European Communities (Amendment) Bill

HL Deb 23 June 1993 vol 547 cc347-412

3.10 p.m.

The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Baroness Chalker of Wallasey.)

Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 1 [Treaty on European Union]:

Lord Tebbit moved Amendment No. 17: Page 1, line 9, after ("II") insert ("except the following words in Article 2: "and an economic and monetary union"").

The noble Lord said: First, I am rather sorry, as I know a number of other Members of the Committee will he, that we will not have the Statement which will be made later today in the House of Commons on the outcome of the Copenhagen talks, as that would be relevant to our discussions. In particular I was struck by the Prime Minister's robust remark that there had been a lot of muddle-headed meddling in Brussels. It would be helpful to know whose heads they are, the nature of the muddle and the kind of meddling they have been performing, as I suspect that there will be rather more of that in future.

The first group of amendments with which we are dealing today, of which Amendment No. 17 is first, relates to monetary union. Yesterday's debates established in the minds of many Members of the Committee that one purpose of this treaty is to place new pegs into the Treaty of Rome upon which in future years will be hung many more directives, regulations and laws. Some Members of the Committee, not least my noble friend Lord Cockfield, deny that these pegs are new. My noble friend advised us to look at the treaty. He said that we would find all those pegs foreshadowed in the Treaty of Rome in 1972. Then he told us that a reference to a Union of the peoples of Europe actually meant that we were all to be conscripted as citizens of the Union some 21 years later. I felt that he had made the case for us not to take at their face value any words in this treaty, but to examine them most carefully and to consider what construction could be put upon them in future years by minds as ingenious and energetic as that of my noble friend Lord Cockfield.

Later my noble friend Lady Chalker told us that a reference to political parties in the Treaty of Union was innocent of purpose and was not a peg for future federalist advances. Finally, we were told at ten past eleven that the Minister answering the debate did not know—I do not for one moment blame him for that because obviously his officials did not know either—the meaning of paragraph 3 of Article F of Title I. I am very grateful to him for his undertaking that, when someone has found out what it means, he will write to me to let me know. I hope that he will let the Government as a whole know as there seems to be a little difficulty over that. I confidently await the speech of my noble friend Lord Cockfield, who I do not think is yet in his place.

Noble Lords

Yes, he is!

Lord Tebbit

My noble friend is assuming an uncharacteristically low profile today. My noble friend will tell us that monetary union too is, in his words, no more than a dotting of the "i"s and a crossing of the "t"s. However, it seems a little more than that to me. As the Committee will have had time to ascertain during these opening remarks, Amendment No. 17 is simple and direct. It would remove from Article 2 of Title II the commitment to economic and monetary union. I shall, subject of course to what the Minister says in reply, treat this amendment for the present as a probing amendment. I shall also discuss some of the other groups of amendments.

I begin by asking the Minister a specific, clear and unambiguous question. Is it the policy of Her Majesty's Government that there should be, first, economic union and, secondly, among those member states without "opt-outs" at least, monetary union? There must surely be a policy on this. The Committee should know that I find the public position of the Government on these matters ill-defined and confusing.

It is proposed to ratify a treaty which has at its very heart the concept of monetary union. I am sure my noble friend Lord Cockfield would agree that, without monetary union and without the concept of the single currency, this treaty would be like Hamlet without the Prince, although I have to say that the grave-digger is still present. Yet when I tabled a Question for Written Answer last November I asked Her Majesty's Government whether, it is their policy to create a single currency within the European union". I would have thought that is a relatively straightforward question to which one can answer, "yes", "no", or "don't know", or perhaps even "Maybe". However, I always think one should judge some of these answers by their length. On the whole the longer the answer, the greater the effort to obscure the meaning. My noble friend Lord Caithness replied, The UK is not obliged or committed to move to a single currency". We know that. He continued: The Government believe that it is too soon to consider whether or not the United Kingdom should join any such move". I did not ask that. He continued, That decision will be made in the light of the circumstances at the time". We know that. He continued: No decision to move to a single currency would be made without the approval of Parliament in the form of an Act of Parliament".—[Official Report, 25/11/92; Cols. WA 68.] We know that too. But what we are left not knowing, after the reply has been read, is whether it is the policy of the Government to create a single currency within the European Union. That is the heart of the treaty which the Government intend to ratify but somehow the Government seem shy of saying that it is their policy that this should be accomplished.

I believe many Members of the Committee will know from private conversations with Ministers that their great hope is that this whole section of the treaty will collapse. They may say quietly, "Look old boy, I do not know why you are making so much fuss about this single currency thing. It is not going to happen. That is why we signed up to it". I find that difficult to accept.

In May I again tabled a Question for Written Answer. I asked Her Majesty's Government whether it remains their policy that a single currency should be adopted by 1st January 1999 within the European Community member states not protected by opt out/opt in provisions within the Maastricht Treaty on Union".—[Official Report, 25/5/93; cols. WA 100.] I will not read the reply as I do not wish to bore the Committee unduly, but essentially it merely recited the provisions of the treaty. It did not tell me what the policy of Her Majesty's Government was. I wonder whether, at an early stage in the reply of my noble friend—no doubt we shall have a little time before that moment comes and he can ascertain the Government's policy—he can tell us what that policy is. Is it that there should be a single currency within the Union, even accepting that that would leave us with our opt out or opt in provision?

Regardless of the particular position of the United Kingdom concerning sterling and that of Denmark on the krone, or the crown, do the Government believe that monetary union between the other 10 is desirable or not? I shall briefly express my own conviction on this matter. I would prefer that this part of the treaty collapsed. We in this kingdom have achieved monetary union. We know how it works. What we know, essentially from our own experience, is what Chancellor Kohl also knows: monetary union without political union is simply not credible.

On 4th January Chancellor Kohl wrote in the Financial Times: Maastricht was an interim stage, albeit an important one, on the road to European union … An economic union will survive only if it is based on political union". Indeed, on 11 th November last year—a significant date, one might say, for making speeches of that kind—Chancellor Kohl of Germany spoke at Oxford. I have a copy of his speech, which was published by the Conrad Adenaur Institute. On page 4, there is a heading, which I presume was approved by the Chancellor: No Economic and Monetary Union without Political Union". Under that heading are his words on that subject: For me the part of the Treaty dealing with political union is just as important as the clauses concerning economic and monetary union. Everyone in Europe must realise that we can only preserve all our economic achievements if we secure them politically. An economic union can only survive if it is based on a political union". I should like to ask whether it is the view of the Government that Chancellor Kohl is right or that he is wrong. Is it the Government's view that we can have an economic union and a monetary union without a political union? It is inconceivable to roe that there could be two, let alone 12, central banks for one currency. Of course the treaty provides in the light of that belief. It is inconceivable that there could be 12 Chief Finance Ministers, 12 Chancellors of the Exchequer, for one currency. We know that. Here in the United Kingdom we have but one currency, one central bank, one Chancellor and one economic policy.

I understand the degree of amusement on the Liberal Benches, but let us say that constitutionally we can have but one economic policy. It may vary a little from time to time. Let us say that we can have that "at one moment".

Is it the belief of the Government that the Community, or even ten-twelfths of it, would he better off with a single economic policy? Or is the establishment of the cohesion fund an acknowledgement that a single economy and a single policy which would be right for Germany would inevitably be immensely damaging to Greece? For how long would German and British taxpayers consent to maintain the cohesion fund at a level high enough to compensate Greece, Portugal and Ireland for the damage done to their economies if the economic and currency policies were advantageous to the developed nations such as Germany, or the United Kingdom?

I should like to turn now briefly to the British opt-out or opt-in clauses in relation to Stage 3 of monetary union. The amendments on the Marshalled List are slightly difficult to follow, but let me for the moment crave the indulgence of the Committee to deal with them generally. The treaty is complex and I hope that Members of the Committee will have their copies handy, because it is essential for following the argument to trace the matter through the treaty. I hope that I shall not lead the Committee into any error. If I do, I hope that someone will correct me along the way.

The protocol is to be found on page 114 of the command paper, which is the treaty. Perhaps I may direct the Committee at once to something which seems not altogether fully understood in some areas. I refer to paragraph 2 of the protocol, which is near the top of page 115. It states there: Paragraphs 3 to 9 shall have effect if the United Kingdom notifies the Council that it does not intend to move to the third stage". Immediately below, paragraphs 3 to 9 set out what one could broadly call the British immunities. It is important to realise that those immunities have no effect whatever until Her Majesty's Government have notified their decision not to enter Stage 3. I do not know when that moment will come, or indeed if it will come.

We now have to take the treaty back a little and look at Articles 103, 104, 105, 107, 108, 109 etc. I am sure that they are familiar to most Members of the Committee. If the Committee would turn in particular to page 25 of the treaty —Chapter 4, Article 109e(1)—they will see the words: The second stage for achieving economic and monetary union shall begin on 1 January 1994". That is in less than six months' time.

If one continues to paragraph 4 of Article 109e, one finds the interesting and perhaps not too controversial observation that: In the second stage, Member States shall endeavour to avoid excessive government deficits". That is a topical matter. When he replies to the debate perhaps my noble friend will tell us whether the Government will endeavour to comply with that provision from January onwards and, in particular, whether they would regard a deficit of £50 billion or £35 billion as being excessive for the United Kingdom. If so, will he tell us how soon the Government expect the deficit to be not excessive and, in that context, what is not excessive? Those are commitments into which we have entered with no opt-out, and I am sure that the Government would want to comply fully with their commitments under the treaty.

Let me refer to paragraph 5, which reads: During the second stage, each Member State shall, as appropriate, start the process leading to the independence of its central bank in accordance with Article 108". It is important to remember that Stage 2 might be as short as three years, as long as five, or, if the hopes of many of Her Majesty's Ministers are fulfilled, it may be eternal and will certainly not lead to Stage 3.

Let us assume for the moment that it is finite. Until the protections of the protocol are triggered by the notification that the Government do not intend to enter Stage 3 we are under an obligation to comply with Stage 2. That includes starting the process leading to the independence of our central bank, unless my noble friend tells me that the words "as appropriate" mean that we can breach the treaty and the other member states cannot. If that is indeed so, is it the view of the others that we can merrily proceed through Stage 2 without lifting a finger towards complying with the obligation to which we are committed under Stage 2?

I shall move on. The treaty provides that economic policies —and that must, of course, include the parity of currencies of member states—are a matter of common concern. The Committee will find the reference in Article 103(1) on page 18. It is a very important article. But what does it mean: that those policies are matters of "common concern"? What happens when an issue is of common concern in the Community? My understanding is that it becomes subject to the policies of the Community. One cannot behave with common concern over one's economic policy without allowing economic policy to be decided to some extent by one's colleagues in the Council of Ministers.

What is the interpretation which the Government place upon the obligations that will fall upon them under Article 103? Some people maintain—they maintain it with considerable force—that it means we shall be compelled to re-enter the exchange rate mechanism. I know that noble Lords have different opinions about the exchange rate mechanism. I know that different people have different opinions about the exchange rate mechanism at various times. I asked a Written Question recently about the speech which the Chancellor of the Exchequer made, on 10th July last year to the European Policy Forum, on Britain and the exchange rate mechanism. I know that not everyone follows Written Answers with the interest that I do. I asked Her Majesty's Government, Whether the speech of the Chancellor of the Exchequer to the European Policy Forum on 10th July 1992, which dealt with the exchange rate mechanism and inflation, remains the Government's policy". That is a pretty innocent question, is it not? Again, one would imagine that it could be answered "yes", "no", or "don't know". Perhaps we shall have to devise multiple choice Written Questions for Ministers in future. I do not blame my noble friend for the reply; they are the Treasury's replies. However, he responded: The Government continue to believe that the control of inflation is fundamental to the long term health of the economy and that sterling's membership of the ERM helped to bring about a significant reduction in inflation".—[Official Report, 10/5/93; WA49.] Noble Lords will notice that the reply does not state whether or not the Chancellor's speech remains government policy. I find it difficult to understand why Ministers cannot answer "yes", "no", "maybe", or "don't know" to very simple straightforward questions. Perhaps I pull my noble friend's leg just a little because I should own up at once to the most important statement that the Chancellor made in a very long speech on that day. Having made the points quite heavily earlier he stated at paragraph 64: But if—as I believe—it is the responsibility of Government not to debauch the currency but to ensure that money retains its value, then the question we must ask is how in practice we can best attain this objective. And I am convinced that the evidence of the last few years demonstrates that it is in the ERM that it is most likely to deliver price stability in Britain". Is that still the Government's policy? When the Chancellor who uttered those words was fired a week or two ago, the Prime Minister said that his policies were very good, that they had been very right, that they were very successful, that they would not be changed and indeed that the Chancellor and the Prime Minister were very great friends and that was why he was being fired. Perhaps it would be better to be unfriendly to the Prime Minister and to have the wrong policies. It would seem to be the better way to survive.

Are we attached to the idea of the ERM? If I may interpret the Government's view for them, it seems to me that they are still attached to the concept of membership of the ERM, although not before an election. It seems to be a case of "Lord, make me bad, but not yet".

Let me return to the meaning of parity as being a matter of common concern. After all, if we are not to be in the ERM, are we required by common concern to shadow a parity against the deutschmark à la Lawson in the days of the uncontrolled boom; or are we to shadow some kind of ecu arrangement? What are we committed to? Are there any means of coercion if we do not do what the others regard as behaving in a matter showing common concern? Article 103(4) states: Where it is established … that the economic policies of a M:ember State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the Member State concerned. The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public". Are those the only means of coercion, or are there other means of coercion? I find it slightly difficult to follow the treaty in this regard. I know that my noble friends in government understand the treaty backwards if not necessarily always forward. I shall be grateful if, when he replies, my noble friend will tell me whether there are any other means of coercion. In other words, I wish to know whether the United Kingdom's economic policy and exchange rate policy will be treated by the Government as a common concern. Does that mean that they will comply with policies which are formulated in accordance with Article 103(2) of the treaty? Do they accept that that may mean not only an end to "le social dumping" but also an end to "le antisocial" devaluations or floatings? I wish to be absolutely clear.

I believe that at this stage I have posed enough questions. I believe that it is now appropriate for other noble Lords to raise their questions or to express their views while the noble Lord considers his reply. I beg to move.

Lord Ezra

The noble Lord stated in his introductory remarks that it was a probing amendment. I believe that it is right to probe a little as to the significance of what he states. Amendment No. 17 is grouped with Amendment No. 45 which states: except the following words in Article 3a: 'the primary objective of both of which shall be to maintain price stability'". I wish to raise the question of price stability. The problem of price stability has bedevilled us for years. We have had substantial inflation. Happily, we are at a period of low inflation and the challenge is to maintain it at that low level. The Government have repeatedly told us that that is a main issue which they face.

Therefore, I am a little surprised that certain noble Lords should have put their names to an amendment which suggests that price stability is not of importance. Perhaps the amendment does not mean that, but that is what I read it to mean

Noble Lords may well say, "Yes, we agree with price stability but we do not agree with those means of achieving it". Let us probe that a little. We are now involved in the single market. In order to prosper in the single market, the conditions need to be conducive to our being able to trade there effectively. One of the biggest problems will be whether prices will be stable. I refer not only to sterling being stable in relation to other currencies but to other currencies being stable in relation to sterling. Surely if we wish the single market to be successful we should encourage a system in which there should be price stability. The whole concept of convergence of the economies is a British concept and the British representative prevailed upon our Community partners to adopt it. If we really wish to go ahead with the single market, then we must accept that we must have the right conditions in which to compete.

How do we achieve that? We achieve it by working towards convergence, by hoping that currencies will retain their relatives values as regards one another. I hope that sterling has now reached stability vis-à-vis the deutschmark at 2.50 at the moment, with the dollar at 1.50. If we can work towards that, it is highly desirable. But one cannot work towards it purely by chance—there must be agreement as to the ways in which one sets about it.

The position negotiated by the Government is correct; namely, that they have not ruled out the ultimate objective of a single currency and of convergence, but they have said that even if we were to reach the position of convergence, we would still have to put it through our parliamentary processes as to whether or not we agreed.

The ultimate purpose of moving into the single market—on which I believe we all agree—is that it should be a market in which we can trade effectively and fairly. One of the most important elements in that market, in my opinion, is price stability. Therefore, I query some of the amendments which have been put forward in the names of the noble Lord, Lord Tebbit, and those who support him.

3.45 p.m.

Lord Desai

Like my noble friend Lord Bruce of Donington, I have not changed my views in regard to a single currency for a long time. I am for it. Soon after I arrived in your Lordships' House we received a report following the Prime Minister's return from Maastricht. I raised the same question then as the noble Lord, Lord Ezra, has just raised. If the Government are not going to say that price stability is no longer their objective, what was the point of signing the protocol? Why was the opt-out obtained? Obviously, at that time we were still part of the ERM, so it was not as though we were not going to be part of it.

It seems to me that this set of amendments is too confusing. First, if we are to be in a single market, it is difficult, though not impossible, to envisage that we shall have several currencies which will fluctuate without any system at all. That I find difficult to envisage because if they fluctuate, then the costs of the currency fluctuations—especially the uncertainty caused by those fluctuations—will be a major cost on businesses which wish to compete.

Secondly, although our own ERM experience was somewhat unfortunate and we would like to blame the system rather than our own incompetence, it is quite clear that, had we joined at the correct exchange rate and had we not bid up the exchange rate before we joined by our monetary policy, if we had followed the fluctuations of the sterling-deutschmark rate six months before we joined, it would have been different. We deliberately bid up the exchange rate because it was thought at that time by people in Parliament that a high exchange rate was a good, macho thing to achieve. We wanted to inflict proper costs on the economy. Let us have discipline, of course, but Ministers thought that discipline on the economy at that time would be visited on the trade unions. Little did they think that the discipline of the ERM would be visited on businesses as well. Had they examined the experiences of France and Ireland, they would have seen that to achieve credible price stability is not easy. One may talk about it, but to achieve it involves much hard work and discipline.

Be that as it may, we did not achieve price stability, as I have often reminded the House. Twice within the past 14 years we have doubled the rate of inflation; we have doubled the rate of unemployment; and right now we pretend that we have price stability, but the Government are unwilling to state their policy. Of course, as the noble Lord, Lord Ezra, pointed out, the policy is that we are in the ERM, except that we are in its shadow. We have a policy for sterling of shadowing 2.50 for the deutschmark and 1.50 for the dollar. Everything that we observe about the Government's monetary policy follows from that.

