§ 4.3 p.m.
§ Lord Taverne rose to call attention to the significance for the British economy of the introduction of the euro, and to move for Papers.
§ The noble Lord said: My Lords, the launch of the euro is one of the most important world events since 1945. It means the creation of an economic bloc which is likely, in time, to rival the United States. It is already a bigger trading bloc than the United States and its total GDP is only slightly lower. Within the next 20 years, probably sooner rather than later, the euro may well become a currency which is as important as the dollar. Europe is also likely to develop a huge capital market as the cult of the equity takes root and as privately funded—
§ Baroness Farrington of Ribbleton
My Lords, I wonder whether I could respectfully ask those noble Lords who are in the process of leaving the Chamber to be a little quieter. It is proving impossible to hear the speech of the noble Lord, Lord Taverne.
§ Lord Taverne
My Lords, as I was saying, Europe is also likely to develop a huge capital market as more and more people take to the cult of the equity and as many states are forced to expand greatly their commitment to privately-funded pension schemes.
So I start with a proposition, which must surely be hard to contest, that the euro bloc will be an economic colossus. Next, our own economic future is intimately intertwined with the fortunes of the euro. The euro bloc is by far our largest trading partner. We share with it common laws about trade, competition and other economic activities. Moreover, most of our biggest companies are deeply integrated into the economic fabric of the single market. Therefore, the decision whether we should join this bloc, and, if so, when—or indeed, for that matter, whether we stay out—will have momentous consequences for this country.
Some argue that the prospects for the euro are uncertain, even bleak; that the British economy is not ready to join, or is not compatible with the economies of our European partners; or even, whatever the economic arguments, that joining would mean an unacceptable loss of sovereignty.
I do not contend that those arguments have no substance. They are the views of many eminent people whom I respect. But when we faced the choice as to whether we should become party to the Schuman Plan, when we faced the choice about whether we should join the common market when it started and when we faced the question of our relationship with the European monetary system, arguments were also advanced against joining at the start which seemed credible and reasonable at the time. Yet, in retrospect, most would now admit that those arguments were mistaken. That is especially true of our failure to join the common market at the start—a failure for which we paid a heavy price because we had to accept a common policy for agriculture and fisheries which was set and determined before we entered. As we delayed, the cost of entry rose.
600 As Hugo Young points out in his excellent book, This Blessed Plot, in each case the pattern of argument is much the same. First: "It will never happen". Then: "It will never work". Then: "Even if it works, it is not good for us". Eventually we join, after the shape of new institutions or developments has been determined without our participation and without any regard to our special interests.
Is the pattern being repeated again, in this, perhaps the most important decision of all? I see that the noble Baroness, Lady Thatcher, has taken her place in the Chamber today. I recall that she said that EMU was impossible. She called it, "Cloud-cuckoo-land". Nearly all the sceptics told us that the euro would never happen, or that it could never start on time. Now they say that it will fail, or that it is not for us. One should perhaps treat with some caution the forecast of those whose forecasts have been proved wrong, wrong and wrong, time and again.
Of course EMU is a risky venture. No one can guarantee that it will succeed. But as with the Schuman Plan, the common market and the European monetary system, the sceptics under-rate one vital element: the importance of the political will of our European partners. It was political will that enabled EMU to start on time. It was political will that enabled Italy, Spain and Portugal to qualify against all the odds. Moreover, it is the undoubted political will of its members to make EMU succeed, which is the most persuasive reason for believing that it will succeed and that it will be a bloc of low inflation and financial stability.
It is most improbable, for instance, as some of the sceptics predict, that nations which made the most strenuous efforts to qualify will now suddenly go for reckless spending and high deficits. Sceptics also predict that the new swing to the left in Europe will undermine financial stability. It is therefore noteworthy that both Oskar Lafontaine and Dominique Strauss-Kahn do not believe that you can create jobs by deficit spending. They have made it clear that they prefer the Clinton-Greenspan mix of tight fiscal policy and a looser monetary policy to the Reagan-Volcker mix of high deficits and high interest rates.
Further, with the new transparency of prices within EMU competition inside the euro bloc will be intense. This will be a powerful force for liberalisation and a powerful spur to future prosperity.
But even if the euro is likely to be a success, it is still argued that it does not suit us, that the risks are too great. Of course there are risks if we join, much the same risks incidentally as there are for Ireland, Spain and Portugal. However, they decided to join and take the risks, and for good reason because there are great rewards to be won which outweigh the risks: a stable currency, the prospect of lasting low inflation and low interest rates, increased investment and, above all, the prospect of influencing the future of EMU.
