Lords Sitting of 12 March 1998

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Southwell.): The LORD CHANCELLOR on the Woolsack.
Lord Dowding—Made the solemn Affirmation.

BSE
Lord Dixon-Smith Lord Dixon-Smith asked Her Majesty's Government:
Under what conditions they consider that the BSE epidemic will be sufficiently diminished for them to revoke the Beef Bones Regulations 1997 (S.I. 1997/2959).
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue): My Lords, as the epidemic declines, we will, with the help of SEAL, continue to review the policies which have been put in place in order to combat BSE in cattle and to protect public health, including the Beef Bones Regulations 1997. But it would be premature to reduce the controls in place at this stage. It would be imprudent to act, or to give any firm commitments to act, on the basis of predictions of the future course of the epidemic.
Lord Dixon-Smith: My Lords, I thank the Minister for a rather depressing reply. There have been reports that the Standing Veterinary Committee advising the European Commission will be recommending a phased end to the beef export ban, based regionally on a period of years without BSE. Can the Minister confirm that that is the situation? Does it not suggest a possible way towards ending what might be called the BSE crisis?
Lord Donoughue: Yes, my Lords, thank you. We are very pleased with this initial progress, the first progress that has been made. The Standing Veterinary Committee has looked at the scientific evidence and is prepared to recommend the Commission's proposal, which would provide for a partial lifting of the ban with particular reference to Northern Ireland because it meets the condition of having computer traceability. I take the opportunity to point out that if we had not had the regulations which banned beef on the bone, our beef would have been technically, however remotely, unsafe and it is unlikely that we would have been able to make such progress.
Lord Walton of Detchant: My Lords, is the Minister aware that as a member of the Southwood Working Party I gave evidence yesterday, with the other members of that working party, before the BSE inquiry? I am quoted in the press this morning as having said that if we had possessed in 1988 and 1989 the scientific knowledge we now have we would then have recommended a complete ban on beef on the bone and
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on the use of brain and spinal cord in the food chain. Does the Minister accept that, in the light of scientific evidence, it is becoming clear that the risk involved in eating beef on the bone is so minuscule that before too long it will be appropriate to allow consumers to make up their own minds as to whether they should eat such beef?
Lord Donoughue: My Lords, I thank the noble Lord and I appreciated what he said at the inquiry yesterday. We hope that we shall reach that position. There was no pleasure in introducing a ban which clearly inconvenienced people. However, as I said, without that ban I am convinced that we would not have made the progress towards lifting the export ban that we have. Following the precautionary principle—which we follow and which, I may say, the previous government followed, although noble Lords may have been misled by statements since that party went into opposition—it would be unwise to take any measures which risk the progress we have made. However, I can assure the noble Lord that when we reach a position where we feel that we can ease some of the control regulations, we certainly shall. In the meantime, our prime concern is to protect public health, to restore confidence in British beef and to make the progress we can towards the full lifting of the ban on our exports.
Lord Soulsby of Swaffham Prior: My Lords, I am sure that the House welcomes what the Minister said about Northern Ireland and the possibility of easing the ban on beef on the bone there. Does the Minister also consider that there are several other parts of the United Kingdom that almost meet the requirements in place for Northern Ireland? Should not some reconsideration of the total ban be undertaken to relieve some areas—for example, in Scotland—where there has been no BSE in many herds for many years?
Lord Donoughue: My Lords, indeed, we wish to see the ban lifted for the entire United Kingdom. The recommendation still has to go through the Agricultural Council, which I shall attend at the beginning of next week. But the ban is not for Northern Ireland. It has conditions which can currently only be met by Northern Ireland; for example, the existence of an adequate computer traceability system. We are pressing ahead as rapidly as possible to get that for the whole of the United Kingdom. We shall have it certainly before the end of this year, we hope by the autumn. Then we believe that we shall be in a position to say that we meet all the requirements. We shall press in the strongest possible terms to get the ban lifted, as it should be, for the whole of the United Kingdom.
Lord Stoddart of Swindon: My Lords, will my noble friend confirm that, when the beef on the bone ban was first instituted, it was done on the basis that there was a risk to health, however minuscule? He has told us today and previously that the reason for the ban was twofold: first, on the basis of health and, secondly, on the basis of getting the beef ban lifted. Can he tell

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me whether, if there had been no prospect of the beef ban being lifted or it had already been lifted, there would have been a ban on beef on the bone?
Lord Donoughue: My Lords, that is a fairly hypothetical question. I would point out that the Chief Medical Officer wrote to the Minister in clear terms saying that on public health grounds there should be a ban on beef on the bone.
Lord Luke: My Lords, the Minister said that the previous government should be blamed for acting too late. I thought that the Phillips inquiry was set up to establish the history of BSE overall. Have the Government already decided that the previous government should be actively blamed for acting too late? Where does that leave the status of the Phillips inquiry?
Lord Donoughue: My Lords, I did not say that the previous government acted too late. I said that they followed the precautionary principles, certainly towards the end, that we have followed. The Phillips inquiry is an independent inquiry and we await its findings with interest.
Lord Dean of Beswick: My Lords, the Minister may have read a recent description of himself in the press by another member of your Lordships' House as a "zealot vegetarian". Will he comment on that and say whether it has any bearing on the decisions in which he takes part?
Lord Donoughue: My Lords, I thank my noble friend. That tacky piece appeared in the Evening Standard.
I should say immediately that I see no reason why a vegetarian, however zealous, should not make objective ministerial decisions. In my case, ironically, on that very day I had eaten the best steak I had had for months.
The piece also described me as dishevelled, which is a matter of opinion. It said I was the lead Minister on beef policy, a matter of fact which is untrue. It also spelt my name incorrectly, which was not bad for 70 words. I should say that it did not suggest that I was a transvestite or a supporter of Arsenal, so I suppose we should be grateful for small mercies.

Church of England: Constitutional Arrangements
3.12 p.m.
Lord Waddington Lord Waddington asked Her Majesty's Government:
Whether they have any plans to introduce legislation to disestablish the Church of England.
The Parliamentary Under-Secretary of State, Home Office (Lord Williams of Mostyn): My Lords, the Government have no plans to introduce legislation
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to disestablish the Church of England. We would not contemplate disestablishment unless the Church wished it, and it has not told us that it does.
Lord Waddington: My Lords, I thank the Minister warmly for his reply, which is entirely to my liking. I can assure him that nothing in what I am about to say in the form of a question implies any disrespect whatever to the right reverend Prelate or indeed to any Member of the Bench of Bishops. However, does it not amount to this? The Church of England is not just a sect which can change its forms of worship at the drop of a hat in the vain hope that a bigger congregation will come in through its doors. It is, in a real sense, trustee for the whole nation of a precious cultural heritage.
Does the Minister agree that those responsible for the Church's forms of worship should not lightly tinker with the language of prayers which millions have learnt in childhood and from which they still find comfort at times of distress and grief? The Church should not substitute the trite, the banal and the ugly for the beautiful. It should not continue to try to force into disuse the Book of Common Prayer, with all its dignity, gracefulness and beauty.
Lord Williams of Mostyn: My Lords. I must declare an interest as a baptised and confirmed member of the Church in Wales and also a lapsed member of the "Band of Hope". We do not have problems of decaying language in the Church in Wales because we still have the great glory of Bishop Morgan's translation of the Bible, to which we stick. It is not for me to express any view about the cultural heritage of the Church of England, save to point out that richness of history, culture, tradition and language are of fundamental importance.
Lord Jenkins of Putney: My Lords, does the Minister appreciate that the noble Lord, Lord Waddington, cannot speak for the whole nation? Not only can he not speak for all Christians who belong to various denominations, as my noble friend pointed out, but he cannot speak for people of different religions or of no religion.
Lord Williams of Mostyn: My Lords, I do not believe that the noble Lord, Lord Waddington, was claiming to speak for all religions. He was saying that culture and tradition are important in the life of any nation. There are many different cultures and traditions in our country, and one of them is the important one that he identified.
The Earl of Lauderdale: My Lords, is the Minister aware that there are many loyal Anglicans who are anxious about the doctrinal and other pretensions of the Synod and who therefore believe that the 1919 Act, which set up the National Assembly and Convocation, should be looked at afresh?
Lord Williams of Mostyn: My Lords, the constitutional arrangements between Church and state as presently existing work with reasonable satisfaction. As

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I originally said, if the Church of England has any proposals to put forward, we shall consider them with the utmost care and scruple.
Lord Dean of Harptree: My Lords, I welcome the original reply of the Minister. However, does he recognise that many of us feel that establishment is a good thing for both the Church and the state and that it should not be tampered with?
Lord Williams of Mostyn: My Lords, I understand that that is a widely held view among many adherents to the Church of England. I made it plain that we do not contemplate any changed arrangements except at the initiative of the Church of England.
The Lord Bishop of Southwell: My Lords, is the Minister aware that the latest test of opinion by the General Synod of the Church of England indicates that a large majority have shown their desire to continue with the establishment? Furthermore, does he accept that the Church is aware that it has no divine right to an established status, but that that depends on the acceptance of the people whom it serves and the sense of value that they place upon it? Is the Minister also aware that in the resolution of the General Synod it rejected the proposal that there should be any changes with regard to the appointment of bishops and also with regard to Parliament's responsibility for approval of the Synod's decisions? Will he therefore confirm the Church's desire to continue to act in a way that is appropriate within the life of the nation?
Lord Williams of Mostyn: My Lords, I was aware of the large majority. I utterly endorse the proposition that an established Church can continue to exist only if it receives a substantial degree of support from the public, which I believe it does. We recognise the peculiar position of the Church. We have done that expressly, as the Lord Chancellor took pains to point out, in the Human Rights Bill where we introduced specific arrangements for legislative change if any were to he sought in the context of Church of England affairs.
Lord Avebury: My Lords, the Minister says that any change in the relationship between Church and state can be undertaken only on the initiative of the Church. Does that extend to the Church's position in your Lordships' House.
Lord Williams of Mostyn: My Lords, I said that we would not contemplate disestablishment until the Church wished it. The Church's position in your Lordships' House is a matter which, as they say, is presently under review.
Lord Pilkington of Oxenford: My Lords, I thank the Minister for avoiding the morass of disestablishment and turn to a more practical level. In any thoughts on the future of the Church will attention be paid to the fact that one-third of Grade I listed buildings in England are in the charge of the Church of England and are largely
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paid for by the Church of England? Any thoughts therefore on the Church's future should give consideration to the national heritage which it sustains.
Lord Williams of Mostyn: My Lords, I do not regard disestablishment as a "morass". The Welsh Church was successfully disestablished in 1914—effectively in 1920 after the First World War—and it is a thriving organisation within the life of Wales. I agree with what the noble Lord said in relation to the Church. The fabric of the Church in the material sense is extremely important, just as the fabric of the Church in the spiritual sense is important in the life of the nation.

Customs and Excise: Euro Transactions
3.19 p.m.
Lord Renton of Mount Harry Lord Renton of Mount Harry asked Her Majesty's Government:
At what date they expect HM Customs and Excise to be able to handle transactions in euros.
Lord McIntosh of Haringey: My Lords, Her Majesty's Customs and Excise will be in a position to receive VAT payments and to handle invoiced amounts for imported goods in euros from 1st January 1999.
Lord Renton of 1Vrount Harry: My Lords, I thank the noble Lord for that Answer, which I find encouraging, particularly on this day of the first ever European conference when 26 European nations are gathered together to discuss key policies of the European Union. Does he agree that the question of the introduction of a single currency—the euro—is by far and away the most difficult decision that has ever faced the European Union since it started? For that reason, when will the Government consider publishing a simple, readable pamphlet, which would set out the pros and cons of joining the single currency and in the process demolish some of the myths?
Lord McIntosh of Haringey: My Lords, I rather think that I agree with the noble Lord in his first suggestion that it is the most important issue that has occurred within the European Community. On his second question, we have published two guides: one on the pros and cons of EMU; a more detailed report by my noble friend Lord Currie; and one on the practical implications for business. We shall be updating those shortly. We have also set up, under my noble friend Lord Simon of Highbury, business advisory groups and standing committees to co-ordinate work in the public and private sectors and to facilitate our readiness for EMU.
Lord Newby: My Lords, in the light of that answer, will the Government reconsider their decision not to apply for funds which might be available from the EU in order to publicise the consequences of the introduction of a single European currency?
Lord McIntosh of Haringey: My Lords, the Government's position on funding is that we have to be

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very careful not to accept funding which would put the case for one side or another where there is disagreement. That is the principle on which we have looked at European funding in this matter.
Lord Stoddart of Swindon: My Lords, is my noble friend aware that I am delighted to hear what he has just said, that there should not be a one-sided argument about this? Under those circumstances, may I have his assurance that if and when we have a referendum on the subject that will certainly be taken into consideration and that the Government will be even-handed and allow those who are opposed to a single currency to have money from public funds equal to the amount which is available to the Government and other organisations?
Lord McIntosh of Haringey: My Lords, I am sure that when that day comes the Government will take into account my noble friend's views. But no decision has been taken on the matter at this time.
Lord Ezra: My Lords, the noble Lord referred to the business committees set up by the noble Lord, Lord Simon of Highbury. Can he assure us that, as part of their remit, they will be paying particular regard to the position of small firms, many of which will be trading with our Community partners?
Lord McIntosh of Haringey: Yes, my Lords.
Lord Randall of St. Budeaux: My Lords, I congratulate the Government on the information services and other support services to which my noble friend referred. However, does he not agree that the key in all of this is to ensure that British business remains competitive with those countries in the euro zone, as Britain will be on the outside of EMU during the initial phase?
Lord McIntosh of Haringey: Yes, my Lords, we are aware that those countries which join EMU on 1st January next year will have a considerable advantage in terms of reduced transactional costs. We shall certainly have to remain competitive in order to counter that. I also recognise that almost half of our total trade in goods and services is with the 11 countries which are likely to join EMU next year.
Lord Mackay of Ardbrecknish: My Lords, reverting to the original Question about tax collecting, can the noble Lord assure me that his noble friend Lord Bruce of Donington will be able to fill in his self-assessment form in euros?
Lord McIntosh of Haringey: My Lords, my noble friend will certainly be able to do that. I do not know
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whether my noble friend or the noble Lord, Lord Mackay, have the advantage I have of a French bank account.
Noble Lords: Oh!
Lord McIntosh of Haringey: My Lords, my latest statement has at the bottom the phrase, "To enable us to get used to the euro, we have presented your solde [final statement] in euros as well as in francs".
Lord Annan: My Lords, I wonder whether the noble Lord, in his reply to the noble Lord, Lord Stoddart of Swindon, did not imply that the Government, when they came to the point, would be entirely neutral? It is one thing to produce papers for the public to introduce them to the pros and cons of the matter. But when it comes to the point, surely the Government will have to come to a decision to recommend or not to recommend.
Lord McIntosh of Haringey: My Lords, the Government have always made it clear that the first stage will be a decision by the Cabinet and by Parliament. Only after that will there be a referendum. Of course the Government will consider it their responsibility to make their position clear to the country. I thought that as far as that was concerned I stone-walled in my answer to my noble friend Lord Stoddart.

China: Human Rights
3.25 p.m.
Lord Moynihan Lord Moynihan asked Her Majesty's Government:
Whether they intend to support the UN Human Rights Committee resolution drawing attention to China's record on human rights.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, European Union Foreign Ministers decided on 23rd February that neither the presidency nor member states should table or co-sponsor a draft resolution on China at this year's Commission on Human Rights. We support that decision and will continue to pursue our human rights concerns through dialogue and co-operation.
Lord Moynihan: My Lords, do the Government understand the amazement and scepticism among human rights campaigners and politicians across the party spectra that next month at the United Nations Commission on Human Rights in Geneva for the first time in nine years, since the censure motion which was introduced in 1989 after the Tiananmen Square massacre, the United Kingdom Government will not support a resolution to draw attention to China's record on human rights, particularly given the Government's much publicised commitment to a so-called ethical

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foreign policy and the importance they have attached to UN resolutions pertaining to Iraq? Why have the Government gone soft on human rights violations?
Baroness Symons of Vernham Dean: My Lords, the Government have not gone soft on human rights violations. I hope that those individuals to whom the noble Lord has referred will not be amazed, as he suggests they are, when they hear the explanation as to why the Government have taken the course of action they have taken. The resolution on China has consistently not only failed to be adopted but has not even been voted on in seven out of the past eight years. The truth is that there has been a consistent failure of the resolution and very little has been done for human rights in China. So what we are trying to do is to secure the same objective—the objective of greater human rights in China—which I accept the noble Lord supports and I hope he accepts that Her Majesty's Government support it too, but through different means: through the resumption of dialogue. Since October 1997 the resumption of dialogue has delivered so much more in the furtherance of human rights in China. It has delivered a signature on the International Covenant on Economic, Social and Cultural Rights; it has delivered an invitation to the UN High Commissioner on Human Rights, Mary Robinson, to visit China; it has delivered an agreement to visit Tibet by the EU troika embassies; and today it has delivered an encouraging statement by the Chinese Foreign Minister about the International Covenant on Civil and Political Rights.
Baroness Williams of Crosby: My Lords, does the noble Baroness agree that dissidents in China continue to be arrested? Does she also agree that China still has a very long way to go to reassure the world about the freedom of comment of the media in that country, not least in the light of events that led to the BBC being closed out of China? Does she recognise that in view of the statements made by the former East Asia editor of The Times, Mr. Jonathan Mirskey, there is bound to be considerable suspicion about the relationship of friendship that exists between The Times newspaper and the government? In the light of that, will she answer two questions? First, has a date been found for the United Nations High Commissioner for Refugees to go to China? Secondly, can she say whether the Government will consistently report back on the steps that China takes in response to the dialogue that she has told us now exists?
Baroness Symons of Vernham Dean: My Lords, of course I agree that there is still a very long way to go on questions of human rights in China. That is why the Government have considered it so important that we find alternative means rather than the ones which have been exhausted in the way that I described in my second answer. The noble Baroness asked specifically about the visit of Mrs. Mary Robinson to China. As yet a date has not been fixed. I hope that it will be fixed very soon. But Her Majesty's Government will also be reporting back, as we have done, on the exchanges with China. There have been eight top-level exchanges in the past
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few months with Chinese officials, senior government officials and Ministers over human rights incidents in China. That will continue.
Lord Marsh: My Lords, will the Minister accept that very many people will be very relieved indeed that the Government have moved away from the ham-fisted and deeply offensive approach of the previous government, together with the previous governor of Hong Kong, which resulted in breaking off relationships effectively with the People's Republic of China, to the considerable disadvantage of the inhabitants of Hong Kong? Will she further accept that many people are grateful that we have moved away from this rather old-fashioned imperial approach to foreign policy?
Baroness Symons of Vernham Dean: My Lords, I thank the noble Lord, Lord Marsh, for his remarks. In the Government's election manifesto we made it clear that we did not believe that human rights were necessarily encouraged by isolating countries, but by proper and open dialogue. That was the position that we freely stated before the election. The noble Lord is quite right. The exchanges of views are what is important, not only as regards Hong Kong but also the many millions of people in China who do not enjoy the human rights that we would wish to see.
Lord Moynihan: My Lords, if the Minister and the noble Lord, Lord Marsh, are correct, why has the human rights campaigner Wei Jingsheng praised the United Kingdom for its vociferous stand on the issue of human rights in China until this year? Why has he criticised the Foreign Secretary as a coward whose soft pedalling on human rights violations in China for the sake of commercial contracts he described as a large and wrong-headed gamble and whose ethical policy he described as no more than a political slogan?
Baroness Symons of Vernham Dean: My Lords, those remarks do not reflect the tenor or the substance of the meeting that took place between Mr. Wei and the Foreign Secretary yesterday morning. The facts of that meeting are that Mr. Wei recognised that the United Kingdom had a strong record on human rights in China. He thanked my right honourable friend for the efforts that have been made by Her Majesty's Government and in particular as regards his own release. I believe that that stands for itself.

Business of the House: Consolidated Fund (No. 2) Bill
The Lord Privy Seal (Lord Richard): My Lords, I beg to move the Motion standing in my name on the Order Paper.

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Moved, That Standing Order 44 (No two stages of a Bill to be taken on one day) be dispensed with to enable the Consolidated Fund (No. 2) Bill to be taken through its remaining stages on Monday, 16th March.—(Lord Richard.)
On Question. Motion agreed to.

European Communities (Amendment) Bill
3.32 p.m.
Baroness Symons of Vernham Dean: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Baroness Symons of Vernham Dean.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 1 [Meaning of "the Treaties" and "the Community Treaties"]:
Lord Moynihan Lord Moynihan moved Amendment No. 1:
Page 1, line 12, at end insert ("(but, for the avoidance of doubt. not Article 1)").
The noble Lord said: We have seen a remarkable sight. At Second Reading a Whip did a Minister's job and today the Minister has been doing the Whip's job. As we begin our detailed consideration of the Treaty of Amsterdam, I should like to take this opportunity to welcome the noble Baroness, Lady Symons, to the Dispatch Box today. Following the misunderstanding which in part led to her absence at Second Reading, I am very pleased that she is able to be here today on what we on the Opposition Benches are aware is a very busy time for Foreign Office Ministers. I am also very pleased that the noble Lords, Lord Whitty and Lord McIntosh, are here today to complete the Bill's ministerial troika. On behalf of the Government they will be responsible for answering all the questions we put to them on the effects of the treaty's provisions; the implications of the transfer of powers for which it provides; and for justifying the action that the Government took on behalf of the people of Britain in Amsterdam last June.
On that note, I am delighted that, following the great praise rightly heaped on the noble Lord, Lord Whitty, at Second Reading, the Government have recognised his exceptional talent, abilities and European expertise and rewarded him with promotion to ministerial rank. I quote from a Foreign Office memorandum which I have with me today. It describes the noble Lord as the Minister,
"with special responsibility for the UK presidency of the European Union".
Perhaps I may be the first, on behalf of the Opposition, to congratulate him on his promotion, and to express the sincere hope that he will receive a salary commensurate with his responsibility as well as a fully complemented
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private office, appropriately furnished, and a ministerial car. I assure him that, following our successful advocacy on his behalf at Second Reading, the Opposition will do all it can during Committee stage to persuade the Government that this is no less than he fully deserves.
The purpose of the wide-ranging amendment tabled in my name and those of my noble friends, which we are considering today, is primarily to elicit from the Government an outline plan of how they intend to manage the Committee stage of this Bill. As the Committee is well aware, the Treaty of Amsterdam has important constitutional implications. I should like the assurance of the Minister in particular that since a guillotine Motion was introduced in another place after just 12 hours in Committee, allowing only a further 12 hours of debate for the remaining stages, there will be ample time allotted in this House to enable us to discharge our duty in full to the British people by examining the vital issues of constitutional importance contained within the treaty, including those which affect the powers and sovereignty of our national Parliament, qualified majority voting, the co-decision procedure and the new powers to the president of the Commission.
Some of the most important aspects of the Treaty of Amsterdam are dealt with in the amendment which I have tabled and which we are considering now. The Committee will be aware that not all parts of the Treaty of Amsterdam are amendments to the European Communities Act. Those parts which do not need to be incorporated into our legal system can be agreed by the Government without the approval of this House or another place. Treaty articles which are held to be intergovernmental in structure come into that category. But it is those very provisions, nominally intergovernmental, contained within Article 1 of the Treaty which would have a significant impact both on the sovereignty of this House and another place and on Britain's role in the European Community.
From these Benches we are aware that although this House cannot override the Government's right to use the Crown's treaty-making prerogative, the amendments tabled in my name nevertheless make it clear that the Opposition does not accept the principles set out in Article 1.
Three main aspects of this article give rise to serious concern on these Benches. First, there are moves towards further integration in the area of foreign policy and defence which need to be fully explored; secondly, the role and powers of the European Court of Justice; and, thirdly, the measures on human rights.
In consideration of this first amendment, I do not anticipate developing my arguments in detail, but simply to highlight those areas of concern. I should like to assure my colleagues that I have tabled a further series of amendments on all the critical issues. There will be ample opportunity to enter into substantive debate during our consideration of the Bill at a later stage. There is a wide-ranging opportunity to debate these issues now; but, as I have mentioned, I have sought to ensure that we shall look into the details in subsequent amendments, which will allow equal opportunity to the Committee to cover these issues in detail.
I should like to look briefly at the structure of the treaty, which is divided into supra-national and intergovernmental sections. It is that division and the distinction between the two which limits the extent to which this House and another place have any real say over certain parts of the treaty. At Maastricht, the division of the treaty into three pillars was intended to ensure that co-operation between governments both inside and outside the institutions would be the central feature of Europe's future development. That structure enabled matters relating to a common foreign and security policy in the second pillar and those relating to justice and home affairs in the third pillar to be settled by national governments co-operating on an intergovernmental level outside the formal decision-making process of the European Community; namely, the first pillar.
In our view, the pillared approach was one of the best features of the Maastricht negotiations. It is our firm belief that the most sensible way to proceed on foreign affairs, security, and home affairs is on the basis of intergovernmental co-operation, not through the use of the institutions of the European Union. Previous governments strongly supported the development of a common foreign and security policy but, critically, a CFSP built on closer intergovernmental co-operation. I intend to return to this theme at a later date. The pillared approach is worth defending and I should like the Minister's assurance that that is the Government's view.
The Amsterdam Treaty undermines the pillared structure. Article K.7, for example, explicitly involves the European Court of Justice in the home affairs pillar by giving it a degree of jurisdiction therein. That encroaches on the intergovernmental structure agreed at Maastricht whereby the question of the jurisdiction of the ECJ was to be left open. That encroachment may be marginal, but nevertheless the fear is that it represents the thin end of the wedge. We seek the Minister's assurance that the Government are cautious about the implications of this extension of the role and powers of the ECJ and that they will oppose any attempt to extend its jurisdiction further into other pillared areas.
I have outlined briefly some of the good reasons and justifications for opposing Article 1. This treaty brings in the social chapter. It reflects the total failure of the Government to advance the argument for the reform of the European Court of Justice. It threatens to undermine one of the prizes of Maastricht, the pillared approach. It commits us to the progressive framing of a common defence policy. It threatens to lead us away from a true common foreign policy agreed by all towards a common foreign policy agreed by most. It begs the question: is this really the best deal that the Government could get for Britain or was a good deal given up?
As I said earlier, I look forward to a substantive debate on these issues. I repeat that that is the reason we tabled separate and specific amendments which we did not couple with this initial amendment. I look forward also to the Minister's response to the questions and concerns that I have outlined. I beg to move.
3.45 p.m.
Baroness Williams of Crosby: It may be for the assistance of the Committee if I set out equally concisely and briefly the position of the Liberal Democrat Benches on the treaty. I hope that I shall not need to repeat later the general arguments that I shall advance now when we come to outline our position on many of the issues raised in the Bill.
The Amsterdam Treaty is a modest treaty. It is not regarded by the Liberal Democrat Benches as wholly satisfactory because it did not deal with the question of institutional change or with many of the implications of enlargement. Nevertheless, it contains some useful advances, to which I shall return. Before doing so, it is important to make it plain that the Amsterdam negotiations took place over the period of a general election and at the time when Her Majesty's Government changed from being a Conservative Government to a Labour Government. That change is reflected in the Amsterdam Treaty. Several clauses were brought forward at a very late date—literally within the last few weeks of the negotiations—because the Government had changed. We owe to the change of government the changed attitude, as reflected in amendments and changed clauses, to the social protocol, to the employment chapter and to the provisions on non-discrimination on grounds of race and religion. I express the gratitude of these Benches to the Government for their efforts during the closing weeks of those very long negotiations.
The difficulty was that the Conservative Government did not know what they wanted to do about Europe. Even today, it is plain that the Conservative Party does not know what it wants to do. It is a deeply divided party on these issues. We on the Liberal Democrat Benches believe that the concept of Europe that needs to be the basis of our discussions on this treaty, and on treaties yet to come, must recognise the extraordinarily radically changed world in which we live.
First, the European Union is here to stay. Whether or not the United Kingdom remains within it—I trust that it will and I believe that under the leadership of the present Government it certainly will—it is clear that the European Union will go on. Indeed, with no fewer than 11 nations queuing up to join, it is also plain that the European Union is seen throughout the whole continent as the anchor for stability and prosperity not only in Europe, but also for an area spreading into Asia, the Maghreb and elsewhere. It has become one of the crucial pillars of law and order in the world.
However, that does not mean that the European Union is faultless and that it should not be criticised. It means that today, along with the United States and, I hope, once again a reformed Russia and some day China and India, we share responsibility for universal law and order. That is a major responsibility—and Europe must begin to bear it.
Secondly, we live in a globalised world, which has changed out of all recognition. Only a few days ago, the World Bank and the International Monetary Fund recognised that no individual state can easily withstand the sheer weight of the capital that moves across the