I believe that it is quite a sound policy, but unfortunately in a world of free capital mobility, fixed exchange rate systems of the kind that we are going through are somewhat difficult to maintain. Free capital mobility causes problems in maintaining such a system. I am proud to say that in the course of my remarks on the Maastricht Treaty, I also said that I for one should like to go to a single currency now. Economists are quite agreed on this and there is plenty of good technical literature on it. The logic is that a single market such as we are about to enter, with deregulated capital markets, cannot maintain exchange rates within a certain band. If we abandon the band and go to fluctuating currencies, the costs of those fluctuations would be enormous on businesses, therefore the costs of the uncertainty would be massive.

Thus we should consider right now how quickly we should go to the single currency. I know that I am in a small minority and that logic never wins in these matters, so I am happy to wait for the single currency to come about under the timetable. I also hope that at that juncture, in 1997, when we are presented with the possibility of joining the single currency, we shall grasp the initiative. If we do not, it could only be because our economy will have been so badly run by the Government and we would be structurally so weak that we would not be able to sustain our currency within such a scheme. It is folly to think that being out of the ERM or out of the single currency is sovereignty. It will not be a sign of sovereignty to be out of the ERM or the single currency; it will be a sign of extreme weakness as regards the economy, a sign that we could not sustain ourselves within the single currency.

It behoves those people who champion the single market to point out to us a single historical example of a single market with many economies in which there was freedom for different countries to pursue different currency policies. The gold standard was different, it did not give any country economic sovereignty and we should not forget that. Let us not say that the gold standard was a good thing. If one liked the gold standard, one should go to the single currency—one would be better off there. If one wants fluctuating currencies plus deregulated capital markets, one should admit that we shall sacrifice price stability and economic stability, because that is the nature of modern economies.

I am somewhat surprised by the list of amendments. Turning to the details, the noble Lord, Lord Tebbit, pointed out that Article 109e paragraph 4 contained strictures about excess deficits. I am puzzled by that. I thought that all his life he had been against excess deficits. Are we to understand that he would like persistent excess deficits in the budget? I also point out to him, as I did during the Second Reading debate, that if we carefully peruse Article 104c, paragraph 3 states that government investment—that is public sector capital formation—would be taken out of the deficit. We have never had (as I have said before) a sensible approach to public sector accounts in this country. If we separated revenue budgets and capital budgets, the present PSBR would appear to be different. I do not wish to defend the Government, or give them a saving clause. Capital borrowing is perfectly all right. One borrows to generate future income, and there is no problem with that. It is borrowing for revenue purposes and not balancing the budget over the cycle which causes the problem.

Whether or not they are Keynesians, why should people be against that? It is fallacy to think that Keynes or the Keynesians are for perpetual deficit. If they are, they are stupid. But nobody should be for perpetual large deficits on a revenue account. That is irresponsible. Therefore we have to ask ourselves: what is the economic policy of the people who put down this amendment? Is it one of perpetual devaluation, as we experienced between 1973 and 1990, when sterling fell continually? Does anyone want to argue that those years were some golden age for the British economy, and that all of our problems were solved; that we achieved prosperity, balance of payments equilibrium, full employment, low inflation, as a result of devaluation? Can anybody argue that? Does anyone want to argue that maintaining large and continuous deficits will maintain full employment and prosperity in this country? What is the objection to those perfectly sensible strictures?

I would be the first to confess that when I was younger I was quite happy to contemplate a public sector deficit. But in those days it was possible to imagine countries in relative isolation, because capital movements were restricted. We did not have the free movement of capital. If one has free movement of capital, one cannot be Keynesian in one country. It stands to reason. Suddenly, the monetarists of old, the people who told us that deficits were bad, want to have deficits. People who said that fixed or high exchange rates were good, suddenly want to devalue. Why is that? It is because they think that there is something called economic sovereignty. Of course, we have made such splendid use of economic sovereignty for the past 20 years and are in such good shape as a result of it. I am told that we did not lose economic sovereignty until we joined the ERM in 1990. What did we do with economic sovereignty? What great show did we make of our economic performance when we had economic sovereignty?

It would be false to believe that such economic sovereignty could be maintained in the world of the single market and free capital movements. It behoves those who have put down this set of amendments to tell us very clearly whether it is their policy that price stability, full employment and economic growth no longer matter; and that some magic rule, or perhaps lack of rules, (perhaps they have given up on rules) will allow for freedom. Perhaps they want to privatise the central banks, and privatise economic policy. With no rules whatever, no objectives regarding policy, and no co-operation, they think that we can survive in a single market and achieve full employment and prosperity.

My view is that we have to examine very carefully our economic policy of the past 20 years and longer, during which time we have had a small episode of fixed exchange rates and 20 years of fluctuating exchange rates. People have to convince themselves and others that those fluctuating exchange rates were periods of superb economic management and prosperity, full employment, and so on. There is no evidence for that. Therefore they should say to themselves that perhaps there is something in this treaty—even though it has been written by foreigners. I believe it is still a good treaty. They have to be concerned with the logic of free capital movements and a single currency. I urge the Committee to think very carefully and to reject this group of amendments. They cannot be sustained by any logic compatible with the modern world.

Lord Cockfield

I intervene in this debate solely in order to assist my noble friend Lord Tebbit in understanding these matters—a thankless task, the Committee will no doubt think. Nevertheless I shall do my best.

The formation of policy in the European Community follows a very well defined path. It has nothing whatever to do with salami or sausages, or the other matters on which my noble friend extended himself in the debate yesterday. The pattern is this. The heads of government—or, in the case of France, the head of the state; Mitterrand is one leg up compared with everybody else—decide what the policies should be. Those policies are then given a legal status, either in a treaty or in an Act. That is then followed in due course by the detail being filled in by subordinate legislation in the form of directives, regulations or decisions. One sees this illustrated perfectly in the case of the single market programme. It started in June 1985 with the heads of government meeting at Milan, and endorsing the programme for the completion of the internal market. as we then called it. That was then followed by the Single European Act, which gave it legal status and a legal base. That in turn was followed by 300 directives which filled in all the detail.

The Maastricht Treaty that we are now discussing, and economic and monetary union, follows exactly and precisely the same path. It starts with the heads of government at Stuttgart in June 1983 deciding on European Union, including economic arid monetary union, social policy, economic and social cohesion and quite a lot of other things. That constituted the decision on the policies. That was then followed by the Single European Act, which gave economic and monetary union its legal status. At that time it was contemplated that the detail would be filled in by regulation and decision in exactly the way that it was done when the EMS was set up.

At that point a slight change occurred in the field of policy formulation (or formation). Instead of having the vast array of regulations and decisions, it was decided to put it all in a single treaty. That is the Treaty of Maastricht; and that is why the Treaty of Maastricht deals with economic and monetary union. That is why I have said in this Chamber on more than one occasion that the Treaty of Maastricht is a useful and valuable treaty. Essentially its aim is not to give economic and monetary union its legal base—that has already been done in the Single European Act—but to fill in all the detail. It does one other thing which is of particular significance to my noble friend Lord Harmar-Nicholls. It brings out into the open things which hitherto have been done in private. In other words, we are enabled to see what lies behind the arras. I have always said that he who wanted to see was always in a position to see. But that is exactly and precisely what the Treaty of Maastricht does.

Economic and monetary union is the natural consequence of the single market. One can, of course, have a single market without a single currency. But one does not garner all the benefits of it.

Perhaps we could look at the United States of America—there are people who sometimes cite the United States as an interesting example. It has had a single market ever since the present constitution was signed 200 years ago. I believe that it has had a single currency ever since 1866. When I first went to the United States in the early 1950s one would still occasionally have a dollar bill passed upon you which was denominated in silver. That goes back to the creation of the original single currency in the United States. Also, it has a single language. A great deal of the economic strength of the United Stales is founded on the fact that it has a single market, a single currency and, most of the time, a single language.

In fact, that was the motivation behind the economic union. We wanted a start with a single market. We extended it to a single currency and beyond the single currency there are other areas in which one needs to create a level playing field for all the economic actors in the Community.

In this country we have decided that for the moment we will not go along with economic and monetary union. I believe that that is a wrong decision. Nevertheless, I respect it. One of the problems in this life—I say "problems" but perhaps that is the wrong term—is that if one joins any organisation, such as the European Community, or indeed if one is a member of any society, like the British nation, from time to time one is in a position of having to defer to other people's opinions. I know that that is an unpopular viewpoint in some circles. Nevertheless, it is one that I commend to the Committee.

It is on that basis that, while supporting economic and monetary union, nevertheless I am prepared to accept the opt-out which was negotiated for this country.

Lord Hamilton of Dalzell

Before the noble Lord sits down, I wonder whether I may ask whether he agrees with my right honourable friend Sir Edward Heath that if one has a single currency one also has to have a single government.

Lord Cockfield

It is not for me to answer for Sir Edward Heath. I do not even know whether the words quoted are entirely accurate. I have no knowledge of that at all and would not pretend to knowledge that I do not possess, in contrast with many other people. So far as I am concerned a single currency does not necessarily lead to a single government. The noble Lord will find the American dollar in use in wide areas of the world where there is no single government and indeed in some places no government at all.

4 p.m.

Lord Harris of High Cross

It is always helpful to have such magisterial pronouncements from the noble Lord, Lord Cockfield, whose experience and knowledge of these matters command attention. However, his words do not carry us much further.

I am interested in Amendment No. 17 which the noble Lord, Lord Tebbit, suggested was a probing amendment. There have been some observations from rival economists and other parties and it is difficult to know where to begin. With regard to the matter which the noble Lord, Lord Cockfield, has just mentioned, with a sleight of hand that reminds me of my early interest in conjuring, he says: "Of course, this is not carrying us any further forward. It is dotting "i"s and crossing "t"s because it is in the Stuttgart agreement that we should work towards monetary and political union. The previous documents have implied continued progress towards that end."

I recall at Second Reading an impressive speech by the noble Lord, Lord Carrington, who took my breath away by commending the treaty on the basis that it probably would not happen; circumstances have changed; this is a whole world away from 1989–90, and so we must not worry too much. I believe that this is one of the great difficulties with which we wrestle. It divides good men on opposite sides of the argument. There is a complete evasiveness, slipperiness and I would even say slyness, in some sense, in presenting broad statements to which everyone can agree about political union, incorporating them in declarations and so on, and saying that we have no details; and then coming back later with the details. So we find that we have a fait accompli. We now have a full-blown detailed monetary union proposal.

Despite what the noble Lord, Lord Desai, said, I honestly believe that the monetary union is a spoof. I truly believe that. Moreover, I believe that it is on the same level as the proposition put forward by George Bernard Shaw to invent a new language like Esperanto. One can argue along the lines of "Wouldn't it be nice to have a new language? Let's invent a new language. We can all speak it to one another and it will overcome so many difficulties".

We say here that we need a new currency. If we had one single currency for the area which was a stable currency and everyone joined it, would it not be helpful in promoting trade and maintaining stability? That begs all the questions. You cannot just create a currency in that way. The noble Lord mentioned the gold standard. That emerged. It was part of what Hayek would refer to as "spontaneous evolution". The Tory Party used to believe in spontaneous evolution. It now believes in planning, construction-ism and detailed intervention in the economy—all that in the wake of Citizen Delors. I am being very correct now. We are citizens and, if we are to be citizens of Europe, we are entitled to speak frankly to one another.

We admire the stability of the deutschmark and acknowledge that it is due to the Bundesbank which has a degree of independence, though it is not totally independent, in operating a stable monetary policy. The conundrum with which I am faced is that first of all there is no guarantee whatever that the future ecu will be as stable as the deutschmark has been. Indeed, part of the argument in France and Italy is that the deutschmark has been run too severely and with too little regard to unemployment and other considerations apart from price stability. The implication is that when we all share in running the currency, we shall be able to abate the obsession with price stability. I do not at all accept the blind faith of the noble Lord, Lord Ezra, that if we are to have new money, somehow it will emerge and will produce that stability.

I put this proposition to the Committee. If European countries pursue stable monetary policies on the model of Germany, an ERM or an EMU would not be needed. If stable monetary policies are not pursued, an ERM or an EMU will not work. There is no way round that. To maintain stability you must have regard to monetary and fiscal policy. It could be done outside the ERM.

As many noble Lords were at the uplifting memorial service to the late Lord Ridley, I looked up his last words in this House which were in February, on a Motion moved by the noble Lord, Lord Pearson. Those last words, which had a ring of defiance, were: Surely it is time to recognise that it is the single market which matters and that the single currency does not".—[Official Report, 17/2/93; col. 177.] Nick, as we all called him, was not a fool. There is no inconsistency in that proposition. In a single market you can have free trade between areas without any monetary connections whatever. The North Atlantic Free Trade Area has not anticipated changing from floating currencies between America, Canada and Mexico.

I have two main anxieties to which I want the Government to attend. It may be tempting for the noble Lord, Lord Desai, to say that people who oppose monetary union are closet devaluationists; they want to keep taking the soft option and do not want the discipline of fixed exchange rates. I am saying that if you have a monetary policy, you can do it yourself. You do not need a piece of steel inserted into your backbone, which will have other painful consequences.

The point is that economists have been debating for the past 20 or 30 years—we must not enter into an economist's argument—the optimum currency unit. They have been debating what circumstances would enable various countries to join into a single monetary unit. To go back to our own experience, throughout the whole of this century we have had a single currency in the United Kingdom. One result was that monetary policies that were appropriate to the South of England left Scotland, parts of the North-East, the North-West and the Midlands behind and we had to have a development policy. The development policy was in some way to accommodate different regions to the discipline of the single currency that involved them in economic distress.

Areas are dependent upon different sorts of industry. They have different structures and there are immobilities. An alternative to a single money between England., Scotland and Wales would be to have three currencies. We did not have three currencies but we introduced a payroll tax to try to reduce labour costs in some areas because the national wage level bore harshly upon those areas with declining industries.

The 12 economies have wholly different structures with wholly different levels of development. They are progressing, in economic terms, at different rates and are affected quite differently by external shocks—for instance, oil or a new imposition from outside. Several Members of the Committee talked of convergence over two or three years. But over a period of 10 or 20 years, and a cycle or two, one has quite different circumstances. Therefore, to incorporate monetary union into the treaty is bad for Europe. If we believe that it is bad for us, why do we allow it to go forward under the treaty and the institutions of Europe and try to say that we are opting out? That is my question. If it is bad for us, is it good for Europe?

My second question is perhaps more manageable. It arises from a legal document by someone with the same name as the noble Lord, Lord Howe, but who, in my view, holds rather better, more congenial opinions. Martin Howe wrote a paper, Monetary policy after Maastricht: How much independence will Britain possess? To sum it up he says that even without our opt-out we are still caught up in Stages 1 and 2. We are caught up by the general expression of support for monetary union, going back to the earlier documents and proclamations. He says that there is a possibility that we will find ourselves brought up before the European Court of Justice.

Martin Howe is a lawyer. He is not as distinguished as the noble Lord, Lord Howe. However, he is a barrister and specialised in this kind of issue. In his paper he said that the European Court could find that we were failing to fulfil our obligations to bring our economy into convergence in readiness to join the ERM, although we are not going on further into the EMU. He said, that the ECJ would find that a policy of indefinitely remaining outside the ERM on the part of the UK is a clear breach of the Treaty. First, in such circumstances, the United Kingdom would be avowedly pursuing an exchange rate policy based on its own national interest rather than treating it as a matter of 'common interest' as required by Article 109m. Secondly, the UK would be failing to adopt a 'multiannual programme' intended to ensure 'economic and monetary convergence': moving towards and when possible adopting a fixed ERM parity is one element of 'convergence' since it forms one of the convergence criteria set out in Article 109j(1).

Thirdly, and most fundamentally, the whole structure of Stages 1 and 2 monetary union presupposes that member states are striving towards achievement of the convergence criteria, including more tightly aligned parities. Although the UK has opted out of the prime objective of `irrevocably fixed' parities in Article 3a(2), it has not opted out of the lesser objective of exchange rate convergence. It is an important aspect of the single market as envisaged by the Treaty that there should be currency stability as far as possible across the whole market, and that the UK's conduct would be considered by the ECJ as imperilling the attainment of that central Treaty objective". Perhaps the Minister could say what view he takes. Was the opt-out to avoid trouble now at the risk of piling it up for the future? Was it to be agreeable, to be communautaire? Was it to obtain the opt-out and then shield behind it? Have we thought out what may lie ahead if we sign the treaty with those clauses included and then find ourselves faced with the European Court of Justice? How seriously does the Minister entertain that possibility?

4.15 p.m.

Lord Eatwell

I should like to sketch out the view from these Benches on the issue of monetary union and particularly to state that the Labour Party sees considerable advantages in moving towards it. That does not mean that we consider that all the elements of the treaty are perfect. Indeed, we have considerable reservations in regard to some of the institutional and transitional proposals which are present. While we do not say that they are perfect, on balance we believe that they are in the interests of this country.

Given that we do not believe the proposals to be perfect, we will be developing other proposals to be considered at the revising conference scheduled for 1996. It would be enormously helpful to the Committee if the Minister could say what revisions the Government are proposing in 1996 or at least on what principles they will be suggesting revisions. Or do they believe that the treaty before us is perfect?

I should like to refer in particular to the convergence criteria for economic and monetary union which are set out in the treaty. There is a certain peculiarity about the convergence criteria; that is, they are all monetary. They relate to inflation rates, deficits as a share of national product and the national debt as a share of national product. They do not refer to either the growth, employment or productivity records of individual countries.

That is striking. One can imagine a situation in which one country—let us say Britain—has an inflation rate of 2 per cent. and 3 million unemployed, and another country has inflation also at 2 per cent. but with employment much lower and growth proceeding rapidly. In those circumstances the disjuncture of the real performance of the economies creates considerable difficulties in the operation of the monetary union and measures should be taken to alleviate them. However, they are not addressed in the treaty.

The question that the issue of real convergence raises is whether it will be possible to achieve real convergence in the Community—better growth and higher levels of employment. If so, will that possibility be enhanced by the monetary stability which monetary union brings? In other words, will monetary union make the circumstances for convergence better? Or will monetary union only be conceivable once real convergence has been attained? In other words, in what order do monetary union and real convergence come?[ I suggest that monetary union would create a framework in which real convergence was easier to attain and, indeed, the absence of it would make real convergence and sustained growth in Europe extremely difficult to attain. My confidence in putting forward that proposition derives from the fact that, since the collapse of the Bretton Woods system in 1973 and its replacement by an essentially fluctuating exchange rate system, the growth rate of the OECD countries and their employment records have been dismal compared to the achievements under the old fixed rate system. Very roughly, if one looks at growth, productivity, inflation and so on, your Lordships can be assured that all the good things have been halved and all the bad things have been doubled.

