HL Deb 06 December 1978 vol 397 cc129-39

3.35 p.m.


My Lords, with the leave of the House, I shall repeat a Statement now being made in another place by my right honourable friend the Prime Minister on the meeting of the European Council. The Statement is as follows:

"With permission, Mr. Speaker, I will make a statement on the meeting of the European Council in Brussels which I attended with my right honourable friend the Foreign and Commonwealth Secretary on 4th and 5th December. The main topic of discussion was the European Monetary System and matters related to it. The Council agreed that a European Monetary System should be established on 1st January 1979. The five Community countries at present in the snake indicated that they would participate in all aspects of the system, and France decided to join them. At the conclusion of the discussions, the Prime Ministers of Italy and Ireland said that they would need more time for consultations before reaching a conclusion on their participation in the exchange rate mechanism. I explained to the Council that I would not be recommending to the Cabinet that the United Kingdom should participate in the exchange rate mechanism when it begins to function I informed the other Heads of Government that we intend to work for a continuation of the exchange rate stability which sterling has enjoyed for nearly two years.

"I am arranging for the relevant document which was agreed to be published as a White Paper.

"It was agreed that the United Kingdom would be free to join the exchange rate mechanism at a later date if we wish; or of course to remain outside it. We shall of course join in the development of the ECU and of the European Monetary Fund. All Community currencies will be included in the ECU. We are free to choose whether or not we wish to deposit 20 per cent. of our gold and dollar reserves with the European Monetary Co-operation Fund against issue to us of a corresponding value of ECUs. That is a matter the Chancellor of the Exchequer will consider shortly with the Bank of England. In taking a decision we shall take into account the possibility that intervention in Community currencies could be helpful to us in maintaining the stability of sterling.

"We shall participate in the enlarged Community credit which is linked to the establishment of the EMS. This will be without reservation in the increase in medium term credit. As regards the short term monetary support which is more closely linked to day to day exchange rate intervention, we have agreed not to call on the credit increase which is now being made, and our partners have agreed not to call on us. There is also provision for reciprocal consultation about important decisions concerning exchange rate policy between countries inside and outside the exchange rate mechanism.

"At the previous Council meeting in Bremen, I called for studies in the context of EMS about measures to strengthen the economies of the less prosperous member countries. This part of our work was less thoroughly prepared than the work on the system itself. The proposals which eventually emerged provide for additional loan facilities of up to 1,000 million EUA over five years for less prosperous countries participating in the exchange rate mechanism, with a 3 per cent. interest rate subsidy.

"There was a limitation on these loans that they should not be used for projects which might create distortion of competition within other member countries. Member countries not participating in the exchange rate mechanism will not contribute to the financing of this scheme. I stressed the importance of Community policies, taken as a whole, contributing to convergence in the economic performance of members of the Community. It was doubts about the value of the proposals so far made that contributed to the unwillingness of Italy and Ireland to commit themselves. The Commission was invited to look into this whole question and report back to the next European Council.

"As regards the Common Agricultural Policy, the Commission made a report recommending a rigorous price policy as a way of tackling the problem of surpluses, with a freeze on common prices for 1979–80. The President of the Commission announced that the Commission would make its detailed proposals for next year's prices on this basis. The Council agreed to return to this problem and to establish the necessary guidelines at its next meeting in March. There was a short discussion about fisheries and the Commission was asked to make further efforts towards finding a satisfactory settlement.

"Among other topics I should report briefly on two. The first was the agreement to ask a Committee of three drawn from France, the Netherlands and Britain to look at the way the Community works and make practical suggestions for improvements, with a view particularly to the prospective enlargement to 12. My right honourable friend the Member for Birkenhead has been good enough to accept an invitation to serve together with Mr. Barend Biesheuvel of the Netherlands and M. Robert Marjolin of France.

"Secondly, Foreign Ministers discussed the emoluments which should be received by directly elected members of the European Assembly. They agreed that the emoluments should be based on those of Members of national Parliaments and be subject to national taxation. There will be consultation with the Assembly by the President of the Council of Ministers.