There is a curious lack of national self-confidence among the sceptics. They assume that the odds will always be stacked against us. That is a pessimism which is in no way justified by experience. Our economy may make up some one-eighth of the total of the Union's 601 GDP, but our influence inside the Union has been disproportionate. Whenever we have played an active and constructive part, the Union has developed in ways we can applaud. Thanks, among others, to the noble Baroness, Lady Thatcher, we made a major contribution to the start and the development of the single market. We have been on the winning side in the crucial battles for world free trade, budget reform and enlargement. Thanks to qualified majority voting we have secured some reform of the agricultural policy, and the prospects for more radical reform of the agricultural policy are now better than they have been previously. If we were part of EMU we could be confident that our voice would be powerful and that it would be effective.
On the other hand, what happens if we stay out? The pound outside the euro bloc will be highly vulnerable. The launch of the world's second largest currency in the middle of our largest trading area is bound to put strains on the pound, especially if the relationship between the euro and the dollar is volatile, as it may well be in the early years. Our industry will face costs which its competitors will be spared. Meanwhile integration inside EMU is likely to accelerate.
I agree with the sceptics that the euro has profound political implications, although, unlike them, I do not know exactly what forms these will take. No doubt there will be—indeed there already has been—much talk of a move to more federalism. I suspect, on past experience, that the rhetoric will be more evident than the reality. In any event those who call themselves federalists in Europe favour a decentralised Europe, a long way removed from the monster centralised European superstate with which sceptics frighten the children. I think they would find few Frenchmen, for instance, who would tolerate a European superstate which stopped the French from living their own lives.
There will be, I suspect, more qualified majority voting agreed among the 11. So far qualified majority voting has worked very much in our favour. But of course if we stay out, its extension among the 11 would not take account of any special interests that we may have. There may well be more tax co-ordination and tax harmonisation among the 11. I am at present rather doubtful whether this will happen. I am doubtful whether it is necessary. I certainly regard the technical obstacles as formidable, particularly in the field of corporation tax and particularly as regards the structure of taxation.
There will almost certainly be pressure for more accountability and democracy. However welcome this will be, clearly we have the strongest interest in having a say in the changes in institutions and procedures which might come about. Surely the vital point is that the form of integration, the future shape of euroland, would be decided without us if we stayed out. The "euro-X committee" will increasingly take the economic decisions that matter inside the Union. If we stay outside, we shall have observer status only. The essence of our sovereignty, the power to control our own future, will be substantially diminished if we stay out, and enhanced if we join.
602 I believe that the Government realise the dangers of isolation. They do not want Britain to be left as an observer on the fringes of the euro bloc. However, their policy so far has been timid and equivocal, very much in the traditional mould of British policy towards Europe. Of course there are good prima facie reasons for caution. Our economic cycle is somewhat out of whack and we are not yet sufficiently convergent. We all know the arguments. But convergence will not come about by accident. We could well converge by accident, perhaps early in the next century as we come out of recession or a slow down, and then we could pass like ships in the night. Real convergence means following an active policy to achieve convergence, as Spain, Italy and Portugal did to qualify for membership. They did not join only when they converged. They converged because they were determined to join. The way to achieve convergence is to announce our intention to join by a certain date as soon as possible. Setting a date will enable markets to adjust, as they did with the other EMU states. The declared intent would become a self-fulfilling prophecy.
However, a policy of continued prevarication without a firm commitment, whatever the many expressions of good will, is a dangerous policy, especially if doubts grow about our eventual commitment. The pound will be vulnerable for the reasons stated. Our long-term interest rates would almost certainly be higher. Our economy would suffer and with it the standing of the Government. The chance of winning a referendum would be correspondingly prejudiced. What is more, it is likely that the eventual price of entry will go up, as it has done before.
In time as EMU grows more close knit, some might well become less enthusiastic about having us in, especially if we have periods of what some might regard as "uncompetitive devaluation". We may well be required, as a price of entry, to abandon our budget rebate. We may well be required to join formally in a narrow band of the new ERM for two years before entry. That is all possible.
Meanwhile the position of the City as the financial centre and capital of Europe would begin to erode. No doubt its present status can survive if the markets expect that we shall join EMU soon, but it would be unlikely to survive if we stay out for long, or if markets take the view that our membership can be indefinitely delayed.
It is not perhaps surprising that in a recent opinion poll only 5 per cent. of opinion in the City agreed with the policy advocated by Mr. Hague. Indeed what is the real alternative to joining? This brings me briefly to examine the view that you can somehow be pro-European Union but anti-EMU. Some 10 years ago that might have been a tenable proposition; today it is not. EMU is now the core of the European Union. It is likely that Denmark will decide to join perhaps next year or the year after. Even Sweden, it now seems, is likely to follow. In both countries opinion has changed dramatically since the advent of the euro. Greece, as the Financial Times put it yesterday, is racing to qualify.
Therefore there is a real possibility that we shall in time be left on our own, isolated, a second-class member of the European Union, cut off from what the rest regard 603 as the Union's central project. We and they would move in opposite directions, growing further and further apart. Then we might well find that the existing advantages of the single market begin to fray.