One of the virtues of the creation of a monetary union is that it would remove the key factor which lies, I believe, behind the dismal performance in the 1970s and 1980s of the OECD as a whole. It would remove the enormous growth of speculative pressure on the design and performance of national economic policies. As your Lordships will be aware, the level of speculation in currencies has increased dramatically since 1973. In 1973, roughly 10 per cent. of all foreign exchange transactions were speculative. Now, roughly 95 per cent. of all foreign exchange transactions are speculative. The number has increased enormously. This speculative pressure is particularly strong in a region in which there is free capital movements, as there is within the single market. Having free capital movements and different currencies, Europe suffers very considerably from the strong deflationary bias which a fluctuating exchange rate system imposes upon the economy of the system as a whole. That is the first advantage we see in a monetary union.

The second advantage of a monetary union is that monetary policy would be determined on a European basis, not simply in the interests of one particular region of Europe. As we know, monetary policy has been predominantly determined over the past 10 years or so within the European Community on the basis of what monetary policy best suits the German economy. Indeed, the German monetary institutions are by their very constitutional structure not allowed to take into account the effects of their policies on countries other than Germany. It is true that this very narrow and blinkered position of the Bundesbank has been eroded considerably in the relationship which has developed between the Bundesbank and the Banque de France since the defence of the French franc last September. Nonetheless, monetary policy is still dominated by a monetary policy designed for a region of Europe and not for Europe as a whole.

I would suggest to the noble Lord, Lord Tebbit, who made this point very clearly, that the development of regional growth and regional policies would be more effective within the stable monetary framework provided by a monetary policy set in the best interests of Europe as a whole than it would be within a fluctuating exchange rate system bedevilled by speculation and which would still be dominated by the monetary policies of the Bundesbank. Let us not fool ourselves. We do not achieve any significant monetary independence in a system in which there is free capital movements, even if we decouple our exchange rate from European exchange rates, except, and only, if we are willing to allow our exchange rate to fluctuate vigorously creating such a degree of uncertainty on the foreign exchange markets that any inter-relationship between national interest rates is broken down. In other words, we can have independence only if we also have instability.

The third advantage of a monetary union is that a co-ordinated fiscal policy in Europe, a co-ordinated strategy which has been called for at the Copenhagen Summit, would be possible, and is only possible, effectively within a monetary union. If you have fluctuating exchange rates and you devalue your currency, you are essentially attracting jobs from your partners. The notion of a co-ordinated fiscal policy, a co-ordinated agreement, to expand and create the jobs which Europe so desperately needs in circumstances where one country or another will willy-nilly devalue its currency and steal jobs from its partners is just inconceivable. Therefore a monetary union is the key foundation to achieving the co-ordination which is so necessary to attack that awful figure of 17 million unemployed within the European Community.

The fourth advantage that we can identify in a monetary union is the contribution which the development of a single currency in Europe would make to international monetary stability. There would be a single currency for Europe within the G7 structure, creating a tripartite division of world currencies between the yen zone, the dollar zone and the ecu zone—I nearly said "the D-mark zone" because that is what we have without monetary union—which would be able to create a more stable framework, or at least have the potential for creating a more stable framework, than is possible under the current confused European scene.

I would, however, in supporting monetary union and the idea of monetary union, like to address a number of questions to the Minister. I feel, with the noble Lord, Lord Tebbit, that this entire debate is considerably confused by the Government not telling us what their policy is. It would be enormously helpful if the Minister would tell us whether the Government are in favour of monetary union in principle—yes or no. It really is a very simple question. I can, however, help the noble Lord, Lord Tebbit, as to the Government's policy with respect to Stage 2, to which he referred.

If we examine the conclusions of the European Summit in Copenhagen, we find a discussion of Stage 2 which for some extraordinary reason the Prime Minister omits from his Statement in another place. In the Conclusions of the Presidency we see that the European Council, invited the Commission to present proposals on all the necessary implementing measures related to the second stage of economic and monetary union so that they can be adopted by the Council as soon as possible after entry into force of the treaty and before 1st January 1994". As the Prime Minister was a signatory to the document, will the Minister confirm that the Government intend to implement the proposals of Stage 2, as the document which the Prime Minister has signed states, by 1st January 1994?

Will the Minister also enlighten us a little about the criteria which the Government would use in deciding on whether or not to implement this opt-out? Let us consider the conditions of Article 109j of the treaty. The article states that the member states will proceed towards monetary union if convergence has been achieved. Here we have the situation: convergence has been achieved and the other member states are deciding to proceed towards monetary union. As part of that convergence, the UK has achieved convergence under the terms of the treaty. If that is the case, what principles would the Government apply, in addition to convergence and in addition to the others going ahead, in recommending that Parliament exercise its opt-out? What extra principles are involved, because monetary union will go ahead only if convergence is attained? So convergence has been attained. What other principles do the Government have in mind?

In conclusion, the Labour Party sees considerable advantages in moving towards monetary union. It does not believe that the treaty is perfect. It feels that the process of transition in particular has significant flaws which should be corrected at the revising conference in 1996; but I believe that acceptance of this amendment would be severely damaging to the economic future of the country.

4.30 p.m.

Lord Harmar-Nicholls

I find my noble friend Lord Cockfield one of the most effective and plausible debaters that I have heard for a long time and certainly on these matters. He debates with such smooth assurance. If you are not careful he can convince you that he has to be right from the way he says it and not particularly from what he is saying. I hear my noble and learned friend intervening again. I shall be most grateful if I can make my point. We have listened to a number of economists and people who have not got a skin quite as thick as mine, sit and nod out of vanity, I suppose, and pretend to know what is being said and what it is all about. I suggest that very few of us do really know, but we are the jurymen and we have to make an effort to try to find out what it is all about so that it can be of some help in coming to a decision.

For me, where my noble friend was very helpful is that he explained very effectively the machinery of how we arrive at decisions. He judges what flows from it as a civil servant. I can understand him being absolutely satisfied that if he is pleased with the machine what comes out of it at the end has to be right. I have to approach these matters as an ordinary, rather small, businessman who has had to build things up to a point where one is—I do wish that my noble and learned friend would contain himself sometimes; just for two minutes.

Lord Hailsham of Saint Marylebone

I have done so for 50 minutes and an hour and 20 minutes.

Lord Harmar-Nicholls

I give my noble and learned friend permission to leave the room. When it comes to really understanding these matters, the fact that the machine is right is no guarantee that what comes out at the end is necessarily right. I found very helpful the way in which my noble friend Lord Cock field explained about Stuttgart and other places; about the Council of Ministers, which truly represents various places. They had come to a general conclusion and had said what it was what they wanted to try to achieve. That is good. Nobody can complain about that. Every nation has its representatives and they are doing their work.

He said that the decisions were passed down to the Commission or to the equivalent of our Civil Service, whose job it was to put flesh on the bones of what they thought they had generally agreed. We have to do that in business all the time. We are responsible for the overdraft at the bank. We have a better understanding of what the customer is likely to want and to achieve and of the general atmosphere surrounding our business. We come to a general conclusion. Then we call in the lawyers and the accountants to put into some form what we have decided in a general way. As my noble friend said, that is how it is done and there is nothing wrong with that.

What we find in business—I suspect that there is a great deal of similarity as regards these matters, too—is that, although we may be happy that the words that the professionals have used are the right ones, continuing with one's business one discovers to one's horror when going to court to meet a claim two or three years later that the words that one had thought at the outset carried out the general view are not there at all. One is left with damages and a few problems which had not been anticipated.

I believe that my noble friend Lord Tebbit is entitled to an answer to his very thoughtful speech. As I understand it, he is asking the Government to tell us: are the words which we should approve or disapprove in the treaty truly reflective of what we thought we were agreeing to at the first meeting at Stuttgart or anywhere else? My noble friend gave me the impression—he has clearly done his homework on these matters—that the actual words we are being asked to approve not only do not necessarily fit in with what we were told had been agreed at Stuttgart but also are not in accordance with what the Government have said on various occasions about their meaning.

While it is very enjoyable to listen to this battle of the economists—I confess that I wish I understood a little more of what they are saying than I do—I would like to feel that, as regards the general commonsense, feet-on-the-ground approach, the actual words which have been questioned by my noble friend Lord Tebbit are the ones which we thought carried out the general agreement arrived at at Stuttgart. If we can achieve that, then we shall know in which direction we are travelling expressed in a language which we truly understand.

Lord Stoddart of Swindon

We should be grateful to the noble Lord, Lord Cockfield, for what he said, although not necessarily agreeing with the manner in which he said it. He told the Committee: "What you see is what you get". That is most important—"What you see is what you get". There is no doubt about that in the noble Lord's mind and he is an expert in these matters. So all noble Lords who said at Second Reading and at other times: "It does not matter if we agree to it, it is not going to happen", must heed the words of the noble Lord, Lord Cockfield, because it is going to happen because it is in the treaty; that is what it says and that is what you will get.

There has been no indication from him yet, but I hope that soon the noble Earl, Lord Caithness, who I understand is to reply to this debate, will deal with the noble Lord, Lord Cockfield, and what he very fairly said—namely, "What you see is what you get".

I could go on and discuss all these matters of what we see and what we get in great detail. Some of my noble friends and others mentioned two or three of the amendments which we are discussing and other noble Lords queried the number of amendments which have been tabled. When 420 amendments were tabled, all of them were thought relevant. If noble Lords examine the amendments they will see that each is relevant in its own right and could be discussed on its own. Of course that would not have been acceptable to the Committee. I believe that we should have spent many long clays and nights discussing individual amendments. Members have been civilised and discussed among themselves the best way to proceed. Therefore, these groupings have been made to the best of our ability and in a manner which we hope will give rise to a reasoned discussion about the most important parts of the treaty and the Bill. That is why these matters are being dealt with in this way.

I emphasise the point to my noble friend who mentioned Amendments Nos. 43, 44 and 45. As I have said, each of those amendments stands in its own right. Amendment No. 43 deals with the introduction of a single currency. That is a debate in its own right. The Government do not agree to it, but some people on this side of the Committee do agree. Therefore, that involves a discussion in its own right. That could go on for a very long time. Amendment No. 44 includes the words: … conduct of a single monetary policy and exchange rate policy". If that is not a matter for long discussion in its own right what is?

Finally, Amendment No. 45 seeks to insert the following words in Article 3a: the primary objective of both of which shall be to maintain price stability". Many of us do not believe that the only criterion and the only objective of monetary policy is to maintain stable prices. We believe that at a particular time, for example, we might let prices rise a little to reduce unemployment. Again that is a discussion in its own right and I hope that I have explained to your Lordships that there has been the desire in all parts to have a proper and reasonable discussion and the amendments have been grouped in this way to try to achieve that. In case anybody did not realise that was happening, I hope that I have been able to put the matter right.

Before I sit down, I should just like to take up one or two points which were raised by my noble friend Lord Eatwell from the Front Bench. He mentioned monetary union in connection with convergence, and of course he said that monetary union will make convergence more easy to attain. That may or may not be so. He is an economist and I am not, so I am not going to argue that with him. But what must be understood, and very fully understood, by noble Lords in all parts is that convergence means an outflow of resources from the richer countries to the poorer countries. I am glad that my noble friend agrees with me and I thank him very much.

Do not imagine that those resources will be only small resources. They will be very large resources and will make the £2.5 billion which we at present contribute in net terms to the Community look like a mere flea bite. Therefore when we talk about "convergence" let us understand what it means. It means that British taxpayers will have to pay more in order that Greece, Portugal, Spain, Ireland and even Denmark shall have more money so that they will be able to "converge". Make no mistake: that means a lot of resources from the British people. So when we are discussing this let us understand the truth of the matter and do not let us use words like "convergence", believing that it will be easy.

There is an example: we have before us the example of the unification of East and West Germany. That was an issue of convergence, and we have seen what has happened to the plans for the reunification of Germany. They have run into the sands; they have caused great difficulties in Western Germany, where people are resentful at having to pay more taxes and having a lower standard of living. They have also caused a great deal of resentment in East Germany, because people there have been made unemployed. So when we are talking about convergence, please let us understand what it means. It is not just some little word to slip neatly off the tongue: it is a commitment and it is a commitment that will cost this country and other countries a lot of money. I do hope that this is one of the matters which the noble Earl will deal with when he speaks.

Noble Lords

Order!

4.45 p.m.

Lord Bonham-Carter

Would the noble Lord he so good, if that is his view as to how convergence occurs, as to let us know what outflow was necessary from this country to allow Italy. for example, to catch us up economically? Who had to sacrifice money in order that Italy should be enabled to catch up with us economically?

Lord Stoddart of Swindon

If I am not mistaken, Italy was once, though it is not now, a net recipient of funds from the European Community. So certainly in part it was able to catch up at the expense of other countries in the Community. But what is absolutely certain is that as regards Ireland—I was not going to mention this. but as the noble Lord has mentioned Italy let me mention Ireland and, presumably, we want it to catch up —the net contribution from the Community funds to Ireland every year is £1.5 billion. That amounts to £35 per week for every Irish family. Therefore, although Italy has not had quite so much because it did not have so much catching up to do, Ireland is receiving a huge amount of money in personal terms amounting to £35 per week for each Irish family. We will find that if we want countries and—

Baroness Seear

Would the noble Lord give way?

Lord Stoddart of Swindon

I am sorry if I am causing such a lot of dismay on the Liberal Benches.

Baroness Seear

I find it extraordinary that a good Socialist, such as I understand the noble Lord to be, should be so upset at the idea of raising the standard of living of the poor at the expense of the rich. Can he explain that in terms of his ideology?

Lord Stoddart of Swindon

The noble Baroness has not been listening. I have not given a personal opinion. It does pay to listen to what is said. It is not what I believe, in the last analysis: it is what the noble Lords over there believe. Do they believe in convergence? Are they happy that the British taxpayer, and indeed business, should have imposed upon them more taxes and more costs in order that countries not up to our standard of living may catch up to that standard of living? That is a question that has to he answered, and it has to be answered by the Government most of all. That is the question I am asking and I am surprised that anybody should be concerned that I am asking these questions. I thought that that was what a Committee stage debate was all about. These are just some of the questions to he answered, and all of us could go—certainly I will give way if you want to keep it going.

Lord Aldington

I should like to get my poor confused mind into slightly better order. It seems to me that the noble Lord is asking questions about convergence when he really means to ask questions about cohesion, which is what we come to later in the evening. "Convergence" is well defined in this treaty. The noble Lord, Lord Stoddart. accused some noble Lords of not having read the treaty but it seems to me that he has not read it either.

Lord Stoddart of Swindon

Yes, I have indeed. The objective is to get the economies to converge in certain ways and the cohesion funds, which we shall be discussing later, are a means of obtaining that as well as by monetary means. So I am perfectly well aware of what it means: but we could discuss every single issue under this particular heading. I do not want to do that—

Lord Hailsham of Saint Marylebone

Hear. hear!

Lord Stoddart of Swindon

But I hope that we shall have answers soon to the many questions that have been asked of the Government Front Bench, and then we can go on with the debate.

Lord Simon of Glaisdale

This has been a wide-ranging debate and a valuable debate, even though it is extraneous and irrelevant at this stage of the Bill. It is irrelevant because the signing of a treaty is a prerogative power and the Government, having signed, are bound to try to bring United. Kingdom law into line so that the treaty can he ratified. As to that, approval was given on Second Reading in this place. In accordance with the practice of this place. the Committee stage is limited to implementing what was decided on Second Reading. We can by all means improve on the detail but we cannot go counter to the decision that was made.

As I said, it has been a valuable debate, because it goes behind the treaty. It starts by asking the question: do we want stability in exchange rates? If we do, is the EMU a suitable organisation for bringing about exchange rate stability? Is there any other in sight? Finally, there is the question that has been posed: does a single currency necessarily involve single government? As to exchange rate stability, there can be no doubt. No trader can trade properly unless he knows the value of what his money on account will be at the end. If he is trading in marks, dollars or sterling he wants to know, within a small range, what is to be the value of what he has to deliver.

The question then arises: is the EMU a suitable vehicle for exchange rate stability? The noble Lord, Lord Desai, mentioned the gold standard. That was a semi-automatic instrument of exchange rate stability, but no one suggests that it can be revived. So the question is: is there any other vehicle apart from the EMU? I do not intend to go into the details of our entry into the EMU because the Committee is privileged to have among its Members the principal agents of our entry into the EMU.

I come to the final question that has been posed: can one have a single currency without a single government? That is answered confidently, "No". It is answered thus by those who optimistically hope to have a single government, and pessimistically by those who will not have that at any price. But in fact the question can be answered categorically, "Yes", because it has occurred in the past. It has occurred in a wide range of states in the Latin monetary union of the middle of the last century. That started, I believe, with France—the noble Lord, Lord Peston, will correct me if I am wrong—Belgium, Switzerland and Italy. It was so successful that other states joined in; for example, the Papal States and Romania. That is one example.

Another example closely concerns us. In 1826, the pound in this country and the Irish currency were put in a position of parity. Of course at that time there was a single, common government, but that parity continued after the establishment of the Irish Free State in 1922; and, indeed, it continued after the establishment of the Irish Republic during the war. It continued in fact until both countries entered the EMU. So that question can be answered categorically: a single currency does not necessarily involve a single government.

Lord Rippon of Hexham

I should like, if I may, to follow what the noble and learned Lord, Lord Simon, has just said. He described clearly the processes by which we are bound to seek to ratify the treaty that we are now considering. I express my gratitude to the noble Lord, Lord Stoddart, for what he had to say about the large number of amendments put down and the way in which an effort has been made to group them to ensure that we have a more orderly discussion than perhaps took place elsewhere. As he said, all the amendments could give rise to an interesting discussion. The one that we are having now is interesting. It is one that will in fact be repeated in many forms over many years.

What we must do here and now is to focus upon the issues which are directly relevant to the Bill and the ratification of the treaty. We shall have to return at the end of the day to the fact that we can only accept or reject the treaty; we cannot amend it. If we accept it, we will strengthen the objectives of the Single European Act, as promoted by my noble friend Lady Thatcher. It is one, I believe, of her greatest achievements. If we reject it, we shall of course become remote from the central decisions in Europe. We shall not have these interesting discussions about the contribution that we can make to the future.

