§ 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 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
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.311
§ 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.312
§ 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 313 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 314 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 315 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 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.
316 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 317 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 318 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.
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 319 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.320
§ 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.321
§ 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 322 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 323 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 324 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 325 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. 326 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 327 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 328 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 329 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.
330 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, 331 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. 332 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 333 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 334 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 335 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 336 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 337 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 338 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 339 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.
340 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 341 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 342 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. 343 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,