"Mr. Speaker, we were greatly helped throughout this long and arduous meeting by the skilful chairmanship of Chancellor Schmidt. We can be satisfied that our country played a constructive part in the months of discussion that led to the construction of the European Monetary Scheme. The initial decision has now been taken and it is for each country to decide whether the proposals now on offer are commensurate with the greater risks involved of going into the exchange rate mechanism. The British Government hope that the greater stability which the dollar has enjoyed in recent weeks will continue and will help the exchange rate mechanism of the EMS when it begins to operate. We for our part look forward to participating in further work which remains to be done on both the internal aspects of the system and in its wider international implications.

"The broad conclusion I offer to the House is that well-constructed and effective international monetary arrangements can assist those who take part in them in certain circumstances but they can be no more than additional supports and that in the end it will be the success of our own efforts in restraining inflation, keeping down prices, maintaining the stability of sterling and remaining competitive that will ensure the long-term well-being of our people."

My Lords, that concludes the Statement.

3.44 p.m.


My Lords, while thanking the noble and learned Lord for that Statement—it is undoubtedly a sad Statement, not only from the point of view of Britain but from the point of view of the European Community as a whole —may I ask him to say what was the major factor: was it the weakness of the British economy or dissent within the Cabinet on all matters European which led the Prime Minister to refuse to participate in the monetary scheme as a whole? Secondly, I notice in the Statement the following words: At the previous Council meeting in Bremen I"— that is the Prime Minister— called for studies in the context of the EMS about measures to strengthen the economies of the less prosperous member countries. This part of our work was less thoroughly prepared than the work on the system itself". Why? Does this show that we have not got the influence we should have in the European Community? Is this a reflection of the amount of political capital which the Government have already used up and of its lack of influence, effect and "punch" in Community circles? Does this also not mean that the refusal by the European Council as a whole to agree on the Commission's Paper on the future of the Agricultural Policy, with all that means to the advantage both of this country and of the Community itself, was not accepted? Is there not some cause and effect there?

Thirdly, may I ask the noble and learned Lord whether the Prime Minister made any proposal at the meeting about discussions between the Community, on the one hand, and the United States Administration and the Japanese Government, on the other hand, as to how to bring greater order into the world monetary system, of which the EMS was to be but a beginning and which is so essential if world trade is to recover and prosper?


My Lords, I should like to join in thanking the noble and learned Lord for repeating the Statement made in another place. We on these Benches greatly regret the failure to achieve a comprehensive European monetary system covering all the members of the European Economic Community. We appreciate all the difficulties, but we had hoped that the United Kingdom would be in from the beginning. It is clear that the question of the transfer of resources has been the main reason for the breakdown; and on that it would appear that Italy and Ireland were on our side and took the same point of view in the argument as we did. We certainly agree that the transfer of resources is very important, though it may not be achieved on the scale which is necessary until there is greater political and economic integration than there is now.

I should like to ask the noble and learned Lord whether there was any further discussion on the relative merits of the basket of currencies and the parity grid. Further, how will what is now proposed differ from the existing snake? Is it just a question of France joining the snake? What is the difference between the Italian and Irish positions and our own? Could we not have left our position open, as they left theirs open? Finally, I would hope in any case that the set-back will not be taken by the Government as an excuse for a passive attitude. I would hope that, together with Italy and Ireland, we shall continue to seek for a basis on which all can join.

3.48 p.m.


My Lords, the noble Lord, Lord Soames, described the result of these discussions as "sad". Those participating did not use such a term. Chancellor Schmidt and the President of the Commission described the meeting as having "a limited success". It would be sadder still if, on a wave of some kind of ill-prepared euphoria, members of the Community were to join a scheme which was not durable and effective, because ultimately that would be more destructive than looking very carefully at a scheme such as has emerged.

I was asked particularly whether it was a weakness in the British economy which led to British failure to participate. I would remind the House that the effective rate of sterling has been stable for some 22 months, and that is the best sign that it was not weakness of the British economy which caused the British Government to hold back in relation to that part of the scheme which is described in chapter 3 of the Resolution of the Council, which will be published as a White Paper.