So far as concerns the issues directly related to the Bill, particularly the EMU, we have the opt out. As regards the timing, I do not know. We can all hope for paradise on earth, but as for the timing, I do not know. My recollections go back; a little further even than those of my noble friend Lord Cockfield. I can remember spending a great deal of time in 1972 assuring the other place that we were not committed to the third stage of the Werner plan in which the Community proposed economic and monetary union by 1980. It is an objective. One may think it is a good objective or a bad objective, but we have the opt out in the treaty. We shall have the opportunity to reconsider that issue.

On the common currency, perhaps we should have a referendum. We should ask the question as to whether we should have a referendum when the time comes. It may or may not happen. We shall have another opportunity to say whether or not we want it. I believe that it is a good idea if it can be realised. After all, if I may follow up some of the examples given by the noble and learned Lord, Lord Simon of Glaisdale, we invented travellers' cheques so that our travellers could move about Italy when it was difficult to do so with 16 different currencies to carry in one's pockets.

We have more recent examples of a common currency leading to political union. There is a common currency in Belgium and Luxembourg. There is a common currency in Switzerland and Liechtenstein. There is nothing to stop a whole range of countries in Europe, if they so wish, deciding to have a common currency but still not have a political union.

Yesterday, the noble Viscount, Lord Tonypandy, to whom we always listen with affectionate regard, spoke of a sense of impatience. I should not like to think that I have been misunderstood when I said that I believe that we should get on as fast as we can. I would never have suggested that we deal with the Bill, relatively simple though it is, on one Friday, as we did with the Single European Act which had far more, far-reaching consequences than the Bill. The noble Viscount said that we should have patience—I believe that we have shown a great deal so far—and we must have responsibility, but our responsibility, above all, I would suggest to some Members of the Committee is not to mislead the British public with Euromyths and the projection of false fears which do no good to British interests.

The noble Lord, Lord Harmar-Nicholls, said that he spoke as a businessman. I should like to conclude my remarks by referring to a speech made by Sir Michael Angus at this year's CBI dinner. He said: It is clearly in the interests of British business that the Maastricht Treaty is ratified. We need our Government to be at the heart of negotiations, ensuring that our concerns are taken into consideration, constantly improving and updating the Single Market and making it work fairly for us. And—I would add—curbing the power of Brussels". None of us disagrees with that. He continued: The progress of the Maastricht Treaty through Parliament has really been a sorry spectacle". He was of course referring to the other place and I hope that we shall not repeat that. He then said: A clear majority of the House of Commons wish to ratify the Treaty. Yet we seem to have been on a knife-edge for months as a small body of people, through a mixture of contrived parliamentary procedures and convoluted logic, seek to sabotage the Bill. This unwelcome and distracting side-show must come to an end—and quickly. All credit to the Prime Minister for steadfastly sticking to his principles". I wish that some others whom I shall not name would stick to the principles to which they subscribed in the days when they were in office.

5 p.m.

The Earl of Onslow

It is interesting to comment on what was said by the noble Lord, Lord Eatwell. When I was eight and recovering from mumps I bought a small metal submarine. I was desperately sorry because my parents said, "Oh, there has been a disaster! Stafford Cripps has had to devalue the pound". I could see the noble Lord, Lord Eatwell, in his advocacy of the Bretton Woods fixed exchange rate mechanism, as Sir Stafford Cripps incarnate or possibly even the Norman of the 1929 Government. We know perfectly well that fixed exchange rates with modern computer technology do not work. We should by now have learnt not to use them.

We have only to see the strain on the European monetary system. If the French were not in the exchange rate mechanism they could have interest rates of 5 per cent. or 6 per cent. lower and the franc would possibly be higher against the deutschmark. The noble Lord, Lord Stoddart, said that one of the causes of trouble in Germany was the reunification of the ostmark and the deutschmark. He was right but I believe that his analysis was wrong. On the free market the ostmark was worth one-sixth of one mark. Then some fool came along and gave the East Germans six times the value. In one fell swoop all East German labour and industry was bankrupt because the prices were too high. Money is only a store of value; it serves no other purpose except as a means of exchange.

There is possibly an argument for a single currency. I am not an economist but I enjoy historical things, as Members of the Committee may realise. The other day I walked down Beauchamp Place and saw in the window of the Map House a bond to the Chinese Government. It was at 3.5 per cent. for 25 years, £5 million in gold sovereigns. All the amounts were exact in imperial German marks, gold roubles, Japanese yen and the French and Belgian francs. There was no parity of 2 per cent. either way; it was rock solid. I believe that it would be possible to have a single universal store of currency throughout the world, as we did from 1815 to 1914.

However, it seems that it is impossible to get there. We cannot do so, even if we want to, except by self-control. We can get there only by putting our own houses in order. We cannot get there by having it imposed upon as by a treaty from outside. If the Italians do not want to run a sensible monetary system, or if we are silly enough to stay in an exchange rate mechanism at the wrong rate, and the wrong this, that and the other, it will end in disaster. If we can get our act together and do it voluntarily it will happen. It will not happen if it is imposed from outside.

If we produce children's clothes, for example, the French will come pottering across on the ferry and buy their children's romper suits in Dover. If we are silly enough to put a large amount of tax on French wine those of us who like French wine will go across the Channel, load up our Discoveries and there will be a dearth of wine merchants in Kent. If we run sensible financial policies which run sensible and proper monetary policies, and if we make sure that our money holds its value, things will come together. The difference in richness between Greece and Dusseldorf will not matter. The Greek currency can hold the same value but the bloke in Greece can be paid rather less because he is worth less than the skilled man in Dusseldorf. But the currency can be worth the same. That is what I mean by convergence. In my view it cannot be imposed from outside; it can be imposed only by self-discipline and self-control.

Lord Monson

I was interested in particular in the contribution of the noble Lord, Lord Desai. Even more than his Front Bench colleague, he clearly believes sincerely and passionately in the virtues of a single currency. Therefore, presumably the noble Lord believes that considerable sacrifices should be made in order to attain that extremely desirable objective. What would those sacrifices consist of? I suggest that the chief sacrifice would be a loss of national independence far greater than has yet been dreamed of.

The noble Lord, Lord Tebbit, reminded the Committee of Chancellor Kohl's firmly expressed opinion which is shared by many distinguished political figures on the Continent of Europe: notably those in Germany, Italy and the Benelux countries. It is that, in order for monetary union to be in any way effective, it will require positive steps, often giant steps, towards political union. They are opposed in that view by the noble Lords, Lord Cockfield and Lord Rippon, and my noble and learned friend Lord Simon of Glaisdale. Clearly, both groups of distinguished individuals cannot be right, but I should hate to judge which will be right in the end.

However, there are other distinguished political figures in this country who believe that political union will automatically result from monetary union without the need for any conscious steps to be taken in that direction. Perhaps I may give the Committee a short quotation: There is nothing which comes nearer to sovereignty, self-government or what politics is about than control of money. From the beginning of time it has been the attribute of sovereigns that they made or declared money. Their image and superscription was found upon it. That is what made it money. In our day, supremely the subject in politics about which we dispute, debate and vote … is about how the control of money shall he exercised … If there is to he monetary union the decision"— —about how the British state ought to use its moneymaking power— is to be taken away from the British people. It is no longer to be a subject of politics in this country. It is a subject which will be decided by the general and common authorities of a monetary union. Consequently, there is nothing more directly and clearly inimical to the political process in this country than the professed intention to enter into a monetary union".—[Official Report, Commons, cols. 526–527; 10/7/86.] Those were the words of Mr. Enoch Powell speaking almost seven years ago.

I ask the noble Earl who is to reply whether it can be seriously denied that monetary union would result in a massive transfer of power away from the elected House of Commons to an unelected body over which we should have minimal control and influence.

Lord Boardman

I oppose the amendment. I shall try to do so briefly because I believe that much of our discussion is premature. So far there has been no mention of how much the Prime Minister secured in the form of opt-outs with regard to the single currency in the Maastricht Treaty. As my noble friend Lord Rippon said earlier, I believe that the merits and demerits of a single currency will be the subject of much debate over the months and years ahead. I have significant reservations about some aspects of a single currency but I hope that I shall have an opportunity to raise those in the future. I suggest that, today, that issue is irrelevant. We have secured an opt-out. That is a credit to the Prime Minister and one which encourages me to oppose the amendment.

Lord Morris

At this stage I believe that it would be useful if the Minister would respond to some of the highly cogent questions that have been put to him by Members of the Committee. It would aid the debate considerably because those who will speak later can then marshal their speeches in accordance with the Minister's response.

Lord Peston

There are several of us who still wish to speak. I do not mind when the noble Earl speaks so long as it is not assumed that he is to be the last speaker.

Baroness Trumpington

I believe that yesterday there was some confusion in which I was involved. Perhaps I may clarify the matter. Anybody can speak at any time in Committee. The only point is that we must finish an amendment before we break for pleasure of any kind.

The Minister of State, Department of Transport (The Earl of Caithness)

It may be helpful to the Committee if I set out the position. I welcome this opportunity to consider Stage 2 of EMU and the transition to Stage 3.

As we debate this issue, we are only a few months away from 1st January 1994, which the treaty sets as the beginning of Stage 2. In spite of the delays in ratification, not in this country alone, the Community remains committed to beginning Stage 2 on that date.

Before commenting in detail on some of the issues already raised, I should like to remind the Committee of two fundamental points. First, as my noble friend Lord Boardman said—and I emphasise in particular to the noble Lord, Lord Monson—we are not deciding in this Bill whether or not the United Kingdom should participate in a single currency or join the third stage of economic and monetary union. Both the treaty and the Bill provide watertight legal protection for that decision to be taken nearer the time and for Parliament to be fully involved.

Secondly, the principle of economic and monetary union is nothing new. It has been on the Community's agenda since before we joined it. In October 1972 the Government, under my right honourable friend Sir Edward Heath, associated themselves with a resolution of heads of state and government of existing and future member states calling for progressive realisation of economic and monetary union by 1980. While, clearly, the timetable was not followed, the commitment to the principle was picked up in the Single European Act signed by my noble friend Lady Thatcher in 1986. There is also a history of secondary Community legislation going back to the early 1970s building up the present level of economic and monetary co-ordination in the Community.

Some Members of the Committee have quite rightly concentrated on the transition to Stage 3. However, as I have already said, Stage 2 is much more immediate. Under Article 109e, once the treaty is ratified by all member states, it will begin on 1st January next year. Perhaps I may remind the Committee what Stage 2 entails. First, I must make clear that during Stage 2 economic and monetary policy remains firmly in national hands. The obligations to co-ordinate economic policy, contained in particular in Article 3, do not conflict with that principle and Article 3 of the European monetary institute—the EMI—protocol makes absolutely clear that the EMI must carry out its tasks: without prejudice to the responsibility of the competent authorities for the conduct of the monetary policy within the respective Member States". The role of the EMI is consistent with the retention of monetary policy in national hands. That new institution will carry on the work of the present Committee of Central Bank Governors, including its role in strengthening the co-ordination of monetary policies. However, it will only have a consultative role. Governments will be interested in its views but those views will not be binding and can be made public only after a unanimous vote of the EMI's council.

The EMI will also oversee the development of the ecu and make preparations for the establishment of a single central bank and for the conduct of a single monetary policy in the third stage of EMU. The decision will be for the ECB to take when it is established.

I should say to the noble Lord, Lord Eatwell, as regards Stage 2 that of course the Government accept the European Council conclusions. My right honourable friend the Prime Minister signed them. As the noble Lord will realise, there are various articles—for example Article 104a—which call for detailed definitions to be put in place by secondary legislation and that is all that the Council's conclusions are calling for.

The provisions in the treaty concerning capital liberalisation in Stage 2 largely reflect the principles that the Government have long espoused. I hope that those will be widely welcomed throughout the Committee, because this Government have been implementing those proposals since 1979. I believe that the Committee will welcome the fact that everybody in Europe is now following the strong lead that we have given.

In Stage 2 there is also an end to the privileged access of public bodies to financial institutions but as no Member of the Committee has mentioned that, I shall not dwell on it.

I wish to take up a point made by my noble friend Lord Tebbit with regard to the ERM and the question of whether the ratification of Maastricht will require sterling to rejoin the ERM.

As we have repeatedly made clear, the treaty does not contain any such obligation. During Stage 2, and Stage 3 if we stay out, the United Kingdom will retain full competence for monetary policy. Nothing in the treaty takes it away from us. In fact, Article 3.1 of the Protocol contains the statutes of the European Monetary Institute, which expressly recognise that member states retain responsibility for national monetary policy in Stage 2, as I have just described.

If we decide not to participate in Stage 3, the UK protocol expressly states that: The United Kingdom shall retain its powers in the field of monetary policy according to national law". Article 109m merely obliges us to treat our exchange rate policy "as a matter of common interest". But those are almost exactly the same words as in Article 107 of the Treaty of Rome, which for decades has required us to treat exchange rate policy as a matter of common concern.

My noble friend Lord Tebbit referred also to the provision in Article 103 to regard economic policies as a matter of common concern. There again, the provision follows closely a similar "common concern" provision in Article 104 of the Treaty of Rome. Therefore, I repeat to the Committee that there is nothing new here compared with the Treaty of Rome, which, as my noble friend Lord Tebbit will recall, he voted for in 1972.

My noble friend went on to questions about the independence of the Bank of England in Stage 2. Article 108 requires each member state to ensure that at the latest by the date of the establishment of the European system of central banks, its national legislation is compatible with the treaty and the statute of the ESCB. But paragraph 5 of our Protocol makes clear that. Article 108 will not apply to the UK if we choose not to move to Stage 3. Although Article 109e5 requires member states to "start the process" towards independence in Stage 2, that provision is qualified by the words "as appropriate" and "in accordance with Article 108".

Perhaps I may clarify the position. Unless we decide that we want to move to Stage 3, we shall be under no obligation to make the Bank independent. Therefore, we welcome Stage 2 of the economic and monetary union as a means of building on the present co-operation between member states in economic and monetary policy, while leaving the responsibility for setting those policies firmly in national hands.

Stage 2 of EMU is very much a transitional stage for those who wish to progress to a single monetary policy and a single currency. Therefore, perhaps I should say a few words about how the transition to Stage 3 is designed to work. Article 109j of the treaty sets out the well-known convergence conditions relating to low inflation, the avoidance of excessive budget deficits, membership of the ERM and comparable long-term interest rate levels. The criteria are explained further in a protocol to the treaty. But it is important to emphasise that they are not the only factors that the Commission and the EMI will consider when making their report to the Council on the progress towards convergence.

On the basis of those reports, the ECOFIN Council will assess whether each member state fulfils the conditions for a move to Stage 3 and then consider whether a majority of member states do so. ECOFIN will then recommend its findings to the European Council. On the basis of that recommendation, it is the European Council that will decide whether a majority of member states do fulfil the necessary conditions for the adoption of a single currency. It will then be decided whether it is appropriate for the Community to enter into the third stage. If it is so decided, a date will then be set for the beginning of Stage 3.

The treaty makes clear that the first consideration of the reports from the Commission arid the EMI by the Council must be no later than 31st December 1996. If no date for the beginning of Stage 3 has been set by the end of 1997, the treaty provides that the third stage should start on 1st January 1999. At that time, all member states which fulfil the convergence conditions may move to the third stage but no majority is required.

My right honourable friend the Prime Minister has made it clear that he does not believe that the economies of Europe are remotely ready for a single currency and that the idea of a monetary union in 1997—ambitious at Maastricht—is wholly unrealistic. However, others in the Community are increasingly recognising that reality. Therefore, the timing of decisions about moving to Stage 3 is very unclear. I should tell the noble Lord, Lord Harris of High Cross, that it was precisely for those reasons that the United Kingdom negotiated a protocol to the treaty to ensure that, unlike most other states, we would not be compelled to move to Stage 3 if we were held to meet the convergence conditions at the time.

I turn now to the UK protocol. Again. this was a matter raised by my noble friend Lord Tebbit. The protocol explicitly confirms: That the United Kingdom shall not be obliged or committed to move to the third stage or economic and monetary union without a separate decision to do so by its Government and Parliament". We have made it absolutely clear in the Bill now before the Committee that any such decision will be taken by means of a full Act of Parliament. Therefore, if we choose to meet the convergence conditions in Article 109j and to move to Stage 3, the treaty ensures that we can do so on exactly the same conditions as any other member state. I should point out to the noble Lord, Lord Eatwell, that there will be many considerations to be taken into account at the time. No doubt the noble Lord will have questions of his own to ask on the matter. However, I cannot read his mind. Indeed, my noble friend Lord Boardman said only a moment ago that he had various concerns on his mind and questions to ask. But, as he rightly said, they are matters for another day when that Bill, if it is ever presented, comes before this place.

If we choose not to move towards a single currency, the relevant articles in the treaty and in the ESCB protocol which define Stage 3, in particular with reference to the adoption of a single currency, will not apply to us. We shall not be subject to binding limits or sanctions on the size of our budget deficits, the monetary policy of the European Central Bank, the external exchange rate policy for the single currency or the obligations to make our own central bank independent.

In negotiating the treaty, we wanted the option to join a single currency, but we wanted to ensure that the United Kingdom will continue to have a strong influence on the development of monetary policy in the Community. The treaty does just that. We participated fully in the negotiations defining Stage 3, seeking to ensure, as the treaty now does, that the monetary union will he based on firm economic foundations through the fulfilment of the convergence criteria. It sets out sound and practical arrangements for a single monetary policy and a single currency. Similarly, we shall play a full role in the discussions on economic and monetary policy both in the Council and in the EMI.

If we were to fail to ratify Maastricht, we would have absolutely no influence on the development of monetary union among other member states, and Members of the Committee should be under no illusions that those member states will simply abandon their aspirations. On the other hand, I also reject the claim that the United Kingdom will be forced to join a move to Stage 3 if it goes ahead. There could be benefits in a successful move to Stage 3, and hence costs in staying outside, but, equally, there would be costs involved in moving prematurely or unsuccessfully to Stage 3. Britain's ability to stand aside from such a move could confer great benefits on the UK. We therefore remain in the enviable position of being party to the preparations for Stage 3 and able to influence it so that it is established in a sound and sensible way, while retaining our freedom of action.

I shall deal now with the claim that Article 5 of the existing Treaty of Rome and the protocol on the transition to Stage 3 commits the UK to working for Stage 3 Article 5 is a general requirement that member states should assist in the meeting of Community objectives and not frustrate them. Of course, Britain does not sign treaties whose objectives it intends to frustrate. The protocol on the transition makes it clear that no member states will seek to stop the Community from moving to Stage 3; nor would we. Again, that is an answer to a point made by my noble friend Lord Tebbit. I believe that that is perhaps the third or fourth time that I have answered him. I see that my noble friend wishes to intervene. I give way.