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world, often at very short notice, which can swamp governments within literally a matter of weeks, as countries such as Indonesia, Malaysia, Thailand and others have, sadly, recently discovered. Europe provides us with a base within which we can help to influence that global economy and without which we would have very little opportunity to do so.
Thirdly, within that global economy, there is a responsibility on this country and on the European Union to uphold the basic principles of human rights, individual liberty and the rule of law. I believe that that is an important part of the acquis to which Britain has made a major and valuable contribution. I believe that that contribution could be much extended and expanded in future years by a British Government willing to co-operate with Europe rather than spend their time opposing it or trying to belittle what it has achieved.
We must also consider the nature of the changing special relationship between the United Kingdom and the United States. That special relationship continues on a cultural, personal and linguistic basis, but anybody who imagines that the United States regards the United Kingdom on its own (as distinct from the United Kingdom in Europe) as a suitable partner with which to work is living in the world of the past. As many have said, including Presidents Clinton and Bush, Dr. Kissinger and others, the crucial nature of the relationship with the United States today is anchored on the relationship between the whole of the European Union on the one side and North America on the other.
In that context, I do not agree with what the noble Lord, Lord Moynihan, said about a common foreign and security policy. In a week in which we have looked at the crisis in Kosovo, which is essentially a European crisis, and in the week after the week in which we looked at the crisis in Iraq, which is essentially a crisis with which Europe's prosperity is bound up in every possible way, it seems strange that we should still be saying that a common foreign and security policy is out of the question. We on these Benches welcome the steps that the Government have recently taken with regard to Kosovo to try to create a common position on the part of the European Union. I believe that that has been important in terms of sending a warning shot across the bows of Mr. Milosevic.
Finally, there are two areas in which I believe that the European Union has an indispensable task to carry out. The first relates to the United Nations. It is fragile, faulty and fallible but it is the only international institution that represents the whole world. Its agencies perform remarkable duties and have achieved remarkable results. We know that the US Congress is extremely reluctant to pay the subscriptions that it owes to the United Nations. If the United Nations is to survive and flourish in the next few years, it must depend upon the support of the European Union.
In that context the Amsterdam Treaty has certain remarkable achievements to its credit. At its heart is a commitment to human rights. Surely, that is something that many of us should welcome. At its heart for the first time—it is a great step forward—is a new article, Article F and, with it, Article F.1, which enables the
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European Union to hold its member states to a commitment to human rights and civil liberties. That is a radical step forward and one that I believe every Member of this House supports.
The treaty has also introduced a new employment chapter. That does not go very far because essentially employment is a national responsibility, but it still enables us to exchange good practice and share experiences one with another. Importantly, it introduces a prohibition on discrimination on the grounds of religion and race. That is something which surely every Member of this House who cares about democracy welcomes. It also includes for the first time in the body of the treaty the social protocol which represents the belief that the economy and the free market should be balanced by the consideration of solidarity, the care by one person of another and family-friendly policies in the workplace.
I shall not detain the Committee any longer. I believe that the Amsterdam Treaty is a modest step towards the achievement of some of these goals. It is high time that those of us who believe in those goals should express our conviction and commitment that the European Union will bring them closer.
Lord Monkswell: I had not intended to intervene in this debate but I am driven to my feet by the contributions of both Front Bench speakers opposite. I may not have heard the noble Lord, Lord Moynihan, correctly, but I thought I heard him say that not all the amendments of the official Opposition were yet on the Marshalled List and that further amendments would be tabled at a later stage of the Bill. Is the noble Lord speaking about a further Committee day? Is he telling the Committee that the official Opposition intends to table further amendments to be considered at a later stage in Committee or that it intends to table amendments at Report stage? Before he responds and while I am on my feet, I point out that this is the Committee stage of the Bill. I hope that we shall not have to sit through Second Reading speeches, as we have just heard from the Liberal Democrat Benches. I hope that the normal procedures of the House will obtain in future.
Lord Moynihan: Perhaps I may assist the Committee on the extremely important point just raised by the noble Lord, Lord Monkswell. The issue before the Committee at the moment relates to Article 1 which is widely embracing. Before Committee stage a number of your Lordships were concerned that specific separate amendments were required to give full and detailed coverage of those points that had to be gone through in considerable detail, and that just to have a broad amendment, as in another place, might not give noble Lords time to go in sufficient depth into the specific areas covered by Article 1.
For that reason, your Lordships will see that there is a range of amendments, not least Amendments Nos. 6 to 9, that breaks down the issues covered by Article 1. In another place those matters were coupled, but in this House it was felt wise to have a number of opening statements, in the form of a short debate under

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Amendment No. 1, from the Front Benches, particularly the Opposition, in order to elicit from the Government how they intend to handle the Committee stage. I can assure the noble Lord that there will be plenty of opportunity for detailed consideration of all the key issues covered by Article 1. Amendments have been tabled to cover those matters.
I also assure the noble Lord that on future Committee days it is likely that the Opposition will be tabling further amendments, but they will not have direct relevance to Article 1. They will relate to the future stages of the consideration of this Bill which it is not intended to cover today. As noble Lords will have seen, the principal debate today is likely to be on European and monetary union. That is to be covered by the next group of amendments. I hope that that assists the noble Lord in explaining that we have covered the points that he has rightly drawn to our attention.
Lord Monkswell: I thank the noble Lord for that clarification. To be sure, is he talking about future Committee days as opposed to the Report stage of the Bill?
Lord Moynihan: Correct.
Lord Monson: The noble Lord, Lord Moynihan, reminds us that the Amsterdam Treaty permits the European Court of Justice to extend its powers into aspects of home affairs from which it has hitherto been excluded. He went on to say that it was only a marginal encroachment. Marginal encroachment it may be, but, as we have seen so often before, once the ECJ gets even its little toe in the door leading to an area from which it has previously been excluded that door is inexorably pushed further and further open.
Baroness Symons of Vernham Dean: I thank the noble Lord, Lord Moynihan, and the noble Baroness, Lady Williams of Crosby, for the spirit in which they have approached the Committee stage of the Bill. I should say at the outset that the Government cannot accept the amendment moved by the noble Lord, Lord Moynihan, which would have the effect of excluding from the European Communities Act 1972 all of the provisions of Article 1 of the Amsterdam Treaty. Since some of those provisions give rise to Community rights and obligations, if passed the amendment could prevent us from ratifying the treaty.
I am glad to say, however, that I agree with much of what the noble Lord has said about the handling of the Bill in the House. Although I do not intend now to delve into the detail of the treaty, any more than the noble Lord did in moving his amendment, I believe that noble Lords will have ample opportunity to do so during Committee stage, and that is as it should be. I am glad that we have a substantial amount of time already set aside for our detailed examination of the treaty. A full three days have already been allocated. It is right that the Chamber should use the outstanding experience and expertise on European issues which many noble Lords on all sides will bring to bear on our debates.
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As for the Government, my noble friends Lord Whitty and Lord McIntosh and I will each lead on different parts of the Committee stage. We look forward to a vigorous and illuminating debate.
Before the election in May the Labour Party set out in a number of different documents its approach to European issues. I am confident that we shall see the commitments made in those documents, and those made when in opposition, fulfilled in the terms of the treaty. The fact that at Amsterdam we fulfilled the goals that we set ourselves was reflected in the overwhelming support which the Bill received in another place.
The Amsterdam Treaty is by no means as far-reaching as the Single European Act or the Maastricht Treaty; but it contains many useful improvements of the kind that we set out in our pre-election manifesto as the Government's ambitions. The treaty also fulfilled a different function. It was the essential precursor to the start of our enlargement process. If we had not reached agreement at Amsterdam enlargement would not have had the flying start that we have been able to give it during the British presidency.
Therefore, this is a useful treaty which touches on the real concerns of ordinary people in areas like employment, environment and the fight against crime. It is a treaty which consolidates past agreements rather than redefines the structure of the Union. We shall be able to consider all these points and more in the debates which I am sure many noble Lords will enjoy in the coming days.
In May, the Labour Government were given a popular mandate to make a break with the previous administration's handling of European Union issues and to follow an agenda along the lines that we have described. In the Amsterdam treaty, in the November job summit and in their position on economic and monetary union, and now in their handling of the presidency, the Government have shown that they can do business in Europe in a co-operative way which enhances the UK's ability to influence the way in which the Union develops. That is good for Britain and it is good for Europe. This is a treaty entirely consistent with that policy. I commend it to the Committee.
4 p.m.
Lord Stoddart of Swindon: I appreciate what the position is, and that there have been some declarations from each of the Front Benches. I do not intend to speak for long on this issue. There is considerable disagreement in some parts of the Committee, particularly with some of the remarks that have been made this afternoon. I hope sincerely that we shall have detailed and long discussions about the matters involved.
I want to emphasise the fact that in another place the treaty was given scant regard. Indeed, it was treated as if it were not a 3,000-mile service but a 1,000-mile service, and that is just not good enough when we are talking about the ratchet effect of further European integration which is included in the Amsterdam treaty.
The people of this country deserve proper discussion of these important matters; for example, last night there was a debate on BBC2 about further enlargement. Our

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Foreign Secretary, Robin Cook, said that the issue of defence was not covered in any way in this treaty; but a woman, I think from the Institute of International Affairs, disagreed with that. She disagreed as to whether matters of defence were included in the treaty. We have to examine who is right. Is it the Foreign Secretary or is it the expert from the Institute of International Affairs? There are testing things that we must examine.
For example, I am confused—I hope that we can get my confusion levelled out—about the position of the WEU. It seems that there was a statement about the WEU and what its position would be, but that statement was made in advance of the treaty being signed. As far as I can see, it was made after the IGC in June. So we do not know exactly what is the position of the WEU within the treaty and what indeed it seeks to do. What is certain is that in J(1), for example, all reference to member states is removed. It is the Union, not in conjunction with the member states, which will be defining and implementing a common foreign and security policy. Article J(7) appears to give the WEU an operational role and co-operation in the field of armaments, and may indeed give it an armaments procurement role within the treaty. Those are some of the matters that we shall want to examine.
I heard my noble friend the Minister mention three days in Committee. I sincerely hope that that was a slip of the tongue, because I do not believe that we can examine all the matters that need to be examined in this important treaty in as short a period as three days. I hope that she will be able to tell me that a great deal more time than that will be available.
Lord Moynihan: I endorse the points that have just been made. I believe that I heard the Minister correctly when she said that three days had already been "allocated". I should have been equally concerned if she had merely mentioned that three days were all that we were going to have in Committee. The thrust of what noble Lords have said on the amendment underlines something which is of great concern to me; that is, not least because of the application of the Guillotine in another place, we need a great deal of time to examine in a forensic manner each and every detail that concerns Members of this place in a wide-ranging treaty.
This is no measure that should be treated lightly by this place, nor is it a measure that can be dealt with in one, two or three days. I anticipate that considerably more time will be required in Committee. That is a matter for your Lordships and for the interest shown in the debate. I already know—I hope from the nodding opposite me that I have confirmation from the Government Front Bench—that more than three days are already anticipated for the Committee's consideration of the Bill. It is essential that they are.
In response to the noble Baroness, Lady Williams of Crosby, I say that I hope that by the end of the Committee proceedings she will have a clearer view of the Opposition's vision for Europe; what our agenda for Europe would be; what our concerns are; and that that agenda will be a constructive one. Equally, she will be aware that we shall be looking in detail at many aspects
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of the Bill: the uncompetitive nature of a number of the provisions; not least our view on the social chapter; the effects of more QMV; the greater power being given to the European Parliament; the important issues on defence that are raised in the Bill; the common foreign and security policy implications; and enlargement. They are of vital importance.
I believe that there is widespread agreement in this place about the benefits of enlargement. There should also be widespread concern that the institutional reforms which are necessary and a prerequisite for enlargement have not been put in place as a priority. Without those reforms, many of the aspirations of those who seek enlargement will lie fallow.
I listen carefully to the Minister's arguments. I repeat once more, for the benefit of the noble Lord, Lord Monkswell, and others, that all the critical issues will be debated in full. I give him and the Committee an undertaking that while I am at this Dispatch Box, we shall be pushing all the time for every detail and every explanation that we require to ensure that the Bill is properly analysed and effectively scrutinised by your Lordships. There will be no shortage of opportunity today when we reach the EMU implications of the Bill, and possibly later today when we reach flexibility—although I anticipate that there will be a great many contributions on EMU—and in future days in Committee, for a full examination of the Bill's contents. Having listened carefully to the Minister, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Shore of Stepneymoved Amendment No. 2:
Page 1, line 12, at end insert—
("() Article 1, other than the provisions of paragraph 5 (objectives of the Union) relating to economic and monetary union and the establishment of a single currency,").
The noble Lord said: As the Committee will readily recognise, the amendments that I have tabled in this group concentrate upon EMU and the single currency. The clauses in the Amsterdam treaty which largely repeat that have already, as it were, been accepted in the Maastricht Treaty some nine years ago. I think that it was in 1989 that the Maastricht Treaty and those sections were debated and agreed.
I want to say straightaway that I feel a great sense of disappointment about the Amsterdam Treaty, but not perhaps for the conventional reasons put forward by the noble Baroness, Lady Williams. My disappointment is centred much more on the failure of the Amsterdam Treaty to carry out its first duty and function; that is, to be a revision treaty of the Maastricht Treaty. As those who know the text of the Maastricht Treaty will recognise, Articles B and N most unusually contain a formal commitment to have a further intergovernmental conference not later than 1996 in order to examine the arrangements and policies agreed in the Maastricht Treaty.
To some extent, that examination has taken place—and not necessarily to my satisfaction or that of other noble Lords. I refer in particular to the attempt to bring

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Pillar III into the compass of Pillar I and all the machinery of the European Community together with the ECJ. However, it is extraordinary that no attempt was made to revise or reconsider the most important part of the Maastricht Treaty. I refer, of course, to the single currency and economic and monetary union. Not a clause of that vast section and its protocols was raised again either in the informal prolonged discussions which took place before the formal IGC or during the IGC itself.
Curiously, and it adds to the surprise and disappointment, there was an addition to economic and monetary union and to the proposals for a single currency. Oddly enough, the addition was agreed formally at Amsterdam on 7th July 1997 in the form of two council regulations. They are now the law of Europe and if we abandon our opt-outs they would affect us, too. They appear in the form of the so-called growth and stability pact, which is a most extraordinary document.
Perhaps I can demonstrate that by referring to Section 4. Article 12, which follows up the Maastricht Treaty's infamous Article 104c(11) which allows for fines to be imposed upon member states. It follows up the doctrine of imposing fines on a sovereign state with a precise mathematical formula as to how much shall be paid. I will not bother your Lordships with the details, but the mathematical formula has two components. If a state exceeds the EU's limit of excess expenditure as calculated as more than 3 per cent. of GDP, it is immediately fined 0.2 per cent. of its gross domestic product. In addition, the EU calculates that the difference between the state's borrowing requirement for that year and the 3 per cent. limit shall be subject to a further fine of one-tenth of the amount. Your Lordships will be glad to know that there is a maximum; a state needs to pay out only 0.5 per cent. of its GDP in any one year. I have calculated that if those provisions had been in force and applied to the United Kingdom during the five-year period of the previous Conservative Government Britain would have been fined £16 billion because it exceeded the 3 per cent. limit. That requires some thought and comment.
Furthermore, it has been said in many places, not only in this House and in the other place, and by many individuals, including, I regret to say, my right honourable friend the Chancellor of the Exchequer, that the Bill and the treaty do not involve constitutional matters and they are not worried. They are not sufficiently important and it will all be judged in a few years' time, whether or not we join, by economic criteria. I do not know, but I would have thought that the imposition of fines on a sovereign state was a matter of profound constitutional and political importance. Indeed, I know of no case in history where such a step has been agreed and allowed by any state. I know of no state which has such a lack of confidence in itself and trust in its politicians that it needs to be disciplined by the external authority of a treaty manned by other people representing other countries. I have heard of reparations, but I have never heard of fines imposed upon a sovereign state. To tell me that this Bill has no constitutional implications on this one matter alone is, frankly, to talk absolute nonsense and I reject it entirely.
I now wish to turn to other matters. It is more than eight years since we had the Maastricht Treaty. The great debate on the single currency and EMU has taken place in a helpful way. Although the matter is by no means settled, there has been great concentration of thought and much radical rethinking about the whole enterprise. I do not wish to go into it in too great a detail, but three things have persuaded many people that the whole enterprise needs rethinking and abandoning. The first is the clear effects of the monetary convergence criteria on the economies of western Europe and on the countries which have attempted to meet the convergence criteria.
A great deflationary policy has been pursued across the whole continent of Europe. Desperate attempts have been made to reduce government borrowing to 3 per cent. of GDP. We have seen as an immediate result unemployment on the continent of Europe—its greatest economic and political problem—rise during the eight years since the signing of the Maastricht Treaty from about 13.5 million to almost 19 million during the past year. The economies of western Europe have virtually ceased to grow. That is a slight exaggeration, but the growth is well below the level necessary even to maintain jobs at the previous level. That was the first point that was registered by people across Europe.
In a sense, the second point is more fundamental and is of particular relevance to the thinking of those noble Lords who are trained economists or who follow these issues closely. I refer in particular to the fundamental economic objection that a single currency and a monetary policy which is effective need genuine and continuing convergence of the real economies of the member states within that zone. It requires genuine convergence—equality, as it were—of performance, and we are not getting it. Frankly, it would be absurd to assume that we will.
Of course, if a state does not have such convergence and goes ahead with a single currency and a Frankfurt central bank it has lost its main means of adjustment between the weaker and stronger economies. If it totally gives up depreciation of its currency it has lost a major way of trying to compensate for the superior performance in productivity and output of the stronger economies. Similarly, if it cannot adjust its own bank rate it is at a double disadvantage.
The consequences of that have been spelt out, fascinatingly, not necessarily by people one would have thought would be the first to bring them to public attention. I refer to the Governor of the Bank of England, who not on one but on many occasions has properly pointed out that if one gets into that position and loses the capacity to adjust for differential productivity and output, what is one left with? As he rightly says, one is left with either high level stagnation and unemployment in weaker countries or the mass movement of people to those parts of the European Union where the jobs are to be found. There are well-understood reasons—culture, language and so on why we cannot and shall not have that large movement of people from one part of the Union to another.
In addition, it is well known that the only other way to deal with those problems is vastly to increase the European Union's budget and transfer financial resources from the areas of strength to the areas of weakness. I need not tell noble Lords that at present that is a pipe dream. There is not that degree of solidarity and it will not take place.
Therefore, it is a very damaging enterprise indeed. I claim that speeches made by the Governor of the Bank of England, and, for that matter, most recently, by the President of the Bundesbank, Professor Tietmeyer, making almost exactly the same points have alerted people to the dangers which are involved.
I have concluded from that, from the authorities and from my own studies that the economic case for monetary union is very feeble indeed. However, there is of course a political case. The covert federalists and those who believe in ever-closer union in Europe are only too pleased to envisage a situation in which the nation states are disarmed and rendered impotent in their pursuit of appropriate economic policies for their own people. The pressure and demand switches then to Europe and its institutions to do at the European level what we have abandoned and can do no longer at national level.
That is it. That is the argument. I shall now quote as authority that admirable and entirely objective US observer of the whole scene, Professor Martin Feldstein. In a lecture which he gave last year, he said:
"There is no doubt that the real rationale for EMU is political and not economic … The 1992 Maastricht Treaty that created the EMU calls explicitly for the evolution to a future political union. But even without that specific treaty language, the shift to a single currency would be a dramatic and irreversible step towards that goal. There is no sizeable country anywhere in the world that does not have its own currency. A national currency is both a symbol of sovereignty and the key to the pursuit of an independent monetary and budget policy".
Those words should be borne in mind as we consider those matters. I should also like to quote the noble Lord, Lord Dahrendorf, who I am sorry is not in his place. He speaks with all the authority of a former commissioner and as a man of great intelligence and integrity. He wrote an article last month which ends with the words:
"EMU will disunite Europe like no other act since the end of the war".
That is a warning of which we should take very serious note. I beg to move.
Lord Taverne: First, I wish to apologise to the Committee because I shall have to absent myself from the debate for a brief period. That is why I am particularly keen to speak now.
The noble Lord, Lord Shore, will perhaps not be surprised that I take a totally different view from the one he takes. I feel tempted to follow him in some of the arguments he has raised. He has discussed the Maastricht Treaty and the fundamental question of economic and monetary union; it is all part of his total rejection of the European Union in itself. For example, he cited the monstrosity of fines being imposed on a sovereign country when he knows perfectly well that it
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is part of the system of the European Union that in certain circumstances, the European Court of Justice can impose fines and sanctions on member states. International sanctions are not unknown, even without the European Union. At this moment, economic sanctions are being applied in Serbia.
I wish to point out what would be the consequences if this amendment were to be carried. It would mean that we should reject specifically what has been adopted by all the other member states as one of their goals. It is not as though we could then happily carry on minus monetary union, the only country specifically to have rejected it. It goes much further than the Leader of the Opposition is prepared to go because this amendment would exclude any possibility of us ever joining a monetary union whereas the Leader of the Opposition has ruled it out only for 10 years.
If this amendment were to be carried, its supporters would put us in a position where we should find ourselves increasingly at odds with the rest of our partners. For example, from time to time, if the pound were at a much lower rate than it is now, we should be accused of unfair competition. We should find ourselves at odds over a whole series of other measures. The amendment is designed, as no doubt the noble Lord, Lord Shore, would wish, to take us out of the European Union altogether. He wants us to set off in a totally different direction from our partners.
I do not wish to discuss the merits of the European Union. I do not wish to go as wide as that. I wish to state our position in relation to the Government. I welcome the fact that the Government have made very friendly noises about monetary union, and they have declared that in principle, if the circumstances are right, they wish to join a monetary union. But the difficulty about the Government's position—and where we on the Liberal Democrat Benches differ from the Government—is that they have still left an enormous area of uncertainty. They are asking industry to prepare, but there is still no absolute commitment that we shall join a monetary union. If industry is to be asked to spend hundreds of millions of pounds, as it would have to, to adapt to a euro, something which would probably have to be done some two years before we join and adopt the euro, then they must have a degree of certainty. They do not have that at present because a number of conditions have been put forward by the Government.
For example, let us look at the risk of a policy of uncertainty and the risk that it poses for the pound. Almost certainly, it will be a requirement of our membership that for two years the pound will have to be in a stable relationship with the euro. That poses great difficulties for us unless we pursue policies which ensure that the pound is much lower or unless we are able to negotiate that we can enter the ERM at a much lower central rate—something in the nature of 2.60 marks to the pound.
But in that period of instability, if there is no commitment, the pound will be extremely vulnerable. While the euro is established, the pound will be the only major European currency outside the euro. The European monetary area is quite likely to adopt a policy

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of benign neglect towards the exchange rate. In a very large area, it will be rather like the United States which is not primarily very concerned about the exchange rate of the dollar. The central bank will be concerned with controlling inflation inside a monetary union.
In a position of benign neglect, as it were, in relation to the dollar, there may be considerable movements in international currencies. The pound could be particularly vulnerable to those movements and could be damaged. Therefore, uncertainty is a policy which carries very considerable dangers. We on this side of the Committee would like to see a much firmer commitment.
It is said that the question of timing is so difficult that we cannot commit ourselves. But far too much can be made of the problems of timing. For example, the Netherlands has been in a different economic cycle from Germany, although it has been tied in a monetary union with Germany for a considerable time. The Dutch economy has been expanding at a fast rate at a time when the German economy was stagnant. Incidentally, the main reason for that stagnation was the aftermath of unification when there were excessively high wage claims and when the Bundesbank followed a very restrictive and deflationary policy in order, so to speak, to punish the unions for being so irresponsible. The macro-economic policy has been the main reason for unemployment in Germany.
The Dutch followed a different policy. They have had a period of growth which has, in recent years, been at least as good as and, indeed, better than ours. The Dutch have managed to do that within a monetary union, although their cycle was different from that of Germany. Again, the low inflationary effects in a large monetary union are likely to be at least as important as a policy which is formed within a particular country.
Too much can be made of the fact that our interest rates are of different importance. Short-term interest rates matter much more in this country than they do in other member states. But the reason for that has been our past record of much higher inflation. If we had had the same record of low inflation as Germany or the Netherlands—or, indeed, of the other members of the core—we, too, would find that short-term interest rates would be much less important. We, too, would find that people would wish to take up their mortgages as fixed rate mortgages rather than as variable rate mortgages.
As I said, far too much can be made of those differences. If it is a question of timing, the chances of our timing coinciding exactly with the rate of expansion of Germany or France is not so great that one can look forward with any certainty to potential membership. I fear that the Government's projected timetable, which gives the impression that they would like to hold an election in the year 2001, with a referendum shortly afterwards, and then join by the year 2002 or 2003, may be very difficult to achieve. That is because of the uncertainty created at present by a lack of commitment and the impact that that would have on the pound.
The Liberal Democrat reaction to the policy which has been announced by the Government on EMU is that we welcome the general approach but we feel that a firm
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commitment is needed, because the greatest danger that we will face in the course of the next few years, especially as far as concerns the pound, is the uncertainty which this lack of decisiveness entails.
4.30 p.m.
Lord Howell of Guildford: It is a great pleasure to follow the noble Lord, Lord Shore, in debating the amendment, although I do not agree with everything that he said. Nevertheless, the noble Lord brings to the matter enormous experience and conviction. I was particularly struck by what he said about the stability pact. It is far from reassuring that the architects of Maastricht—and, indeed, of the Amsterdam Treaty—appeared to fail to foresee the need for a stability pact. The glaring fact that now looks so obvious—namely, that if you are going to try to construct a currency with one central monetary control but 11 or 12 fiscal controls and policies it will be an unstable affair and you will need an additional binding instrument to unify or at least harmonise fiscal policies—came very late in the day. It does not bode well for the construction of what must, in the interests of global financial stability, be a system that works—and I hope that it does—that this very obvious need for an additional mechanism was arrived at so extraordinarily late in the day. It meant that it had to be rammed in outside the treaty structure altogether, as the noble Lord reminded us.
I am also grateful that we are having this debate now because the timing is more than usually apposite. People talk as though the show will get on the road on 1st January 1999, eight or nine months from now. But, in fact, we have about six weeks left. At the end of that time, on 1st May, the decisions on the participants will be made and the decisions on the cross rates will be established. Indeed, for all intents and purposes, the single currency project will be inevitably under way. The attention of the international financial markets will tend to switch to those who are not actually betting against the whole thing collapsing—and that outside bet will, I suppose, remain in the minds of some speculators. Most of the financial markets will turn to the different longer-term interest rates and the different costs of the bonds being issued in the member state capitals. I believe that there will be considerable variety in that respect.
We can already see the effects of what is about to happen in six weeks' time on the other currencies, including our own. The noble Lord, Lord Taverne, spoke about the potential threat to, and the weakness of, the pound in that speculators might turn against it. I agree with the noble Lord that circumstances may change. However, just now it is the very opposite: the pound has turned into the safe haven currency, as people look uneasily at the continental systems, the lack of convergence and the obvious pushing of politics over economics, and come to the conclusion that the pound is the currency to buy. Indeed, for all I know, it is well above three deutschmarks again—miles above the level at which we were pushed out of the ERM because we were told it was far too high. I believe that that gives one a fair assessment of the value of some pundits' opinions on these matters. So it is all going forward very

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soon. Indeed, this is probably the last opportunity for this Chamber to debate the actual scheme before it is dead set, under way and unstoppable. I believe that it is unstoppable now.
There are those who have said that perhaps Helmut Kohl will be toppled by the new dynamic Gerhard Schröder, and so on, and that that will delay things. But that is an illusion; there will be no delay. I am reminded of the year 1914, although perhaps this is too dramatic a comparison. We are told that the armies began rolling, the troop trains moved and that it was then too late to stop the hideous events that followed. So, whether the events which follow now are hideous or good—and I hope that they are good and beneficial for us all—it is much too late to stop them. The troop trains have started rolling and cannot be stopped.
I should have thought that those who are really genuinely concerned to see a stable and prosperous Europe would focus upon the dangers that lie ahead now that the trains are rolling and now that we are on course for this ride. It will be a very bumpy ride; indeed, certainly for the first three years while the denominations of the separate currencies remain, though in theory they are all part of the one currency, and even beyond.
Why do I say that it will be a bumpy ride? The noble Baroness, Lady Williams, made a very good point; namely, that the Asian crisis is by no means over. We have not yet begun to see the full pain and impact of the Asian crisis on the world's financial system, nor the impact on the European economies, which will be considerable and very diverse because those economies are very diverse. It will also be extremely harmful to the general need for a steady recovery of the continental European economies in order to make the EMU process rise.
Incidentally, on the question of short-term interest rates—which I shall deal with in more detail in a moment—the idea that our interest rates could be down if only we had had a better inflation record in the past is absurd. The reason our interest rates are where they are is that we are at a high point in the business cycle and they need to be high in order to restrain the economy. It is possible that we are over the top of it now. Perhaps we will begin to see the effects of the Asian deflation and general turndown on our own economy and they can come down again. But that is why they are where they are, and that is why there is this obvious difference which cannot be just wished away. It is there. It is a reality in the nature of our different business cycles.
On top of the difficulties immediately ahead, we know for a fact that this is a political project. It is a very fine project with fine motives behind it, which we should always admire—the basic motive, obviously, being that of France and Germany never trying to destroy each other again. But that does not make it an optimal currency zone, however good the motives. It is not an optimal currency zone. It is not just a case of Americans such as Martin Feldstein and Milton Friedman pointing that out; we can see it for ourselves.
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This is not an area where the normal process—as in the United States of America—of a free flow of labour takes place. There is no real labour mobility between the European states. There is not all that much within the European states. There has been some, for example, between northern and southern Italy and between different parts of the United Kingdom, but generally there is little labour mobility.
I always find it difficult to explain just how little labour mobility there is to some of my American friends. I use the following analogy. I beg the Committee's forgiveness for the exaggeration. A mummified body was dug up in the Cheddar Gorge, which dates back some 9,000 years. When the DNA was checked it turned out to be the same as that of a person living in a nearby village. That indicates that not much labour mobility has taken place in that part of Europe for the past 9,000 years. If that sounds exaggerated, it is usually effective in bringing home to our American friends the fact that there is little labour mobility in Europe.
The Governor of the Bank of England is wise on these matters. I heartily endorse and greatly welcome his reappointment. That was an excellent move on the part of the Government and the Prime Minister. The Governor has pointed out in many speeches that without labour mobility and without the ability to move short-term interest rates—as there will only be one which will have to suit the whole of this zone—there will be enormous tensions which will manifest themselves in other ways. If this all sounds a little general, let us be specific and consider the position of one or two countries in the next few months or in the first few months of 1999.
Let us consider Ireland. That country is undergoing a considerable property boom. There has been a 20 per cent. growth in money supply in the past year. There is the prospect of considerably higher inflation. Ireland's currency is probably undervalued and needs to be revalued to try to curb the rush into Ireland of capital flows. We all know what those capital flows can do, as our Asian friends have found out to their bitter cost. Ireland now needs to maintain its interest rates at a level not very different from ours. That would be the sensible thing to do. However, that is not the position that Ireland will be allowed to hold. It will have to reduce its interest rates dramatically over the next few months, and certainly by 1st January 1999 in order to qualify—assuming it is chosen, which I think will be the case—to join the system. What will happen? There will be the most enormous boom in Ireland. More money will rush in. We all know what follows boom; namely, bust. That is exactly what will happen to an economy that cannot use the normal levers to moderate and steer the economy at different times. That is a problem which is a direct result of attempting to centralise a single short-term interest rate on a non-optimal currency zone.
I suspect that the same kind of thing will happen in Spain, too. I believe it is quite likely that there will be a huge boom there followed by bust. Those of us who shrug our shoulders and say, "Well, so be it" should remember that when economies go badly wrong and politicians promise to lower unemployment but cannot

