not admit it?

§ Ms Hewitt
The condition required for entry into the euro is a period of exchange-rate stability, and our policy is for a stable and competitive exchange rate. We shall not achieve that by targeting a particular exchange rate; we shall achieve it on the basis of sound economic fundamentals. That is why our economic policy is designed to secure low and stable inflation, steady and sustainable growth, and sound public finances.
The Luxembourg European Council stated that, in general, exchange rates should be seen as the outcome of other economic policies. That is precisely the Government's view, and that is why we are not pursuing the suggestion of the hon. Member for Twickenham.
I am sorry that, given the time allowed and the number of interventions, I have not been able to deal with all the points that have been raised; but I assure the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale) that it is far more sensible to spend now, in preparation for possible entry to the euro. As Derek Wanless, the head of NatWest, has said, the longer the time that we have, the less it costs, because the costs of preparation for a possible eventuality are built into the on-going project.