Lord Tebbit

I did not ask whether Her Majesty's Government would seek to frustrate the operation of Stage 3; indeed, that thought never came into my mind. The question I asked, and which my noble friend has not yet answered, was whether it is the policy of Her Majesty's Government that we wish to see Stage 3 in operation. Do we, or do we not?

The Earl of Caithness

I have answered that question. It is a matter to be decided at a later date with a full Act of Parliament. I hope that my noble friend will take a full and active part in those discussions.

Lord Tebbit

All my noble friend has to do is to answer either yes or no. It is simply no good trying to escape by talking about the treaty's provisions. Is it the policy of Her Majesty's Government that we should encourage the operation of Stage 3? Are we in favour of a single currency among the other member states? Please, I beg my noble friend to give me the answer, which can only be "yes" or "no".

The Earl of Caithness

We have taken a most active part in producing a treaty which has workable and practical conditions for a Stage 3 of economic and monetary union. The decision as to whether we go to Stage 3 is not a decision that we have to take now; it is a decision for another day. Much will depend on what the position is at that time. We are in the process of going through Stage 1 at present, but we shall have to go through Stage 2. The situation in Europe has changed quite dramatically over the past 18 months. We will need to take account of any developments within Europe before the government of the day, of whichever party, decides whether or not to put forward a proposition.

I should point out to my noble friend that it is possible that we may meet the convergence conditions and the requirements for Stage 3, but that for various reasons pertaining at the time we do not wish to elect to move to Stage 3. That is the advantage of the opt-out. That is the difference between the situation in which we find ourselves and which applies to every other country other than Denmark. If they meet the conditions of Stage 3 under the treaty, they will have to go to Stage 3. We have the benefit, because of the opt-out, of not taking that decision because we have to have an Act of Parliament. We can opt out of it.

The Earl of Onslow

My noble friend Lord Caithness has answered a question which my noble friend Lord Tebbit did not ask. Are Her Majesty's Government in favour of the French, the Belgians, the Germans, the Dutch, the Spaniards, the Portuguese, Uncle Tom Cobbleigh and all having one currency or not? That is the simple question. My noble friend can only answer "yes" or "no".

5.30 p.m.

The Earl of Caithness

I would say with respect to my noble friend that I have answered that question. I hope that my noble friend Lord Onslow will have read the treaty by now and I hope that he will read what I have said about it in the Official Report. I have set out at some length the details of the transitional period and what happens during the transition to Stage 3. There are two different stages at which Stage 3 can start. The first requires a majority of member states, the second does not. That is a decision that will be taken at the time as regards whether they meet the convergence conditions. The matter is up to those countries. What we have secured is the opt out for the benefit of Britain.

I now turn to a point raised by several Members of the Committee, including the noble and learned Lord, Lord Simon of Glaisdale. The question was: can we have economic and monetary union without political union? We do not accept that the form of economic and monetary union prescribed in the treaty requires political union. As regards monetary union, it is perfectly possible for different countries to lock their exchange rates or have a single currency without linking their political systems. I shall give the Committee an example of that. Germany and Austria have for some years had something very close to a common monetary policy while their political systems are clearly distinct.

The economic arrangements in the treaty fall a long way short of full economic union. They do not provide for anything like common fiscal and borrowing policies. It will be for each country to decide what its public spending priorities are and what tax levels it wishes to set, just as they do now. The excessive deficits procedures do not alter that, nor do the provisions for broad economic guidelines which have no legal force. Therefore I put it to the Committee that none of these arrangements remotely resembles a prescription for political union.

I have endeavoured to answer a great many of the points that have been made. I have taken great care to explain what happens in Stage 2 and how the transition to Stage 3 will work. I shall be happy to provide further clarification if that is needed.

Lord Monson

Before the noble Earl sits down—I apologise if he gave an answer that I missed—can he assure the Committee that there is no question of our being forced to rejoin the ERM as a condition of'Stage 2?

The Earl of Caithness

I certainly dealt with that point. Of course there is no requirement during Stage 2 for us to rejoin the ERM. I know that the noble Lord will have read the treaty. If he can find anything in it that commits us to do so, he is a better man than I.

Lord Stoddart of Swindon

Before the noble Earl sits down, there is just one little point that worries and puzzles me. The noble Earl said that we must enter Stage 2 to be able to influence what happens within Stage 2, but that we have a protocol to protect us against going into Stage 3. When Stage 2 is completed, will the Government then use the same argument; namely, that we must go into Stage 3 to be able to influence the events in Stage 3? I should like an answer to that question.

The Earl of Caithness

That will not be a matter just for the Government. It will be a matter for both Houses of Parliament because it would require a full Act of Parliament to implement. I know that the noble Lord, Lord Stoddart of Swindon, will make his views perfectly clear then.

Lord Stoddart of Swindon

That is a significant reply. For Parliament to make a decision is one matter but to have a treaty brought before us which we cannot amend is another thing. That is what we have before us today. Indeed, the noble Lord, Lord Rippon, told us that that is what we have and therefore it was not worth discussing it. If this kind of treaty is brought before us again, Parliament will not have the opportunity to agree to it without, apparently, undermining the Government's position vis-à-vis other countries because such a course would undermine their honour in making treaties.

The Earl of Caithness

I must confess that I did not follow the noble Lord completely. I shall try to put my reply in words that he will understand. There will be an Act of Parliament. It will be for the government of the day to decide, even if we meet the criteria for moving on to Stage 3, whether it is in the interests of the United Kingdom so to do. Even if we meet those criteria, such a move might not be in the interests of the United Kingdom and we do not have to move that way. However, if the government of the day believe that it will be in the United Kingdom's interest, they will bring a Bill before Parliament to be discussed in the usual way.

Lord Bruce of Donington

The noble Earl made some interesting observations on the eflects of the opt out. As I understand it, the opt out is, in the Government's view, a perfectly viable alternative for them to adopt and it would be a deliberate decision that would not of necessity depend on whether or not we met the convergence conditions. When the time came the Government, as a deliberate act of policy, might decide to opt out altogether from that aspect of the treaty.

If I interpreted him correctly, the noble Earl said that the Government would not have considered the opt-out provision unless they were convinced that they could opt out successfully. That seems to me to be a perfectly viable situation. The Government were really telling us that in retaining the option as a constructive and deliberate act of policy, it would not follow that we would take the slow lane; be excluded from the councils of Europe and face all kinds of political catastrophes, either real or imagined, at the hands of the remaining 11 member states.

One could, in fact, not have the treaty at all and one would still not be out of step with everyone. That is an extraordinary situation. The Government are putting forward a deliberate opt out, or exclusion, as being a viable alternative which can in their view be accomplished without all the horrific consequences with which we have been regaled over the past few days.

I would be delighted if at a later stage in the proceedings the noble Lord, Lord Cockfield, with his characteristic modesty, would pass on his expert observations as regards this constructive, deliberate act of policy of opting out. I must refer to the noble Lord, Lord Cockfield, because he let the cat out of the bag completely, as he sometimes does. He told the Committee in the course of his authoritative speech—he never speaks with anything less than absolute assurance and authority—that all Maastricht really amounted to was a continuation of matters that are already contained within the Single European Act. We in this Chamber were not acquainted with that fact at that time by Ministers on the Government Front Benches who were busily assuring us how completely innocuous it was.

The noble Lord, Lord Cockfield, set out the alternatives. He said that if we had not had the Maastricht Treaty we would have needed a whole series of regulations and legislation at European level covering individual unfinished points in the Single European Act. He said that all that we were being presented with in the treaty was a substitute for legislation that could have been passed under the Single European Act piecemeal over a protracted period of time.

I can understand why the other member states therefore wanted the Maastricht Treaty. If regulation after regulation was required in order to achieve the consummation of the Single European Act that would have ensured detailed parliamentary scrutiny, not only in our own country but in the other member states. The individual items required to complete the Single European Act to the satisfaction of the noble Lord, Lord Cockfield, would have been subjected to considerable scrutiny and argument. Wisely the other European states bent upon the creation of a federal Europe decided that they would short circuit the regulations and have all those matters compiled in a treaty which could then be put through all parliaments without very much trouble.

A remarkable feature of the debates, not only in the other place but also in this Chamber, is the impatience of Euro-fanatics to get the matter through without any real discussion.

Noble Lords

Oh!

Lord Bruce of Donington

There are 14 separate aspects of the treaty to be considered and that is in the interests of some people who are impatient of having any treaty at all. Had the Maastricht Treaty been a sack of potatoes with "Maastricht" written on the label the Liberal Party would have voted for it en bloc without any further discussion. No wonder they have not taken a very active part in this particular debate.

Lord Thomson of Monifieth

I am grateful to the noble Lord for allowing me to intervene. Surely the Maastricht Treaty has been before Parliament for rather more than a year since the general election. At the moment we are all listening patiently—and I hope reasonably tolerantly—to 10 days of Second Reading debates on various aspects of that treaty.

Noble Lords

Hear, hear!

Lord Bruce of Donington

I note that the noble Lord also has the support of the noble and learned Lord, Lord Hailsham.

It is not for a simple Back-Bencher to determine the timetable by which the Government put their legislation through either another place or this Chamber. That is all under the control of the Government. The Committee knows quite well why the progress of the Maastricht Treaty through the Houses of Parliament has been delayed. It has been in order to accommodate the convenience of the Prime Minister, upon which—in the interests of unity in some parts of the Chamber—I shall pass no further comment. It is certainly nothing to do with me.

The same point was made by the noble Lord, Lord Ezra. He said that if we wanted the advantages of the single market or if the single market were to come to fruition we had to have price stability. That is another condition. The single market is not even complete yet. It is only 80 per cent. complete. Here new conditions are being imposed on it. That is quite ridiculous.

When I listened to the observations of my young noble friend on the Front Bench on the EMU argument generally and on convergence, for once I found myself, astonishingly, in agreement with my own Front Bench. Of course the conditions of convergence are unsatisfactory. Of course they may be negotiated in the 1996 conference, unless the Belgians take the bull by the horns in the meantime, over the next week or so, and try to force through a further advance under the auspices of the remaining 11 members. One does not know about that.

If my noble friend has reservations about convergence and wants to raise the matter again in 1996, surely he has a perfect opportunity to do so now. Why not amend the Bill now? Why not try to alter the Bill here and now instead of postponing it until 1996, when my noble friend knows perfectly well that we shall all be told that we agreed the whole matter in 1993 and therefore there is no further argument about it?

The frightening aspect of the matter is the way in which assessments are arrived at. My noble friend Lord Desai was kind enough to indicate his agreement with me that we entered the ERM at too high a rate. The Committee will recall that at that time I objected strongly to a rate of 2.95 deutschmarks.

My noble friend seemed to think that everything would depend on Article 104 of the treaty, which lays down the responsibilities of the Commission. I shall not weary the Committee long—

Lord Hailsham of Saint Marylebone

Hear, hear!

Lord Bruce of Donington

The noble and learned Lord will have to hear me a little longer, unless he invokes Standing Order 74. However, I remind him that it is debatable and that he would be more likely to postpone the proceedings rather than curtailing them.

Let us read Article 104c again, or some of it. It is very important. because we are going to act on the basis of Article 104c. We shall be influenced by the judgments which are arrived at under Article 104c. I refer the Committee to what that article says.

Lord Hailsham of Saint Marylebone

Sing it!

Lord Bruce of Donington

Ha, ha. Article 104c states that: Member States shall avoid excessive government deficits". Tut, tut. We do not want any more anti-avoidance procedures, do we?

Paragraph 2 reads: The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the Member States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria: (a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless either the ratio has declined substantially and continuously and reached a level that comes close to the reference value; or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value". Then, Paragraph 3 states: If a Member State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium term economic and budgetary position of the Member State". The Commission is then required to form an opinion.

We are living in a fragile world in which human beings have as the essence of their being all the virtues and vices of being human. That is a truism which I am sure is fully appreciated. Has it ever occurred to anyone on the Government Benches—I do not know about the Liberal Benches but I shall bring them in as well—or to my own Front Bench to form any opinion as to the competence of members of the Commission to make such judgments? Is there any judgment which they are required to make that cannot be made, for example, in your Lordships' House with its variety of wisdom? We have hankers, captains of industry, barristers and other learned professions. What qualities are we vesting the Commission with?

I trust that I do not offend anyone by saying this. It is common knowledge that some—I would not dream of saying all—members of the Commission have gone to the Commission on the basis of rather less than successful political careers in their own country. Some have regarded being a member of the Commission as a demotion, and very justly so. I do not, of course, refer to any commissioners present in the Chamber who, as we put it, are all honourable men. Arc we prepared in a treaty to give a collection of people—they ought not to be entirely unskilled in the political arts, whatever their other defects may be—in a commission composed to some degree of second raters, the power to make judgments that will influence other slovernments and our affairs in this country? We are harking up the wrong tree. We are endowing people with capabilities which we should like them to have and which it may suit our political views to pretend they have. But surely when all is considered we may come to the conclusion, as in one of the Hans Andersen fairy tales, that the emperor really had no clothes.

Lord Desai

I am grateful to my noble friend for referring to my speech. Before he sits down, perhaps he will clarify this. Had he listened with the attention that he normally gives to my speeches, he would have noticed that I drew attention to paragraph 3 of Article 104c. My one purpose in drawing attention to the paragraph was to point out that, in calculating excess deficit, government investment expenditure is taken out. That is not the current practice of the UK Government. If it were so, even the present deficit would not count as excessive under the rules of the Community.

Lord Hailsham of Saint Marylebone

Now give the noble Lord another chance to make another speech.

Lord Bruce of Donington

if the noble and learned Lord would move a little closer to the microphone he would get the intervention down in Hansard tomorrow.

Lord Stoddart of Swindon

The noble and learned Lord has made enough speeches in intervention.

Lord Bruce of Donington

In reply to my noble friend Lord Desai, knowing him well, and knowing his views well, I would sooner trust his interpretation of Article 104 than I would trust the Commission to interpret it.

Lord Tebbit

As ever in these issues, we have had a most interesting afternoon. However, there are one or two matters which, as I see it, might usefully be tidied up at this stage. First, perhaps I may say to the noble Lord, Lord Ezra—

Lord Peston

Perhaps I may intervene. It is the noble Lord's amendment to which we speak. I take it that he is not about to close the debate. He will have a chance to reply.

Lord Tebbit

I was intending broadly to reply although not formally to close the debate because I know the noble Lord wishes to speak after me. Therefore let me give him the assurance that I shall not cut him off.

Lord McIntosh of Haringey

If the noble Lord will forgive my saying so, he introduced his remarks in such a tone as to imply that he is bringing his remarks to a close. It would be better if he made those remarks after other people have spoken.

Lord Tebbit

If it is for the convenience of the Committee, I am happy to listen first to what the noble Lord says and come to my conclusion after that.

Lord Monson

Will the Committee not agree with that? There are 50 more amendments in this grouping which have not yet been spoken to. There is no question of closing the debate.

Lord Peston

One of my difficulties is that I find this material so fascinating that I have no interest in bringing the debate to a close. On the other hand, there is other work we wish to do. That is why I thought it might be helpful to make a few remarks.

Perhaps I may say to the noble Lord, Lord Tebbit. that I very much agree with the way in which he set out our debate today. Perhaps I may refer to what he stated as being the rules of engagement. It seemed to me that he put the right points and asked the right questions. I must also say to the noble Earl, Lord Caithness—I hold him in the highest esteem—that I must be one of the stupid boys in class. I know that he intended to be helpful but he left me more bewildered at the end of his remarks than before he started. I realise that he or another noble Lord on the Front Bench will speak again.

I agree with the noble Lord, Lord Tebbit, that the Maastricht Treaty in this area in particular is a significant step forward. The noble Earl, Lord Caithness, is right: we have talked about monetary union for a long time but we are now at the point of action. That is why the matter is worth going into. All the other material led up to that point. Monetary union may have been referred to but this is the point of action and that is why it is important that we do not brush the issue on one side or say that we have no time for it. I state that from a different standpoint from that of the noble Lord, Lord Tebbit, but I am convinced that monetary union is the important issue.

With reference to the noble Earl's intervention, a straightforward set of positions can be held. There are those who are against economic and monetary union. We have heard from a number of them. The noble Lord, Lord Tebbit, and a number of my noble friends are against economic and monetary union. When asked the question, "What do you think?", they say, "no". I, my noble friend Lord Eatwell, and indeed the party from whose Front Bench I speak, answer the question, "yes". There is no doubt that one group says "no" and another group says "yes". The noble Lord, Lord Tebbit, made the point which has been made several times. My noble friend Lady Blackstone raised the issue at Second Reading; and I have raised it. The simple question is, "Do the Government believe in economic and monetary union—yes or no?". We have had the answer from the noble Lord, Lord Tebbit. The answer from the noble Earl, Lord Caithness, was, "Don't know". That was one of the possible boxes to tick. His answer was, "Don't know": he willmake up his mind one day but at present he does not know.

I reflected on that answer. The reason that he does not know is because the Prime Minister does not know; I do not blame the noble Earl. The previous Prime Minister, the noble Baroness, Lady Thatcher, who now sits with us made it abundantly clear what she thought. It was my lifetime's regret that she never seemed to say anything with which I could agree, but at least I knew with what I was disagreeing. That is her great merit. My problem with the present Prime Minister and therefore the present Government is that they will not tell me what they think. The problem is twofold: do they actually not know; or will they not say? Either way we cannot pursue the matter any further. So far as concerns ticking boxes, the Government ticked the "don't know" box.

In terms of policy that is a difficulty. I am puzzled by the noble Earl's answer. If one reads the relevant part of the treaty, one sees that Stage 2 is of enormous importance. Stage 2 is not a trivial move. Consider what will happen during Stage 2. So far as I understand, we shall take part in Stage 2 in a totally bona fide way. However, Stage 2 involves many policy interventions and movements. That is why I argue that the opt out is not worth the paper it is printed on. If the Community moves forward there would be no possibility that we could ever opt out. I say that in terms to the noble Earl. He may be horrified, but the opt-out is not there so long as the Community decides that it is going ahead.