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do so, when there is a major crisis and bankruptcies all round, as President Suharto is finding in Jakarta, political tensions rise. In Europe those political tensions could be extremely damaging and could bring about just the instability in Europe that all of us who have been working—I am certainly not a rejectionist, to use the word that has been mentioned—for European unity over 20 and 30 years have been trying to avoid. That is why I believe that good Europeans now should concentrate on the dangers and on how we can somehow modify the extreme dangers of the system which the rest of Europe is careering into.
There is no real convergence among the continental economies. It is not just a question of Britain not being convergent; there is little convergence among even the economies which are the keenest to be up front and to be the first to join. I am glad that the British economy is standing aside from this. I believe that the Government's position on this matter is broadly right. With all due respect to the noble Baroness, Lady Symons of Vernham Dean, I do not think the position of the Government in practice is very different from the position of the previous government; namely, to look with great caution on this experiment—which everyone recognises to be a dangerous one—to hope it will work, but not to plunge in when we clearly have so few benefits to gain from doing so, and when our own position is so much more favourable than that of the main participants and leading members of this new scheme.
Even on the trade side it has to be remembered that most of our overseas earnings—well over 50 per cent.—come from outside the European Union members and outside the 11. If one adds both visible and invisible earnings together, the figure is considerably higher than 50 per cent. I believe that only 38 per cent. of our invisible earnings—which are just under half our total overseas export earnings—come from the European Union 15, and less than that from the 11. Therefore this is not really a natural area for us to consider at the moment. However, it may change. The whole thing may be such a rip-roaring success that the sheer lunar pull of it drags us in. But the idea that we shall lose out by being isolated—to use these loaded words—is, I think, the inverse of the truth.
We shall gain considerably from being able to stand aside from what will be a tricky and bumpy experiment. I declare an interest as I work in the City of London. Our vast financial system and the City of London will gain considerably from being able to operate—we are well equipped as it is—in the euro markets without being inside. Indeed we may well be in a more advantageous position just as we have been as regards the euro/dollar market. I am glad that we shall not go in at the moment. I believe that the Governor of the Bank of England is right to be cautious. Those who really want to see Europe stable and prosperous should be extremely cautious and guard carefully against the coming difficulties.
4.45 p.m.
Lord Randall of St. Budeaux: I wish to make a brief contribution to this Committee stage this afternoon. I do
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not want to make the case either for or against EMU. I wish merely to consider the amendment in terms of its practical viability. Perhaps I ought to declare that I am a full supporter of EMU and I believe that it is in Britain's interests for it to happen. If we were to proceed with this amendment at this stage, I believe that the British Parliament would look frankly absurd because there is no possibility that we can start tearing out the heart of a great big chunk of legislation from the treaties that we have already adopted, although I accept that there are certain conditions attached. The policy as regards EMU is laid down. We have our position. I do not need to declare it because all Members of the Committee here will know what that position is; namely, to decide when the conditions are right and then to seek the authority of the British people on the matter. At this extremely late stage I do not believe that we can move from that position by supporting the amendment of my dear and noble friend Lord Shore.
I noted what the noble Lord, Lord Taverne, said and I agree with him totally; namely, that we need to have stability in this country as regards policy. That must lead to the stability of the markets. The global markets are complex, fast moving and huge. One cannot play around in a mercurial way because of the consequences of that and the hammering that we would receive if we were to embark on such a risky approach. Matters are far developed. In May, under the British presidency, we shall see drawn up the list of aspiring countries to the euro zone. We shall know where we stand. The planning work will go ahead. Businesses will note all of that and they will establish their corporate plans in order to be able to react to all of that. That is just a few weeks away. In a few months the system will come into operation. That is such a short time. We are talking about a few months. For us to talk at this stage about tearing apart the treaty can be nothing short of wild and certainly mercurial.
As regards EMU, although the European central bank and the European system—the ESCB—does not fully exist, it is embryonic, its predecessor, the European Monetary Institute, is in place. I have good reason to believe that the policies are in position, in their plastic bags, ready to be endorsed by the new president and others who will serve on the ECB and the ESCB. We know that that will be Eddie George so far as concerns Britain. But all the preparation is done. One has to recognise that, although we shall not be in the first wave, the ramifications are there. We shall not be able to withdraw ourselves from its impact. Britain has to be aware that any wild reactions to the Amsterdam Treaty would not be acceptable.
My noble friend Lord McIntosh of Haringey covered this point at Question Time. My noble friend Lord Renton of Mount Harry asked a Question on preparations for the euro. My noble friend told the House in some detail about information published in leaflets, advisory meetings for businesses and so on. That work is going on now. It is already happening.
The amendment is not viable. It would not be sensible and I believe that it could damage the reputation of this good House if we were to suggest to the British public, and to the public in the remainder of the European

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Union, that we could do such a thing. But there is also the question of the markets. We would be punished—if not immediately in the near future—if we were to behave in an erratic fashion. We know that business planning is going on. While we shall not be in the first wave, there will be no impediment to trading in euros. The Government have made that quite clear in response to several questions. All kinds of work is going on. I believe that to undermine it would not be acceptable.
I rest my case there. If—heaven forbid!—this amendment were to go to a vote, I hope that Members of the Committee would wholeheartedly reject it.
The Earl of Clanwilliam: Before the noble Lord sits down, I believe he said that under certain circumstances if we pass the amendment we would be punished. Will he explain how and by whom we are to be punished, and with what draconian measure?
Lord Randall of St. Budeaux: I am willing to answer that question. I believe that in the global world, with global markets, with global investment across those markets, the reputation of this country must stand high and strong. If we were seen to be creating such volatility in policy, I believe that our reputation could be damaged. And when it comes to inward investment, the markets could punish us in that sense. I believe that we would make ourselves vulnerable.
Because this is a Committee stage, I do not wish to take more time on the issue. This is not the time to be making the case for or against EMU but rather to consider the detail of the amendment before us.
Lord Boardman: The noble Lord. Lord Randall, suggests that we might be punished, or that some horror might befall us if we vote for this vital amendment on the Amsterdam Treaty, which has such an impact on this country but which has been discussed only briefly in another place. I hope that in this Chamber we shall be able to assess the merits and demerits of the amendments we make.
I endorse the points made by my noble friend Lord Howell of Guildford. I shall not repeat some of those arguments. I agree also with much that the noble Lord, Lord Shore of Stepney, said. I find myself in sympathy with a great number of his comments. That is a not entirely usual experience over the years.
I confine myself to one point. The economy of the nation depends upon two key policies: its monetary policy and its fiscal policy. Those are twin steering levers that under normal circumstances the Chancellor of the Exchequer has at his command. This country has now passed monetary policy to the Bank of England. In Germany the Bundesbank controls to a large extent its monetary policy; and in America the Fed. I believe that as the Chancellor has been preparing his Budget he will have regretted very much that he did not have monetary policy under his more direct control. He could then control the interest rate at the same time as he considered taxes.
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As regards the Bundesbank, we all know what happened with the deutschmark years ago. The amount of freedom it has on the other side of the economy is fairly fragile; and the Fed is under similar control. But they all operate in their own nation. Those who control the monetary policy—the Bundesbank in Germany, the Fed in America, and the Bank of England here—work under the general economic conditions applicable in their own country. What is proposed here is to have a monetary policy controlled by people operating from Frankfurt, unknown, unelected and remote from the economies and circumstances of the individual countries whose monetary policy they are fixing. The fiscal policy will be left to the individual countries.
I have discussed this issue with many people in Frankfurt, Bonn and Brussels. I ask what will happen when each country cannot control its monetary policy but has freedom on its fiscal policy. The answer I receive is that there is a sort of understanding. People say that they will get together on the fiscal policy and will agree about taxation in order to fit in with what has been laid down on the monetary policy. I find that unrealistic and have said as much on occasions. It will only stand for a brief period while we apply fiscal uniformity throughout the countries that are in EMU.
A number of people believe that if we accept monetary policy we are bound to accept a fiscal policy binding upon those countries, and that leads to a political uniformity too. For that I have real fears. My point is this. To accept monetary policy as laid down in the treaty leaves us with a very limited control over our economic policy. The Chancellor has two levers: to steer right or left (for those who are used to driving tanks). But if he has to throw away one, he throws away any control of the monetary policy. He has to work out with the fiscal policy what is best for the economy of this country. I deplore that move. I think that it would be wrong to be party to it.
Lord Monson: The noble Lord. Lord Howell of Guildford, has done well to remind us that the problems arising from EMU are neither non-existent, as the Liberal Democrats would claim, nor speculative and well into the future, as rather less zealous Euro-enthusiasts would claim, but are with us already. The noble Lord spoke of the Republic of Ireland. It is booming because, as a result of massive transfer payments from the Germans and to a lesser extent the British, great inflationary pressures are rising. The current bank rate is 6.75 per cent. The central bank would like to raise it to well over 7 per cent. but it is not able to do so because it has gradually to reduce interest rates to the continental norm and it is expected that the European central bank will kick off with an interest rate of 3.3 per cent.
I support this amendment, tabled by the noble Lord, Lord Shore, and wish to quote from sources that are not normally thought of as being in any way Euro-sceptic. Even Mr. Adair Turner, director general of the Confederation of British Industry—unlike the Institute of Directors or the Federation of Small Businesses,

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the CBI is definitely not Euro-sceptic—speaking to the Deutsche-Englische Geselshafi in Berlin on 21st January, talked about the,
"flawed analysis of the potential benefits of EMU".
Among other comments, he said:
"What EMU will not do is solve Europe's unemployment problem and indeed we need to be clear that its … temporary effect could be to make Europe's unemployment problems worse, not better".
The noble Lord, Lord Shore, quoted part of an article by Professor Martin Feldstein published on 8th May 1997. In addition to the points quoted by the noble Lord, Professor Feldstein said:
"the adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows among the EMU members".
The president of the Deutsches Bundesbank, Dr. Hans Tietmeyer, said on 20th February this year:
"Monetary union is not a deus ex machina. It will not solve the European problems by itself nor eliminate the high level of unemployment, the structural problems in government finances and in the welfare system, or the poverty of those on the fringes of society … It would … cause considerable economic costs and above all great damage to the political foundation … previous currency zones in history have in most cases only survived if they were sooner or later bound together in a far-reaching and lasting political relationship".
He goes on to cite the comment of Jacques Delors that monetary union is not an end in itself; it is a means towards an ever closer political union.
Another distinguished German professor, Wilhelm Hankel, speaking on 7th March, made a number of excellent points. He said:
"Politicians are entering an irresponsible adventure with the Euro in 1999. The Euro will be neither stable nor durable. It will not hold Europe together or unite it".
There are those who believe it will have precisely the opposite effect.
Mr. Andrew Duff, director of the Federal Trust, writing in the January 1998 edition of the Parliamentary Monitor said that the British Government,
"should use the Presidency as an opportunity to ditch some strange old British baggage, including hostility to tax approximation (without which the single market will not be stable)".
Indeed, the noble Lord, Lord Boardman, made exactly that point. It is obvious that there will have to be tax harmonisation if EMU is to work. As in the United States, there may be very small variations, as there are in sales tax between, say, Massachusetts and Connecticut, but no more than that—3 or 4 per cent. Excise duties will have to be reduced to continental levels, which will please smokers and drinkers but will infuriate the health fanatics; and I suspect that corporation tax will also have to be more or less harmonised. Much more could be said, but no doubt other noble Lords wish to take the debate further.
5 p.m.
Lord Grenfell: I listened with great interest to the remarks of the noble Lord, Lord Monson. I certainly do not wish to engage in, as it were, a war by quotation. If it comes to that, those of us who take rather different views on monetary union can match the noble Lord quote for quote. But that would not be terribly useful.
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I did find useful and interesting the intervention of the noble Lord, Lord Howell, in certain respects but not in all respects. The noble Lord was wise enough to point out that we are now only some six weeks away from the critical moment when monetary union will to all intents and purposes go ahead. He is wise to draw our attention to that.
However, I part company with some noble Lords, who, only six weeks away from that date, seem to give the impression that somehow the process can be brought to a grinding halt, or that it should be, were that to be possible. I do not know what is the collective noun for an assembly of King Canutes—it may be a "calamity" of Canutes—but there still seem to be a large number of people who believe that the whole process can be derailed. I am afraid that that is not going to happen. What we have to do is to see how it can be made to work.
I wish to turn to some issues raised by my noble friend Lord Shore of Stepney. He spoke of the stability pact. But one point he did not mention is that stability pact fines are not automatic. None of those to whom we have spoken during the course of the deliberations of Sub-Committee A—we spoke to the Bundesbank, to the European Monetary Institute and to others with great knowledge of these matters—has seen the stability pact fines as anything other than a rather necessary stick which they hope will never be raised to beat anybody at all. The truth of the matter (which was not put forward unless I missed out on it during the intervention of my noble friend Lord Shore) is that if a country gets into great economic difficulty and it can be shown that it has suffered a loss of output of 2 per cent., those would be the exceptional circumstances in which no fine would be levied. The stability pact as a threat to a country is aimed only at those that consistently overspend; it is not aimed at responsible countries which find themselves in understandable difficulties. That is a point which those who oppose the stability pact tend to gloss over; they simply raise the issue of how unconstitutional it would be for a body to impose fines on a country.
The noble Lord, Lord Howell, in remarking on the stability pact, said how strange it was that it came so late in the day. All I can say is: better late than never. It became quite clear that it would be very difficult to ensure the optimum operation of a single currency zone if it was not made clear that the convergence criteria were there for a purpose, and were not merely words on paper to be ridden roughshod over. There had to be some kind of sanction on those who were prepared to play fast and loose, not just to the disadvantage of their own populations, but putting at risk the economies of other countries in the European Union. There is a collective responsibility in a single currency. Where there is collective responsibility, there has to be some kind of sanction for those who wish to be part of the Euro zone but are not prepared to take the responsibility of trying to achieve the maximum benefit for all who are party to it.
The convergence criteria are desirable in themselves whether or not there is European monetary union. Aiming to keep our budget deficits at less than 3 per cent. of GDP and government debt at less

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than 60 per cent. are very laudable aspirations in themselves. I happen to live in France, where the forward pension liabilities of the French Government are presently something like 106 per cent. of GDP. The French are working very hard indeed to correct that position. They would be doing so whether or not there was European monetary union. So it is rather strange—
Lord Pearson of Rannoch: I wonder whether the noble Lord would give way. It is actually the third time this afternoon that a noble Lord has referred to EMU as "European and monetary union". The fact is that it refers to "European economic and monetary union", and it is the economic bit which will do the damage.
Lord Grenfell: I stand corrected and thank the noble Lord for pointing that out. I am afraid I was using a type of mental shorthand, and should have kept it mental rather than vocal. I agree with him: it is economic and monetary union. I shall turn to that in just a moment.
Another point raised was that EMU—economic and monetary union—would be divisive. I am afraid that I part company here with the noble Lord, Lord Dahrendorf. I am sorry not to see him in his place today. I read his article with enormous interest; it was important but I am afraid that I was not persuaded by it. If anything is divisive, it is a situation where there will be as many people outside the single currency as inside it. The guarantee or the best hope that a single currency will work well will be to have the maximum number of countries participating in it. That will take a long time. It will take the new candidate countries from east and central Europe some time to achieve accession to the European Union and no one believes that they will immediately be able to join a single currency. That would be wishful thinking. Even they do not believe it, although some are looking forward to the day when they do so.
The point is that the divisiveness will arise as a result of the single currency, although not intrinsically in the single currency itself; it will arise because it is a limited single currency and would exclude other member states of the European Union. I look forward to the day when EMU will embrace the whole of the European Union, but that will take time. It is not monetary union itself which is divisive.
Finally, perhaps I may say a brief word about the remarks of the noble Lord, Lord Boardman. He spoke of the problems of having a monetary policy which was a single monetary policy and fiscal policies that were left to countries themselves to decide on. I do not take his gloomy view that that situation is calamitous. We hope that the member countries of the single currency zone will do their best to harmonise their fiscal policies because that is all part and parcel of a good and effective economic and monetary union. I do not say that it will be easy. I certainly do not believe that it means that, if there is an attempt at harmonisation of fiscal policy, we will end up with a binding single fiscal policy. I have never heard anyone but the most extreme federalists—and I do not share their views—say that the harmonisation of fiscal policies inevitably leads to
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the day when all countries will decide that harmonisation is not enough, that we must have a strict single fiscal policy. That has never been the intention of the architects of economic and monetary union. I do not believe that the governments would wear it and it is not necessary. So long as there are sufficient efforts at co-ordination and harmonisation, it is not necessary to have a binding single fiscal policy for the whole of Europe. It is not possible.
So that is a slight red herring. I know that it can be used by those who say that it is a stepping stone to a politically single federal state of Europe, but that is not what most sensible people are looking for. It is not the message we have been receiving when talking on the issue to people in various European countries. So it is a bit of a red herring and we should not be fearful of the fact that monetary policy should be a single monetary policy but fiscal policies should be left to member states. That provides a sensible and realistic flexibility that will help make economic and monetary union work and will not be a hindrance to it.
5.15 p.m.
Lord Tugendhat: It is a great pleasure to speak after the noble Lord, Lord Grenfell, because much of what he said was wise and apposite. I hope that the Committee will pay great attention to his insight. His point was that, whether or not we like it, whether or not we agree with it, the majority of member states will go ahead with economic and monetary union. Therefore, it is important to try to ensure that it works. That is the point on which we ought to concentrate our attention. It is true, whether we are in the economic and monetary union at the outset or at some future date or not at all, because our own economy is plainly much tied up with those of the participating countries.
My noble friend Lord Howell of Guildford produced some figures. Basically, 50 per cent. or slightly more of our exports of goods go to the 11 members who seem likely to make up the EMU. Some 36 per cent. of our services exports go to that group of countries. In all, it means that 15 per cent. of our GDP is tied up with them. It is therefore greatly to this country's advantage that EMU—whether or not we are in it—should succeed. It would be greatly to our disadvantage if it should fail. To concentrate, as some Members of the Committee have done, simply on all the dangers, without looking at any of the opportunities is in those circumstances a slightly negative approach to the subject.
Moreover, if 11 countries go ahead, it is clear that the important thing for us is not whether we doubt the viability of the enterprise or the wisdom of going ahead in the present form and at the present time. There are plenty of reasons to doubt whether now is the right time and whether the present form is the best one. If 11 countries go ahead, clearly we must take a view, on the balance of national advantage for this country, on whether or not, in those circumstances, it is in our interests to be associated with the project. We might prefer it not to go ahead; we might prefer it to go ahead at some future date. The fact is, as my noble friend Lord Howell said, it will go ahead in a few weeks. The

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decision we must take is whether, in those circumstances, it is to our national advantage to be associated with it.
I agree with my noble friend Lord Howell that the position taken by the present Government on the matter is basically right. However, I differ slightly in my interpretation of the present Government's position compared with his. He appeared to say that there was little difference between the present Government's position on the matter and that of the previous government. To me, the present Government's position looks a great deal more positive and as if the Government not only avowedly say they want the EMU to succeed, but they have made it clear that if certain conditions can be met, all things being equal, they would greatly prefer this country to be in rather than out. That is a correct assessment of the national interest.
It also brings me to the point made by the noble Lord, Lord Taverne. He drew attention to the fact that, in pursuit of their objective—which I applaud—the Government are urging commerce and industry to prepare as quickly as possible for the eventuality of joining. The Government are trying to persuade commerce and industry to be ready whenever the moment might come. That is true. There can be no major company in the country that is not spending large sums of money now in preparing for EMU, since it will affect us whether we are in or out. But it would make the task of commerce and industry a great deal easier. It would do much to encourage commerce and industry if the Government could be firmer in their commitment and clearer in some of the signs they give. If the Government want commerce and industry to spend money on preparing for EMU, it would be good if we could see some preparation on the part of Customs and Excise, the Inland Revenue and the social security system. If we are all being asked to spend money on preparing for EMU, it would be good to see government departments spending money on preparing for it. I very much hope that the points which the noble Lord, Lord Taverne, made on the matter will be noted by the Government.
I listened carefully to the noble Lord, Lord Shore of Stepney, whose position on European matters for many years has been consistent and, indeed, often courageous and disadvantageous to himself, and whose views therefore must always be worthy of attention. However, I felt that he was devoting a lot of time to telling other people that they were doing something foolish—which may or may not be right—but not much time to telling us what we should be doing in order to deal with the situation which is about to arise; namely, that EMU is going ahead.
I also felt that the noble Lord was less than fair in what he had to say on the subject of convergence. I agree that the level of convergence between participating states is by no means as great as I would wish and, in some respects, it is so recent as to cast doubt on its durability. But that said, one must pay attention to the extraordinary achievements of a number of European countries—Italy, Ireland, Spain and Portugal—which, a few years ago, would not have been expected to attain the levels of convergence that they
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have. As I say, they may be recent and in some respects one may doubt their durability, but when one looks at the Maastricht criteria (as those are the criteria being used for this purpose), all those countries have shown the most remarkable consistency in bringing themselves up to scratch.
We are pleased in this country about the level of inflation and how much better we are doing than in the past, and I applaud that. But our rate of inflation is around twice that of the average of the countries preparing to go into EMU. When one looks at our rate of inflation now, compared with our neighbours across the Irish Sea, one can see that, although some things are going much better in this country than in Ireland, by no means everything is and the degree of convergence that has been brought about as a result of those criteria is impressive.
As the noble Lord, Lord Grenfell, said, bringing one's public finances into order, bringing them into balance and reducing deficits are good objectives in themselves and they are certainly objectives which the party that I support always regarded as good (except some of my colleagues), when other people tried to pursue them in a European context. As the noble Lord, Lord Grenfell, said, those countries are to be congratulated on what they have done. We have often said, on this side of the Chamber, that we undertook certain reforms under the leadership of my noble friend Lady Thatcher which others have yet to take; and that is true. But some of our continental neighbours are undertaking similar reforms under the pressure of the Maastricht criteria. It would behove us therefore to congratulate them rather than to diminish their achievements.
I agree with the noble Lord, Lord Shore of Stepney, that a price has had to be paid in unemployment, as it was paid here. Many of my friends who are most Euro-sceptical applauded the price when it was being paid here, but criticised it when it was being paid in other countries. A price is being paid in terms of unemployment and I hope that, like us, those other countries will subsequently enjoy the fruits of lower unemployment as the reforms take effect.
However, I am struck by the fact that, even though the noble Lord, Lord Shore of Stepney, and other Members of the Committee believe that the price is too high and that those other countries are not pursuing their own national interest and so forth, in those countries EMU seems to be rather popular. There are a great many people in Germany among whom it is not popular, but when one looks at Ireland, Italy, Spain and Portugal—the countries which have really made progress towards meeting the criteria and which have also, in some ways, paid the biggest price to do so—the striking fact is that, whether or not we like it, they seem to believe that it is a good idea. Therefore, when we forecast failure and difficulty, we ought to bear in mind not only what they have achieved, but also the degree of support for the policies that have been secured.
My noble friend Lord Howell of Guildford made an important point when he drew attention to the lack of labour mobility in Europe as compared with North America. Undoubtedly, one of the reasons why one has

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cause for worry in regard to the outlook for EMU is the degree of labour mobility on this side of the Atlantic in participating countries, which is less than it is in North America. I agree with that. On the other hand, I know that my noble friend is connected with a great Swiss organisation and will therefore know that in Switzerland there is not much labour mobility at all between the French-speaking canton, the German-speaking canton and the Italian-speaking canton.
The situation in Switzerland is not unlike the situation in Canada, where there is a good deal of mobility between the English-speaking provinces, but not so much between the French-speaking province and the English-speaking provinces. Most of the people in Quebec do not move into English-speaking areas. Switzerland does not have much labour mobility. Indeed, there is not much French spoken in Zurich and not a lot of German spoken in Geneva. Nonetheless, it does not seem to have done too badly with a common monetary policy and, indeed, a great many other common policies over a long period. Therefore, while it is perfectly reasonable to draw attention to the problems of the lack of labour mobility in Europe—and that is something towards which countervailing measures will have to be taken—one can make too much of it. I mentioned Switzerland because of my noble friend's connection with it, but it is also a good example of how some of those problems can be overcome.
I turn finally to my noble friend Lord Boardman. I felt that, although he drew attention to an important problem in terms of the handling of monetary policy, he overlooked the fact that we do not start from a position of absolute independence now and will certainly not be in a position of absolute independence in the future, whether or not we join EMU.
There are many people in this country who give the impression that somehow we have unfettered and total control over our monetary policy. Would that we did, one might say; but we do not and we have not for goodness knows how long. Everybody knows perfectly well that what happens in the United States, in Germany and in other parts of the world has a profound and immediate impact on this country and that the parameters within which economic and monetary policy are made in this country are a great deal more circumscribed than they used to be and are likely to become more circumscribed in the future. They will certainly become more circumscribed if we do not join EMU and it goes ahead. If our principal trading partners are linked in one area and there is a dollar zone, a yen zone and a euro zone, the making of monetary policy—indeed, also the making of economic policy—if one is outside those zones will be quite difficult. One will be attempting to make those policies on one's own when one is a relatively small player surrounded by large players. It will place us in a very circumscribed position.
Members of the Committee drew attention to the fact that sterling is high at the moment, and indeed it is. The Swiss franc is also high, to take another non-participating currency. Whether it is in our interests that, as a result of what is happening in the putative "euroland", our currency should be driven so high, is
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another matter. Whether we will find, when EMU goes ahead and we are not in it, that the movement of sterling—which will be rather like a rowing boat in the wash of a much bigger vessel—is to our advantage, one can doubt. But being in the wash of a much larger vessel is not a position of independence. It is indeed a rather rough and difficult position to be in. So the choice is not between being independent out and being dependent in; the choice is between two different forms of involvement with one's neighbouring countries.
At the end of the day, whatever doubts one may have about whether it is wise of our partners to press ahead with EMU now and in the present form and whether it would not have been better for them to do so at some future date, the fact of the matter is that since we are so bound up with them, will we have a greater ability to influence the environment in which we live and to influence the environment in which we have to make policy if we are in or if we are out? I feel that national interests would be best served in the circumstances that have arisen by going in because I feel that this country would in those circumstances have a greater capacity to influence the environment in which it lives and the environment in which it has to make policy and that that would be to the benefit of the British economy and to the benefit of the people who work in the British economy.
5.30 p.m.
Lord Stoddart of Swindon: The noble Lord, Lord Tugendhat, who is an expert in these matters and a former Commissioner, talked about being uncomfortable in the wash of this great ship. But it will be considerably more uncomfortable if this great ship hits the rocks and sinks. That, I am sure he will agree, is a distinct possibility.
I was very pleased to add my name to this amendment which was moved by my noble friend Lord Shore. The Committee listened to him with great interest. I listened with great interest in relation to the fines of up to 0.5 per cent. which could be levied on countries which did not meet the Maastricht criteria. That a very important matter. It was raised at the time of our discussions on the Maastricht Treaty and, indeed, I discussed it myself. My noble friend Lord Grenfell said that this is a stick that will never be used. I took down his words and that is what he appeared to say.
Lord Grenfell: I am grateful to the noble Lord for giving way. I did not say that it would never be used.I said that it was the hope that it would never be used. But the fact that it can be used remains there.
Lord Stoddart of Swindon: So in actual fact it is a very considerable threat to the countries of the European Union. It is a real threat. At the time of the Maastricht discussions I said that if a country that was having difficulties and could not meet the criteria was then fined, its position would be made even worse. It would go on being fined, fined and fined until presumably its economy collapsed. That of course would be complete and utter nonsense. Indeed, as far as this country is