It was not dissent within some part of the British Cabinet. I explained just a week ago in the course of a debate following an unstarred Question asked by the noble Lord, Lord Soames, that the Government had looked very, very closely at the details of this scheme because it is no good looking towards the distant blue mountains if you do not look down at the stones which lie at your feet. It was essential that we should look at the details and see whether or not the economics of the scheme made sense. The Government did that, and may I say that I think the House acknowledged on that occasion that the Government's approach, as evidenced by the Green Paper which was then published, was open, honest and clear to all and was certainly realistic.

I was asked particularly about that part of the Statement which referred to the lack of thorough preparation in relation to the concurrent studies. It is no secret, either to this House or to anywhere else, that the Prime Minister was the leader of those who laid great emphasis upon the need for effective steps to be taken within the Community to produce a convergence of economic performance and the proper transfer of resources. It is not the fault of the British Government, which did as much as they could, that this work was not properly done. Indeed, evidence that it was not properly done can be seen in the serious disappointment suffered by the Italian Prime Minister and the Irish Prime Minister, when they arrived at Brussels and—I hesitate to say it—got the answer that they did in relation to this matter.

The Prime Minister has also led in relation to seeing the European Monetary System as being only part of a worldwide system, because, although a zone of monetary stability in Europe would be immensely valuable, worldwide problems will not be solved unless we come to terms with exchange rates with the dollar, with the yen and with other currencies.

I acknowledge what the noble Lord, Lord Banks, has said and thank him for it. The relative merits of the grid and the basket were indeed still discussed, and, as I told the House just a week ago, a compromise arrangement was put forward. It is a highly technical matter and your Lordships will find it fully described when the White Paper is published. It is in Chapter 3 of the document which is entitled The Resolution of the European Council, and your Lordships will see how a compromise arrangement emerged. But, in essence, my own judgment is that it was rather nearer to the grid than to the basket.

In relation to the difference between the approach of the Italians and the Irish, the position is this. They have reserved their position, and both the Italian Prime Minister and the Irish Prime Minister will go back to their respective Governments to discuss the outcome. I would expect their position to be announced in the course of next week, and the Council will hear the matter officially on, I think, 18th December. Our own position is absolutely clear and it is stated in the Green Paper. The Irish and the Italians obviously felt that if they joined the scheme, and if there was a generous transfer of resources to them, then they could live with the scheme, the Italians no doubt intending to take advantage of the rather wider band fluctuation which was permitted—the 6 per cent. band— and which it was thought they might have taken advantage of. We did not feel that the scheme which was agreed at Brussels in relation to exchange rate mechanisms permitted us to join, and the difference is one which has been manifest all the time. Of course, there was nothing like any corresponding transfer of resources proposed in relation to the United Kingdom that the Irish in particular, and the Italians perhaps as well, thought they might get out of the Brussels meeting.


My Lords, may I ask the Minister whether we have not reached an absolutely ludicrous situation—leaving aside the specialists on this matter, and taking ordinary people like myself who are pro-European, but who occasionally have some reservations about the way things are going economically and even the way in which the whole concept of the Community is, in some ways, a rich man's club—if some of us who are still good Europeans, or Europeans anyhow, cannot state our reservations about what has happened, without being included in what has become, for bad Europeans, a new criminal class?


My Lords, I count myself among these ordinary people. I certainly do not want to enter into a general discussion about the character of the European Community, which has been described by my noble friend as a rich man's club. Of course, those who are enthusiastic about Europe may well have reservations about what has happened. But, really, you cannot construct a sound edifice without good plans and without sound work at the foundations, and that is what is required here. Until we get it, we shall not have a system that will be durable and effective.


My Lords, I think that the Government have come very well out of a situation in which the economy behind them was far from strong. I think that we have done the best we could. But may I ask the noble and learned Lord whether I am right in supposing, from what he said about the White Paper, that all the details which have to be settled before the scheme comes into operation have been settled and will be in the forthcoming White Paper?