The noble Earl states that on Stage 2 economic and monetary policy remains firmly in national hands. Economic and monetary policy at the moment is not firmly in national hands. The reason for that is the work of the noble and learned Lord, Lord Howe, when he was Chancellor of the Exchequer. He introduced free movement of capital and the moment that is introduced, monetary policy ceases to be in national hands. We saw a marvellous example of that. The moment that the new Chancellor of the Exchequer took his place, exchange rates started to weaken. He had done nothing but it was thought that he might not be strong about interest rates and the market immediately went into action. The notion that it is the Chancellor of the Exchequer who determines these matters is ridiculous; the free capital market determines them. What is termed economic and monetary policy remaining in our hands is again a charade.

As regards the exchange rate mechanism, the treaty says, "If you wish to go into Stage 3, you must be in the exchange rate mechanism beforehand for two years, within narrow bands". Therefore, either the Government are saying, "We are not going into the ERM", in which case they are announcing that we shall not go into Stage 3—in that case, I say, "Why bother with Stage 2?"—or the Government will, in the end, go into the ERM within narrow bands, etc. That is one of the reasons why I find it difficult to follow what the Government's position is or will be after 1st January.

I repeat that I am not saying that in order to get the noble Earl to agree with his noble friend. I want him to agree with me and to support the treaty in a forthright fashion so that we can go ahead. At least, I should like him to say something positive or negative. I do not wish to undermine it. I have two views: first, I should like to feel that the Government will go ahead; secondly, I have a sneaking suspicion that I do not want to go out on a limb and then find the Government cutting me off because they suddenly turn tail and run out on this.

I do not wish to make a long speech, although there are many economic points which we ought to discuss. I entirely agree with the noble Lord, Lord Monson. I prepared material on every one of the amendments and I shall be perfectly happy if your Lordships insist that we go through them one by one. However, I know that there are difficulties about time.

I wish to make one other point to the noble Lord, Lord Tebbit. I was taken aback with the suggestion that he would not divide the Committee on the amendment. I regard it as disappointing that I shall not have a chance to vote for economic and monetary union, but I do not seek to influence him beyond that. Although some of us have taken clear positions on this, what really matters is that the Government take a clear position.

6 p.m.

Lord Tebbit

I find myself very much in agreement with the noble Lord in all that he said in terms of understanding clearly the difference between us over whether or not we regard economic and monetary union as desirable. I know where he stands, he knows where I stand, but the leading party in the debate—and I shall come back to this in a moment—seems to be unable to tell us where it stands.

I should like to say to the noble Lord, Lord Ezra, that there are considerable difficulties in the way that the debates on the matter are constructed. That may help him to understand why my name is attached to some amendments which superficially would seem to lend my support to policies with which I do not agree.

The amendment Bill before the House is just a tiny sliver of ice, visible above the water. It is towing behind it the enormous iceberg of the treaty. We are not allowed directly to debate the treaty on a Motion or amendment that Clause 103 or some other number stand part. That is not possible. So we have to go through the slightly artificial device of seeking to amend the Bill in a way which would remove a section of the treaty—the section that we wish to discuss. I believe that that may help the noble Lord, Lord Ezra, to understand a little the way in which we are going.

I found the remarks of the noble Lord, Lord Desai, interesting. They had a touch of Second Reading about them and I noticed that he seemed to feel that the problems of the ERM stem from joining at the wrong parity. I understand that, but it is not the problem. The problem is that if we discovered the right parity today, it would inevitably be the wrong parity tomorrow because the economies of the world are not all converging. They do not stay in step, they diverge all over the place. So inevitably, the exchange rates will pull apart. That may have at its root the difference between those who, like myself, feel that the exchange rate is the residual of economic policies and those who believe that it is the driver of economic policies.

In general, those who believe that it is the driver of economic policy want a fixed exchange rate in order to drive the economy the way they want it to go. Those of us who take a more market view of the economy believe that the economic policy should be set for other purposes. At the end of the day, the exchange rate comes out as a residual.

Lord Desai

I am grateful to the noble Lord for giving way. Will he comment on the fact that except for Italy and the UK, most other countries which have joined the ERM have stayed in it and have been able to realign?

Lord Tebbit

Yes, indeed. The noble Lord makes an enormously important point. In its original purpose, the ERM was a system rather like a mini Bretton Woods: a fixed exchange rate but one which could be adjusted periodically in response to the divergence in the economies. However, once it became used as a bridge to the single currency, that flexibility decreased more and more. In the end, as the noble Lord said, those who wished to go into the single currency must, for two years before, exist in a totally fixed exchange rate system of the ERM. Now is not perhaps the time in the evening to go deeply into those matters, but one of the principal causes of the problems of the exchange rate mechanism has been that it is being used for a purpose for which it was not originally designed. However, those are deep matters on which I know many Members of the Committee will wish to reflect at greater length at some other time, possibly when we find ourselves in Stage 2 later.

I also felt that the noble Lord, Lord Desai, neglected the experience of some of the tiger economies of the Pacific where there is no exchange rate mechanism between countries such as Thailand, Indonesia, Hong Kong and the Koreas. Yet somehow or other, there is an effective market and things seem to work well. No doubt it comes as a great surprise to those whose experience is solely in Europe to find that if one buys a toaster in Hong Kong, one can plug it into the wall in Indonesia. There has nor, been a single directive to achieve that, but again it is a wider matter to which we shall no doubt return at some other time.

I found the speech of my noble friend Lord Cockfield as interesting as ever. I found his speeches in the Cabinet in the old days extraordinarily interesting too, particularly on the matter of the European Community and our policies towards it. But his speech was not entirely relevant to the question of government policy which I asked and to which I still fear I have not received an adequate answer. At times. it seems to me that my noble friend Lord Cockfield takes the view that if a lady should declare herself in favour of motherhood, it is a notification of her intent and willingness to become pregnant. I do not think that that is necessarily the way in which we should interpret matters.

I thought that the speech of the noble Lord, Lord Eatwell, was also extremely interesting. There was a moment when I was not sure what the Labour Party policy was; I thought he was saying that the party was in favour of moving towards the single currency purposefully and singlemindedly but never actually getting there. However, the matter has now been cleared up and I acquit him of that equivocation.

The noble Lord also raised the most interesting questions about convergence. He may be surprised to know that I have a good deal of sympathy with what he said. The convergence which is listed in the treaty is what I might call, even more harshly perhaps than he would do, bankers' or economists' convergence. It is not about people's convergence. This adventure into a single currency will not be successful until there is reasonable convergence, not only about debt. inflation or all those "economists"' things, but in the standards of living of the people of Europe. I do not believe that in small villages in Greece they will get up and shout excitedly: "Oh, what a wonderful Community it is. We have now achieved convergence with Germany. Our public sector deficit is within the same range". No, that is not what they are concerned with—any more so than people are, if I may say so, in Chingford. They are concerned with their standards of living. Convergence has to be achieved in that area to make it economically possible to operate with a single currency. The cohesion fund is the substitute for success in convergence.

In this country, in our economic and monetary union, we have sought to contain the divergence in the living standards of those in various parts of our kingdom (our little EMU). We have done so by such means as regional policy, whether or not they have been totally successful. That is the purpose of the cohesion fund too.

My noble friend Lord Harmar-Nicholls made an entertaining speech and indeed came to the point concerning my noble friend Lord Cockfield saying, that he was attacking this problem from the position of the civil servant. I think my noble friend Lord Cockfield had some experience in the tax gathering department at one stage of his life.

The noble Lord, Lord Stoddart, raised, interestingly, the costs of convergence in East and West Germany. But I turn to what was said by the noble and learned Lord, Lord Simon of Glaisdale. He gave some excellent examples of the operation of single currencies without single governments. They are all extinct. There, there may be a lesson for us.

My noble friend Lord Rippon confused me (I do not know whether he was confused) over travellers' cheques and currencies. I am sure that he is aware—although one could have construed that he was not—that a travellers' cheque is not a currency. It is a bill of exchange. He was quite wrong to say that a majority of the House of Commons voted for the treaty on Third Reading. It did not. It was a minority of the House of Commons that voted for the treaty—most notably because on Third Reading the Labour Party did not vote for it.

I come finally to my noble friend Lord Onslow. I find myself in some difficulties. I think that we would all agree that he is one of the most popular, well-liked and indeed, if I may say so, one of the most competent Ministers in this House—

Noble Lords

The noble Earl, Lord Caithness!

6.15 p.m.

Lord Tebbit

I am terribly sorry. My noble friend might be so described, if he ever were made a Minister—but I rather doubt it. He would have given me a direct answer to my questions.

My noble friend Lord Caithness had the great difficulty that he was speaking to a brief. It is a difficulty which I have had in my time. We all understand that. Sometimes the brief is extraordinarily unsatisfactory and one does not like it. But there it is, one has to bear it. I hope that the noble Earl will not feel that my remarks are in any way personal.

However, there is one point which the noble Earl did omit, and it is one which a number of speakers have omitted today. He failed to recollect that this country and Denmark are not the only ones with opt-outs from Stage 3. We are the only ones with opt-outs in the treaty. But the Bundestag, in the process of its consideration of the treaty, put into German law the requirement that there should be a vote before that country goes into Stage 3. It seems that there is a tendency developing in Germany to have some rather liberal interpretations of their rights under the Treaty of Rome, but there it is.

I find it difficult to believe that during Stage 2 all economic and monetary policy remains firmly in our national hands. If it does, there is no point in Articles 104c and 109m. It would appear that they are in effect but making no difference. I believe that one has to look again at the immunities in paragraphs 3 to 9 of the protocol. I refer to the question of moves towards the independence of the Bank of England.

There is no protection in the protocol against the requirement of Article 109e.5 that: During the second stage each Member State shall … start the process leading to the independence of its central bank". There is no protection against that in the protocol until we have given notice that we do not intend to go ahead and enter Stage 3. Until we have given that notification, it seems extraordinarily clear to me that we are duty bound at some stage during Stage 2, if not on 2nd January, to do that —although, as we know the conclusion of the Copenhagen presidency, as the noble Lord, Lord Eatwell, pointed out, is that the Stage 2 provision should be adopted as soon as possible after the entry into force of the treaty, and before January 1994 I have to say that there is no provision there. I do not say that we would have to start on 2nd January, but it is quite clear that at some time before very long, unless we have an indemnity, an immunity from Article 109e.5, we must start our progress towards that end. Again, I do not say whether that is a desirable end or not. That is a subject for another debate. But I fear that my noble friend left us all rather more confused when he had finished than we were when he started.

The Deputy Chairman of Committees (Lord Alport)

Is the noble Lord withdrawing his amendment?

Lord Monson

This is a Committee stage. I am sure that the noble Lord, Lord Tebbit, will wish to indicate to the Committee that he has no intention of dividing on Amendment No. 17, so that those noble Lords who are here mainly for the purposes of going into the Division Lobbies can relax and leave if they so wish. There are some 51 amendments grouped with Amendment No. 17, none of which has been spoken to and a few of which are important and require answers from the noble Earl, Lord Caithness. Perhaps if the noble Lord were to make it clear that he has no intention of dividing on Amendment No. 17, we could fairly briefly discuss one or two of the other amendments which are grouped with it.

Lord Tebbit

I am sorry I was distracted for a moment. Will the noble Lord repeat what he said?

Lord Monson

I suggested to the noble Lord that he might like to indicate to the Committee that he has no intention of dividing on Amendment No. 17 so that we could discuss briefly some of the technical amendments with which it is grouped. If he begs leave to withdraw it now, we shall have no opportunity whatever of doing that.

Lord Tebbit

Indeed, the noble Lord is quite right. It would be for the convenience of many that they could commence their pleasure and leave us to our task. I have no intention of calling a Division on this amendment.

Lord Monson

Perhaps I may explain that we cannot discuss any of the other amendments with which Amendment No. 17 is grouped if this amendment is withdrawn.

The Deputy Chairman of Committees

Is it the Committee's pleasure that this amendment be withdrawn?

Noble Lords

No!

The Deputy Chairman of Committees

The question is that this amendment be agreed to.

On Question, amendment negatived.

Lord Jay moved Amendment No. 18: Page 1, line 9, after ("II") insert ("except the following words in Article 2: "and 3a"").

The noble Lord said: This amendment is grouped with Amendments Nos. 19, 42, 46, 51 and the rest of the amendments on the list. Those amendments come under the heading of Economic Policy and Deficits: Central Banks and National Banking. They lay down a number of dogmatic principles of economic policy. Amendment No. 18 seeks to omit Article 3a and Amendment No. 51 seeks to remove Article 4a. Article 3a commits members of the Community to the statement that the principle of an open market economy with free competition should be the guide to economic policy; and secondly, that it should be based on stable prices, sound public finances and monetary conditions.

There is no mention whatever in the guidelines on economic policy of either employment, output or growth. I speak now within the framework created by the speech of the noble Earl, Lord Caithness, on the previous amendment. The Committee will understand that the system of groupings inevitably means that my remarks will overlap with what has been said before.

I understand that the Government have opted out of the single currency and presumably the "irrevocably fixed exchange rates"—I quote from Article 3a. If I have correctly understood the noble Earl, over and above that. in Stage 2 the Government are committed virtually to nothing except membership of the EMI (European Monetary Institute) and I presume, though I am not absolutely certain, to the European System of Central Banking (ESCB) which is the forerunner of the European Central Bank and is due to come into operation in January 1994. I assume that we shall be members of those two organisations. I take it that we are not committed to joining the European Central Bank at that stage and we are not committed to fixed exchange rates in Stage 2. I also assume, although the noble Earl did not mention it, that we are not committed to handing over our currency reserves to any kind of central bank during that period.

My worry is that all the provisions of the treaty with regard to economic policy are based on what one might call narrow monetarist assumptions and false economic assumptions. Having been put into action, the results are now becoming clear over western Europe. At this stage of the day it might be worth taking our eyes off the maze of papers and having a look at the real world.

When we look at the real world we might remember that we were promised that 1993 would see all the joys of expanding prosperity under the single market. Indeed, there emanated from Brussels—even the noble Lord, Lord Cockfield, will agree that this is correct—the so-called Cecchini Report which predicted that an extra 5 million people would become employed as a result of the paradise of the great single market in 1993. The reality is that unemployment is now increasing rapidly throughout western Europe. It is over 3 million in this country and the total is now very near 20 million in the Community as a whole.

During our short period in the ERM this country suffered a rise of over 1 million in the unemployed. My noble friend Lord Desai, who admitted that our brief 24 months in the ERM was not a very happy experience, said that it was because we joined at the wrong exchange rate. I wholly agree with the noble Lord, Lord Tebbit. The trouble with exchange rates is that the right exchange rate at one point in time will almost certainly be the wrong rate two years hence. Therefore we should ask ourselves why the single market, based on those principles, has produced the present deplorable situation which every day has more unpleasant resemblances to the early 1930s when we were going steadily downhill.

The first mistake at the root of those arguments or false assumptions is the belief that runs through all the documents; namely, that if one reduces barriers to trade and at the same time abandons all control or management of demand, all will be well and prosperity will spread. I am afraid that that is not true. If one indulges, through the exchange rate, the budget and banking policy, in deflationary policies, then free trade may simply spread the unemployment. If there is full employment, free trade will lead to a higher standard of living. If there are deflationary policies, they will spread unemployment. That is what is now happening. At the next stage protectionism begins to raise its head because everyone starts to complain—as they are now doing even in Germany—that it is imports which are causing the unemployment. That is a depressing sign.

Another false assumption which runs through the treaty is what has become in recent times an obsession with inflation. Indeed, there is gross misuse of the word "inflation" which spreads confusion on all sides. Roughly, the assumption is that the value of money should be the sole object of economic policy and that employment and growth do not matter. But if one works on that assumption, one is in difficulty from the beginning.

Perhaps I may be allowed to propound the proposition that it is a simple truth that if pay rates are rising faster than production in the economy, one is in the inescapable dilemma of choosing between either higher unemployment or rising prices; that is to say, there is a choice in those circumstances—the noble Lord, Lord Eatwell, may agree with me—between policies which will lead to unemployment and policies which will lead to higher prices. Therefore, if one pursues as the sole criterion of economic policy the prevention of what is roughly (but in my opinion wrongly) called inflation, one inevitably gets unemployment. That is what is happening at the present time.

It is true also that if one goes to the other extreme and makes full employment one's sole economic policy, before long one will be left with rising price levels. The right balance must be found between those two objectives. Unfortunately, it is an extreme view which has been taken as the basis of all the policies laid down in this part of the treaty.

The other problem is that bankers, naturally and understandably, always give the highest priority to avoiding what they call inflation and imply, more or less, that growth and employment do not matter. I do not blame them for that; they are as worthy or unworthy as the rest of us. But their professional position inevitably leads them to believe that somehow or other, if the price level gets out of hand, they are to blame. Therefore, they will always give priority to hard money, higher interest rates and low inflation; employment must look after itself.

That is particularly true of central bankers who have been allowed to believe that somehow their absence of control has some effect on the economy and therefore they feel guilty when they see price levels rising. That is true, most of all, of German central bankers because they have never overcome their obsession with the 1920s when there really was inflation which got entirely out of hand.

The whole body of guidelines in these sections of the treaty are a specific threat to this country if we are going to be subjected to anything like full control of economic policy decisions by a central bank laying down those principles and with hard and fast rules from which we are not allowed to escape. Exactly where we shall stand in Stage 2, in the twilight between control by the British Government and control by central bankers, I do not know. But it is significant that as soon as we were released from the ERM, as soon as the exchange rate was adjusted last year to a competitive level, within three months the economy turned round. That was not due to some mysterious natural process which people are now beginning to believe in, as they did 50 years ago by which automatically after a recession one has recovery; it turned round because we were released from the ERM and the exchange rate found its level at a reasonable, economic and competitive point.

My quarrel with those sections of the treaty embodied in the amendments under discussion is that if we pursue those principles of economic policy and allow there to be high interest rates and excessively high fixed exchange rates, it will be dangerous for the UK economy. For reasons we cannot discuss at this time, it is a weak economy and there will be a danger of stagnation with high unemployment and a balance of payments deficit.

In all the actions we take between now and Stage 2, it should be an essential policy objective that we do not hand over control of interest and exchange rates to largely unaccountable central bankers, either at home or abroad. I agree with the noble Lord, Lord Peston, that we cannot wholly control all those things in the world as it is now, but we must have some measure of control, either more or less. It is wholly in the interests of the United Kingdom and, above all, the now 3 million unemployed in this country and their families that we keep the greatest extent of control that we possibly can in the hands of a government which at least at present is still accountable to Parliament. I beg to move.

6.30 p.m.