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concerned, it would he quite a considerable amount of money that we would pay—up to £3,500 million a year, or at least so long as we did not meet the criteria.
There is another problem. What if Parliament does not want to pay? Let us suppose Parliament says to the Government, "They have fined you but we are not going to raise the money for you to pay the fine". What will happen then? Will the European Commission send in the jack boots? What will happen? The system is not a good one and it is one which I regret.
The noble Lord, Lord Taverne, who for very good reasons has had to leave us, seemed to say that arguing against EMU was not quite right; that we are in the European Union and in it for a long period of time, and so what do we keep arguing about? But the fact is that in 1975, when we had a referendum on whether we should remain in Europe, EMU was ruled out. The Government themselves came forward and said there was a danger that we would have economic and monetary union but that they had negotiated it away because it would do damage to our economy and particularly to employment. It was ruled out, and so it is perfectly legitimate for people to argue that it should not be ruled in, not at least at this stage and until there has been another referendum.
We are told that we should not interfere with other people and that if they want to go in, let them go in. But at Maastricht we agreed a set of criteria on which they should go in and on which the economic and monetary union third stage together with a single currency should go ahead. Those criteria were very tough. If noble Lords will remember, everyone was talking tough at that time; the euro was going to be at least as strong as the deutschmark. Am I right, or am I wrong? Of course I am right. Everyone who has argued the point will know that. But what do we find? When we come to the 1lth hour, a few weeks, as my noble friend says, before the decisions as to who is going to join are about to be made, what do we find? We find that the Maastricht criteria are not being adhered to and that there has been a lot of creative accounting. The French were able to sell their telecommunications system, the Italians have raised a one-off tax and the German Government wanted the Bundesbank to hand over its loot in order that they could meet the criteria. So there are lots of arguments as to why not only this country but other countries should not rush into it.
The noble Lord, Lord Howell, was right to urge caution. He made the point that it could be advantageous for us to remain out. So far, I have not heard the arguments made in favour of us going in at the first stage which would convince me that we should go in at this stage. My noble friend Lord Randall, who is not in his place, said that Parliament would look absurd if we passed this amendment. Parliament never looks absurd when it considers very closely and for a long time what it is doing. That is what Parliament is here for. If it is not in the country's interests that we should adopt the first stage of EMU and a single currency, then Parliament is the place where it should be discussed and Parliament should make the final decision together with the people of this country.
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My noble friend talked about stability. Everyone is talking about stability. But at the same time everyone is talking about markets. The Labour Party is now market based. I always thought that the prime factor about markets was their instability. The very notion of having a stable market nullifies the term. A market is where a willing seller sells to a willing buyer at the price the market will bear at that time. So there is no stability. I wish people would not talk about it when we are talking about markets.
We had some sort of stability with the gold standard way back in the dim and distant past. It has been forgotten that the gold standard was a rigid standard—a single currency if you like—and it caused economies to collapse throughout the world. Economies collapsed in this country, Germany and the United States, and that probably brought Hitler to power. Then there was the Bretton Woods agreement just after the war. That was supposed to bring stability of currencies. That agreement collapsed because it was unsustainable, because money is part of the market force as is everything else.
Then we had the ERM. The very same people who are now urging us into a single currency were the very ones who urged us into the ERM, with disastrous consequences for this country in the loss of jobs and businesses. So there are plenty of precedents that we should observe before we jump too quickly into a single currency.
Many who express doubts about EMU are described as ignoramuses. In fact, someone said that we were barking mad. I have been in politics a long time and I have a thick enough skin to absorb such barbs as that. So often in this matter of Europe the truth is stood on its head. It seems to me that those who wish to embark on an experiment which has never been tried before in history and which, if it fails, will cause economic and financial disaster not only in Europe, but throughout the world, are the real crazies. Let us make no mistake: it is an experiment and it could be a very dangerous one.
In my view, it will undermine Britain as a sovereign state because it abandons our currency and allows a foreign conglomerate to decide by majority voting our monetary and economic policy and because it is a policy which is irrevocable. The Maastricht treaty makes it perfectly clear that the policy is irrevocable and because of that it undermines the very basis of the British constitution. Indeed, if anyone had advocated that not so long ago, they would probably have been detained at Her Majesty's pleasure under Regulation 18B.
Yet, despite all those things, the Chancellor says that there is no constitutional bar to our going into a single currency. But I believe that there is such a bar and that is because Maastricht says that the change is irrevocable. It undermines the very basis of our constitution that one Parliament may not bind its successor.
I believe that the present squeeze on public expenditure has not so much to do with the domestic financial situation and economic position. It is not because we are short of money. In fact, money has been coming in faster than ever before, as far as one can see. The present squeeze is to do with meeting the

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convergence criteria for entry into a single currency. Single mothers, pensioners and others should bear that in mind.
The economic circumstances within the countries of Europe are so different that without a financial transfer mechanism through centralised taxing, which would be redistributive, EMU is bound to fail. It can do no other than fail. If we are prepared to tax and have a central distributive system, it might succeed, but if we do not have that, it is bound to fail because there will be no opportunity for the poorer countries, or those within the different cyclical economic positions, to adjust their currencies to take account of the situation. Therefore, those countries will stagnate, falling deeper and deeper into depression and then what will people do? They will not in the streets because there is no mechanism to do other than that.
Unemployment rates are already dangerously high in many parts of Europe, including Germany, France and Spain. If monetary policy were tightened, those countries would find themselves in an even worse position. What suits one country does not suit another. If we have a rigid system without redistribution, then only disaster can follow.
I believe that far from going further into EMU, it would be better for us to co-operate with a much wider range of countries. We have our own Commonwealth. There is the United States and Canada and the whole wide world. Growth rates show quite clearly that Europe is stagnating while the United States and the United Kingdom itself are having higher growth rates than the rest of Europe.
Therefore, I believe that this amendment has been useful in providing the opportunity for the Committee further to discuss this matter. I sincerely hope that there will be other opportunities to discuss it because I believe that at this stage we should move with less haste than some of the countries of Europe want us to. We shall do far better to consider the matter at much greater leisure.
5.45 p.m.
Lord Pearson of Rannoch: There has been a common assumption running through the debate this evening in this Committee. It runs through the debate in the country at large. It is to the effect that we have an opt-out from EMU. So I am very grateful to the noble Lord, Lord Shore, for tabling this amendment and for moving it so ably. It allows me the opportunity to explain to the Committee and to the Government why, if EMU survives and if we stay in the European Union, we do not in fact have such an opt-out.
It is not surprising that this assumption is so widely held because the previous government claimed to have secured such an opt-out at Maastricht when they had not done so. However, I hope that the present Labour Government will not continue to pretend to the British people that we do indeed have an escape available from this ill-fated project when, unless it collapses, we do not.
I can only assume that the new Labour Government are acting in ignorance and that they will wish to put the matter straight before they allow the Treaty of
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Amsterdam to be ratified. The resulting negotiation would also afford the other European countries one last chance of avoiding the impending folly of EMU. I really hope that it is not too late for that.
In order to explain what I have just said, I fear that I must weary the Committee by descending into the detail of the treaty and placing on the record some of its depressing euro-speak. But the facts are very simple. Our so-called opt-out is contained in Protocol 25, as it has been renumbered at Amsterdam. Under paragraphs 3 to 9 of that protocol, a number of articles in the treaty will not apply to the United Kingdom if we continue to say that we do not want to move to the third and final stage of EMU. In particular, paragraph 8 of Protocol 25 lists 24 articles of the Protocol on the Statute of the European System of Central Banks and of the European Central Bank which will not apply to the UK if we do not want to be full members of EMU. We are also spared other articles by Protocol 25.
However, at least six articles have been left in the treaty which have not been included in Protocol 25, so they still apply to us, even if we continue to want to opt out. Indeed, one only has to put on a wet towel and, after a good night's sleep, examine paragraph 5 of Article 1, which this amendment wisely seeks to exclude from the treaty, to see that this is likely to be so.
Extracting the relevant bits of paragraph 5, merely in order to spare your Lordships too much ennui from exposure to Euro-speak, that paragraph ordains as follows:
"The Union"—
of which we remain part—
"shall set itself the following objectives—to promote economic … progress … and to achieve balanced … development, … through the strengthening of economic … cohesion and through the establishment of economic and monetary union"—
that is, of course, our old friend EMU—
"ultimately including a single currency in accordance with the provisions of this Treaty".
Those not well versed in the malice of Euro-land might be tempted to think that there was no problem here that the provisions of the treaty give us an opt-out, and so none of the rest of paragraph 5 will apply to us. But an examination of the rest of the treaty reveals the other five articles, not included in our opt-out, require us to run our economy on strictly communautaire lines, and at least two of them eventually commit us to EMU itself. If we do not do so, Articles 226 to 229 of the treaty allow us to be taken to the Luxembourg Court for unlimited fines.
Before quoting to your Lordships the very minimum parts of the articles necessary for an understanding of this matter, I shall give your Lordships just one example of the way in which the quicksand of the Treaty of Rome, into which we have so foolishly strayed, actually works. Your Lordships will recall that the previous Conservative Government claimed to have won two opt-outs from the Maastricht Treaty. One was from EMU, which we are discussing now, and the other was from the social chapter. Some of us spent many hours in your Lordships' House in 1993 trying to persuade that government not to ratify that treaty, but to no avail.

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I know that the present Government have unfortunately now ratified the social chapter, but it is very instructive as to how our so called opt-out from EMU is likely to stand up in future, if we look back and see what happened to our opt-out from the social chapter.
As your Lordships will recall, our European partners got round that opt-out by bringing various harmonising social measures against us under other articles which are subject to the qualified majority vote and which we had accepted; for example, one measure, the Working Time Directive (or the "48-hour week" as it became known colloquially) was brought against us under the single market legislation.
This so surprised the Government that they appealed against its imposition to that engine of the treaty, the Luxembourg Court of so-called Justice. To give your Lordships the full flavour of the British Government's reaction to the Court's inevitable ruling against us, I can do no better than read your Lordships the letter sent on 12th November 1996 by the Prime Minister, my right honourable friend Mr. John Major, to M. Jacques Santer, the President of the European Commission. I quote:
"Dear Jacques,

ARTICLE 118A OF THE TREATY ESTABLISHING THE EUROPEAN COMMUNITY
My intention in agreeing to the Protocol on Social Policy at Maastricht was to ensure that social legislation which placed unnecessary burdens on businesses and damaged competitiveness could not be imposed on the United Kingdom. The other Heads of State and Government also agreed that arrangement. without which there would have been no agreement at Maastricht"—
I am sorry, it reads,
"no agreement at all at Maastricht".
It could not be clearer than that. Mr. Major continued:
"However, in its judgement today, the European Court of Justice has ruled that the scope of Article 118a is much broader than the United Kingdom envisaged when the article was originally agreed, as part of the Single European Act. This appears to mean that legislation which the United Kingdom had expected would be dealt with under the Protocol can in fact be adopted under Article 118a.
That is contrary to the clear and express wishes of the United Kingdom Government, and goes directly counter to the spirit of what we agreed at Maastricht. It is unacceptable and must be remedied.
The United Kingdom will therefore table amendments in the Intergovernmental Conference to restore the position to that which the United Kingdom Government intended following the Maastricht agreement. Those amendments will be aimed at both ensuring that Article 118a cannot in future be used in ways contrary to the United Kingdom's expectation, and dealing with the specific problem of the Working Time Directive.
I attach the utmost importance to these amendments and I shall insist that they form part of the outcome of the Intergovernmental Conference. I do not see how new agreements can be reached if earlier agreements are being undermined.
Meanwhile, I urge the Commission to refrain from making proposals under Article I I8a which properly belong under the other Member States' Agreement on Social Policy.
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I am sending copies of this letter to Heads of State or Government of European Union Member States.
Yours sincerely,
John Major".
Well, as your Lordships will be aware, the previous government failed to make any headway towards ensuring what they regarded as an honest interpretation of the treaty, and the saga was laid to rest when they lost the general election in May last year. Labour promptly signed the social chapter as part of its charm offensive in Brussels, and we have yet to see how much good or bad it will do us.
Be that as it may, this vignette is very helpful to an understanding as to whether we really do have an opt-out from EMU, especially when we come to consider the other five articles which remain in the treaty, to which I referred earlier. Again, to spare your Lordships as much pain from Euro-speak as possible, I shall extract the more relevant parts, but one really should read all of the articles concerned to appreciate their full meaning.
So, first, we have the old Article C, now Article 3, and I quote,
"The Union shall in particular ensure the consistency of its external activities as a whole in the context of its external relations, security, economic and development policies".
Well, one might think that there is perhaps not too much to worry about there, just a spot of forced economic collaboration in the EU's external activities, whatever the Luxembourg Court may eventually decide those to be.
But the plot thickens. We come to the big one, which is Article 2. I quote,
"The Community shall have as its task, by establishing a common market and an economic and monetary union x2026;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".
My three remaining articles clarify and add weight to Article 2. First, there is Article 4, which includes the following words:
"For the purposes set out in Article 2, the activities of the Member States and the Community shall include … the adoption of an economic policy which is based on the close co-ordination of Member States economic policies, on the internal market and on the definition of common objectives".
Then there is Article 98 which decrees, and I quote:
"Member States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2".
Lastly, there is Article 99, which is similarly clear. It goes as follows:
"Member States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of Article 98".
Now, it seems to me that the main reason for the Government to avail themselves of what they regard as their predecessor's opt-out from EMU is because they too do not yet wish to join EMU, and therefore, for instance, to pool our interest rate with that of EMU's

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participants. In other words, the reason for staying out of EMU is so that we can continue to run our economy ourselves, and the presumption must be that we hope to be able to do so more successfully than if we joined EMU. But what if we do just that? What if our economy remains more successful than those in the EMU zone? What if our unemployment stays lower than theirs? What if our unemployment goes on down and theirs goes on up? What if we wish to pursue different policies on taxation and social matters (pace the Social Chapter)? What if sterling continues to perform alongside the US dollar and the yen but the euro weakens, perhaps to the point of collapse? What, in short, if staying out turns out to be a thoroughly good deal for us and EMU turns out to be most uncomfortable for its participants but manages to survive because of the political will behind it?
Articles 226 to 229 of the treaty (with the wording of which your Lordships will be pleased to hear I shall not weary the Committee) allow us to be taken for unlimited fines to the Luxembourg Court if either the Commission or one other member state considers that we have failed to fulfil an obligation under the treaty.
I would have thought that the clauses that I have just identified place the clearest possible obligation on us to run our economy on strictly communautaire lines at least. So, it does not take a great leap of imagination, if we prosper by staying out, to see us being taken to the Luxembourg Court for unlimited fines for such anti-communautaire crimes as, for instance, "exporting unemployment", "unfair taxation" or—perhaps a better one—"competitive devaluation". Nor does it take much imagination, especially in view of the saga of our opt-out from the social chapter, to foresee how the Luxembourg Court will behave.
Our economy may already have been more constrained than most people realise. To clarify this doubt, could I put one question to the Minister about the stability pact into which the previous government entered on our behalf? Although I appreciate that the Chancellor of the Exchequer at the time, my right honourable friend Mr. Kenneth Clarke, may have wanted to join the pact in any case given his well known affection for the whole European adventure including EMU, can I ask the Minister whether the UK could have stayed out of that pact if it had wanted to do so, or would the clauses that I have just mentioned and perhaps others, and the fact that we are committed to stages 1 and 2 of EMU, have been enough to force us to join that pact anyway? I would be most grateful if the Minister could enlighten us on this point when he comes to reply.
I also hope, in a rather forlorn sort of way, that the Government will accept this amendment for the reasons given by the noble Lord, Lord Shore, and others who support it, and also for the reasons I have given above, and no doubt many other good reasons about which we shall be hearing from other noble Lords. If the Government were able to do so, the signatories to the Amsterdam Treaty would be forced back to the negotiating table and Europe might have one last chance of avoiding the impending catastrophe which is EMU.
If this does not happen—I speak as a good European with friends and business associates in every European country—I fear that the future is bleak indeed.
6 p.m.
Lord Peston: I assure my noble friend, and indeed other noble Lords, that I do not regard him as barking mad. I do not think that the Committee wishes the subject of asperity of speech to be raised a second time this week, but in a slightly choleric mood perhaps I may return to Amendment No. 1. I am sure that the noble Lord in moving that amendment—I am sorry that he is not now in his seat—did so with the best of intentions, but the Committee appears to have interpreted what was said then as opening the gates under the rubric of this Bill to discuss any subject it likes as long as the word "Europe" appears in it. To take an obvious example, if I wished to table an amendment that the World Cup in 2006 rightly belongs to our country rather than our European partners in Germany on the basis of the way that the Committee is currently proceeding I believe that that would be an acceptable amendment. Many noble Lords would rather be debating that than the present rather peculiar amendment.
Cholerically, two matters trouble me. First, I believe that we should debate the Bill before us. We have the highest ratio of amendments to size of Bill that I have seen in all my years in this Chamber. The noble Lord, Lord Moynihan, promised us many more amendments. That is bad enough. Secondly, we have two amendments grouped, neither of which has been spoken to by the people in whose names those amendments appear. Not a word has been said about Amendment No. 27. I do not intend to speak to it either, although it is not uninteresting. Even in relation to Amendment No. 1, the only noble Lord who spoke to Amendment No. 2 was the noble Lord, Lord Taverne, who tried to interpret the amendment. In introducing the amendment, my noble friend did not offer any explanation of it. No one else has offered any explanation from that moment to this. I hope that this does not set a precedent for how we shall proceed with this Bill. I fervently hope that my noble friends on the Front Bench have no intention of extending the number of days to discuss this little Bill beyond those to which we are already committed. Those are my acerbic remarks and now sweetness and light will follow.
My general position has been that, starting from scratch, the economics of EMU have always been well balanced. I have great respect for those who are doubtful, even though I believe that on balance the case is better made for entry, but I have never been apocalyptic on this matter. However, starting from scratch is not a decision that confronts this country at the moment. As the noble Lord. Lord Howell of Guildford, has pointed out, the question at the present time is what we should do given that it will go ahead. If it were my choice—it is not—I would go in at this stage. I can well understand why my right honourable friend the Prime Minister feels that that is not possible, but I am sorry that we have reached such a position. As someone who is proud of the greatness of our country, to wait and see does not inspire me with the notion that

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we are terribly courageous. I wish we were. But there is no point in arguing the point, because it will not happen. What happens in due course depends on the practicalities. However, I am concerned that because of that the people of our country are very doubtful and bewildered. Until our leaders to whom the public listen—I do not include myself among them—speak out in favour of it, the people of this country will remain bewildered and doubtful. I do not believe that is good, certainly not as we enter the next millennium.
Having said that, I should like to deal with one or two technical matters. Noble Lords have referred to optimum currency areas. This always fills me with despair. It is the standard comment. Elementary economics is turned into serious policy-making in ways which suggest that those who do it have not quite grasped what the subject is all about. I take an obvious example. Almost all the evidence of which I am Aware shows that the United States of America is not an optimum currency area. When I taught in that country, one of the favourite exam questions to be set was whether it would be advantageous for West Virginia, which at that time had serious economic difficulties, to have its own currency so that it could devalue. One was easily able to demonstrate that the incredibly successful United States—perhaps the most successful economy in the history of the world—was not an optimum currency area. The moment one understands that, one realises how preposterous are the economists as against people who live in the real world. I am not even convinced that the United Kingdom is an optimum currency area, or has been for a long period of time. I utter a word of warning in relation to those who refer to an optimum currency area against EMU.
I was very puzzled by one matter referred to by the noble Lord, Lord Howell of Guildford. He thought that our interest rates were higher than those of the Germans as part of the present cyclical position. But he well knows that our interest rates have been higher than those of the Germans for 17 of the past 18 years. It is impossible that our interest rates should be higher than those of the Germans because of the present cyclical position. Our interest rates are higher than the Germans' because of the failure of our monetary policy, acting alone for the past couple of decades, as our central bank is a good deal less credible than the Bundesbank, not least with regard to inflation, but also with regard to other matters.
Perhaps I might put to the Committee the point which I have put before paradoxically: my judgment is that the one country that would benefit from EMU is our own. The real puzzle is why the Germans think that they would benefit, but that is their problem, it is not mine. The one country in terms of the history of policy that should be grasping the chance of going into EMU is ours.
On convergence, much of the earlier debate was about financial convergence, about which my noble friend Lord Grenfell spoke. My view is that financial convergence is sensible. The 3 per cent. criterion in terms of average budgets over the cycle makes good sense, and I speak as a Keynesian economist. It is not saying a zero budget; it is referring to the cycle. I should
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have thought that that was not a bad policy, broadly speaking. I am not generally so certain about the 60 per cent., but that is another matter.
Members of the Committee have referred to real convergence. Real convergence is an entirely different matter. I have to say two things about that. First, if real convergence is what is required, it is just not possible. There is no real convergence between the individual states of the USA. I doubt whether there is any real convergence between the individual parts of the German Federal Republic. Real convergence is not only impossible; for anyone who has any knowledge of the market economy, it is not even desirable. The whole point of a market economy is that it is dynamic and does not become stultified into something one would call real convergence. I hope that those Members of the Committee, whom I respect, who are doubtful about EMU do not go down that path, because I do not believe it makes any economic sense whatsoever.
We should not study the European Union and its economic policies as if somehow, as a result of this, they will be set in stone. We are doing something that I hope will last for a long time. We will learn from experience of what is happening in Europe. I do not doubt—I am sure that the noble Lord, Lord Pearson of Rannoch, is right—that the enterprise will run into difficulties. I have never known anything happening in the economy that did not run into difficulties. The question is whether those involved in taking decisions will be capable of learning from experience. Will they, on the basis of economic and monetary union, be capable of building upon it and developing methods which will deal with the problems that arise? I have no doubt that there will be regional problems and regional unemployment problems.
One of the matters that troubles me about the unemployment in our country is that we do not get rioting in the streets. I wish that we did have a bit of rioting in the streets so that politicians might be less anxious to create unemployment. I thought that the noble Lord, Lord Tugendhat, was right in what he said about his noble friends. He should know that I, at least, was not happy to pay the unemployment price of getting down inflation, for obvious reasons: I did not pay. I have never been a believer in advocating others to pay the costs when I get the benefit.
I do not believe for one moment that as Europe advances the relevant decision makers, whom I regard as still and continuing to be national leaders, will behave in the foolhardy, straitjacket way that the opponents of this new development have said that they will. One noble Lord—either the noble Lord, Lord Pearson of Rannoch, or my noble friend Lord Stoddart of Swindon, with whom I always want to agree—said that he hoped to have a great many more debates of this kind. I end by saying that I hope we do not.
6.15 p.m.
Lord Beloff: Perhaps after that intervention by an economist, with the typical irresponsibility of that profession, I can bring the Committee back to considering the facts that we are discussing. One thing

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that has struck me about previous speeches, especially those made by my noble friend Lord Tugendhat and the noble Lord, Lord Taverne, has been that there is this picture of a Europe—if you like 11 countries of Europe—determined on creating economic and monetary union, and about to achieve that within, I agree, a matter of weeks.
The fact that that may come about in a matter of weeks should not disguise what seems to me the most neglected part of the discussion hitherto, which is the fact that none of the 11 countries is doing it for the same reason or approaching it in the same frame of mind. There are exceptions. If nothing like this had come about, it is conceivable that the Netherlands, with its position as the output point for German industry, might have felt that it was happy having the same currency.
If we go outside the narrowest core, we find different approaches, and those are manifest to us through the discussions that go on. After all, we learn from the Bundesbank and various German statesmen that the ideal for which they are aiming is a European monetary system, controlled by a European bank which would be as like the Bundesbank as possible, and determined to make the curtailing of inflation its main purpose and objective.
On the other hand, the French—without a Franco-German combination, we should not be looking at a European Union at all—look at it differently. They have consistently said that there must be political input into these discussions, and even so great a Euro-enthusiast as the noble Lord, Lord Grenfell, admits that the stability pact will operate only under certain political controls; it will not be automatic.
They have not, as far as I know, been able to agree on who should hold the important post of president of this new bank, as though there were a contest in this country as to whether Mr. Eddie George, with his well-known opinion on various economic matters, or some other person, holding totally different views, should occupy the post at the Bank of England.
Should not we at least agree that it is a system which is constructed by different countries, for different reasons, with different measures of popular consent? It is well known, and has been referred to by various speakers, that a test of public opinion in, let us say, Germany will produce a negative, and a test of public opinion in Italy will produce an enthusiastic positive. Should not that be a warning?
My noble friend Lord Howell of Guildford referred to the case of Ireland, which has hitherto, of course, done very well out of being a sort of pensioner of the European Union, and obviously is enthusiastic for further immersion into that system. But what will happen if Ireland goes in and the UK stays out, as a great deal of Irish trade, and Irish economic relations, are with this country? They will be part of a euro which is likely, according to many respectable economists—perhaps not the noble Lord, Lord Peston—to be a rather weak currency, while it looks as though sterling will continue to be a rather strong currency. So they will find
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themselves in a position which they do not share with other countries for which the UK is not of particular importance as an economic partner.
We must recollect that the idea of popular participation in decision, which some noble Lords seem to believe would be important because they want the country to be enlightened, is not and cannot be a feature in many European countries. I very much doubt whether walking around the streets of Seville or Granada one will find anyone who can explain in detail what is meant by a single European currency. In most countries, as with the other aspects of this European venture, a limited elite are enthusiastic since they occupy positions of power in government and in the economy and they see this as a way of increasing their positions of power.
It is not therefore a very hopeful prospect. We heard the metaphor about a train rushing along and we were told, "You cannot stop the train". I agree that we probably cannot stop the train; folly is endemic in the human condition. All I worry about is the maiden who is strapped to the sleepers—this country—and I should like to detach her. That is the only consideration which I believe should influence us. What worries me is that we have deciding this matter for our country a Chancellor of the Exchequer who takes the extraordinary view that politics is one thing and economics is another; that you can settle something on what he calls "purely economic criteria". I do not believe that Adam Smith would have had much sympathy with that point of view and therefore I worry for our maiden.
Lord Grantley: My Lords, it is only rarely that I seek to inflict my views on your Lordships' House. I am tempted to do so on this occasion owing to the quite extraordinary nature of the debate. In all other member states of the European Union the governments put forward the argument for joining the EMU as expressly political. In their minds, there is no pretence that one should join the EMU for purely economic reasons. For some reason, the United Kingdom appears to be the only member state in which the political aspect of EMU is ignored and arguments are put forward for purely economic reasons. Actually, so far as I can see, they are put forward for no reasons at all.
In today's debate, it has been remarkable how few arguments have been advanced for the idea that the economy of the United Kingdom will benefit through membership of the EMU. The nearest suggestion I heard came from the noble Lord, Lord Peston, that in the past economic policy in the United Kingdom, in particular monetary policy, was not well conducted, whereas in other European countries such policy has been better conducted. The noble Lord is right in saying so.
However, that is not an argument for saying that that relative comparison is bound to endure for the future. On the contrary, we see significant changes in the conduct of economic policy, specifically monetary policy, in this country as in other European countries. We in the United Kingdom are now enjoying the benefits of the lowest long-term interest rates on gilts for many a year, reflecting the fact that our economic policy is being well conducted. I congratulate Her

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Majesty's Government on their role in this matter. It is due to the Government's abandonment of socialism in its economic form that we are currently enjoying such a high quality of economic, and specifically monetary, policy. There is no reason for pessimism or a belief that in the future if we stay out of EMU our economic policy will necessarily be conducted worse than that of the European Union as a whole.
However, because we are reluctant to acknowledge that the main motivation for EMU is the desire on the part of other member states to have a political union, its proponents in this country are forced to produce an ever increasingly fantastic series of assertions as to why it is in our interests to join. One of the assertions made by a speaker earlier today was that if the amendment were passed the markets would punish us. The situation happens to be precisely the opposite. Whenever during the past 12 months the Government looked as though they were tending towards joining the EMU, sterling fell in relation to other currencies. At moments when it looked as though the Government were backing off joining the EMU, sterling rose. That shows that the markets believe that sterling is a safe haven in comparison with a relatively weak euro. Generally, the markets believe that the euro will not work, and I very much share that opinion.
The other assertion which I thought was quite extraordinary was that the economies of the other member states of the European Union are converging as demonstrated by the cases which they put forward recently to suggest that they have all satisfied the Maastricht criteria. I do not know whether I am living in a different world, but what I thought was particularly noticeable about the cases which the countries recently advanced was that for the most part they were based on fudge. We heard fudge from the Germans, fudge from the French and fudge from the Italians—and they are only the best known instances. It is deplorable that the countries were able to go to the European Commission in advance in order to obtain pre-clearance of the basis upon which they fudged their figures.
That has been exposed most noticeably by the directors of the Bundesbank in relation to the fudge by Germany. If anyone is entitled to be listened to with credibility on the subject of the economic consequences of EMU, I suggest that it would be the directors, and in particular the former directors, of the Bundesbank. When it comes to talking about sound money, they have more credibility than any other set of authorities within Europe. We know very well that the opinion of the members of the Bundesbank board is that from an economic standpoint EMU would be a disaster.
Surely, the case against our joining the EMU is simple. It is that we would forgo the ability to set interest rates with reference to our own conditions. To be able to do that is merely one of the aspects of political independence. It is a pearl of great price. Why should we throw away that pearl of great price without any obvious reason for doing so? The noble Lord, Lord Tugendhat, introduced a red herring by saying that in today's global economy no country can operate economically independently of others. That is true, but the analogy is not precise. What we ought to have for
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ourselves is the same degree of independence to set our own monetary policy with reference to our own conditions as, for example, the authorities of Switzerland have in setting interest rates to suit Swiss conditions or as the authorities of Singapore have in setting monetary policy to suit the interests of Singapore. Switzerland and Singapore happen to be relatively small countries, but the noble Lord's suggestion that small countries find it difficult to set suitable monetary policies to suit their own purposes is destroyed by the example of those small and successful countries which have set monetary policies to suit their own interests. There is no reason why we should not do the same.
If we were to join the EMU we would find that it would be the merest coincidence if the interest rates referrable to the European Union as a whole were appropriate for ourselves. It is almost certain that we would find that interest rates would be either too high or too low. The noble Lord, Lord Howell, mentioned the dangers for individual member states finding that the interest rates applicable to them post EMU are too high or too low. In the case of interest rates being too low there would be boom followed by bust and in the case of interest rates being too high there would be recession, followed by depression, followed by the possibility of a great deal worse.
I wish I were a prophet. I wish I could see through to what will be the ultimate consequences of EMU going ahead. But I believe that the apocalyptic scenario is not necessarily to be dismissed. I cannot see the stability pact working. The idea is fantastic that, when one is in a situation of depression, when one cannot keep the fiscal deficit below a stated proportion of GDP, then one will have to pay fines. By definition, in a state of depression one's fiscal deficit will be on the increase and one will need to reduce taxes to take up the strain of not having an independent monetary policy to suit one's own conditions.
6.30 p.m.
Lord Grenfell: I am grateful to the noble Lord for giving way, but I do not know whether, by chance, he had in mind some remarks I made earlier. Once again, I should like to emphasise that there is no question of fines being imposed on a country which has gone deeply into depression—asymmetric shocks possibly produced by external factors. To me a deep depression would mean a loss of about 2 per cent., if not more, of output. It just will not happen. There will not be fines.
Lord Grantley: I sincerely hope that the noble Lord is right. But I wonder whether there are any circumstances under which any member state in future will consent to paying a fine as required by the conditions of the stability pact. To me, it seems to be politically unreal. I know that the noble Lord has vast experience in those matters of the political and diplomatic realities or otherwise. But to my mind, it simply lacks credibility and I believe that the markets share that view.