My Lords, first, I thank the noble Lord, Lord Roberthall, for what he has said about the Government's stance here, and about how the Government have come out of it. With regard to the details, I really am reluctant to pursue the matter of detail, because it is highly complicated, and, although I myself have had time, though not very much time, to read it and, I think, to digest it, it seems to me in a sense— although that is a non-economist's judgment—somewhat patchy. Some parts are much clearer than others. Some parts certainly have to be worked out and, indeed, there are calls in the resolution for legislation and for further discussions. What is clear—and I want to emphasise this to the House—is that we are participants in the scheme, but not in the exchange rate mechanism. We intend to play a part in the further consultations which will take place, in particular in relation to the increasing credit system and also in relation to the possible development of the ECUs.


My Lords, may I ask my noble and learned friend whether he will be kind enough to advise the Prime Minister, as coming from an old campaigner who has some idea of what public opinion is, to make this an issue at the next General Election and just watch for the result?


My Lords, that is an astonishing proposition coming from my noble friend Lord Shinwell. T recall that during the discussions on the Scotland Bill, he advised the House more than once that the people in Great Britain would not be able to understand that Act. If they cannot understand that Act, they will certainly not understand the European Monetary System, and I would hesitate to offer such advice to my right honourable friend. But I am quite certain that his advisers will draw his attention to what my noble friend has said.


My Lords, does the Minister realise that, while our fellow countrymen may not have the perception of the Scots in being able to understand everything that is put before them, they still have common sense enough to distinguish between a hook with bait on it and a hook with no bait on it? It is a matter of great rejoicing for me that the Government have shied away from the possibility of taking the hook with nothing on it, because it gives the British people an opportunity to accept the challenge of meeting their own destiny through their own efforts. Indeed, perhaps it would be useful if the Minister used this occasion to remind our fellow countrymen that the weakness which the Tory Party are seeking to exploit stems from the fact that this country gave all in two world wars, and went from a position of absolute supremacy to great weakness in defence of Germany and France, who are both seeking to exploit us and drive us into the ground, and to pretend that it was they who won the war and we who lost it.


My Lords, if I may just follow my noble friend's analogy in one respect, there are too many people pretending that the European Monetary System is a bait with no hook on it.


My Lords, are the Government aware that the salary now proposed for British members of the European Parliament, much of which will presumably have to be spent abroad where the cost of living is very much higher, will, after deduction of tax, amount to perhaps rather less than that enjoyed by a competent shorthand typist? In those circumstances, do they think that they are acting in accordance with the Treaty in proposing to tax members of the directly elected European Parliament, and do they not fear in those circumstances that they may well be had up in the European Court?


My Lords, there has been a repeated expression of view, both in this House and in another place, that the pay of members of the European Assembly should not be excessive, and should not be disproportionate in relation to what the corresponding national Members of Parliament may earn. The result, therefore, will be that the salary for a member of the European Assembly will be the same as the salary for a Member of the House of Commons.

Viscount ECCLES

My Lords, although I think the House accepts that stable monetary arrangements are of enormous value and that we ought to do a great deal to secure them, is not the real lesson of this sad meeting that, without the Americans, we cannot get a stable international currency? Would it not be a good idea if the Prime Minister now asked the American Government to participate with Europe— not as the great, superior dollar but as one with all of us—in making a really sensible monetary arrangement?


My Lord, I accept that the Prime Minister has always emphasised that one cannot, as it were, cut oneself off from the world currency situation. The Prime Minister has always seen the proposed zone of monetary stability in Europe as being a stepping stone, a support and a help towards arriving at a worldwide system which is stable. But that is not something which is directly under the control of the European Community, although, of course, discussions of that kind must continue.


My Lords, will the Minister note that the noble Lord, Lord Gladwyn——


My Lords, I hope the House will agree with me that it is always accepted that Statements are never made the subject of general debate. We have had 25 minutes on this Statement. There are to be a great many speakers in the debate. Therefore, we should proceed.


My Lords, as I was half way through my question——

Several noble Lords: Order, Order!