Lord Monson

I want to say a few words in regard to convergence. Convergence is not something which can or should be fostered by state activity—state activity being implicit in the article. Convergence is best fostered by state inactivity; in other words, steering clear of burdensome regulation; interfering as little as possible and allowing hitherto less successful countries and regions to pull themselves up by their own bootstraps.

I should like if I may, and if the noble Earl, Lord Caithness, will agree, to say something in regard to Amendment No. 191. I wanted to do so when speaking to the last amendment but was frustrated from doing so by the fact that unfortunately the Division was called. The noble Earl has no obligation to answer me today. I can raise the matter next week, but as he no doubt already has his brief it may be more convenient for him to reply now. If he does not wish to, I shall fully understand.

Amendment No. 191 refers to Article 109g, relating to the ecu. It reads, The currency composition of the ecu basket shall not be changed. From the start of the third stage, the value of the ecu shall be irrevocably fixed".

Surely history has taught us that attempts to fix currency parities "irrevocably" are doomed to failure.

Lord Elton

I wonder whether the noble Lord can help the Committee. Is he speaking to Amendment No. 191, which I thought was spoken to with Amendment No. 11 yesterday? In which case, its turn comes up when we reach it. Or is he speaking to an amendment that was grouped with those that we disposed of half an hour ago? In that case, again we reach it when we come to it on the Marshalled List. Or is he speaking to something in vacuo? In that case, it has to wait until we have spoken to the group under discussion.

Lord Monson

I beg the pardon of the noble Lord, Lord Elton, and indeed of the noble Earl. One has so many notes and briefings that it is difficult sometimes to follow. I am speaking to Amendment No. 128, which was grouped with Amendment No. 17 and to which I have been trying to speak for some time. As I rightly said, it refers to Article 109g. Amendment No. 128 carries the names of four noble Lords, including that of the noble Lords, Lord Bruce, Lord Vinson and Lord Hamilton of Dalzell, as well as myself. It is therefore thought to be quite an important one. Once again, I apologise to the noble Earl for having got it wrong, though the reference is perfectly correct.

Lord Elton

My objection is not resolved by what the noble Lord said. I understood that his amendment was grouped with one we dealt with some time ago. We are now speaking to a different group. If the noble Lord wishes to speak to it, the natural process is either to obtain a new grouping for it tomorrow or to speak to it when we reach it on the Marshalled List. Otherwise the whole system of grouping falls apart.

Lord Monson

I am not sure whether or not the noble Lord was present a few minutes ago. I tried to speak to it and the noble Lord, Lord Tebbit, paved the way for it to be spoken to. Unfortunately, a Division was called which should not have been called.

Baroness Trumpington

I support what my noble friend Lord Elton said. Technically, it would be better if the noble Lord, Lord Monson, waited for the amendment to be called.

Lord Monson

That is perfectly acceptable to me. I thought it would be easier for the noble Earl to respond now rather than at some unforeseen time next week. The brief is bound to be in his possession at this moment. However, if that is the wish of the noble Earl and the Committee I shall gladly defer to it and say no more.

Lord Peston

I am probably more lost than anybody. This is a large group of amendments that covers a good deal of ground. Am I to understand that none of the noble Lords whose names have been put to the subsequent amendments will speak to any of them? I would like some enlightenment on that, and then I will say what I intend to do.

Lord Hamilton of Dalzell

I will speak to the amendments in my name on the Marshalled List. I put down amendments to abolish or make impossible the development of ilhe European central bank. I found it satisfactory that it was at least in the power of the British Government to opt out of that particular phase of the treaty. In relation to subsequent amendments to which I have put my name, I am much relieved by what my noble friend Lord Caithness has said.

Baroness Trumpington

It would be helpful if my noble friend could indicate the amendments to which he has put his name.

Lord Hamilton of Dalzell

I apologise. I have put my name to Amendments Nos. 111 to 121. They refer collectively to all the articles that set up the European central bank in the ESCB. I was relieved to hear my noble friend say that he felt the opt-out would survive and we would not be forced back into the ERM. My reading of the other parts of the treaty was that we might be. If the European central bank existed, it would impose a fearful tyranny on the people of Europe. If one reflects on what has happened under the single market Act, the whole idea of a single market in Europe and a level playing field has set off in the wrong direction. As witnessed by many of the noble Lords who speak on this subject, the origins of the single market and the direction in which Europe is going are 50 years old. It is debatable whether the originator of the whole thing was Jean Monnet or Albert Speer who put together the coal and steel industry in Germany in order to help the war effort. I believe that that type of market has now reached its "sell-by" date.

I agree with one element of the treaty: the free movement of capital. The Japanese do not make goods in Japan and ship them here. It is sensible to move capital around Europe and set up industries in countries near the place of consumption. If noble Lords have tried to go anywhere in this country during the deepest recession that it has experienced, they will have found it practically impossible to do so. The idea of generating a level playing field in which prices go round and round may not even work, as the noble Lord, Lord Jay, said. I agree that it may not. However, if it did, one would rapidly reach the stage where one would not be able to go anywhere in this country and communications would become completely tied up.

We live in a modern world where money flies into space and goes into a bank at the push of a button. The sensible way to get Europe going is to free its money so that one can open factories in Greece or Southern Italy where labour is cheaper and sell things that people want near the place where they will be consumed. The current philosophy of how to run the vast industrial complex of Europe in my view is doomed to failure. Therefore, if one can see the hack of the central bank it would remove one of the main pillars that keeps Europe driving on like a massive steam engine invented 50 years ago. The allusion of the train is something we always have to put up with. In my view, the train one is trying to catch is pulled by an ancient steam engine whose boilers are about to burst under the electoral pressures exerted on the peoples of those countries who do not like its consequences.

If we pursue the undemocratic nature of the European central bank—that Europe at any rate will have to suffer from—very soon we will see further evidence of the kind that we saw in France in relation to the dismissal of governments. It was said by a French reporter on the wireless at the time of the French elections that nobody wished to take power. It was known that nothing much could be done about their affairs because the country was being run by the Bundesbank. One dismisses one government and then one has another that does no good. In the typical tradition of our European neighbours, before long they will all be on the streets. I believe that Europe is adopting an extremely dangerous philosophy. I hope that when it comes to the point of making a choice we do not adopt it in this country.

6.45 p.m.

Lord Stoddart of Swindon

In supporting this group of amendments, and in particular Amendment No. 19 concerning convergence (about which I spoke earlier), the idea of working towards a high degree of econornic convergence worries me considerably. My responsibility as a Member of this House—and the Government's responsibility—is to ensure the highest possible standard of living and the most secure economy for this country, not 11 other countries. That may sound narrow and nationalistic.

Lord Harris of Greenwich

Yes!

Lord Stoddart of Swindon

I would expect heckling from the Liberal Benches before they had heard what I had to say. The fact is that one cannot export one's views and policies to other countries unless one first has views and policies worth exporting. What concerns me about convergence is that decisions have to be reached among 11 different countries, all with differing kinds of political composition, constitution, background, cultural heritage and attitude to work, the settlement of disputes in industry and collective bargaining. That is a wide range of items of difference. How on earth within a reasonable period of time and without severe difficulties we will embark upon and reach economic convergence under those circumstances I do not know. What worries me is that in seeking to obtain economic convergence we may very well injure our economy. That is the feeling behind many of the amendments. It is not that we do not wish to co-operate. Co-operation is quite different from convergence. One may co-operate over a wide range of issues without having to converge economically or set up a central bank, to which eventually one gives complete power over monetary policy, including interest rates and reserves. One does not have to have convergence to have proper co-operation. It is in co-operation that I prefer to put my trust.

Earlier we debated the issue of exchange rates and whether we should have remained in the ERM, whether we should have gone into it, whether we went into it at the right rate and whether it was necessary to come out of it. All those questions arose because we were trying to converge as ERM was part of convergence. Therefore, almost the first significant part of convergence came apart. That is why I think we should go very carefully indeed when we are talking about economic convergence.

Let us have a look at a common economic policy, a common economic policy which involves being in a new kind of ERM. My noble friends believe that we should he in such a system of fixed exchanges. They believe that that would he good for Europe and that it would help to stave off money speculation across the exchanges. But speculation will not cease. We may very well have a single currency between the 12 but that does not mean to say that currency speculation will not go on. Of course currency speculation will go on. It will go on and at times it will go on in favour of the new European currency but perhaps at times against the new European currency. That is where the danger arises. It may very well be that Europe as a whole—the Europe of the 12 —is not in good odour with the international financial community and that it will speculate against that particular currency. But at the same time the economy of the United Kingdom may he exceptionally good and very acceptable to the international financial community. Therefore we will have the international community speculating against the United Kingdom. because it can do nothing else, even though it believes that the United Kingdom economy is sound and good. That is one of the arguments—I am sure my noble friend will accept that that is one of the arguments—against having a single economy in Europe and indeed a single currency.

I do not want to keep the Committee for very much longer but I want to say a few words about the proposal for a European central bank which will have powers of its own, which will not be subject to this Parliament and which could not he interfered with by the Government. That may be acceptable to many people. I have to say that it is not acceptable to me. I did not join the Labour Party to agree to a country which was going to be run by bankers. I believe that one of the reasons why the Bank of England was nationalised by the Labour Government in. I think, 1949—

Lord Jay

It was 1946.

Lord Stoddart of Swindon

—is that they believed the same. The activities of the Bank of England in the inter-war period had brought about the unemployment which was so unacceptable to the Labour Party and to a Labour Government. I have not changed my mind. I simply do not believe that it would he good for the economy or for the people of this country to have policies decided willy-nilly not by their elected representatives but by unelected central hankers from 12 countries—not from just one country but from 12. Just think of the chaos that that could cause.

I am not in favour of central bankers running the economy. Bankers, whether they he central bankers or ordinary hankers, like Barclays, have not had a very good record in running their own affairs. Look at what they have done over the past few years; look at the huge losses that they have incurred; look at the bad investments that they have made. Are we really to trust the bankers with our economic policy? I think not.

Those are some of the points which worry me about economic and monetary union, and in particular, the establishment of a European central hank outside political control. I hope that the noble Earl will be able to answer some of these questions and discuss the problems and perhaps give me some reassurance that, first, the Government have no intention of re-entering the ERM—we did not get such a reassurance in the previous debate—and, secondly, that they are not in favour of an independent central hank without proper political control.

Lord Aldington

The noble Lord, in supporting these amendments, referred several times in the debate to convergence, which he seems to dislike. I think he dislikes it because he dislikes the whole concept of the Treaty of Rome and the Common Market. The aim of convergence has been there right from the start. It has been considered as an essential to a single market. I simply do not understand how we can prosper or how anyone can prosper in a single market unless jointly together we try to converge our economic policies. That is what we have been trying to do. That is what has been laid down. It was reiterated in the Single European Act and it was in the Treaty of Rome before. It has been there all along. There is nothing new about that in the Maastricht Treaty. That which is new we discussed earlier on with regard to a single currency. We disposed of that altogether because the treaty, as we have it, does not oblige us tonight to decide about a single currency.

What perplexes me is that, as part of an attack upon the Maastricht Treaty, we constantly listen to very attractively stated and articulately pronounced attacks upon the whole concept of Britain being in the Common Market. That cannot be true of my noble friend Lord Tebbit because he has said that he is in favour of that. But what I think some others forget—in the earlier debate the noble Lord, Lord Harris of High Cross, obviously neglected this matter as unimportant—is that the single market is not a free trade area. It is not like the North Atlantic free trade area. It is not like EFTA, which the members wish to disband and wish to turn into the single market with their full membership. If we are to have a single market it has always been necessary to have co-ordination of economic policies. I cannot understand the force of that part of this set of amendments to exclude that from the treaty.

Then we come to the central bank. The provisions of the central bark are covered by and subject to our option. But surely if the option means anything it is desirable that we should be involved in setting up and devising the rules for and the structure of the central hank. So I should have thought that followed from the debate that we have had.

I listened with interest to what my noble friend Lord Hamilton had to say earlier. He was greatly in favour of the free movement of capital throughout Europe. Therefore, he must have been against the large batch of amendments moved by some who are supporting him on this amendment and discussed—or rather did not discuss, but included in the groups of the first amendment this afternoon—proposals to abandon the free movement of capital throughout the Community. There is something very illogical about the arguments which we are having put to us during this debate.

I strongly believe in the treaty, which came from very careful negotiation over very many months—indeed, over a year and a half—and in moving the federalists away from Federalism and the conceptionists into a pragmatic approach. I believe in every word of this treaty as being helpful to Britain.

7 p.m.

Lord Desai

We are dealing here with several amendments. I shall address myself to two batches of those amendments. Amendments Nos. 87 to 118 basically relate to economic and monetary policy. Amendments Nos. 347 to 375 mainly want to modify the provisions concerning the central bank. Since this is Committee stage I shall be fearfully detailed about it this time.

What strikes me as puzzling about the objections to the economic and monetary policy is, as I have said before, that people who do not like the provisions about excess deficits in Article 104 have not read carefully the whole of the article. As I have pointed out, paragraph 3 of Article 104c allows the deduction of government capital formation, and the protocol actually confirms that. Therefore, deficits are not deficits as we have understood them so far in the United Kingdom.

When one considers paragraphs 4 to 14 of that article, it cannot be imagined that there is going to be a strict and fast rule that as soon as one moves away from 3 per cent. to 3.01 per cent., horrible things are going to happen. The article lays down the procedure in which the Commission reports to the Council, the Council takes matters into account and the Government can argue the particular circumstances and what can he taken into account. One has only to read paragraphs 4, 5 and 6 and thereafter. It is not as though there is a hard rule or guillotine with 3 per cent. and nothing else. There is enough in that provision to give the impression that the measure will be interpreted as 3 per cent. over a period or through a cycle rather than for each year concerned.

As regards the central bank. I agree with my noble friend Lord Eatwell who said that basically there are certain things about it that neither he nor I fully like. In the revision of the treaty in 1996 let us address those questions, particularly how much power ECOFIN is going to have vis-à-vis the central bank. There are two matters I wish to point out which are germane to the details of the treaty. The first is in Article 105 paragraph 6. That makes quite clear that: The Council may, acting unanimously on a proposal from the Commission and after consulting the ECB and after receiving the assent of the European Parliament, confer upon the ECB specific tasks". Therefore, it is not that the central bank will never take any orders from the Council. That is not being said. It is quite clearly stated that the Council can do so on advice from the Commission and also after consulting Parliament. That is a very important provision because that provides the one entry for Parliament in influencing the central bank. I hope that that will be viable in future.

Similarly, in the protocol as regards the central bank (page 92 of the document) Article 11 sets out who will appoint the president and members of the executive board of the Council. Again, it would be the heads of state and government. The Council will be appointing the board of directors of the European central bank. So it is not as though having set up an independent central bank all communications between the elected and appointed parts are completely broken off. I would like more accountability, but I am quite happy to go on to the 1996 revision and argue the case and modify the provisions. Once the treaty has been passed I do not consider that it will not be subject to change. The amendments which have been put forward can only be discussed broadly. They exaggerate the adverse aspects of the treaty and underplay the positive aspects of co-operation.

Lord Eatwell

As regards these amendments I wish to present the position of the Labour Party particularly concerning the independent central bank. I also wish to refer to some of the other items raised in the very large number of amendments which we have before us. In introducing the discussion my noble friend Lord Jay argued that creating the single market and a system with free trade and free capital movements was damaging to the pursuit of national economic policies.

I accept that argument. I believe that he is quite right. But then he has to consider the case that he is making to its full extent. I suggest to him that it can be logically argued that if capital movements were prevented—and perhaps also the movement of labour—and trade controls were introduced, then we would regain control of our national economy. But without moving towards that sort of siege economy for which, as I say, there is a coherent case to be made, I suggest to my noble friend that the prospects offered by the creation of the single market and of economic and monetary union are more attractive. That is the real alternative with which we are faced. In between, there exists only the instability and low growth which we have experienced for the past 20 years.

Lord Jay

I do not believe that I made myself altogether clear to my noble friend. I said that in establishing free trade and free movement, if demand is managed successfully at the same time the result will be higher employment and a higher standard of living all round. But if one establishes the free movement of goods and capital and deflates demand, which is what has happened in the past two years, then there will be no advantage and unemployment simply spreads from one country to another. I was not advocating anything like a siege economy, but giving priority to the proper management of demand.

Lord Eatwell

I am grateful to my noble friend. I believe he reinforces the case that I made earlier for the creation of a single currency because, as I argued at that time, the management of a co-ordinated policy to reflate demand throughout the Community—a policy which is desperately needed today—would only be really effective within the context of a single currency.

My noble friend Lord Jay also argued quite reasonably that the details of monetary and economic policy in general, as at present set out within the treaty, are infected with monetarist ideas. We have to accept that those outdated and erroneous doctrines were generally accepted a couple of years ago. However, to use the rather hackneyed expression, they have passed their sell-by date. People are looking at the structure of the Community's institutions through very different theoretical and policy eyes. I suggest that the proposed structures do provide a framework within which the sort of Keynesian policies to which my noble friend referred would provide a greater opportunity of having the effect that we all desire.

I should like to refer the noble Lord, Lord Jay, and other Members of your Lordships' House to Article 2 of the Treaty, which I think has been neglected in our discussion of policy in general. Article 2 states that the objective of this treaty is—and I quote— to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life. and economic and social cohesion and solidarity among Member States. I would submit that those are exactly the objectives which the noble Lord, Lord Jay, suggested in his introduction of these amendments were his goals in the formulation of economic policy. I think that he should take account of the objectives stated in Article 2.

However, I wish to address my remarks primarily this evening to the question of the European central bank and I should like to emphasise, as I did in my earlier intervention, that the Labour Party does not consider the formulations or structures put forward in the treaty at the moment as being perfect by any means. That does not mean that we oppose the treaty: we do not. But we certainly think that there is a case for considerable revision at the proposed intergovernmental conference in 1996.

We regard the idea of an entirely independent central bank as a foolish idea. It is foolish for the following reasons. First, if monetary policy had no effect on any economic variables other than the price level it might be possible to suggest that an institution which is charged with the conduct of monetary policy alone would be a sensible structure. But nobody can believe after the experiences of the last 10 years—the roller-coaster—that the monetary policy to which this Government have subjected the British economy does not affect other variables in the economy. Of course it does. In those circumstances, if monetary policy affects the impact of fiscal policy, if it affects housing and aspects of social policy, it is a nonsense to charge the institution which has the responsibility for conducting monetary policy to look only towards monetary policy and not to take any other elements into account.