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I conclude by saying that if I were Her Majesty's Government, I should wish to make a commitment that we would never ever join EMU because it is completely contrary to both our political and economic interests. For that reason, I support the amendment.
Lord Ashbourne: I rise to support these amendments moved so ably and cogently by the noble Lord, Lord Shore of Stepney. I am not an economist and I shall not detain the Committee long. I wish to make one point and it is in relation to what I shall describe as the "pensions bombshell" or, put another way, what the House of Commons Social Security Committee, under the chairmanship of the right honourable Member for Birkenhead, Mr. Frank Field, described as the "pensions timebomb".
The UK has a massive private pension fund of £;600 billion, more than the combined total of all the other member states. In round figures, in the UK our pensions liabilities represent 19 per cent. of GDP; in France, they represent 98 per cent. of GDP; in Italy, they represent 113 per cent. of GDP; and in Germany, they represent 139 per cent. of GDP. A single currency will result in harmonisation of all taxes in the EU, so European Union pensions are likely to cost the UK taxpayer no less than £;1.2 trillion, increasing our national debt from £;5,000 per head of population to £;30,000 per head of population.
Jacques Delors has declared that,
"with a single currency, all members of EMU would become liable for debts of any single country of that union".
Continental politicians seem to understand that, but we must ask whether Her Majesty's Government understand it. I ask the noble Baroness who is to reply on behalf of the Government whether she will explain to the Committee in the clearest possible terms how the Government intend to fund that enormous pensions deficit.
Lord Bruce of Donington: It is always a pleasure to follow the arguments of the noble Lord, Lord Ashbourne, with regard to convergence. Although I propose to touch on that matter lightly at a later stage, it is already clear—and I trust that my noble friend Lord Peston has taken note of it—that some rather creative accounting has been adopted by some of the member states in order to attain the required convergence criteria as laid down in the Maastricht treaty.
Be that as it may, I observed at an earlier stage in the debate that my noble friend Lord Randall suggested that this debate was redundant anyway; that there was no point in holding it; that the matter had been resolved already by the signature of the treaty itself; and he could not see what all the fuss was about. Perhaps after he has been in the House a little longer he will be aware of the traditional purpose of this House, which is, among other things, to give the other place the opportunity to think again about certain controversial matters.
It has been agreed generally in both Houses that your Lordships' House has frequently achieved an admirable purpose in securing that. According to our parliamentary
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practice in this country, the assent of the other place and the assent of this House is required before a treaty is ratified. The treaty has not yet been ratified. I do not see any reason why we should shorten our parliamentary procedures in order to avoid a debate on it.
Perhaps a little unusually I propose to adopt the advice which this House very often gives to another place; to suggest that everybody thinks again about this, nothing more and nothing less. Matters are not quite as clear as they sometimes appear from the utterances of the more forthright advocates. This is one of those cases. I must plead guilty to not being backward in stating my views with some frankness. I believe that that is all to the good of Parliament.
Indeed, this discussion that we are holding this afternoon is not taking place in a vacuum. It is taking place within a current climate of opinion in our country. The matters that we are discussing receive the attention occasionally of the BBC and sometimes of the various broadsheets, yea even unto the Sun. Therefore, we are not talking about the whole question within a vacuum.
I venture to suggest to the Committee that perhaps there are some delusions about. They have been due mainly to people talking in terms of generalities. Such picturesque terms have been used as "missing the bus", "being late for the train", "being not at the core of Europe" and other such quite meaningless observations that have no relevance at all to what is in fact happening in the real world.
I suggest that by a combination of those factors and the massive propaganda that has been forthcoming, not entirely without the financial aid provided by the European Commission itself, there are three illusions or delusions that are current. The first delusion is the nature of the present European system, the EEC system itself. The second delusion is that it can work. The third delusion is that it is bound to work in the future because it could not possibly be a failure. Those views are expressed in very general terms.
I should like to examine each of them as impartially as I can—and there is some doubt about that, I am well aware. But what is the EEC system at the moment? Let us consider its characteristics. It is, of course, a competitive economy in general terms throughout the various countries in Europe and in varying degrees. But there is substantial deviation from that in the CAP itself, which propounds an economic method of conducting our farming affairs which is totally at variance with the basic concept of competition. Indeed, ever since 1975, when I first joined the European Parliament, its total reform has been under discussion. It is nearly a quarter of a century since everyone who articulated on it agreed that the CAP was a complete disaster.
What then is the system? It is simply that. But the other characteristic of the system is that its component parts, in terms of its institutions, are not accountable to anyone. The European Commission is not accountable to anyone. I have no doubt that it has many admirable people working in it; and, indeed, some of them are known to me. Some of them are distinguished; some of them are less distinguished. I would not presume to try to differentiate between any of them personally.

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However, I invite Members of the Committee to consider that those organisations are not necessarily the last word in economic, financial or business affairs. I have not heard anyone say that they have any special claim to our affections on that ground. They are not accountable to anyone. Yet they are the principal engine of the policies. They are the principal authors and instigators of the various treaties that we are considering. But what special qualifications do they have for that? To whom are they accountable? Where is democracy?
I am a little old fashioned in that in my earlier political days, from 1935 onwards, I was a great believer in democracy—I still am. However, I do not see anything democratic there. I can see bureaucracy and it is clear that the bureaucracy has become enormously powerful. Nor can the possibility be excluded—I put it at its mildest—that they may possibly be considering their own interests, their own futures and their own professions rather than of necessity the welfare of the people whom they are seeking to influence.
The same applies to the European Central Bank. It is appointed; it is not responsible to anyone. There is no democracy there. The same also applies to the other institutions. There is the European Parliament itself. What claim do those involved have to be democratic other than having one Member of Parliament per half a million electors, most of whom they will never see? Certainly they have no claim in the ordinary sense to be "representative" as we understand the term. So there is a democratic deficit right from the beginning.
Lest it be said that the Council of Ministers is democratic, I should point out that it has no opportunity to be so. It can act only on the proposals coming from the Commission. That is enshrined in every presidential declaration. Every meeting of Ministers issues a communiqué afterwards. The democratic viability and the accountability of these very powerful organisations does not seem to be called into account.
I respectfully suggest to the Committee that you cannot try to determine policy downwards, without any consultation with people. Ultimately, policies in organisations must always be determined bottom upwards. What has been sought to be done is to impose from above a system to which we are required to conform. I do not believe that that is a very good precedent to follow. You cannot hurt institutions; you cannot even hurt countries: you can only hurt people or benefit them.
What has been happening? Has the system worked? From what I have heard this afternoon it seems that the policies which have been introduced throughout Europe over the past five to 10 years have produced a situation where we now have 20 million unemployed, and that figure is still rising. Since when has that been equated with economic success? I am a little surprised sometimes to note a sudden conversion, not least among those with whom I would normally regard myself to be politically associated, to the view that unemployment is at tolerable levels in this country; whereas the policy in the past has definitely been that unemployment is a price well worth paying. Yet, at present, we seem to be
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accepting that unemployment at a real level of about 3 million here, which is on a comparable basis with unemployment when we left office in 1979, is somehow success.
Therefore, even on those grounds, the deflationary policies (that have been elaborated, once again, under the same auspices as the Treaty of Maastricht and the Treaty of Amsterdam) which we are now required to follow, not merely by argument but actually in a treaty, have proved to be completely disastrous for a large proportion of the population, not only of our country but of Europe as a whole.
It has not succeeded; on the contrary, it has failed. Yet the Euro-speak on the subject claims that it has all been a wonderful success. I hope that my Government will be able to convince me that the formal incorporation into the treaty and its confirmation under Amsterdam, subject to certain penal conditions, is the state of affairs that we should not only tolerate but also support. As noble Lords have pointed out, we live in a competitive society. Yet, when it comes to action in the monetary field, we find suddenly that competition is going to disappear.
Economic and monetary union—so far as Europe is concerned—is the financial form of the common agricultural policy. It tries to fix things by convergence; on what intellectual basis I do not have the remotest idea. I have always thought that competition, subject to restraints affecting the difference between capital and consumer goods, is a good thing. But now we propose to try to abolish it over 15 member states, and possibly even more. This surely is not the way to secure optimal results in the financial services field, any more than it is in the agricultural field which has once again turned out to be—as is well known—an abysmal failure.
I suggest that we have to think about these things again. We often hear observations from this non-accountable body on the effectiveness of the regulations that it brings forth from time to time and which are of course incorporated—now almost automatically—into English law. What sometimes it forgets is that the regulations have brought havoc to large numbers of small businesses that have proved quite incapable of dealing with the regulations as they are translated into action by our own civil servants here and by our own bureaucracy. Scores of small businesses have been ruined because of the meticulous enforcement of regulations issued from Brussels. Incidentally, when those regulations are received by other countries, there seems to be a curious reluctance to enforce them whenever that suits the particular country concerned.
I do not need to remind the Committee of the gendarmerie looking on in France while British sheep are slaughtered and burnt. There are many other cases. It is well known on the Continent that there is a general tendency to obey regulations only when it suits. We of course are brought up in an entirely different way. We are all law-abiding citizens—at least I hope so. I venture to suggest that my noble friend Lord Grenfell may have some illusions about the stability pact—the text of the resolutions of which I read carefully last night—together

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with the origins of the treaty itself. He will find that the conditions of the stability pact, if he would care to re-read them, are not quite as inflexible as he may think.
The Earl of Longford: I do not think that anyone has ever dared to interrupt the noble Lord before but everything has to be done once. Is the noble Lord aware that when I was the Minister responsible for Germany 50 years ago the Germans were starving and, not long afterwards, the official view in the Treasury was that to tie ourselves to Europe would be to tie ourselves to a corpse? Does the noble Lord agree that the standard of living in Germany—in spite of recent troubles—is much higher than in this country?
Lord Bruce of Donington: I am sorry that I cannot answer the noble Earl as he did not articulate what he said sufficiently for me to hear him precisely. If he will try to use his nasal resonators, perhaps I can answer his question.
The Earl of Longford: I had better speak slowly. Is the noble Lord aware that when I was the Minister responsible for Germany 50 years ago, the Germans were starving, and that soon afterwards the official view in the Treasury was that to tie ourselves to Europe was to tie ourselves to a corpse? Does he not agree that the standard of living in Germany is still a good deal higher—in spite of recent difficulties—than it is here? How does he explain that?
Lord Bruce of Donington: Even conceding the point that the noble Earl makes that the standard of living in Germany is higher than our own—I gather that is a point that perhaps both the Government and the Opposition would wish to contest in view of their previous economic records—the noble Earl is probably equally aware that during his period of office as Minister responsible for Germany we in this country, at a time when we had suffered more than £;7 billion—at 1945 prices—worth of damage and destruction, rationed bread in order to feed the starving Germans. He might also remember that.
Lord Pearson of Rannoch: I hope I may go a little further than the noble Lord, Lord Bruce of Donington, in his answer to the noble Earl, Lord Longford. I am not sure that the picture that the noble Earl paints is quite as rosy as he thinks. At the moment unemployment in Germany is 11.6 per cent. and in this country it is only 5 per cent. Surely that is a reasonable yardstick of the well-being and standard of living of a country.
Lord Bruce of Donington: I agree with the noble Lord as regards the principle but not with his figures. The rate there is a good deal higher than ours; but ours is a good deal higher than 5 per cent. It is more in the region of 7 to 8 per cent. according to the method that was adopted in the 1979 parliament and by the previous Labour Government. But it is still to some extent immaterial.
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One of the claims that is made for Maastricht—and which is still reiterated as being in operation—is the deregulation that was promised under the provisions of the original clause 3a which dealt with subsidiarity. The Committee may remember that Mr. Major returned waving a flag and saying that he had secured a degree of deregulation. I am not in possession of the current figures. I assume that they are in the possession of my noble friend on the Front Bench. However, I gather that the number of European regulations that have been repealed because of redundancy is small and is probably fewer than the number of fingers on one hand. So deregulation has been a complete farce.
Surely it is a little disingenuous to say that everything is going well within the European Community. That cannot possibly be so. If it were otherwise, the Government surely have a remedy within their hands. My noble friend has a remedy in his hands that the noble Lord, Lord Henley, declined when he was in government and was questioned by me upon the subject. If they are so sure that everything is going well and should continue to do so, why do they not publish a cost benefit analysis? It is quite easy. The noble Lord, Lord Henley, implied to me at the time that it was so obvious that the whole system was beneficial to the UK that any cost and benefit study would be redundant. If it is all that simple, it would not be difficult to publish the statistical justification, but that has not been done.
We must face the fact that the system is not working; that the system is not what we think it is, and that even though it is not working, we have to pretend that it is. This is not a satisfactory state for any government to be in. I do not have any particular prejudice against the system as such. The noble Lord, Lord Tugendhat, confirmed to the European Parliament that when there I had done my very best to further the interests of my country and of the Community. That is my position today. Nevertheless I think that we have to pause before we go further because as day follows night you cannot bring real convergence into all the countries concerned. You cannot by mathematical sleight of hand pretend that they all have converged when a good number of the so-called convergent countries do not converge at all.
It goes right to the root of the matter. Here we have an economic and monetary policy, determined by the Commission in conjunction with the European central bank, whose only virtue is that its representatives are bankers. They have no other qualifications. So far as I know they have no political qualifications. Yet we are going to insist upon our currency being aligned and lost within one single currency despite divergences which undoubtedly exist between each of the countries concerned, the nature of which will make themselves known within a very short time indeed.
Has not the time come to acknowledge that a democratic system has to be democratically constituted and democratically accountable? When we can reach that stage, the utmost collaboration between the member states of Europe is very desirable. It is a concept I have continually supported. But to pretend that non-democratic, appointed bodies, responsible to no one but themselves, can do that by diktat from on top, by a flood of regulations, some of which go into our law

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without even touching down in Parliament and often without the knowledge of the Government, cannot be the right way forward for the peoples of Europe and of Britain. Why should it be?
There is the argument that there can be a financial distribution out of the European budget, financed of course by ourselves to a large degree. We have a deficit of £3 billion at the moment, which seems to have escaped everyone's attention among other priorities. That simply would not work. One cannot have the strains of economies within their own boundaries proceeding at different rates according to different traditions and languages without contemplating considerable diversion of funds.
How will one contemplate that? Even at present there seems to be a complete disregard in this country and in Europe as to the nature and extent of fraud in Europe. The latest figure for the past year is £2.5 billion. It will probably be exceeded this year. These matters at present have no democratic accountability even in this country. If one reads the Commons Hansard, as I do on a daily basis, one finds that most European matters go through on the nod at about 10.30 p.m. There is no accountability even here.
I suggest that we should be a little more cautious in giving blanket approval to matters that are against the best traditions of our country and against the most favourable developments. We should not give up these things lightly. Least of all should we allow the powers of our Parliament, and for the time being the Government representing it, to be subordinate to people who are appointed and have no accountability to anyone.
7 p.m.
Lord Taverne: I apologised earlier for having to be absent. However, fortunately my noble friend Lady Williams has taken full notes.
First, I refer to the remarks made by the noble Lord, Lord Ashbourne, about the pensions issue. How often does one have to answer this hoary old canard? The provisions of the Treaty of Maastricht are absolutely clear. Article 104b states:
"A Member State shall not be liable for or assume the commitment of central governments … of another Member State".
That is absolutely clear. Secondly, it is reinforced by the stability pact. It is then said that the countries will run into problems anyway. We were going to run into problems until the reforms of 1981. Why could we reform in a way which was rather harsh but was done nevertheless? Why could we get rid of our hidden liabilities without other European states being able to do so?
If one considers what has been done in other European countries, it is clear that this argument is a canard. The Germans have by their own laws to make sure that contributions match the benefits paid out. Of course those contributions are rising; they will have to change. The Germans are about to introduce a form of privately funded pensions. The French have made moves in this direction; they do not face a major problem until 2005. The Italians have made major
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reforms: the Amato reforms, the Dini reforms and the Prodi reforms. They have a long-term viable system in place. They face a short-term crisis which they are beginning to tackle under Mr. Prodi.
The Earl of Clanwilliam: Did the noble Lord say that the stability pact will be used to enforce proper arrangements for pensions?
Lord Taverne: The stability pact prevents one country having to bale out another country for its debts.
I turn next to an interesting speech made by the noble Lord, Lord Grantley. However, he made some strange statements. First, he said that no arguments had been advanced in favour of monetary union. There is a certain weariness about these debates. The arguments have been repeated time after time. We do not want to fight all these old battles. The noble Lord, Lord Peston, disposed in a refreshing manner of the argument about a natural single currency area. I thought that his speech was extremely refreshing. But when the noble Lord, Lord Grantley, said that no economic reasons were given by any other state, I wonder where he has been.
One regularly hears the arguments advanced that of course this will bring better investment because it will bring stability—stability of currencies. It is regarded as inevitable that if one has a single market one completes it by having a single currency. Those are economic arguments constantly advanced by other member states. To say that they never advance economic arguments is nonsense.
Lord Beloff: Of course that argument has been advanced frequently, but it happens to be nonsense.
Lord Taverne: I always like the humility with which the noble Lord expresses his opinions. I enjoy his speeches enormously, but he prevents this House being excessively polite. When he refers to Ireland, for example, as the pensioner of Europe, he is somewhat offhand in his appreciation of what has happened in different countries. Ireland has one of the best economic records of any of the European member states.
Lord Pearson of Rannoch: The noble Lord will agree that Ireland receives £2 million every day. It has been doing so for many years and will do so indefinitely until it agrees to vote against it. That has had an interesting effect on the Irish economy.
Lord Taverne: Ireland has had assistance, as indeed have other parts of the European Union. That is one of the reasons why countries such as Portugal have been able to move towards the average income of the European Union. Ireland has made extremely good use of those services. It has moved from 60 per cent. to 98 per cent. of the average income of the European Union. And the cohesion fund will stop being applied to Ireland because of the excellent use it has made of those services in the past.
There have been many references to the fudging of criteria. Again there is a certain arrogance about that. By remarkable efforts countries have achieved the criteria.

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People say that Italy has not done so, but even without the special Europe tax Italy would still be comfortably within the 3 per cent. deficit criteria. One should also remember that those criteria are not written in tablets of stone. They are not the be all and end all of tests as to whether a country is fit to join a monetary union. They are guidelines to indicate whether the country can comply with what really matters; that is, whether a country can sustain a low rate of inflation. That is the requirement—and it is one which countries have looked very much like achieving.
Of course dealing with inflation is not enough. One is looking for growth. It is remarkable that the countries of Europe have stuck to their plans regarding monetary union when going through a very bad patch and a deflationary period. Germany in particular has suffered from macro-economic deflation, largely as a result of unification. But the predictions of doom are somewhat misplaced. If one examines the scene in Europe at present, one finds that Germany and France are heading for a faster rate of growth than the United Kingdom. One should not adopt a somewhat patronising attitude to other countries which, according to some, seem to have managed their affairs rather less effectively than we have.
One thing that surprises me about the case put by the opponents of monetary union is that they totally disregard the enthusiasm for it that is shown in other countries. It is true that, so far as Germany is concerned, public opinion is hostile. It is also noteworthy that every time people in Germany have the chance to vote for a sceptic, they do not do so; the voting is very different from the way in which people express themselves in opinion polls.
Seeing the enthusiasm of other countries and their determination to make monetary union succeed, the question arises: are they all mad? According to the anti-Europeans, all those countries are absolutely mad to want to go for monetary union. An examination of their record shows it to be on the whole rather better than ours. We are not in a very strong position to lecture others about what is a sane economic approach. The political will is there; and there is therefore every reason to suppose that this venture will succeed.
Lord Stoddart of Swindon: Perhaps I may—
Lord Mackay of Ardbrecknish: As I shall speak only once, perhaps it is the turn of this side. I do not intend to speak twice before the Minister replies, so I think I—
Noble Lords: Order. Viscount Massereene!
Viscount Massereene and Ferrard: What is always forgotten when we debate the EEC is that those countries need us a good deal more than we need them. We have an adverse balance of trade with them. The corrupt shambles of the CAP costs every family in this country around £20 per week on their food bill. And now we are contemplating joining a single currency, sending all our
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gold reserves to Frankfurt and getting a whole lot of unelected bureaucrats in effect to run our economy. Are we mad?
Lord Stoddart of Swindon: It is not—
Lord Mackay of Ardbrecknish: At the risk of contradicting myself, I do wish to speak. I have spoken only once—indeed I am speaking for the first time. The noble Lord has already spoken.
Lord Stoddart of Swindon: It does not matter.
Lord Mackay of Ardbrecknish: With all due respect to the noble Lord, I think that he might wait until after the Minister replies; then he can speak again. That is the normal way in which a Committee stage is conducted as I recall. I do not want to argue with the noble Lord, but we cannot have people speaking a second time before the Minister has replied.
Lord Stoddart of Swindon: I give way to the noble Lord.
Lord Mackay of Ardbrecknish: The noble Lord, Lord Beloff, likened the European single currency to a railway train that was unstoppable and said there was a UK maiden strapped to the rails. I am beginning to think that this debate is unstoppable and I am the poor maiden strapped to the rails. That is why I decided to intervene.
I always find these debates difficult. We have had a fair number, and the only thing that has changed is the geography of the Chamber—I was usually sitting on the other side and the noble Lord, Lord McIntosh, was here. The arguments were much the same. A few new players have emerged, but, frankly, the debate shows all the signs of never having moved on very much.
I have the same trouble as I had when I spoke from the Government Front Bench—I am "buffeted" by the Europhiles and Europhobes. The Europhiles come on—usually, it has to be said, from the Liberal Democrat Benches—with the attitude that almost everything in Europe is brilliant, everything in Britain is bad and we should do exactly what the foreigners want on every occasion and never think for ourselves at all. I then find myself being pushed into an anti-European position. Then, to counter that, along come some of the Europhobes, and I am very quickly pushed back. I sometimes feel like something of a yo-yo in these debates. Nevertheless, I maintain my position. I believe quite firmly in our membership of the European Union. It is thoroughly sound. I campaigned for it in the referendum. Just occasionally I think some of the policies are daft. But some UK policies are also daft, and therefore the European Union is no different from any other government. Just in case the Front Bench Opposite get any ideas that I am talking about the previous government, I am thinking of the ban on beef on the bone, for example, and matters of that nature.
As I have said on a considerable number of occasions, the fundamental point is that we have benefited from being in a market of something like 370 million rich (in terms of the rest of the world) consumers. Some of the

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ideas put forward by those who would prefer us to leave the European Union are hugely out of date and we ought not to consider them too much. It does not do our country any service to be continually rehearsing arguments and battles long since gone, when the British people have decided in election after election that they want to remain inside the European Union.
There are many matters that the European Union ought to be getting down to, not just the single currency. It ought to be completing the single market. It irritates me slightly that the single market has not been completed. One example is the subsidies to the German coal industry. There are subsidies to state airlines, and British Airways is not being helped at all. Another example is the way in which financial services are still unable to penetrate the single market in the way they ought to. But those things will come about. A market requires, in the jargon, "a level playing field". It requires the rules and regulations to be made in such a way that they are fair to all countries and ensure that people can operate in every part of that single market. In addition, I should like to think that we can enlarge the Community and give to the people of central Europe the advantages that they were denied for 50 years when they were under the heel of the Soviet Empire.
The issue of the single currency has been introduced in a rather elegant way. The noble Lord, Lord Peston, complained about the first amendment, tabled by my noble friend Lord Moynihan. I think the real reason that my noble friend tabled the amendment was to allow the noble Baroness the Minister to come to the Dispatch Box and, so to speak, give an opening position regarding how she saw the Committee running, and also to introduce herself to the debate since she had inadvertently not been able to be present at Second Reading.
7.15 p.m.
Lord Peston: I have no criticism to make of the noble Lord, Lord Moynihan. My concern was that noble Lords might have interpreted what was said then to mean that they could go on to debate any subject they fancied from now on. I was hoping to hear it stated that that was not the agreement between the two Front Benches, but that we should at some stage debate matters to do with the Amsterdam Treaty.
Lord Mackay of Ardbrecknish: I believe my noble friend's idea was to have a structured debate. I must tell the noble Lord, Lord Peston, that in my experience, if the word "Europe" comes into it, some of my noble friends, and some of his, have quite enough imagination to introduce almost any subject they wish.
This debate in particular allows us to talk about the single currency—although, as I understand it, the single currency does not play much of a part in any of the new texts in the Amsterdam Treaty, as the Minister will no doubt say. However, I cannot gainsay the fact that the single currency is a very important issue at this time. In a debate on Europe, even though it relates to the Amsterdam Treaty, it is probably fair that we should spend some time examining the issue of the single currency.
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There are undoubtedly advantages in a single currency. Save for those who are entirely blinkered, most people see advantages. There are obvious advantages for those who travel about Europe and for business and commerce in Europe—there will be considerable savings in currency costs. I am not entirely sure why the banks should be in favour of a single currency. It seems to me that they will lose quite a lot of money. But there it is. I should not weep too much over the banks losing money.
We should be guarded about over-selling the business point. As noble Lords have pointed out, a fair amount of this country's business is not done in Europe. The ratio is roughly 50:50. It can be argued to he within a few points either way, but, roughly, 50 per cent. is with Europe and the other 50 per cent. is with other parts of the world. Currency transactions will continue to have to be done.
The problems which have been drawn to our attention fall into a number of categories. The first is the entrance criteria. There was considerable disagreement about whether some of the countries of Europe had fudged the entrance criteria. I have little doubt about this. Like other noble Lords, the noble Lord, Lord Taverne, pointed out in his usual heroic way that the countries had all done terribly well because they had grinned and borne all the difficulties and got there. I suspect it was a little of both. They have done quite well, but they have also fudged a bit and that seems to be the way in which they will all get into the single currency. As I have said on a number of occasions, undoubtedly the convergence criteria would be followed by any sensible government, whether or not the euro was there.
In the last parliament, speaking for the Treasury and the Government, I made clear that we would follow the convergence criteria. It had nothing to do with the euro but was because we believed it was a sensible economic policy. We have certainly done that.
Of course, as the noble Lord, Lord Grantley, said, the directors of the Bundesbank have pointed out their concern over some of the fudging going on and whether or not countries, including their own, have genuinely met the criteria.
The criteria are an important issue because, if a country is badly out of convergence, it will find it difficult to stay within what I would call the "corset" of the single currency. Once we move from the entrance criteria, we get into the territory of the stability pact. That pact is essential if the single currency is to work. Let there be no doubt in anyone's mind that if it is to work, there must be a stability pact to ensure that countries, having got into convergence, do not simply decide to ignore staying in convergence and blow the thing apart. It is important that the stability pact is not fudged and that people continue to meet the criteria which have been set down for entry into the euro.
I mentioned that one of the advantages of the euro would be that we would trade inside Europe on one currency. That would be a considerable saving. But there are two other aspects to the problem of the euro that cause me concern. First, the question of the rate at which we would go in and, secondly, what effect it would have. I know we are not going in right now, but one has to work

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on some kind of basis in these discussions. If we were to go in now at the present value of sterling, it would be extremely damaging to our manufacturing industry.
The noble Lords, Lord Peston and Lord McIntosh and I are spending a few happy hours on the Bank of England Bill. One of the issues we are discussing is the level of the currency. Perhaps I can tempt the Minister—I doubt whether I can because I tried on the Bank of England Bill and failed miserably, but it is worth a try—to suggest, within parameters, the value of sterling the Government would like to see in order to keep it at that stable rate for six months, two years or whatever, prior to them entering in the next parliament. That is what I understand their policy to be.
The noble Lord, Lord Taverne, seemed to want the value of the pound to be reduced. I was not sure how he would achieve the reduction that he wanted but perhaps when he returns he can tell us. That is one problem—the rate at which we think our currency ought to be pitched if we join the Community.
The second problem is to do with interest rates. Interest rates are a difficult issue and again they are part of the debate we are having on the Bank of England Bill. The Government are setting up a monetary policy committee in order to remove from the Chancellor of the Exchequer control over monetary affairs—a subject which my noble friend Lord Boardman mentioned earlier in the debate.
I worry about an interest rate policy which will try to fix the same interest rate for the whole European Union, or that part of it which is inside the euro. There could be real difficulties about it. Inside this country, over my political lifetime, there have been difficulties in fixing an interest rate which is required to deal with the south east of England when, at the same time, the Scottish economy is not in the same overheated position as the south-east's economy. The Scottish economy may perhaps be beginning to experience a stuttering recovery; then all of a sudden interest rates have been increased in order to deal with the problem of overheating, largely in the south east of England. It has been said for many years that when the south east of England sneezes, Scotland catches a cold. I am happy to say that under the sensible economic policies of the last government, the position changed. The Scottish economy came out of the last recession much quicker and better than the economy of other parts of the UK. For a little while, our unemployment rate was below the UK average. It is not any more; it is marginally above it. But the position has not been as bad in the last decade as it was in the three or four previous decades. I worry about single interest rates. I draw the Government's attention to the experience we have had in this country on single interest rates.
The United States was mentioned, particularly by my noble friend Lord Howell. He rightly pointed out that there are two factors which do not apply in Europe. They have not applied to date and I do not see them applying, despite the example given by a noble Lord who said that Switzerland managed it, as well as another country which I cannot recall, in quite different places, with little or no labour mobility. The United States has labour mobility in a way that we do not in Europe. We have a little labour mobility in the United Kingdom, perhaps more now than
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20 or 30 years ago because of the last government's successful sale of council housing. Council houses were one of the things that kept people immobile in this country, but the situation has changed and is better now. However, unlike in the United States, there is not much movement of the working population between one European country and another.
The second difference is that in the United States there are huge automatic transfers of money by the federal government from a more prosperous state to a less prosperous state. Those two points show that the United States is not a proper comparison with what the euro would be inside the European Community. We must be careful about looking at the United States as an example of a single currency which works well.
I am not an economist but I found the speech of the noble Lord, Lord Peston, very interesting, as I always do. It was not a lecture, it was an interesting speech about these matters; but it is a pretty uncertain science, if I may say so. I was intrigued to notice, when I read the Minutes of Monetary Policy Committee Meeting on 4th and 5th February, that Members of the Committee tied on the vote about whether or not to raise interest rates again or to keep them where they were. The Governor gave his casting vote in favour of keeping them where they were. There is a nice sentence which sums up my difficulties with listening to professors of economics:
"Uncertainty was a normal state of affairs in economic policy making and there was no particular reason to believe that uncertainty would he any less in a few months' time".
I do not think that I can look to the economists for certain guidance, when I read that interesting sentence.
Lord Peston: I do not wish to interrupt as we are desperate to have dinner, but there is no more important proposition in economics than the one which the noble Lord has just read out.
7.30 p.m.
Lord Mackay of Ardbrecknish: Clearly I am learning at the feet of the noble Lord some of the principles of economics. I thank him for that.
I shall not go on too long because I should not like to keep the noble Lord, Lord Peston, from his dinner. But perhaps I can shift to another aspect of a European single currency which worries me. I do not want to go on for too long about examples, but there are two essential common policies at the moment—there may be some minor ones, but there are two major ones. We have a common agricultural policy and a common fisheries policy. This evening we are discussing a third common policy—a common currency policy, if I can call it that.
I do not believe that many people will rush forward to dispute with me when I say that the common agricultural policy and the common fisheries policy leave a lot to be desired. Both contain some pretty mad aspects. For example, the common agricultural policy subsidises tobacco farmers for growing tobacco, whereas the rest of the European Union bans the advertising of the product that they are all being paid, heavily subsidised, to grow. That is one of a number of silly propositions. Storing vast

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amounts of food beyond their sell-by date is another silly proposition, and actually taking into storage the best of the product makes it even sillier.
I do not want to go too much into the common fisheries policy, but that is not a great success. It is not just a European policy. Many fisheries' policies around the world are based on some of the same principles and are equally failing in their objectives. But the common fisheries policy contains some silly aspects and there seems little chance of reform. I believe it was last July that "Dear Jacques" and "Dear Tony" letters on quota-hopping were exchanged and here we are in March, no further forward. Some letters have been exchanged; papers have gone to Brussels and we await, months later, some return. I give notice that I made a note in my diary to try to initiate a debate on the anniversary of "Dear Jacques" and "Dear Tony" if we still have not had a conclusion to that interesting exchange of correspondence.
My point is that those are two major common policies in the Community and here we are being asked to go into a third and—dare I say?—an even more important one than the other two; that is, the single currency. If it does not work or works in the same "iffy" manner as the CAP and the CFP, then all the economies of Europe could be in difficulty.
The interesting aspect of some of the debates we have had in this Chamber—unfortunately not today—is that we had the pleasure of hearing the noble Lord, Lord Dahrendorf. The first time I heard him I felt that he encapsulated better than I could exactly what I fear. It is simply this. As I said at the beginning of my contribution, I believe in Britain's membership of the European Union. I believe that the European Union has been a force for good for all the countries in Europe, including our own. My concern is that, if this common policy of having a single currency does not work or does not work well, then all the advantages that we have gained from our membership of the EU may begin to unravel, not just for us, but for all the people of Europe.
I hate the word, but in some ways I suppose I may be classified as a "Euro-enthusiast", though I am not a Euro-enthusiast in the way that most Members are on the Liberal Democrat Benches. I am certainly not a Euro-enthusiast when it comes to currency. My party has still to be persuaded that it is sensible for us to join. We took the view that we should judge joining when we felt that it was in the interests of the United Kingdom to do so. The Government have come round to agreeing with us that in this Parliament it is not in the interests of the United Kingdom to join. We doubt that it will be in the interests of the United Kingdom to join in the next Parliament because, frankly, we will still not know, well into the next Parliament, whether the project is working.
I do not know whether it is a Scottish phrase or a British one but I recall the words, "Suck it and see". I would prefer that "they" sucked it and "we" saw, and then we would be in a position to make a sensible judgment on behalf of the people of this country whether it is wise to join the single currency in the interests of this country and in the interests of Europe. As I said, my greatest fear is that we join it—or we do not join it; it does
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not matter whether we are in or out—and, if it does not work, the results for all the people of Europe will be dramatic and catastrophic.
Lord Monson: Before the noble Lord, Lord Mackay, sits down, perhaps he will clarify one point made towards the beginning of his interesting speech. He said that the EU is no different from any other "government". Was that a Freudian slip or does he consciously believe that in due course the EU ought to be granted all the powers of a national government?
Lord Mackay of Ardbrecknish: It was not even a Freudian slip; it was just a slip. Perhaps it would have been better to say, "from any other bureaucracy." However, I shall be careful when the noble Lord is listening to me.
Lord McIntosh of Haringey: I could see the relief on the face of the Leader of the Opposition when the noble Lord, Lord Mackay of Ardbrecknish, after a very heterodox speech from his party's point of view, rejoined the party line in the last few seconds. I felt that, "With one jump, Jack was free"!
I do not resent the fact that we have had a debate of this length on this subject. I certainly do not intend to use the briefs which make fun of the wording of the two amendments we are in theory debating. I do not even object to the fact that we are debating something which is neither in the Amsterdam Treaty nor in this Bill, as my noble friend Lord Shore recognised. Of course, it could be argued—and he went on to attempt to argue—that the growth and stability pact was something new and that we had to reconsider EMU as a result of the growth and stability pact. I shall have to remind him in a few minutes that the changes only clarify the procedures in Maastricht and do not impose any new legal obligations.
The debate is about EMU because Members of the Committee want it to be about EMU. Fine. Let me set out the Government's position towards economic and monetary union. First, we want the single currency to succeed. We all have a strong vested interest in ensuring that EMU is a success and good for prosperity, jobs and stability. It is also in everyone's interests that EMU is built on a firm and sustainable basis. The treaty is clear. EMU must be based on a high degree of sustainable convergence. We will take our responsibilities of the presidency seriously. We will use our presidency constructively and supportively during the crucial decisions in May on which countries should join EMU. In saying that, I recognise the force of the point made by the noble Lord, Lord Howell of Guildford, supported by my noble friend Lord Grenfell, that the real decisions will be made in May rather than in January next year, if they have not already half been taken.
We and our European partners are committed to launching a successful EMU on schedule on 1st January 1999. But I shall not comment on the economic positions of other member states now, except to agree with the noble Lord, Lord Tugendhat, that much of the effort that has been made to achieve the degree of convergence that has been achieved, has been worthwhile, regardless of whether anybody is accused of fudge.

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The Chancellor of the Exchequer said last October that in principle British membership of a successful single currency would be beneficial to Britain and to Europe. If the single currency is successful and the economic case for the UK to join is clear and unambiguous, then we believe that Britain should be part of it. We are pleased to have that confirmed by Members of the Committee from all sides of the House—Europhiles of all political persuasions—in the debate this afternoon.
The Chancellor set out five economic tests which must be met before the Government can recommend membership of EMU to Parliament and the British people. Those are: whether there can be sustainable convergence between Britain and the economies of a single currency; whether there is sufficient flexibility to cope with economic change; the effect on investment; the impact on our financial services industry, and whether it is good for employment. To share a common monetary policy with other member states represents a major pooling of economic sovereignty. The Government accept therefore that there are important constitutional considerations. That is why we are committed to a referendum—my noble friends should not be too pleased too soon—if we decide to join. However, we do not accept that there is a constitutional bar that outweighs the economic tests as the decisive reason why we might join EMU. The constitutional issue is a factor in the decision, not an overriding one. If the single currency would be good for British jobs, business and future prosperity, then it is right in principle to join.
The Government recognise the benefits of a single currency. A successful single currency will act as a complement to the single market. It will reduce transaction costs and exchange rate uncertainty on trade within the euro zone. It will make prices more transparent, boosting competition and providing new opportunities for companies to trade and invest. A successful single currency will deliver price stability, as a foundation for sustainable, non-inflationary growth. It will reduce the damaging effects of volatility on investment, employment and, ultimately, economic prosperity.
However, the Treasury's assessment of the Chancellor's five economic tests was that it is not in this country's interests to join the single currency in 1999. Neither flexibility nor convergence with the other European economies are sufficient at present to make joining EMU during the course of this Parliament in Britain's economic interests.
Barring some fundamental and unforeseen change in economic circumstances, there is no realistic prospect of Britain having demonstrated, during this Parliament, convergence which is sustainable and settled. So making a decision during this Parliament to join is not realistic. It is therefore sensible for business and the country to plan on the basis that, in this Parliament, we do not plan to enter a single currency. But in order to create a real option of joining early in the next Parliament, it is essential that the Government and business prepare intensively during the Parliament. In this way, we could join if the single currency is successful and if the people agree in the referendum we have promised.
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The Government are committed to a programme which is in the national economic interest and which will help satisfy the five economic tests: achieving macro-economic stability through sound fiscal and monetary policies; setting in place the right framework for low inflation through our reforms to the Bank of England and our commitment to monitor the inflation target in the light of the practices of the European Central Bank; ensuring that our fiscal rules and deficit reduction plan continue to be consistent with the terms of the stability and growth pact, underlining our commitment to avoid an excessive deficit; promoting greater flexibility in the UK economy and in Europe through our Getting Europe to Work initiative and making product markets work better by introducing new competition legislation; and negotiating to secure the best interests of our financial sectors and to open up the single market in financial services.
It is clear that the euro will affect the entire European business environment from 1st January 1999. It will have implications for businesses trading or investing in those countries which adopt the euro. I was able to give figures at Question Time this afternoon which indicate that for goods and services the share of our exports to the 11 countries which are on course to join the euro is almost 50 per cent. of the total; as the noble Lord, Lord Tugendhat, said, 15 per cent. of our gross domestic product.
The Government have established three complementary organisations to help preparations for EMU. Together they will examine and advise on the preparations needed, whether we are in or out of the single currency. I make this point to the noble Lord, Lord Taverne, who in his first speech talked about the necessity for preparations, whether or not we join.
First, the Chancellor set up a standing committee in September 1997 to oversee and co-ordinate preparations across the economy, in the private and public sectors, and to identify areas of preparations not being addressed elsewhere. The committee will produce an outline changeover plan by the end of the year, setting out the steps involved in joining EMU.
Secondly, the Business Advisory Group was established in autumn 1997 to look at the crucial practical questions, such as what UK firms need to do to trade in and use the euro in 1999. A report was published in January summarising the group's findings and conclusions.
Thirdly, the Euro Preparations Unit was set up in the Treasury with help from the DTI to provide support and help to business and public authority programmes. I was asked whether we recognise the needs of the public sector as well. The unit aims to ensure that British business and public authorities are ready for the introduction of the euro in other countries next year. It will also complete the necessary planning and preparation required to enable UK entry early in the next Parliament, if appropriate. A network of euro co-ordinators has also been established, one in each government department. Individual departments are now considering the implications of EMU for their operations. The DETR is helping local authorities to prepare.
7.45 p.m.
Lord Stoddart of Swindon: I thank my noble friend for giving way on this important point. The preparations which businesses have to make will be very expensive, particularly if we go into a single currency. While large corporations may be able to cover those expenses, smaller businesses may very well not be able to do so. Are the Government contemplating, and, if not, will they contemplate, some means whereby they can be assisted by public funds to do something which, after all, many of them do not want and which is powered by government here and indeed in the European Union?
Lord McIntosh of Haringey: I would tend to turn my noble friend's intervention on its head. I think it is in the interests of large and small business to prepare for economic and monetary union. Of course there will be expenses, but firms will be doing it because they plan to benefit from it. The help we will be giving to them will be because we want to advance the time when businesses, large and small, can benefit from EMU.
Lord Stoddart of Swindon: I am sorry to interrupt my noble friend again. He says that all businesses will benefit from the euro and the single currency. However, he has already said that only 15 per cent. of trade is done overseas. That means that 85 per cent. of trade is done within this country; and it is done largely by small businesses. I should like my noble friend to reconsider what he said because this will put a great burden on many businesses and they will get no benefit from it.
Lord McIntosh of Haringey: I am sorry if my poor articulation misled my noble friend. Fifty per cent. of our exports of goods and services are to the 11 countries which are on course to be applicants to become members of EMU. When I said 15 per cent., I was echoing the noble Lord, Lord Tugendhat, who reminded us that that represents 15 per cent. of gross domestic product. I repeat to my noble friend that the benefits for our businesses in working effectively with these 11 countries, which do receive almost 50 per cent. of our exports, are very great. We want to help them to achieve that.
Lord Pearson of Rannoch: I am not quite sure from where the noble Lord gets his figures. I have here an extract from the United Kingdom Balance of Payments—the Pink Book-1997 edition, produced by the Office for National Statistics and published by the Stationery Office in August 1997. That gives the proportion of UK world exports—visibles plus invisibles—as more than 50 per cent. going outside the 14 other countries of the European Union. In amplification of the point made by the noble Lord, Lord Stoddart, it seems that other statistics, which are not contested, show that about 80 per cent. of our economic activity takes place within the United Kingdom and that 20 per cent. of our economic activity goes to export. Of that, about 9 per cent. goes to the European Union altogether, which is reflected in the figures I gave the noble Lord earlier; and 11 per cent. goes outside the European Union. Therefore, the 80 per cent. figure that the noble Lord, Lord Stoddart, mentioned, is the percentage of economic activity that takes place in the
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country and it is accurate. In particular it is the small businesses which trade entirely in this country which will have no benefit whatever from this project. That may be why the Federation of Small Businesses voted to leave the European Union two years ago.
Lord Peston: Before my noble friend feels obliged to answer that, perhaps I may say that that was about as blatant an example of a complete misunderstanding of economics and trade as I have ever heard. There can hardly be a firm in this country that does not directly or indirectly either use goods and services imported from abroad or which exports abroad. As the noble Lord was speaking, I was trying to think of an enterprise that had no connection directly or indirectly with foreign trade and I found it impossible to do so. Simply looking around your Lordships' House, where we do not think of ourselves as being engaged in foreign trade, we are wearing and doing things which have aspects connected with foreign trade. That is precisely what the noble Lord is saying. It is as good an example of the misuse and misunderstanding of statistics as I have ever heard in my life. I am now willing to have the asperity paragraph read out, if necessary.
Lord McIntosh of Haringey: If my noble friend could think of a firm which was insulated from the outside world, it would have no costs in preparing for the euro, so there would be no problem.
Lord Pearson of Rannoch: I never said that those firms were insulated from the outside world. My own firm trades entirely overseas and in most of the major currencies. I merely said that 80 per cent. of our economic activity takes place within this country and only 20 per cent. of it goes outside, less than half of which—and this is where I disagree with the Minister—takes place with the European Union, if one adds visibles and invisibles together.
Baroness Nicholson of Winterbourne: At the risk of adding to the statistical confusion that has already been offered, I suggest that we should compare our own export trade with the need of other people for exports. We should recognise that most of our competitors need only to export between 10 per cent. and 12 per cent. of their products in order to keep up their quality of life. We, in common with Japan, have to export well over 20 per cent. Surely, it is a question of comparison with our competitors. We have to export considerably more and it is that which we are debating tonight.
Lord McIntosh of Haringey: We are more of a trading nation than almost any other country in the world. Of all that trade in the export of goods and services, well over 50 per cent. goes to the other 14 countries, as the noble Lord, Lord Pearson, has rightly quoted, and almost 50 per cent. goes to the 11 countries who are applicants for European monetary union.
I now turn to some of the interventions of Members of the Committee. I cannot deal with all of them. I want to say something first about the stability and growth pact which, as I said, as regards Amsterdam, clarifies and extends the procedures of Maastricht, but it does not carry with it any new legal obligations.

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Perhaps I may make clear that some of the fears which have been raised about fines are exaggerated. There are no fines whatsoever on any countries which are not within EMU. We believe in keeping to convergence because it is in our interests to do so and for no other reason. My noble friend Lord Grenfell has reminded us that fines are not automatic. That has been made very clear. I remind the Committee that fines would require unanimity in Council in order for them to be imposed. It is the members of EMU who submit stability programmes and it is others, including ourselves, who will submit convergence programmes because, as I have said, it is in our interests to do so.
Lord Shore of Stepney: I am worried about the noble Lord's statement that no additional legal obligation has been placed on us by the two regulations which were issued in July 1997 at Amsterdam in relation to the stability pact. My understanding was that if those regulations are flouted or disobeyed, that can be taken up with the European Court of Justice, whereas what was in the Maastricht Treaty, while being pretty nasty, was simply declaratory.
Lord McIntosh of Haringey: I am confident that I am right on this. I shall respond when I reply to the noble Lord, Lord Pearson of Rannoch. If I have left anything out I shall certainly write to my noble friend.
What is proposed here, very largely, is what is called multilateral surveillance, which is not binding on member states. The noble Lord, Lord Taverne, said that the Government will have left an enormous area of uncertainty. I hope that my re-statement of our policy will leave him clearer than he appears to have been before. Of course, it would be wonderful if I could respond to the noble Lord, Lord Mackay, by saying what exchange rates and interest rates are going to be in four to five years' time. If I could do that I would join Mr. George Soros rather than survive on a ministerial salary in this House.
The noble Lord, Lord Pearson of Rannoch, in a wonderful speech, weaves a complex but entirely illusory argument that the United Kingdom does not have an effective EMU opt-out. First, as he himself recited, Article B of the Treaty on European Union says clearly that the objectives of the EU, including EMU, shall be achieved in accordance with the provisions of the treaty. That includes the United Kingdom's clear and explicit opt-out contained in Protocol 25 in the new numbering of the treaty. Secondly, the United Kingdom is indeed party to Articles 98 and 99, which require, for example, that they shall treat their economies as a matter of common concern. But the treaty also sets out very clearly the way in which effect is given to that notion, for example, by the broad economic guidelines procedure in Article 99. That makes it clear that, although the Council can make recommendations to a member state, its recommendations are not binding.
Of course, it is possible to fantasise that the European Court of Justice will fall on a few words taken out of context from the treaty and conclude from them that the explicit UK opt-out from economic and monetary union is not valid. But no one who knows anything of the
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European Court of Justice—in which the United Kingdom wins most of its cases anyway—could seriously believe that that is going to happen.
I was going to reply to the noble Lord, Lord Ashbourne, about what he called "the pensions bombshell", but the noble Lord, Lord Taverne, has done that for me. Article 104B is absolutely clear. Whether we join or not there is no bail-out. There is no provision that would require any member state to bail out any other member state for any shortfall in its debt recovery as a result of its pensions policy. There will, of course, be very valuable pressure on other countries to control their pension deficit and that must be to the benefit of all of us.
In view of the time I shall write to other noble Lords who asked me specific questions. Therefore I end by echoing what was said by the noble Lord, Lord Tugendhat. Economic and monetary union is going to go ahead. We shall be affected by it whether we join or not. It is not the case that we can be entirely independent of it out of EMU or in it. This Government want the single currency to succeed. If the economic case is clear and unambiguous we want Britain to be part of that success. In the meantime we are working together with British business so that we are ready for the launch of EMU on 1st January 1999.
Lord Stoddart of Swindon: I shall not keep the Committee very long. We have not discussed Amendment No. 27, which is unfortunate. I do not know whether it can be decoupled at this stage: presumably it cannot. I am given to understand that it can. In those circumstances I wonder whether when my noble friend winds up he might indicate that that is what he wants to do.
8 p.m.
Lord Shore of Stepney: I understand that, unlike in the other place, in Committee in your Lordships' House one has the great advantage of being able to return to a subject which one has raised even if one made a speech on it only two or three hours ago—
Noble Lords: Four hours ago!
Lord Shore of Stepney: Yes, four hours ago. Time flies!
I say first to my noble friend the Minister, for whom I have warm affection, that his speech disappointed me greatly. I find it almost incomprehensible that anyone speaking seriously about these issues can deny that there is a major constitutional issue involved in the abandonment of your national currency and the subjection of yourself, your people and your government to the rules of a treaty which you did not design, and to the rule of an unelected central bank based in Frankfurt. This is a disgraceful flight from self-government and from national responsibility. I shall not judge this matter wholly on economic grounds although I believe that, simply on economic grounds, the arguments are quite overwhelming. When it comes to the debate in the country we shall have seriously to address both sides of this great question as they are of almost equal importance.

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What I liked most about my noble friend's speech was his opening sentence. When the noble Lord who spoke from the Opposition Front Bench gave his view of the matter, I thought, like my noble friend, that we might be witnessing a remarkable revolt from that Front Bench against what I had understood now to be the new policy of the Conservative Party. Right until the end of his speech, the noble Lord, Lord Mackay, put the balance of the argument so heavily in favour of Britain joining economic and monetary union and the single currency that, frankly, it was difficult to draw any other conclusion. Of course, the noble Lord rescued it right at the end and I was glad of that.
The noble Lord referred to the difficulty that Scotland has often had within the United Kingdom when economic policy has been good for the south but difficult for the north. Yes, and we have all the ability to transfer resources nationally to the assistance of Scotland when that part of the United Kingdom is in difficulty. Has the noble Lord imagined what the effects would be of having a single central interest rate for the whole of Europe? It would magnify the problem way beyond anything that we have experienced within our own country where we have command over national resources to help areas in distress.
Lord Mackay of Ardbrecknish: I am grateful to the noble Lord for giving way. Clearly, in moving from one side of the Chamber to the other I have lost some of my skills. In making that point about Scotland and about the United States, like my noble friend Lord Howell, I thought that I was illustrating what I believe to be the dangers of the euro and the other side of the argument that I had put initially. I am not one of those people in politics who think that all the arguments are inevitably on one side. There are a number of pro arguments; there are a number of con arguments, and one must then make a balanced judgment. I thought that I had made it clear what my balanced judgment was.
Lord Shore of Stepney: I am grateful to the noble Lord for that clarification—as far as it goes—but I shall rely upon my own judgment as to where his judgment tilts at present.
I must advise my noble friend the Minister that I have some further queries about the Government's position towards EMU and, above all, towards the major meeting and the decisions that have to be taken on 1st May. I shall come to that point a little later. First, however, I should like to refer to those noble Lords who have directly challenged me on one point or another. I shall then comment on those who broadly agree with me, and finally I should like to pick up on some of the major points referred to by my noble friend Lord McIntosh.
As I have said, I turn first to those who challenged me. The noble Lord, Lord Taverne, started with a challenge. I plead with the serious-minded advocates of ever-closer European union and now the single currency and economic and monetary union, "Don't dismiss the argument because it comes from a known Euro-sceptic". This is a serious argument. If I were a Euro-enthusiastI am not—I would be desperately worried by this particular development in the policies of the European Union. Like the noble Lord, Lord Dahrendorf, I think that
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a more serious danger is now facing the whole European construction and Europe's prosperity than at any time since 1956. I ask the noble Lord, Lord Taverne, to take this argument seriously because if he does not, and if things go wrong, he will certainly live to regret it.
When the noble Lord, Lord Taverne, replied for the Lib-Dems, he gave me the first reason for mirth that I had experienced during the debate when he said that we were overlooking the "enthusiasm" of other countries for the single currency. The "enthusiasm"? There is no enthusiasm other than within the European political elite, within the classe politique, to which the noble Lord, Lord Beloff, referred in his short remarks. That is the group that wants EMU, but they dare not put it to their own peoples in a referendum. To pretend that the people of Sweden, Denmark or even of Germany are now in favour, by a majority, of the single currency is to misread the facts.
I know that the noble Lord is a serious student of these matters so I refer him to the last issue of Eurobarometer, which regularly carries out polling throughout the European Union, in which he will find that the latest poll shows that almost for the first time since the Maastricht Treaty the majority that always used to be in favour of a single currency has now become a minority. That is remarkable when one thinks of the extraordinary pressures that have been put upon people to persuade them of the merits of a single currency. Such pressures have been applied not only by national governments, but also by the Commission in its lead in the propaganda offensive. Think of the money that has been devoted to it and all the targeting of all the higher institutions of learning throughout the Community including, I gather, in the United Kingdom shortly, to persuade the people that all their worries and concerns should be forgotten because somehow, mystically, the single currency will bring about the great benefits of political union. Well, the situation is changing—and largely because, on their merits, the arguments simply do not stand up.
In dealing with those who rebutted what I said in moving the amendment, I turn now to my good friend, the noble Lord, Lord Randall, who is not in his place at the moment. He should not take too seriously what I confess is something more than a probing amendment, but which I tabled, above all, so that we could have a major discussion about a major issue which will affect our own people. This is part of the great debate because British democracy is real. We have a democracy and we must use it. We cannot simply just accept that governments do things on our behalf and that we hand over our powers to others and to other institutions that are no longer accountable to us. As my noble friend Lord Bruce stressed, this is about democracy and accountability.
I confess to the Committee my fears because I do not see how we can make our democracy work beyond the frontiers of our own country. Like sovereignty, it is confined within the territory of the United Kingdom. Democracy belongs here with us and cannot be shared with others; even less can it be claimed that sovereignty can be shared. We know that very well the moment we consider the European Parliament. That cannot be and is not a substitute for our democracy here. We have the

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reality of a national community and the bogusness of a European Community contrived in Brussels and in its various institutions.
Lord Grenfell: I thank my noble friend for giving way. Would he include or extend his theory of internal sovereignty to our membership of NATO?
Lord Shore of Stepney: I am perfectly happy with NATO. NATO does not write the laws of my country. It is a defence organisation from which I can withdraw at will, as General de Gaulle did for France. I am willing to co-operate with other countries to the nth degree but I shall not let them write the laws of my country, decide the taxes in my land and so on. I shall not do that because I am a British citizen. I also hope that I am a world citizen. However, I have had Euro citizenship thrust upon me without my consent. It is meaningless, and I think I speak for very many who have had similar experiences.
The contribution of my noble friend Lord Grenfell on the stability pact was very direct. It must be answered, and I shall now attempt to do so. Certainly there is an area of discretion and the matter must be considered. The fines are not automatic but they are semi-automatic. Unless one can plead a convincing case why one should not be fined one will be fined. That is the law of the treaty which is enforced by the European Court of Justice.
My noble friend's other point was quite correct. One must experience a fall of 2 per cent. of GDP in a single year in order to relieve oneself of the liability to pay a fine if one has an excessive deficit, but a 2 per cent. drop in GDP in an advanced western country is a calamity. We have not had it. We have had ups and downs. Our unemployment has risen to 3 million. The French have had 3 million unemployed and the Germans have nearly 5 million unemployed. In not a single year have they or we suffered a collapse of output or GDP of 2 per cent. We have had a fall of perhaps nought to I per cent., or even an increase of 1 per cent., of GDP. My noble friend should be aware that advanced western countries require a growth of output, productivity and GNP of no less than 2 per cent. per annum if they are to keep employment at its existing level. If we fall below 2 per cent., unemployment begins to rise, but our rate of growth of productivity is higher than 2 per cent.
8.15 p.m.
Lord Peston: Perhaps I might interrupt my noble friend since he made two erroneous remarks. GDP in this country fell by 2.2 per cent. in 1980 and 2 per cent. in 1990. It is simply not the case that that has never happened. It happened twice in this country under the leadership of the party opposite.
Lord Shore of Stepney: I should have said "since the signing of the Maastricht Treaty". In 1990 it was just over 2 per cent. In the remainder of those years we would have been eligible for a fine. Our fall in GDP was nothing like that; indeed, there was a modest growth. The point is that it is not much of a safeguard. I accept the minor corrections made by my noble friend.
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I depart from that rebuttal to deal with one or two other matters. I was gratified by the extent of the support that my amendment attracted in different parts of the Chamber. I was particularly struck by a point made by the noble Lord, Lord Howell, in his broadly supportive speech. He referred to the problem that might be faced by Ireland if that country subjected itself to a common interest rate based in Frankfurt.
I was very sympathetic to the comments of the noble Lord, Lord Boardman. His prediction that the next stage after monetary union would be fiscal union is all too correct. They will be pressing for it the moment European monetary union is finally established. I believe that the quotations of the noble Lord, Lord Monson—who is in his place—were very well chosen and not without significance. That previous almost fanatical European, Adair Turner, director general of the CBI, has now begun to come to his senses and have second thoughts about the whole matter. The noble Lord, Lord Beloff, was so right to emphasise that this matter has the support of the political elite in Europe but not of the people.
I turn to two outstanding issues. The noble Lord, Lord Tugendhat, who I understand cannot be in his place, went to the heart of the problem of EMU and the present convergence criteria. For so many at the heart of the matter is the 3 per cent. of GDP. The absence of borrowing and an excess deficit and, above all, insistence on price stability are at the heart of the arrangements for a European central bank, fixed exchange rates and so on. Basically this is a matter of political judgment. Very properly, the noble Lord, Lord Tugendhat, said that there was a price to be paid in unemployment for the degree of convergence with monetary criteria to which European countries had subjected themselves to qualify for joining the single currency. They have paid a very heavy price. To me, it is interesting and welcome to have the frank admission that that is the major cause of the massive rise in unemployment in Europe since the Maastricht Treaty was signed. There has not been much honesty about that in previous debates up and down the country. It is good to have it on the record.
That is a price which politicians must always weigh up also against excess inflation, but it is a balance and a judgment. If one is not prepared to allow the Ministers of one's own elected Parliament to make that judgment from time to time, one does not know what other aspect of democracy one would not defend from external takeover.
I believe that the criteria and the central bank, with its terms of reference, are a great mistake in the development of the European Union. The one matter that worries me about Europe—I am reasonably content with many of the events that have occurred, if I may assure the noble Lord, Lord Taverne, as to that—is that it may face many great difficulties if it has a continuing slump of the kind that it experienced in the 1930s. A great slump of that kind leads people to believe that they can do nothing to improve their lives because their governments are no longer responsive to them. What do they do? They begin to take to the streets. In France taking to the streets is almost a tradition. But occupying social security offices and burning sheep and beef have happened here also, have they not? They happened recently.