Secondly—and this is the general form of the point that I have just made—what we have learned over the past 10 years or so is that monetary policy and fiscal policy are interdependent. They cannot be considered separately. Therefore it is sensible that in deciding upon the structure of policy appropriate to any given country, or in this case to the European Community, at any one time that monetary policy and fiscal policy should be considered together and not treated separately.

In this respect there is an interesting contradiction in the treaty in Article 109. That article provides that responsibility for the exchange rate policy of the Community will be vested in the council. In effect it means it will be the responsibility of ECOFIN, the Committee of Economic and Finance Ministers. This treaty says that the external monetary policy of the Community will be the responsibility of ECOFIN and the internal monetary policy of the Community will he the responsibility of the central bank. This is a nonsense, because external and internal monetary policy cannot be separated. They have to be considered together and so the treaty creates a political responsibility, perhaps unwittingly, for ECOFIN with respect to monetary policy.

I would suggest that in the revision of 1996 we should build on this political responsibility and build the role of ECOFIN into the general political counterpart of the central bank, with the responsibility for joint and coherent decisions with respect to monetary policy and to fiscal policy. This was exactly the proposal which the Labour Party advanced in its discussion papers on the Maastricht Treaty, both before and after the treaty. ECOFIN, as the Committee of Finance Ministers, is the body which could most effectively decide upon in a collaborative manner the co-ordination of fiscal policies throughout the Community and then, in joint operation with the central bank, it could decide upon the appropriate balance of monetary and fiscal policy throughout the Community. I have always been particularly surprised that the Liberal Democrats, the party of Lord Keynes, would accept such a foolish idea as an independent central bank. Surely, if Lord Keynes taught us anything he taught us that monetary and fiscal policy have to be considered together and not separately.

To conclude on this issue of co-operation and co-ordination, I was very surprised that Amendment No. 91 seeks to withdraw Article 103 from the treaty, and particularly Clause 1 of that article. That clause states that member states shall regard their economic policies as a matter for common concern and that they shall co-ordinate them within the Council. I am amazed that, with the high levels of unemployment that we suffer in the European Community today, anyone should propose that the member states should not attempt to co-ordinate their policies, because it is exactly co-ordinated reflation that we so desperately need.

With respect to the position of the Bank of England, we have of course detected in the past few weeks a new form of Conservative Party policy towards the Bank of England. That policy is that any Chancellor of the Exchequer who is sacked will stand up in another place and declare that he is in favour of an independent central bank and that only the Prime Minister with whom he has worked has prevented him from bringing in this necessary reform. This was the case with the noble Lord, Lord Lawson, and it was the case with Mr. Norman Lamont. After Mr. Lamont made his statement a couple of weeks ago, the Prime Minster expressed some interest in an independent Bank of England and said that the only problem he saw was that there had to be a way in which the independent Bank would be accountable to Parliament.

When the Minister replies, could he give us some insight into the Government's thinking on the process of accountability? Are the Government planning to separate the Bank of England from the immediate control of the Treasury, which was embodied in the 1946 nationalisation Act? Are they perhaps going to move to some structure similar to that of the New Zealand Central Bank which simply has to make a report to the New Zealand Parliament every year, and that is defined as "accountability"? What do the Government mean and what did the Prime Minister mean by "accountability" of the Bank of England to the Government and how is that accountability to be related to the pleas which every Chancellor of the Exchequer apparently makes to his Prime Minister to create an independent central bank?

Finally, when the Minister replies could he provide his assessment of the possibility of the European Central Bank being located in London? Would he agree that this possibility, which would have brought enormous advantages to the City of London and to the British economy in general, has been effectively destroyed by the meaningless and empty opt-out clause?

Lord Bruce of Donington

Before my noble friend sits down, he will of course agree that, speaking from that. Dispatch Box, he is speaking not just for the Opposition here but for the Labour Party. Will he give an assurance—

The Earl of Selkirk

I wonder whether I may take up the point—

Noble Lords

Order, order!

Lord Bruce of Donington

Will my noble friend give an assurance that he will not accept the proposition that there should be an independent central bank which is completely independent and accountable to no one? As I have understood it, that has been my party's position so far. If that position is persisted in and the member states of the Community insist that the central bank should be completely independent and not accountable to anyone, will he give an assurance that he and our party will oppose that proposition?

Lord Eatwell

As I pointed out with respect to the interaction of external and internal monetary policy, that is not the position in the treaty. There is a direct role there for ECOFIN in determining the monetary policy pursued by the central bank. In considering the treaty as a whole, and the development of monetary policy within it, it will be clear that the central bank established in Europe must be independent of the political authorities of any one state. It cannot kowtow to the political authorities of any one state. That is why it is necessary to develop a collective political authority to act as a counterpart to the European central bank. That is the role which under the treaty ECOFIN partially plays and could, and should, substantially play. However, my noble friend asked me to say whether I accept the treaty as a whole. That has to be decided upon the balance of advantage and disadvantage with respect to the treaty as a whole, of which we are in favour.

The Earl of Selkirk

I find myself in agreement with much of what the noble Lord, Lord Eatwell, has said. We have discussed mostly politics and economics today, but we cannot win a war with economics or politics. We have come to a period in our history which we should all recognise compares with that of Cromwell. It is a big moment. Things cannot be small. They are big. On those occasions, personality is of tremendous importance. Perhaps I can give the example of the visit to Paris in 1903 or 1904 of Edward VII, when the entente cordiale was set going. Those were steps of considerable and lasting significance.

Perhaps I may go to the other extreme and talk about the treaty agreed in Paris in 1920. Of all the bases upon which Hitler conducted his affairs, nothing was stronger than that treaty. That treaty was brought to the attention of all Germany. It was upon the basis of that treaty that the German people supported Hitler. Many of the problems of the Second World War can be put down, in part, to the clumsiness of the peace negotiated in 1919–20. We bear our responsibility for that, as do the French.

Where do we stand now? We are joining an organisation which sets up many positions of power. It has been claimed that we have had no dictatorship. Most of us recognise that there was and is a dictatorship which to many of us has been extremely unpopular. It is important that those who fulfil their economic duties should fulfil them properly. We have given power to many people. That power can be used violently if it is misused. The EC is big. People who have the top positions have a great deal of power. If they misuse that power, it may bring all sorts of people into conflict. Positions of power should be examined with the utmost care. There must be a realisation that it is not just economics which are at stake: there might be other factors of far greater significance.

The Earl of Caithness

This has been a useful and interesting debate, because it has gone right to the heart of the EMU provisions of the treaty. I am delighted that we have had the time to air the issues so fully. It may help the Committee if I concentrate upon two broad themes in my reply. One is economic policy co-operation. I was going to mention the new excessive deficit procedure, but that has not been mentioned, and so I shall not do so. The second theme will be the European system of central banks, including the European central bank.

Let me start with the point raised about the convergence conditions. The convergence conditions for an eventual move to Stage 3 are set out in Article 109j. Perhaps I may just remind the Committee of those conditions. They are, essentially, low inflation, avoiding an excessive budget deficit, exchange rate stability and comparable long-term interest rate levels. The Government believe firmly that those are the right criteria for the establishment of a single monetary policy and a single currency in a sustainable economic and monetary union.

The noble Lord, Lord Jay, argued that those criteria would be deflationary. We do not share that view. Sound public finances and price stability are the vital preconditions for the development of sustainable growth. In the short term, all member states are committed to reducing inflation to promote growth. Those who argue that the treaty's provisions for economic and monetary union will damage the Community's prospects for growth seem to overlook the fact that the achievement of sustainable and non-inflationary growth is one of the central objectives of the Community, as set out in Article 2 of the Maastricht Treaty.

Let me move on therefore to the European system of central banks, about which most Members of the Committee had something to say. In the previous group of amendments, we discussed the role of the European monetary institute, which is primarily a consultative and advisory body that has been given the task of overseeing the transition to Stage 3. It will be set up in Stage 2 and the statute makes it clear that, during that stage, national authorities remain in control of the conduct of monetary policy. So, whether we choose to participate in Stage 3 or not, in Stage 2 the UK will not cede any authority over monetary policy to Europe. However, the European system of central banks, made up of one European central bank and the national central banks, is different. The ESCB and the ECB will be mandated to conduct monetary policy on behalf of those member states which fulfil the conditions for participation in Stage 3 of the EMU. The only exceptions will be Denmark, which has already decided not to participate, and the United Kingdom, if we decide not to move to Stage 3.

The treaty provides for the independence of those institutions. That arrangement is the best, given the circumstances. I say to my noble friend Lord Hamilton that it would be impractical for a single monetary policy to be operated by the 12 Finance Ministers of the member states with the many other pressures on them. I must stress that those provisions concerning a single monetary policy will apply to the UK only if we participate in Stage 3. The UK protocol provides for continuing UK involvement in the preparations for Stage 3, but does not commit the UK to participation.

The noble Lord, Lord Eatwell, naturally and understandably, raised the question of accountability, a matter which is of concern to him. In negotiations during the drafting of a treaty, the Government pressed hard for adequate accountability to be built into the statutes for the ECB and the ESCB, consistent with ECB independence. The provisions for ex post accountability of the ECB represent the best balance we were able to establish between the demand for accountability and the need for the bank to operate effectively. The procedure for accountability mainly involve ex post scrutiny. The ECB must submit reports to the European Council, the Council of Ministers, the European Parliament and the Commission. The Council can question the ECB president. Furthermore, the president of ECOFIN can put motions to the ECB meetings.

I turn to the fixing of the exchange rates and to a single currency, raised by the noble Lord, Lord Jay. It is an essential feature of Stage 3 that there should be a single monetary policy for those member states participating in it. It follows from this that the exchange rates of participating currencies should be irrevocably fixed. Those countries would be surrendering the right to alter the exchange rates between their currencies, and committing themselves to replace their currencies with a single currency; the ecu.

As I said in respect of the previous group of amendments, we cannot prevent them from doing so and nor can they force us to join them. Above all, the merit of the Maastricht Treaty is that it gives us the right to participate in shaping EMU while leaving wholly open our right to decide whether we should join. So in the amendments which we have discussed and which refer to Stage 3 we were discussing provisions which would apply to the United Kingdom only after a further Act of Parliament. Should we not participate in Stage 3 the United Kingdom would effectively remain in Stage 2.

In that event the situation will be that the governor of the bank will be a member of the general council of the ECB, though not on its governing council, and will participate in all decision-making processes to the degree appropriate to non-participants. I hope that I have made that clear to the noble Lord, Lord Jay. Participation in the ESCB would not be a compromise of our monetary independence. The general council would discuss and co-ordinate policy in much the same way as the Committee of Central Bank Governors does now and the EMI will do in Stage 2, but the competence for the exercise of policy would remain in national hands. In order that there is no scintilla of doubt, perhaps I may point out that that was reaffirmed in the UK Protocol, Article 4, which states that: the UK shall retain its powers in the field of monetary policy according to national law". The noble Lord, Lord Jay, also raised the issue of employment. As he. probably knows already, that was discussed at the European Council on 21st and 22nd June. My right honourable friend the Prime Minister argued that the Community had to keep down the cost of jobs so as to help those without jobs, and that was widely supported. It was recognised that the Community members had to face the problem of the rising cost of social provisions and that in doing so it was essential to protect the elderly and the vulnerable in our countries. It has been agreed that the European Commission will be invited to present for discussion at the European Council in December a White Paper on the medium-term strategy for growth, competitiveness and employment. Member states will be submitting proposals for the White Paper. My right honourable friend the Prime Minister believes that this will enable the Community to build on the European Council's new emphasis on competitiveness. During the next six months we shall be pressing forreforms to increase flexibility in labour markets and so reduce unemployment. Therefore, action is being taken on one of the concerns of the noble Lord, Lord Jay.

I turn to an amendment on which the noble Lord, Lord Stoddart of Swindon, spoke. The point was well made by my noble friend Lord Aldington. The noble Lord, Lord Stoddart, was concerned about convergence and the fact that it might be detrimental to the United Kingdom. He preferred co-operation. As my noble friend Lord Aldington reminded us, there is nothing new about economic policy co-ordination in Europe. We already have a considerable body of Community law covering economic policy coordination both in the existing treaty—I refer Members of the Committee to Articles 102a, 103 and 105—and to the 1990 Council decision on economic convergence. The idea is nothing new. Indeed, Article 102a of the existing treaty refers to: convergence of economic and monetary policies which is necessary for the further development of the Community". The noble Lord, Lord Stoddart, is being entirely consistent. He is not only against the treaty of Maastricht, he is against the Treaty of Rome as amended by the &Ingle European Act—

Lord Stoddart of Swindon

I thank the Minister for giving way. I understand perfectly that we have had convergence in many fields, including agriculture and trade. But has that really brought us the benefits which we were promised as a result of such convergence? Is further convergence likely to bring the same kind of det riments?

The Earl of Caithness

I remember telling the Chamber on Second Reading that when in 1972 I sat on the Cross Benches and listened to the debate I was convinced that the future of Britain lay in being part of the European Community because that would be of benefit to us. Yes, I believe that what has happened in Europe has been to the benefit of this country and that it would be wrong to go in another direction. It would be difficult to quantify that precise benefit. Equally, it is difficult to quantify the disbenefit had we not joined. The noble Lord is entitled to his opinion. The great. majority of those in industry in this country have fell. the enormous benefit as the result of being part of the European Community.

I return to the point that I was making. In Stages 2 and 3 prime responsibility for economic policy remains in national hands. The same is true of monetary policy unless we decide to participate in Stage 3. Unless we notify the Council that we wish to join a single currency no obligation is on us to join the ERM. I am sorry that the noble Lord, Lord Monson. is not in his place—

Noble Lords

He is!

The Earl of Caithness

The noble Lord has moved. I am glad to see him back in the Committee and apologise for not noticing him. Equally, there will be no legally binding budget deficit ceilings, no obligation to participate in the European Central Bank and no obligation to change the status of the Bank of England. The treaty provides for the formalisation and extension of process of multilateral surveillance and national economic policies. That is already part of Community law under the convergence decision unanimously agreed in March 1990. The noble Lord, Lord Stoddart of Swindon, advised the Government to go carefully. We have gone very carefully and that is why we have the benefit of the opt out to take into account all the future possibilities.

I wish to deal quickly with two points that were raised by the noble Lord, Lord Eatwell. He asked how ECOFIN can be responsible for external monetary policy and the ECB for internal monetary policy. I ask the noble Lord to look again carefully at Article 109. He will find that there is not the contradiction which he anticipated. Article 109 clearly and repeatedly emphasises the importance of the Council acting in consultation with the ECB in an endeavour to reach a consensus. The noble Lord inevitably asked me about our assessment of the EMI and the ECB being sited in London. I can assure the Committee that the Government will continue to argue that the UK has a good market case for being the seat of the EMI and the ECB. We do not believe that our opt-out need affect our chances since it is not possible at this stage to be sure that any single country will be in Stage 3 at a particular time.

This has been a helpful and useful debate because it goes to the heart of the EMU. On great consideration I believe that the treaty and the articles within it provide a sensible and practical framework in which Stage 3 can operate. Of course, we have the benefit of choosing whether we want to go to Stage 3 at a later date.

Lord Jay

We have had a rather calmer debate this evening which has generated more light, than heat. Therefore, I thank all those members of the Committee who are responsible for that by speaking and, indeed, listening.

A great deal has been said about convergence and central banks. Perhaps I may add a few words on that. I agree with my noble friend Lord Eatwell that the word "employment" occurs only once in this treaty of 150 or so pages. It appears nowhere in all the other parts of the treaty, which exhort us towards stable prices, exchange rates and so on.

I am also glad that employment was at least talked about at Copenhagen yesterday, although I am afraid that the noble Earl, Lord Caithness, will find that the measures which he detailed, which are apparently to be considered, will have only a negligible effect on the present rise of unemployment in western Europe. However, I agree that that is a matter of opinion.

On convergence, the noble Lord, Lord Aldington, said that surely convergence is desirable. I believe that there is some confusion between convergence of policies and convergence of economies. We are all in favour of convergence of policies provided that they are voluntary and not dictated to us. But convergence of economies is what the treaty and its various criteria require. Convergence of economies seldom happens. Different economies diverge more often than they converge, and they always will. They diverge for all sorts of reasons: differences in skills, changes in pay rates, changes in world demand or the discovery of oil in one's country, which has considerable effects on divergence. The idea that we can somehow converge and stay there permanently is historically largely an illusion.

A great deal has been said about central banks. In considering the possibility of having an independent or, as I should call it, an accountable central bank, people are forgetting that central banks not only take decisions on financial and economic policy but are forced to take part in and make decisions on foreign policy. One could give so many examples. There is the classic case of March 1939 when Hitler invaded Prague. He put in a requisition to the BIS at Basle for £12 million gold which was the property of the Bank of Prague. The BIS held a board meeting which was attended by Mr. Montagu Norman as governor of the Bank of England and it was decided that the gold legally belonged to Hitler. It was physically in Switzerland and it was handed over to him. I am not saying that that was right or wrong, although I have an opinion about that. I simply say that to remind members of the Committee that when the then Foreign Secretary was asked about it in Parliament two days later, he had to admit that he knew nothing about it and had to check with the Bank of England as to what was happening.

Therefore, when we talk about independent central banks, we should remember that in the nature of things they are not concerned wholly with finance. After all, the decision to join the ERM and subsequently to leave it was a question of high policy—employment, external policy and so on.

Indeed, if we look at the record of central banks on economic policy, even the Bank of England is not brilliant. I do not say that to attack central bankers. I say it merely to show that they are human and are fallible like the rest of us. After all, in 1925 the Bank of England took us back, on its own recommendations, to a false value of sterling which as we know caused untold disadvantages and hardships. It was only when, in 1932, it was forced by the then government to lower the bank rate to 2 per cent., which it had no intention of doing, that recovery began in this country.

Even in the post-War era, although the Bank of England had become accountable, it was not brilliantly successful. In 1946 it advised that the American loan would last for several years when in fact it lasted for only a few months. Of course in recent times it pressed for the ERM.

Some people say that the American Federal Reserve banking system is an example of a great success for a largely unaccountable bank. However, it has not been so brilliant. It was largely because the Federal Reserve failed to reduce interest rates for several months in 1929 after the original crash that that collapse turned into the greatest depression to emerge. Therefore, all those matters should be borne in mind when we are deciding whether or not to agree to an independent central bank, either at home or abroad.

Since the amendments are somewhat complicated owing to the grouping system, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Trumpington

I beg to move that the House do now resume. I suggest that the Committee stage begin again at 8.45 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.