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Why are the farmers so enraged? It is because they no longer feel they can obtain any response from a British government. It is a not a British government who placed a world-wide ban on the sale of British beef. It is a European government who did that. There are many people in the farming community who, while they accept that other countries have an individual right to say, "We are not going to take your beef for our own good public health reasons", find unacceptable that someone is making that judgment for the rest of the world, as it were, against their industry.
If we find ourselves in the position where the economic policy and prosperity of our country, and, above all, unemployment, seem to be no longer in the hands of elected British governments, the traditional British belief in law and order, good behaviour and an acceptance of democratic decision-making will be eroded and may break down. It will be a great opportunity then for those who represent extreme points of view, an authoritarian government and chauvinism, as distinct from a decent regard for one's own country, to have their chance and their innings.
My last point takes up the question of the decision that has to be made on 1st May. My noble friend the Minister said that the British Government's attitude is: we want EMU to succeed. We want the single currency to succeed. We want it to succeed on a firm and sustainable basis. We shall be constructive in our approach on 1st May. Well, 1st May is not far away. Therefore it requires a bit more probing.
A firm and sustainable basis? That is what the convergence criteria were laid down to achieve. In Opposition my own party made a great deal of the fact that if the thing were to go ahead, it had to be on a firm and sustainable basis. The German Government have said the same, and the Dutch Government too. But what is the situation that has emerged in the past few weeks and months? Eleven nations in Europe have said that in their judgment they have converged and so they should be part of the single currency. Two of them have, indeed, fudged outrageously. The French have conscripted their telecommunications pension fund to close the gap in their borrowing requirements. The Germans have tried to monetarise their gold reserves in an attempt to close their gap. I am not sure whether, seriously considered, they have dipped below the 3 per cent., even taking account of those extraordinary manoeuvres, but if they have, the question arises: is it sustainable? When the pressure is off this year there is a considerable chance that the 3 per cent. GDP gap will re-emerge. That is not the only criterion, is it?
The other criterion built into the Maastricht Treaty is that one's national debt in relation to GDP should be not more than 60 per cent., but with the Italians at over 120 per cent., and the Belgians the same, they would seem to be self-evidently disqualified. Therefore the matter is quite a serious one. So who is to adjudicate? Eurostat, quite frankly, is corrupt—it is prepared to wave through the French pension fund without demur—the European Commission, which should perhaps sit in judgment and give a serious and objective report; Mr. Santer, the chief
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propagandist of the whole thing, who has done his utmost in his presidency to cheer it along? Well, he is hardly the man to deliver an objective judgment.
So, a great responsibility falls upon the presidency, does it not? How is the presidency going to react and behave? Is it going to be just co-operative and let the 11 through, or is it going to raise the question of honesty, genuine convergence and sustainability? We need some more information about that.
There is one report from an institution which I have not mentioned before which could be important. The European Monetary Institute, which of course is the precursor of the European central hank, is also to make a report. That report will be published on 25th March. I wonder what it will say? If it delivers a judgment adverse to a number of the self-proclaimed, "We are eligible member states", will the Government back up the EMI? Will they really act in the interests of Europe, because a weak unconverged currency, a weak euro, would surely break up, sooner or later, and have disastrous economic effects on the whole of the European Union?
Lord Bruce of Donington: I want to speak to Amendment No. 27.
Lord McIntosh of Haringey: We have not reached Amendment No. 27.
The Deputy Chairman of Committees (Lord Elton): Does the noble Lord, Lord Shore of Stepney, wish to withdraw his amendment?
Lord Shore of Stepney: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hoyle: I beg to move that the House do now resume. In moving this Motion, may I suggest that the Committee stage begin again not before 9.25 p.m.
Moved accordingly and, on Question. Motion agreed to.
House resumed

Greater London Authority (Referendum Arrangements) Order 1998
8.28 p.m.
Baroness Farrington of Ribbleton Baroness Farrington of Ribbleton rose to move, That the draft order laid before the House on 10th March be approved [26th Report from the Joint Committee].
The noble Baroness said: My Lords, as some noble Lords may be aware, since this order was considered and approved by this House last Tuesday, we have spotted a technical flaw which has necessitated its relaying in amended form. The error was in Article 6 of the order which seeks to ensure that the cut-off date for additions to the electoral register used for the referendum is the same as that for local elections happening on the same day. As drafted, the order provided that the last date for alterations to the register for the purpose of the referendum should be 20th March.
It has since been brought to our attention that 20th March is in fact the final date by which applications for late registration can be accepted for inclusion in the following month's local government register. Formal amendment of the register only takes place in the first few days of April. If interpreted strictly, the article might have led to some late registering voters being able to vote in the local elections but missing out on the opportunity to vote in the referendum.
I am sure that noble Lords will agree on the importance of taking immediate action to ensure that no London residents miss out on their right to vote in the referendum as a result of registering late. That is why we have taken swift action to lay an amended order and to bring it back before this House.
The only difference between this order and the one considered and approved last week by this House is that Article 6 has been amended to provide that the last date for alterations to the register should be 6th April rather than 20th March. This will ensure that anyone who applies to register up to 20th March will be able to take part in the referendum.
I apologise to noble Lords for the inconvenience of having to reconsider this order. But I am sure that your Lordships' House will accept that the Government have acted properly in seeking to put right this problem as soon as possible. I commend the order to the House.
Moved, That the draft order laid before the House on 10th March be approved [26th Report from the Joint Committee].—(Baroness Farrington of Ribbleton.)
Lord Burnham: My Lords, with reasonable luck, the debate will not last so long as the debate to which we have recently listened. I am happy to see a genuine manuscript amendment. We on these Benches are entirely content for the case which the Minister has made for the order. I am happy to support it.
The Viscount of Falkland: My Lords, on behalf of my noble friend Lady Hamwee, who is unable to be here tonight, I thank the Minister. Will she convey to her noble friend Lady Hayman my noble friend's thanks for the courtesy of the letter which she wrote? My noble friend, on behalf of these Benches, is happy with the action which the Government have taken.
Baroness Farrington of Ribbleton: My Lords, I am delighted with the responses of both noble Lords.
On Question, Motion agreed to.
Lord Hoyle: My Lords, I beg to move that the House do now adjourn during pleasure until 9.25 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.32 to 9.25 p.m.]

European Communities (Amendment) Bill
House again in Committee on Clause 1.
Lord Shore of Stepney Lord Shore of Stepney moved Amendment No. 3:
Page 1, line 12, at end insert—("() Article I, other than paragraph 12 (Title Via of the Treaty on European Union (provisions on closer cooperation)),").
The noble Lord said: I am more than slightly embarrassed at appearing again on the Floor of this Chamber after one or two earlier occasions on this very day. But this is the next amendment in order and it is extremely important, and I move it formally now.
It would have been much better had this group of amendments been taken on another day because at this time of night on a Thursday, the Committee is inevitably rather sparse in its attendance and, of course, noble Lords had no intimation until one o'clock today that these amendments were to be debated today. I feel that if they had had that intimation and had had that knowledge, the Committee would be much better attended, even though it is a late hour.
Why do I say that? I say that because these amendments that I am moving and the articles in the treaty to which they refer have two, or perhaps three, aspects. The first is their technical nature, which raises questions which I shall seek to explore further, and I hope that the Minister will be able to enlighten us about that.
Secondly, the amendments raise the whole question of the future development of the European Union and, in particular, whether it is possible to find a modus vivendi between different groups of states, some of which wish, in certain areas, to go into a much closer union than others.
If that could be worked out satisfactorily and explored fully, we may find a solution to many of the difficulties that we have experienced as a country under different governments in our dealings with the European Union and previously the European Community.
First, I turn to the rather technical aspects. The basic article is Article K.15 in the Treaty of Amsterdam. Indeed, it comes under the heading of "Provisions on closer cooperation". It clearly allows for states, provided that there is at least a majority of member states, to go forward into closer co-operation than exists in the present treaties; indeed, it allows them to go beyond that. The article lays down certain conditions which, on the face of it, are welcome and acceptable. There are several paragraphs under the article. Paragraph (f) makes the proviso that that process should,
"not affect the competencies, rights, obligations and interests of those Member States which do not participate therein".
That is to say: if they do go ahead, they must not do so in such a way as to inflict disadvantage and damage upon those member states which do not choose to go with them. That seems to me to be a very important safeguard.
The article also allows for states which do not wish to go ahead into closer co-operation at a particular time, to do so at a later stage if they so decide. Under paragraph (g) it says that it,
"is open to all Member States and allows them to become parties to the cooperation at any time, provided that they comply with the basic decision".
They seem to me to be quite important safeguards; and, to that extent, I welcome them.
I turn now to the very important question of the voting procedures. Those procedures applying to closer co-operation, which are quite fundamental, are to be found in Article K.12 of the treaty. Oddly enough, that precedes the major section defining what closer co-operation is all about. It says that closer co-operation could go ahead, so to speak, provided that the Council has acted by a qualified majority vote; the Commission has presented an opinion; and, for what it is worth, the request has also been,
"forwarded to the European Parliament".
So the Community institutions will have had a chance to consider the matter and, presumably, to deliver their opinion.
The article then goes on to say—and this is very important—that it is not just decided by qualified majority vote. If it were, it would be totally unacceptable and, in my view, would be rejected out of hand. The second paragraph of Article K.12 (2) says:
"If a member of the Council declares that, for important and stated reasons of national policy, it intends to oppose the granting of an authorisation by qualified majority, a vote shall not be taken".
Again, that is certainly helpful. It then goes on to say:
"The Council may, acting by a qualified majority, request that the matter be referred to the European Council for decision by unanimity".
That is the most important group of words; namely, that,
"the matter be referred to the European Council for decision by unanimity".
Presumably, any state which feared that it was being disadvantaged or damaged in some way by other states going forward into closer co-operation would know that it could exercise a veto and prevent that happening. However, as I said, it would have to put a case forward within which serious national interests would have to be stated and it would have to bring its case to the European Council. I find that not unacceptable. I think I have interpreted correctly the clauses relating to closer co-operation. I hope that my noble friend the Minister will tell me whether I have it wrong in any way or confirm that I have it right.
So much for the technical side of it. K.15 and K.16 raise the prospect of a majority of countries moving ahead into closer co-operation while others do not. I should have thought that raises the whole question of the future of the European Union and the question of whether the different aims and aspirations of countries within the European Union can be accommodated without, as it were, inflicting damage upon a minority, or a minority inflicting damage on the majority—depending on which way you look at it—by holding everything up. In other words, the measure offers the possibility not just of a two speed or a multi-speed
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Europe but of genuine flexibility. It offers the possibility that some nations which agree on some matters of collective importance will go forward and use the treaty machinery and institutions—as the clause allows them to do—while others who do not want to do that are under no obligation to join in.
When you look at the sheer complexity of the European Union as it now is—it is bound to become even more so, particularly when one considers the first and second tranche of candidate countries—the differences of background, history, tradition, institutions, people and languages are so enormous that it is almost impossible to envisage the whole thing working uniformly across the Continent. If one reaches that point in one's examination of the present situation and the reality of the Community and of national life within it, surely it is possible to begin to work towards what I mentioned earlier; namely, a modus vivendi which can be accepted by all members of the European Union.
It is relevant to accept that there are serious differences in goals and intent. We all know that some countries—I suppose this was strongest in the original Six who signed the Rome Treaty—wish to progress to a much deeper integration than the rest. They wish to do that for a number of understandable reasons which I certainly do not despise and have never wished to frustrate. The most recent common experience of the Six was defeat, occupation, liberation and destruction in the Second World War. The fires of war visited those countries not once in defeat but secondly in liberation. The damage and destruction were virtually beyond belief. Before that vivid experience of 50 years ago—not that long ago—there was the earlier massive conflict of the First World War. In the case of the two central nations in this European Six—France and Germany—there was rivalry, hostility and war going back to 1870 and beyond. Therefore it is perfectly understandable that there should have been a strong desire in that Six—which is stronger than in any other state—to come together to be as certain as possible that war would no longer be a possibility between the member states of that original Six.
It is interesting to look back on its history. The first initiative was the European Coal and Steel Community—a rather old fashioned view, as we now see it—when the sinews of war were considered to be coal and steel as they were in the First and Second World Wars. By uniting the European coal and steel industries the individual countries would be deprived of the essential sinews of war. It would come under a collective High Authority. That was the beginning.
Since then there have been many other projects. Some were abandoned, like the European Defence Community with multinational troops down to platoon or company level. That was all part of the integration. Behind all that, giving this tremendous drive and force, was German guilt and French fear. Those were the two dominating emotions and forces in the ever closer European Union construction. It was interfered with for a period on the part of France by General de Gaulle. He asserted with great self-confidence the national independence of France. But it was abandoned again the moment the Berlin Wall came down, and the two Germanies reunited, when France

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faced 80 million Germans again on the frontier. National independence, or a Europe of sovereign states, was abandoned by Mitterrand and he entered into the great leap forward of the Maastricht Treaty in the belief that, roped down with a thousand regulations, a single currency and a common monetary policy, it would be impossible for Germany to assert itself independently of its neighbours.
That is fully understandable. Those countries which were occupied and then liberated had seen their state power smashed, and the rule of law of their own countries completely discarded, overturned and torn up. That has not been the experience of this country. We may have been fortunate, lucky and blessed in our history, but we have not seen our state power smashed and overruled. We have not suffered the appalling losses and indignities of being occupied by an enemy power.
I believe that that lies as much at the root of the British approach to Europe as anything else. We are prepared to co-operate. We are prepared to go a very long way. But from our own historic experience, and the will of our people, we do not feel that we need to enter into such an intimacy of relationship that we abandon self-government and the powers of our own democracy.
I turn to the clause. All that I have said is relevant to it, and to the future of the European Union. The first obvious point is this. With the best will in the world, the British have tripped over the rest of the European Union and found themselves in conflict not just over the Amsterdam Treaty but the Maastricht Treaty too. What is an opt-out, in a sense, but the acceptance by the majority that it can go forward into a closer arrangement but not carrying the country which has an opt-out? The Danes, the Swedes and the Finns also share with us the desire not to go forward in this way. Let us imagine trying to apply to the East European applicant countries the disciplines of a single currency and a European central bank. We know that it is a nonsense.
We have quite considerable opt-outs. We opted out of Schengen. We believe that our borders are to be patrolled by our own people and are not simply to be part of a European open frontier system. We opted out crucially on the single currency and monetary union. Those are precursors, in a way, of these clauses and of this policy, this treaty prospect of closer co-operation, differentially applied to the member states of the European Union.
I see a great possibility here. It has been the failure to be honest with ourselves and with our European partners that has led us into such difficulties and so much bad will. It started under the previous government, with the then Prime Minister, Mr. Major, talking about "Britain at the heart of Europe"; and our own Prime Minister, Mr. Blair, is talking now about "leading Europe". If you accept that there are differences of historical experience and of objective, you cannot start, as it were, posturing as the leader when you know that the majority of the states want to go further, and in a different direction, than we do. The majority of European Union countries actually want a federal Europe. They want it—and good luck to them. Indeed, I wholly understand, and I shall never advocate
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standing in their way. But it is not right for us. It is not consistent with our history and it is not going to be our destiny.
So this clause is of immense importance. If we can only manage to talk frankly, openly and honestly with ourselves and say that their objective is a federal state but ours is not—if we could only do that—we could have a much happier, more fruitful relationship with our European neighbours than we have had so far.
If anyone is worried and is thinking: "Oh dear, there is a great European state across the Channel, and here are we, a rather smaller nation state on the other side", let them reflect for just a moment on another English-speaking nation which lives with a similar experience in prosperity, peace and general good will. I refer to Canada, living cheek by jowl with the superpower, the United States—managing its own affairs, having its own currency and its own central bank, making its own laws, and enjoying the good will and close co-operation of its neighbour. Let that be a model for us, too.
9.45 p.m.
Lord Bruce of Donington: I wish to refer to Amendment No. 3, so ably moved by my noble friend Lord Shore of Stepney. It refers specifically to,
"paragraph 12 Title VIa of the Treaty on European Union (provisions on closer cooperation)".
I have before me Article K.15 as reproduced quite faithfully in the Treaty of Amsterdam. It states:
"Member states which intend to establish closer cooperation between themselves may make use of the institutions, procedures and mechanisms laid down by this Treaty and the Treaty establishing the European Community, provided that the cooperation:
(a) is aimed at furthering the objectives of the Union and at protecting and serving its interests".
My first question is: who determines whether it is aimed at furthering the objectives of the union and protecting and servicing its interests? Who defines that?
In the Treaty of Rome, in a section that is so far not repealed, it states that the European Commission:
"is in itself the authority for the interpretation of the treaty".
What it really means is this: The European Commission is satisfied that it is aimed at furthering the objectives of the Union and at protecting and serving its interests. Through the Treaty of Rome, similarly, it is the Commission, under Article K.15(b) of the Treaty of Amsterdam, that determines whether the co-operation:
"respects the principles of the said Treaties and the single institutional framework of the Union".
So again it is the Commission that has to be satisfied and to certify that the co-operation:
"(c) is only used as a last resort, where the objectives of the said Treaties could not be attained by applying the relevant procedures laid down therein".
There is no democratic determination; it is determined by the Commission. As noble Lords are well aware from the previous observations I ventured to make to the Committee, the Commission is responsible to no one but itself. It is not elected, it is accountable to no one.
Paragraph (d) states that it:
"concerns at least a majority of Member States".

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Even I am willing to concede the power of the Commission to determine the simple mathematical problem that it concerns a majority of member states. Then it is the Commission that has to be satisfied that it:
"does not affect the 'acquis communautaire' and the measures adopted under the other provisions of the said Treaties … [It] does not affect the competences, rights, obligations and interests of those Member States which do not participate therein".
That is similar to paragraph (g) and all the rest.
The whole operation of the closer co-operation and how it may be applied is not decided by any elected body. It is decided by an unelected body—the bureaucracy which is enshrined in the Commission itself. The Commission's word is final in these matters. It is not open to objection by the Council of Ministers, it is not even open to objection by the European Council. It is the Commission itself—an unelected, non-accountable body—that makes the crucial decision as to whether certain members who want to follow a certain course of action outside the normal ambit of the treaties are permitted to make use of its facilities to do so.
Perhaps Members of the Committee and Her Majesty's Government are quite willing to accede to this procedure on the fiat of the Commission. I repeat that under the Treaty of Rome—let the Front Bench deny this—it is the Commission that is responsible for the interpretation of the treaties. It is responsible for that under the Treaty of Rome in an unamended section. If it suits Her Majesty's Government, who represent the United Kingdom, that such co-operation outside the normal ambit of the Treaty of Rome is to take place independently on the say-so of the Commission, they are welcome to take that view. For my part, I believe it is incompatible with our position as a sovereign state with a due right under the treaties to its own views and opinions without being "at the heart of Europe". Nothing can take that away.
It is allied to an even more important question which arises from the operation of another section of the treaty which is of unique importance in this regard. It may well be—and I willingly concede it—that a member state, perhaps even the United Kingdom in its moment of independence, would take the matter to the European Court. It is entitled to do so. What happens? Article K.7, paragraph 6 reads as follows:
"The Court of Justice shall have jurisdiction to review the legality of framework decisions and decisions in actions brought by a Member State or the Commission on grounds of lack of competence, infringement of an essential procedural requirement, infringement of this Treaty or of any rule of law relating to its application, or misuse of powers. The proceedings provided for in this paragraph shall be instituted within two months of the publication of the measure".
In the event of any appeal, any objection or any action in dissent, or even in assent, of proposals contained in the original article to which I referred, goes to the Court of Justice. That article should be read in conjunction with Article K.6, which states:
"The Council shall take measures and promote cooperation, using the appropriate form and procedures as set out in this Title, contributing to the pursuit of the objectives of the Union. To that end, acting unanimously on the initiative of any Member State or of the Commission, the Council may: (a) adopt common positions defining the approach of the Union to a particular matter: (b) adopt framework decisions for the purpose of approximation of the laws and regulations of the Member States. Framework decisions shall be binding upon the
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Member States as to the result to be achieved but shall leave to the national authorities the choice of form and methods. They shall not entail direct effect".
At sub-paragraph (d) it states:
"establish conventions which it shall recommend to the Member States for adoption in accordance with their respective constitutional requirements. Member States shall begin the procedures applicable within a time limit to be set by the Council. Unless they provide otherwise, conventions shall, once adopted by at least half of the Member States, enter into force for those Member States. Measures implementing conventions shall he adopted within the Council by a majority of two-thirds of the Contracting Parties".
Let us look at those two articles taken together. Let us say that there is a challenge by a member state—or even by the Commission itself—arising from the application of the article to which I referred and the matter goes to the European Court of Justice. That raises important considerations. It raises the consideration as to what is the force behind Article K.7(6), which gives the court full powers. I want to know from Her Majesty's Government how far the Court of Justice rules shall override our own decisions in these matters. It raises matters of grave constitutional importance.
For example, in this country we have a rule—the noble and learned Lord, Lord Hailsham, is unfortunately absent through illness and I wish he was here; indeed, I wish him a happy recovery, as I am sure do all Members of the Committee—which the noble and learned Lord, speaking in his capacity as the then Lord Chancellor, put to the House when he said that no Parliament can bind its successors; no Parliament can pre-empt the right of its successors to change. Does that rule still exist? Under Article K.7(6) it would appear otherwise. Will my noble friend who is to reply give me the Government's opinion as to the validity of Article K.7(6)? Carried to its logical conclusion, that would postulate that the Court of Justice can prevent any action taken by a future government to, for example, opt out of the European Community altogether. Will my noble friend give me his opinion on that? Does Article K.7(6) override our constitution? That is the vital question involved, and it is one of which this incidence in connection with the article contained in the amendment is a mere small example. Perhaps in due course we can have an observation from my noble friend, if necessary with advice, whether the doctrine that a succeeding parliament can override what has been decided before still applies. For example, will a parliament elected in 2002 still have the right to overturn a decision reached by the previous parliament? That is the fundamental question involved. I invite my noble friend to reply in due course.
10 p.m.
Lord Pearson of Rannoch: I thank the noble Lord, Lord Shore, for introducing this amendment (to which my name has been added) in such a deep, probing and thoughtful way. When he talked about the understandable inspiration of the original Six to want to set up the original European Common Market, which has grown into the animal we see before us today, he was right to say that the two main inspirations for that initiative were the fear that Germany might go to war with France yet again and the wish to create a bloc to stand up against the growing power of the Soviet Union. My trouble is that I think those

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fears are both truly redundant nowadays. If there is one question I would wish to put to Herr Kohl, who I am sure is in good faith when he fears that the German nation might go to war again—I of course disagree with him completely—it is this: when did a bourgeois democratic nation ever provoke a war? I believe that the answer is, historically, never. I cannot see any possibility of it happening again with a democratic nation in Europe.
Then this question of closer co-operation raises the possibility of new members for the European Union, about which we hear so much. Indeed, both our main political parties and many people in Europe regard the expansion of the European Union to include the former communist countries of eastern Europe as the number one priority. But for that it is generally acknowledged that we must achieve reform of the common agricultural policy, and that, in turn, would require 62 out of the 87 votes to achieve it. The last time I looked at the subject, there were 54 votes ranged against reform of the common agriculture policy; and so I should very much like the Minister, when he comes to reply, to say whether there has been any progress in that matter, and whether Germany perhaps now supports reform of the common agriculture policy.
Not only do we require reform of the common agriculture policy but we require reform of the structural and cohesion funds. I understand that one black ball from the recipients of those funds would exclude any reform of them. So, unless the Minister can enlighten the Committee otherwise, it seems to me that the question of enlargement is almost certainly a pipe dream.
Are we at all sure that the former communist countries of eastern Europe really do want to be members of the European Union? I have been able to discuss this question with some of their governments recently and I have found no genuine enthusiasm for full membership. They all seem to want access to the market and defence through NATO. Access to the market is not being made exactly easy for them and, generally speaking, they are frustrated by the EU's famous bureaucracy, although they are very fond of the handouts which they receive from Brussels while they are queuing for membership.
Be that as it may, I cast a note of caution on these new flexibility provisions in the Amsterdam treaty, which appear to be something of a victory for the federalists. I say that because previously any new initiatives or changes to the EU's organisation had to be agreed unanimously. If some countries wished to integrate more deeply in any new area, they needed everyone to agree that they could use the institutions and mechanisms of the treaty to do so. An example of that was when the United Kingdom agreed the Maastricht protocol on social policy, which allowed the other 11 nations to go ahead with the social chapter using the Community's institutions for which the UK continued to pay its share.
But instead the UK could have vetoed the policy. The others would then have had to set up separate mechanisms, use separate buildings, separate bureaucrats, chauffeurs, translators and all the rest, if they were really so keen on it that they wanted to go ahead in those circumstances. Likewise, we could have vetoed the whole economic and monetary union policy at
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Maastricht. Many of us believe that that is exactly what we should have done. Apart from anything else, it would have saved us a considerable debate this afternoon.
In those circumstances our previous government were beginning to suggest that we might withhold our veto on future projects of closer integration which the others wished to pursue, but only in return for a repatriation of some powers to the United Kingdom. So instead of the ever-closer union of the people of Europe—that guiding principle of the treaty and of the court—we had started to think of a Europe where powers would pass up and down between Brussels and the national parliaments; hence the expression "variable geometry", a leading proponent of which was my right honourable friend Mr. Michael Howard in the previous government. But as that geometry contained a potential minus sign it was not very popular with those who wished to pursue a single European superstate. So, as I understand it, that is why the veto was so weakened at Amsterdam—it removed the bargaining chip of those who wished to depart from the ever-closer union of the people of Europe.
Until I heard the very powerful opening speech on this amendment by the noble Lord, Lord Shore, I had thought that the veto had been removed more completely than he indicated. So I join him in waiting to hear the Minister's interpretation of this matter and whether agrees with the interpretation of his noble friend Lord Bruce of Donington to the effect that the Commission remains in charge—as, under the Treaty of Rome, it usually does. In other words, if the acquis communautaire is in no way impaired by these changes to the treaty, these new clauses are very far from welcome.
Lord Monson: Unlike my sceptic friends—I use the word "sceptic" rather than "euro-sceptic" deliberately because neither I nor, I believe, they are sceptic in any way about the proud, ancient nation states of Europe in all their infinite and enriching variety; indeed, we have great affection for them; we are only sceptical about this centralising, bureaucratic, often wasteful, corrupt, bossy and interfering European Union—I see no harm and, indeed, some possible good, in a multi-speed Europe, provided that those wanting to create their own mini-alliances, so to speak, use their own funds to do so rather than Community resources. Indeed, if they use their own funds to forge such mini-alliances without involving any of the institutions of the Community, it is difficult to see how any other member state validly could object.
Some years ago, Sir Richard Body, who is now the honourable Member for Boston and Skegness, a noted Euro-sceptic but also a passionate champion of the Commonwealth and, in particular, of its poor countries, and—this is less widely known—a great idealist, wrote a book—one of the many excellent books that he has written on agriculture and other matters—entitled, if I remember rightly, Europe of Many Circles. He envisaged a neighbourly Europe of freely co-operating, independent nation states which might wish to forge bipartite, tripartite or multipartite treaties with their neighbours in fields which particularly concerned them but which other European states might wish to approach in a different manner. As the noble Lord, Lord Pearson of Rannoch, has just said, interestingly enough, Mr. Michael

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Howard—not an habitual ally of Sir Richard—seemed to echo that in a notable speech in the Inner Temple two or three years ago. That is the direction in which we should be travelling.
Baroness Williams of Crosby: In some ways I find the debate on this amendment somewhat anomalous. If we go back a bit, we discover that one of the ways in which the then Prime Minister, Mr. John Major, dealt with the profound divisions in his own party on the Maastricht Treaty was by means of opt-outs. Indeed, I recall that he came back from debates on that treaty announcing that he had won, "game, set and match", by having organised no fewer than three opt-outs from the conclusions of that treaty. The first of those opt-outs was on the social protocol, and he was extremely proud of it. The second opt-out related to European economic and monetary union, to which noble Lords have already referred in this brief debate, and the third was the opt-out on the Schengen community, which he shared with Denmark and Ireland. It must be said that Ireland did so notably reluctantly and primarily because of its interdependence with the United Kingdom in terms of border controls, not least between Northern Ireland and the Republic of Ireland.
So, there were three opt-outs at Maastricht and it was obvious that what Mr. John Major had done—incidentally, a Prime Minister whom I think that history will treat rather more kindly than do many contemporary commentators—was not to achieve a break in the deadlock in Europe, as he proclaimed, but rather to achieve a bridge in the chasm in his own party.
Having done so, the then Prime Minister discovered the route of opting out as possibly the best answer to the dilemma that he faced—the dilemma of being at one and the same time within the European Union and half outside it. It is interesting that as he developed that idea—I shall say a few more words about that development in a moment—he aroused more and more concern on the part of the other member states of the Union. He aroused that concern because they recognised that at a certain point opt-outs and their like, "variable geometry", a la carte Europe, and the rest of it, would so husk out the very core that had been achieved over all the years since 1957 that the European Community and the European Union would begin to unravel, with serious consequences not so much for the United Kingdom as for the other member states.
So, if we look at the record, we find that as early as 1995, M. Chirac and Herr Kohl sent a joint letter to the other member states in which they outlined the concept of what they described as "concentric circles"—a core of central member states who would make the fundamental decisions about the development of the European Union, a penumbra of other states which were in a sense half-members and finally an outer rim of countries that one day would wish to join but saw little prospect of doing so. The outer rim at that time contained most of central and eastern Europe, which saw little prospect of soon being able to join the Union.
In the White Paper of March 1996 Her Majesty's Government put into words this particular policy. They described their goal as,
"a variable geometry but not a two-tier Europe".
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I believe that it would have taken the extraordinary ability of a very great athlete to achieve that combination, for "variable geometry" implied a two-tier unit. There was no way in which one could insist upon a single tier Europe on the basis of variable geometry. Why should the other member states grant full influence to the United Kingdom if she had opted out of some of the central parts of the European treaties?
In January 1997 the Prime Minister announced that he had devised a blueprint for a multi-speed pick-and-mix Europe. That was the description given to it by the press. He said that he was in favour of what he termed "multiple opt-outs". I quote his words:
"The great debate is how flexible it will be and what sort of flexibility it will mean. I can see a way of unlocking it but we still have to negotiate our way through. I can see now how it can be done and I will endeavour to see that it is done over the next few months".
The Prime Minister was as good as his word. He entered into the Amsterdam negotiations of that summer and autumn intending to seek one opt-out after the other. That was the way he envisaged the possibility of reconciling his own party, in particular the Euro-sceptical element of it, to what he knew would be the next step to yet another treaty on the way to closer union in Europe. I do not blame him for that. It was a perfectly reasonable political decision on his part, but it had very little to do with the development of the United Kingdom's influence in Europe. Indeed, it was almost certain to be counter-productive.
The Intergovernmental Conference was instructed, after the report of a reflection group, to consider strengthened co-operation by some if not all member states which would be open to all. It would have to conform with the acquis but would leave open to Britain the possibility of a Europe of many different tiers moving at many different speeds. The Amsterdam discussions were in some ways contorted by the attempt to reconcile what the other member states wanted with the position of the British Government. When one looks at the wording of such provisions as Articles K.12, K.15, K.16 and 5a, one sees the desperate attempt to try to include Britain on the terms that she was prepared to he included.
Yet the other member states—I shall come in a moment to the point made by the noble Lord, Lord Shore of Stepney, about the position of the other member states—sought to protect themselves against the impact of the variable geometry proposed by Britain. They did so in three ways. Article 5a, which stands alongside Clauses K.15 and K.16 at the core of this concept, addresses itself to the first pillar, the Community pillar, and has a great many more conditions to be met than Articles K.12 and K.15.
Among those requirements are, centrally, the protection of the acquis communautaire. Indeed, variable geometry on the first pillar was a very restricted concept. One could argue that it was tailored entirely to the demands of the British Government of the time. Even then there was a requirement—the noble Lord, Lord Shore of Stepney, pointed this out—that there should be an authorisation. That authorisation depended upon a qualified majority. If at the end of the day that authorisation was not sufficient—if one-third of the states refused to co-operate—then the proposal for greater

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co-operation would not go ahead. That was an attempt to prevent there being a split within the Community pillar itself.
It was however the case—I draw it to the attention of the noble Lord, Lord Bruce of Donington—that there was written into 5(A) and K.15 a precise restatement in narrow form of the Luxembourg veto, because it said there—the noble Lord, Lord Shore, argued this point on K.15, which applies mainly to justice and internal security, and not to 5(A), where it applies to the first pillar—that where a member state had important and stated reasons of national policy for not being willing to accept a co-operative venture involving some states, the matter would not be resolved by a qualified majority, it would be referred to the European Council—the single most senior body of the Community made up of heads of state and governments.
That was an astonishing safeguard. It was made as a gesture almost entirely to the UK. The only other country taking the same position was Denmark. No other country among the 15 took that position. It was made in respect also of K.12 and K.15, where the same procedure is laid out, but with fewer flanking requirements because K.12 and K.15 apply to the third pillar, and there is therefore an intergovernmental structure into which they fall, where the requirements to be met were considerably looser than in the case of the first pillar, and understandably so.
That meant, essentially, that the rest of the Union was determined to defend the acquis except in the most exceptional circumstance affecting the core interests of a member state, but they were willing to be somewhat forthcoming when it came, in particular, to the third pillar. The reason for that was that the third pillar had within it two strains. One of those strains was the insistence of the UK and some other member states that that was to remain intergovernmental. But the other element was an understanding that the pressures of circumstance through organised crime and the drug trade, particularly in the area of the third pillar, were becoming so strong that, frankly, to talk about the strength and impermeability of national borders no longer made very much sense.
Indeed, the rapid rate of development of international organised crime and of organised crime throughout Europe—I probably share this view with the noble Lords, Lord Shore and Lord Bruce—and the speed at which we are seeing international responses to organised crime demand a much tighter control by national parliaments of the conventions that are reached than exists at present in the treaties.
I turn, secondly, to the situation outlined by the noble Lord, Lord Shore of Stepney. I must say with the greatest respect—and I have the greatest respect for the noble Lord—that I fundamentally disagree with him on one point, as I do with the noble Lord, Lord Pearson of Rannoch. There is no evidence to show that the six have a special commitment with Europe which is not shared by the other countries.
I was surprised by the comments of the noble Lord, Lord Pearson, because only yesterday I had the privilege of talking to the Prime Minister and Foreign Secretary of Poland specifically on this issue. There were presiding over a moving meeting which was headed
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"Poland Comes Home". The theme of their speeches was to the effect that Poland had rediscovered its European destiny. It was not a hand held out for aid, because as regards enlargement Poland does not expect to be any kind of beneficiary of the CAP, as my noble colleague on Sub-Committee A knows as well as I. However, it expects a return to what Poland sees as its historical tradition, which is bound up with the rest of Europe and not, as it once was, with the former Soviet Union. The same can be said for the Czech Republic, Hungary and the other countries which are currently in the first wave of access candidates.
The only countries which have an opting out view of any seriousness are the United Kingdom and Denmark. My impression is that with the exception of defence which is a special case that we shall debate later, the United Kingdom Government are moving away from the endless seeking of opt outs. The Government know, as we know, that the decision to end the opting out of the social protocol was hugely welcomed on the continent of Europe not because it was felt that suddenly the United Kingdom would find itself bogged down with 1,000 regulations and requirements, but because Her Majesty's Government understood that this was the message about the kind of Europe one wanted and it was a Europe which was to be enthused with the spirit of social justice as well as the spirit of the free market and liberty. We shall discuss that subject in more detail later in Committee.
We wish strongly to repudiate what was said earlier today by one noble Lord; that the Liberal Democrats find everything right with the continent of Europe and nothing right with the United Kingdom. That is profoundly to misunderstand and misinterpret our position. I can sum up our position quickly. It is that the United Kingdom has a rich heritage of democracy, individual liberty and civic society to share with the other countries and member states of Europe. It is just because we believe that the influence of this country can be benign, that it can help us towards a Europe which looks beyond its own borders and has a sense of responsibility for the rest of the world, that we wish to see Britain playing the fullest part in the European Union.
We wish passionately to see a Europe which is free, accountable, democratic, tolerant and pluralistic. We believe that we can reach that point by getting fully inside the European Union rather than staying half in and half out.
Lord Shore of Stepney: Before the noble Baroness resumes her seat, would she answer one question? Does she accept that there is a difference of fundamental aim between some of the countries of the European Union and ourselves in their objective of establishing a genuine union, a new state, which we do not wish to pursue? Is the noble Baroness in favour of the pursuit of a new state in Europe? If so, surely it makes sense for us, in the interests of good relations with our neighbours, not to deceive them that we can go along, not to stand constantly in their way, but to reach an accommodation.
10.30 p.m.
Baroness Williams of Crosby: I believe that every question that is asked seriously of me, as this has been asked, by the noble Lord deserves a reply. I can give him a reply based only on my recent impressions. They are that there has been a considerable switch in mood within the Continent of Europe towards a greater degree of what one might describe as "confederation" and away from the concept of tight federalism.
One only has to look at the way in which the Federal Republic of Germany, and not least its separate Landerä, has moved towards a greater emphasis on subsidiarity and the right of self-determination over a very wide range of issues to see that we are moving towards a closer Union but not a closer Union that involves the kind of tight federalism that many people, like the noble Lord himself, fear.
Lord Stoddart of Swindon: It was interesting to hear from the noble Baroness, Lady Williams, that Europe is moving towards confederation rather than tight federalism. I must confess that I had not noticed it myself. Indeed, Herr Kohl and many others are still talking about a united Europe and they see the single currency as a further move in the political direction of a country called Europe.
That is what I am hearing from them and that is what is reported in the British newspapers. If the noble Baroness has better information, I am pleased to hear it. We had Professor Wilhelm Hankel to speak to some of us over the weekend. Professor Hankel is one of the four professors who is challenging Euro economic and monetary union, the single currency, in the German Federal Court. I do not think that it was his view that the German Chancellor was moving in the direction in which I should like him to move; that is, towards a more confederal Europe rather than a federal Europe. However, things may develop and I hope that the noble Baroness is correct in what she says.
I take it from that—and I stand to be corrected—that the Liberal Democrat Party is not in favour of federalism itself. Again, I have always understood that that was its aim. If it is not, I should be pleased to hear it. But everything that I have heard so far leads me to believe that that is true. Does the noble Baroness wish to comment?
Baroness Williams of Crosby: I thought that I had explained myself in my previous response to the noble Lord, Lord Shore of Stepney, and I do not want to delay the debate further.
Lord Stoddart of Swindon: We may have to return to that later on. But there are one or two questions that I should like to ask. I should like to say a lot more but the time is getting on. I should like to know whether nations which have agreed co-operation under K.12 will be able to withdraw at some later stage if they believe that that co-operation is no longer of any use to them, or, as under the acquis communautaire, will they be obliged to continue such co-operation for all time?
I should certainly like to have an answer to that.
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If that is not so, if they can withdraw, what will be the procedure for withdrawal? That certainly is not clear in any of the articles under Title VI, so I should like to know about that.
The other matter that I simply cannot understand is why the administrative and operational costs of those new co-operative ventures should be paid for by the Community as a whole; that is, those who do not take part in the co-operation ventures will be subsidising those who are taking part. I should like further explanation of that and to ask my noble friend whether he believes that to be fair. I certainly do not think that it is fair. If those people who are co-operating—and, presumably, getting the benefits of that co-operation—feel that it is worth while, surely they should pay the cost.
I also hope that my noble friend will be able to answer a question put to him by my noble friend Lord Bruce as regards Article K.7(6), which appears to undermine the British constitution. In fact, we will have the opportunity later to discuss the matter more fully, because I intend to table an amendment which will make it absolutely clear that this treaty can in no way undermine our basic constitution which, as I understand it, is that one parliament may not bind its successors. Indeed, we shall have the opportunity later to discuss that whole issue.
I turn, finally, to Amendment No. 31 which calls on the Government to produce a report. It says:
"No later than one year after the passing of this Act, and at annual intervals thereafter, a Minister of the Crown shall lay before both Houses of Parliament a report containing details of—

(a) the participation of the United Kingdom in any measures adopted under Articles K.15 and K.16 of the Treaty … [and]

(b) any decision of the United Kingdom not to participate in any measures mentioned in paragraph (a), and the reasons for such decision".

It seems to me that that is a reasonable request to make. I hope that my noble friend will he able to tell me that the Government accept the amendment, especially as Article K.17 provides that the,
"Council and the Commission shall regularly inform the European Parliament of the development of closer cooperation established on the basis",
of that particular title. Under those circumstances, as the European Parliament is to have a report, I do not understand why we in this Parliament cannot have a report from our own Government about matters which affect our country.
Lord Swinfen: I should like, very briefly, to return to a point raised by both the noble Lord, Lord Bruce, and the noble Lord, Lord Stoddart of Swindon. I do so because there is quite a large number of people in this country who are very happy with what I would describe as the "Common Market", but who are not at all happy with a single state of Europe. Indeed, some people think that that is coming.
In his reply, can the Minister confirm that, should a government in the future wish to leave the EC, there is nothing in the Treaty of Rome, the Maastricht Treaty and, indeed, the Amsterdam Treaty, which will prevent us from so doing? I ask that question particularly and would like confirmation. Someone who knows far more

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about the European Union—the EC—than I do, and is a much greater expert on the relevant documents, has suggested to me that once the Amsterdam Treaty is ratified an attempt to leave would be an act of rebellion against the EC. That would mean that we had become one state in Europe. That is what we are being told is not happening; we are told that it is a collection of independent states.
Therefore, when replying, can the Minister confirm that, should a government in the future decide to take the United Kingdom out of the EC, there is no obstacle to doing so? I believe another noble Lord also asked how that could be done. I do not expect an answer to that question at the moment because it will probably be quite a complicated and drawn-out affair. However, I believe that this Chamber should be given that information some time before the Bill passes.
Lord Moynihan: I am sorely tempted to reply to the comments made by the noble Baroness, Lady Williams of Crosby, which in my opinion were a wholly misguided assessment of the position that John Major took on opt-outs. But I hope she will forgive me if I return to them at a later stage.
For now, suffice it to say that our position is to welcome the inclusion of the concept of flexibility into the treaty on the basis that we have always advocated the concept that a flexible Europe is essential if the European Union is to be enlarged successfully. A diverse, enlarged Europe simply cannot be forced into the rigid strait-jacket of uniformity.
However, we take the approach that, although the concept of a flexible Europe is essential if the European Union is to be enlarged successfully, it should be introduced following certain key principles; namely, any arrangement which allows groups of fewer than the 15 member states to use Community institutions must be agreed by all and open to all and must not force any member state into further integration; such arrangements must also be consistent with the single market; and proposals that Community institutions could be used by vanguard groups if one or more states were actively opposed are simply not acceptable. However, sadly, under the Amsterdam Treaty, a group of member states can decide to go ahead with further integration in any area without the support of the full European Union, which undermines the fundamental principle that flexibility should be open to all and agreed by all.
In my few remarks this evening I wish to be specific, albeit technical. I ask the Minister some questions in relation to Articles K.12 and K.15 together with new Article 5a. Had the noble Lord, Lord Bruce of Donington, spotted that, it would have been open to the very same questions that he raised in relation to the article that he focused upon.
These provisions enable member states to pursue a form of fast track integration on the basis of a qualified majority, if they wish to do so, and they are drafted in similar vocabulary to the national veto/emergency brake clause for common foreign and security policy, to which I shall return in detail in a subsequent debate.
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I emphasise that the reason we on these Benches welcome in principle the introduction of the concept of flexibility in the treaty is that it is an indication that the whole of Europe now agrees with an effective reform pioneered by the previous government. These provisions provide a basis for a different approach by different member states that reflects the differences which inevitably arise as a result of different national circumstances.
However, there is clearly a paradox when it comes to the question of flexibility. On the one hand, for the European Union to fulfil its potential, it must adhere to certain core disciplines and obligations which must not be undermined by the introduction of flexibility. On the other hand, Europe's strength is in its diversity and some flexibility must not only be allowed but encouraged, particularly as the Union enlarges. Our former opt-out of the Social Chapter and Economic and Monetary Union, as well as other member states' decision to go ahead with the Schengen provisions are examples of this type of flexibility. One thing is clear in this paradox. Whatever jargon is used to describe it, be it variable geometry, differentiated integration, Europe aà la carte, multi-speed Europe, enhanced co-operation, concentric circles, flexibility must not be the foundation for a two-tier Europe, whereby an exclusive fast-track hard core of member states lay claim to a privileged status over which the rest have no real check. For this reason I would like to ask why the Government did not insist on a straightforward, watertight veto, so that the instigation of such projects of "closer co-operation" outlined by the noble Lord, Lord Bruce of Donington, could be decided by unanimity, irrespective of which member states then implemented them. This would have meant that flexibility was open to all and agreed by all, which is surely the most sensible way forward.
As the Minister will be aware, the previous government always insisted that the decision as to whether such action should and could proceed should be taken on the basis of unanimity. The provisions in the treaty on this question are to me oddly circuitous and not at all clear. I should appreciate the Minister's clarification on whether or not Article K.12 and Article 5a were intended to provide for unanimity. Was it the intention that decisions taken under the provision of these articles should be taken on the basis of unanimity? If so, why is there not a straightforward provision to that effect rather than the roundabout route of paragraph 2 of K.12, repeated in Article 5a? That states that:
"The authorisation"—
to establish closer co-operation—
"referred to in paragraph I shall be granted by the Council acting by a qualified majority at the request of the Member States concerned and after inviting the Commission to present its opinion: the request shall also be forwarded to the European Parliament. If a member of the Council declares that, for important and stated reasons of national policy, it intends to oppose the granting of an authorisation by qualified majority, a vote shall not be taken. The Council may, acting by a qualified majority, request that the matter be referred to the European Council for decision by unanimity".
I have a number of questions to put to the Minister on this point. Is the action of a member state which wishes to oppose the granting of an authorisation,
"for stated and important reasons of national policy",

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subject to the jurisdiction of the European Court of Justice? Could the Court rule that the reason relied on by the member state was not in fact "important"? What framework is there to determine what constitutes,
"important and stated reasons of national policy",
and who will be the arbiter of this?
I wish also to ask whether it is indeed the case that both paragraph I of Article K.12 and paragraph 5 of Article 5a enable groups of EU states to use European Union institutions for what amounts to purposes for which there is no explicitly stated treaty provision? Is it not a fundamental British position that access to European institutions should be agreed by all, since they are paid for by all? Furthermore, will fast track countries be entitled to European Union funds for their projects?
I should also like to ask the Minister why the provision for a veto appears in the text of the treaty and not as a Council declaration? Since it has been incorporated in the treaty, can the Minister confirm that the door is now open to rulings from the European Court of Justice, which has the power to overrule the use of the veto?
I shall not further detain the Committee by responding to some of the wider issues that were raised. I hope that the Committee will forgive me for having concentrated narrowly on some important issues raised in this context of flexibility. But on these Benches, we believe that they are extremely important. If clear answers cannot be delivered today—I fully respect the fact that the Minister is not in a position to have answers whisked from the Box to assist him, despite his admirable knowledge of the subject—perhaps he will write to me on the subject with answers that I can share with other colleagues who have stayed until this late hour. That would be much appreciated.
10.45 p.m.
Lord Grenfell: Before the noble Lord sits down, perhaps I may ask him this. The noble Lord would like to see the veto put up front. Does that not open the whole process to abuse by any single member state which is against flexibility as a matter of principle? Therefore before any countries could get together to co-operate in the manner described under this title and articles, they would be prevented from doing so from the very beginning. Surely it is far better to have what may seem to be a rather complex procedure with the Council being the final arbiter so that one can be sure that those who are serious about co-operating will not be frustrated at the beginning by one single country which happens not to like the idea of flexibility.
Lord Moynihan: I regret to say that that is not the only issue. It goes much further than that. It is not the Commission that would be the final arbiter in these circumstances. It is indeed the European Court of Justice that could be in the position of determining what are the important reasons for national policy. That is the issue on which I sought clarification. I appreciate that the noble Lord's point is an important one, but it is the next
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step beyond that point that requires clarification this evening. So I can fully appreciate the Government's position on the text of the treaty.
Lord Whitty: The debate has been wide-ranging, and I am sorely tempted to challenge some of the interpretations of history that were set out. However, I shall concentrate on the effect of the amendment and the whole question of flexibility in this treaty. In so far as I can answer the various specific points raised, I shall attempt to do so.
On the general context of the debate, first, I thoroughly endorse the comments of the noble Baroness, Lady Williams, about the general atmospherics within fellow member states. There is no vast enthusiasm for a great integrationist project. I disagree with the interpretation put on it by my noble friend Lord Shore and others. There was a time when the political elites in Germany, France and the Benelux countries were very much down the road towards an integrationist policy. That time has gone.
Noble Lords may have seen the television programme last night on BBC 2 presenting a discussion on enlargement. A German Social Democrat Member, indeed Vice-President, of the European Parliament, Madeleine Hoff—in the demonology of most noble Lords, she would be an arch-integrationist—said absolutely clearly that there is no chance of moving towards a federal, integrated superstate. She said that perhaps there would be some confederal features, but it is a free association of independent nation states bound by treaty and pooling their sovereignty in certain agreed areas. That is the project not only for the United Kingdom, but also for the other member states.
The view of the noble Lord, Lord Pearson, of the attitude of the governments of those countries that seek membership of the European Union is completely at odds with anything I have experienced. Last night I met members of most of the delegations who were here for a very important European conference which took place today. They made absolutely clear their desire to join the European Union. In that, I believe they reflect the views of their peoples.
Lord Pearson of Rannoch: The noble Lord will, however, accept that my view is based on personal discussion.
Lord Whitty: I accept that is based on personal discussion. However, both the formal position and recorded public opinion in those countries indicates a rather different conclusion.
In a sense, flexibility was to have been the big issue of the Amsterdam Treaty and it turned out not to be. These provisions on flexibility are relatively limited, and they do not change the total nature of the treaty that we inherited from Maastricht. Before Amsterdam, there was a big push and a lot of talk about new configurations of Europe, concentric circles, hard-core, soft-core, onions, variable geometry of various descriptions. In fact, this has provided a little elbow-room for a bit of welcome flexibility. But some of those grandiose projects for flexibility, and therefore

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a multi-tier Europe, were also reciprocated to some extent by the previous administration, as the noble Baroness, Lady Williams, said.
There was a dangerous situation where there appeared to be some coincidence between those central powers of Europe which wished to proceed to a flexibility which excluded in large part member states, including the United Kingdom—and the previous government of the United Kingdom, who wished to exclude themselves. To the Labour Party in opposition, and to the Government who came in in May, that seemed a very dangerous course. We were therefore not in favour of widespread flexibility within the treaty, and in particular not within Pillar I of the treaty, where the laws of the Community should, as far as possible, with a little bit of flexibility at the edges, apply more generally.
With flexibility in this treaty, it is not the first time we have seen flexibility in the European Union. From the Treaty of Rome onwards there have been derogations and transition periods and the single currency is one big bit of flexibility, the new provisions on border controls are another big one. The opt-outs are bits of flexibility.
What is new in the treaty is that we have made general provisions on flexibility which are spelt out in Article K.15 and which are subject to very serious safeguards. There has been some confusion during the course of the debate on how some of the provisions operate. In K.15, K.16 and to some extent K.17 we are talking about the overarching provisions which relate to all parts of the treaty. The specific clauses relating to Pillar I of the treaty, the Community part of the treaty, are in Article 5a.
Members of the Committee have referred to a great extent to Article K.12 which relates only to the justice and home affairs area and is limited to intergovernmental arrangements in any case. It relates to instruments such as conventions rather than Community law. Article K.12 is not therefore the key clause; it is Article 5a.
I wish to answer the noble Lord, Lord Shore, who interestingly welcomed some of the provisions. The noble Lord, Lord Moynihan, who was in favour of slightly more flexibility than I am, objected to them because they did not provide so clear a veto in the first instance. It is undoubtedly true that these provisions are a bit of a compromise—as are all treaty provisions—between those who wanted flexibility to go ahead, and to do so without any agreement with the others, and those who wanted to block any possibility of going ahead. What we were looking for and always said we were looking for was flexibility but only flexibility by the consent of the rest. The consent can be passive or active, but in the situation where the consent is not forthcoming a member state should be able to use its veto by appealing to the European Council as a whole.
There is not a veto within the first stage simply because, if one country was opposed to going forward but was nevertheless prepared to allow the others to go forward, that should not constitute a veto. But if there was a strong national objection, it would be reflected in
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the reference to the European Council where it could be blocked. Therefore, we are safeguarding a situation where people go forward to the detriment of the national interest of those who do not go forward.
In a range of questions, my noble friend Lord Bruce asked me who determined the situation when states can go forward. Surprisingly to all of us, he identified the Commission as the bogeyman in these arrangements. That is not the case. It is true that under Article 5a the Commission has to give an opinion, but the people who take the decision are the Council. The Council takes the view in the first instance by QMV, but that is capable of being overridden by the process I have just described. In no sense does the Commission make the final judgment. Only in limited cases where there is an issue of dispute would the Court of Justice have a role. That can be spelt out in detail in response to the noble Lord, Lord Moynihan, should he so wish.
In relation to the other question raised by my noble friend Lord Bruce and repeated again in more extreme form by others, including the noble Lord, Lord Swinfen, my noble friend Lord Bruce referred to Article K.7(6). But that does not have much to do with the flexibility clause; it relates to the JHA area. But, nevertheless, it does not give the European Court of Justice any jurisdiction over action by member states. It only allows the Court of Justice jurisdiction over decisions of the Council, not of member states. So it can have no effect on the sovereignty of Parliament. It does not therefore give the Court the ability to override or strike down legislation passed by Westminster.
That means that in the extreme case outlined by the noble Lord, Lord Swinfen, it does not prevent a member state from determining that it will withdraw from the European Union. Clearly, in order to withdraw, it would involve an incredibly complex degree of negotiation. Neither this Government nor any future government, I hope, would wish to contemplate withdrawal. Nevertheless, this article does not prevent us from withdrawing. The conditions under which we would accept flexibility and have accepted it in the Amsterdam Treaty, and would wish this Parliament to accept it in passing this Bill, are strict and limited.
Lord Swinfen: Perhaps the noble Lord will forgive me for intervening when he is in full flow, but I was not referring only to this article; I was referring to the Amsterdam Treaty as a whole. I was asking whether that will lock us into the EC and whether, once that is ratified, we will be able to withdraw. If we cannot withdraw, this Government are seeking to bind a future government, and that would be unconstitutional.
Lord Whitty: These are treaties. This is not a constitution of a federal state; these are treaties and we can negotiate our way out of a treaty. But it would require negotiation to get out. This treaty does not alter the status of the United Kingdom in relation to the European Union. Nothing that is newly introduced in

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this treaty alters the situation as regards ultimate withdrawal—remote and hypothetical as I trust that consideration may be.
Lord Swinfen: I thank the Minister for that response. That is the first time that I have ever heard a Minister in this Chamber, or reported elsewhere, saying that we can withdraw from the EC should we wish to do so, even though it may take some negotiation. That is a comfort to some of us.
Lord Whitty: I hope it is not much of a comfort because the negotiations would be extraordinarily difficult. It is certainly not an option I would wish to give any currency to in this Chamber or elsewhere.
Briefly, my noble friend Lord Stoddart referred to Amendment No. 31, which calls on the Government to provide a report on the operation of flexibility to both Houses of Parliament. I do not need to go into detail. There is already a substantial degree of reportage on these areas to Parliament. but it is the intention of the Government, as set out in another place by my right honourable friend the President of the Council, to improve the scrutiny of all European legislation under these provisions and under others, and in particular to give a greater and more formal role in scrutiny in relation to the second and third pillars.
Lord Bruce of Donington: Will the noble Lord clarify the position constitutionally? The noble Lord will recall that I put to him that it was in our present constitution, as generally understood and interpreted so far by lawyers, that no Parliament can bind its successors. Therefore, if the next government decided to reverse anything that had been done by the previous government, they would have the right to do so constitutionally because under our constitution a preceding government cannot bind.
As I understand the noble Lord, he assented to the general proposition, with the important qualification that we could always negotiate our way out and that that might take some considerable time. That still does not address the constitutional problem because, under those terms, those with whom we would negotiate might decline any further negotiation and might decline to move in any direction whatever. I ask the noble Lord a
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straight question: does the constitutional doctrine applicable to the United Kingdom that no Parliament can hind its successors still hold?
Lord Whitty: The straight answer to that is "yes" and no treaty that has been passed since we ran the referendum in 1975 to assess whether or not we would leave the European Community has changed the situation. If the decision had gone the other way in the 1970s, we would have been able to withdraw. The status has not been changed by any subsequent treaty. I remain of the opinion that we are bound by treaty law to negotiate our way out of it, but there is no way in which that ultimate right has been changed.
Lord Stoddart of Swindon: Will my noble friend allow me to intervene?
Lord McIntosh of Haringey: No. We have an agreement on all sides of the Chamber that we will try to finish at 11 o'clock. The House sits at 11 o'clock tomorrow morning.
Lord Whitty: In the light of the time and because I believe that I have dealt with most of the points raised, I ask my noble friend to withdraw his amendment, despite the illuminating debate that we have had. If there are any other points, I will write to him.
Lord Shore of Stepney: I am grateful to my noble friend for his reply. As I said at the beginning, I regret that we could not have begun this interesting and important debate at an earlier stage. But, in view of the lateness of the hour, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
House resumed.

Wireless Telegraphy Bill [H.L.]
Returned from the Commons agreed to with a privilege amendment; the amendment considered and agreed to.
House adjourned at live minutes past eleven o'clock.