Some sceptics offer a clear alternative. They want us to abandon the Union altogether. That is the clear aim of the noble Lord, Lord Shore, who has been against the Union almost as long as I have been for it. It also seems to be the present aim, more recently adopted, of the former Chancellor, the noble Lord, Lord Lamont, to whose maiden speech we very much look forward. I believe there is a certain logic in that view. I would regard our exit from the European Union as deeply damaging for economic and political reasons. But, in a way, to be out makes more sense and may make for easier relationships with our fellow Europeans than to be half in, half out, perpetually seeking to stop our European Union partners from doing what they want.
In my view the choice is clear. We should join this great venture of world importance as soon as we can. If I am right, we need a lead from the Government and we need it now. The Government are popular and I think mostly—with some reservations—deservedly so. But they will not be so popular forever. Now is the time for the Prime Minister to speak out bold and clear. If he does, I have little doubt that the people will respond and, as in 1975, the referendum will result in a resounding "yes". My Lords, I beg to move for Papers.
§ 4.20 p.m.
§ Lord Grenfell
My Lords, I rise to express my very deep thanks to the noble Lord, Lord Taverne, for introducing this debate. His consistent and rigorously argued support of the idea of a single currency has commanded my respect over a very long period of time. Like him, I look forward to hearing the maiden speech of the noble Lord, Lord Lamont of Lerwick. I share the profound satisfaction of the noble Lord, Lord Taverne, at the successful launching of the euro. I welcome it as wholeheartedly as did the noble Lord, Lord Cobbold, in his very spirited letter to The Times.
This is certainly a unique and momentous event in Europe's history. It marks not, as the eurosceptics would have it, the end of a Europe with which Britain can live, but the beginning of a Europe which can live better with itself, Britain included, and with the rest of the world.
We chose not to join the single currency in the first wave on the ground that our position in the economic cycle was too distant from that of the continental economies to make convergence possible within the timeframe. We were also waiting for some hard evidence that joining would be in our economic interest. The caveat on convergence was not unreasonable, but the caveat on entering before our economic interest was established was always, in my view, somewhat questionable. How long would it take before the Treasury could declare on the evidence of the single currency's performance that it was safe to join? Our economies might already be diverging again by the time that proof was established—passing as ships in the night, as the noble Lord, Lord Taverne, put it. I can 604 only hope that when our economy does come close to convergence, the Government will make that leap of faith which eleven other countries were prepared to do when they joined in the first wave.
In light of what we have been hearing from Ministers in recent days, I do not doubt that the Government favour our eventual entry; the "if" has given way to the "when". I look forward to the publication of the Treasury's national changeover plan and hope that our experience of dealing with the euro as an outsider will permit the period between a referendum giving the green light to become an insider and the actual introduction of notes and coins to be much closer to three years than four.
We are committed to a referendum, but I have difficulty in seeing the setting of a target date for entry as incompatible with that democratic process. The final word still remains with the people, but in the meantime, an unambiguous declaration of government intent, supported by a target date, would greatly assist business, industry and the financial sector, not only in their own preparations, but in the conduct of their affairs with countries already in the eurozone.
The problems and disadvantages facing Britain as a non-member of the eurozone are, in my opinion, mostly manageable, provided that there is a firm expectation within the EU membership that we will eventually join. Undermine that expectation—as the Conservative Opposition's official policy undoubtedly would—and our situation as an "out" would be that much more difficult. The importance of maintaining a stable sterling/euro exchange rate cannot be underestimated in light of our trading relationship with our European partners. If the currency markets believe that Britain will go into the eurozone, sterling should move gradually towards the rate at which markets expect it to be tied to the euro, thus avoiding the kind of volatility that might be expected in the absence of such expectations.
The single currency is now a fact of life, and only those who dislike it in principle will not want to see it succeed in practice. But this does not mean that those of us who wish it well do not see problems ahead. For example, there are fears that excessive appreciation of the euro against the dollar could slow economic growth and increase unemployment among the Eleven. Herr Lafontaine has, happily, retreated from his position that this calls for explicit exchange rate target zones in the face of strong opposition from ECB President Duisenberg and US Federal Reserve Chairman Greenspan, who see such global target zones as muddled in principle and unworkable in practice. The European Central Bank is insisting, however, that it will not follow a policy of benign neglect towards the exchange rate, which will remain one of several indicators influencing its monetary policy. That is surely right. The concerns of Messrs. Lafontaine, Strauss-Khan and others—and now also of the Japanese—can surely be met through the timely intervention of central banks as and when strong appreciations or depreciations need to be counteracted.
The lopsided structure of fiscal and monetary policy under the Maastricht Treaty is another immediate concern, as your Lordships' European Select Committee 605 pointed out in its recent report. There is always the danger that the rules of the stability and growth pact relating to fiscal deficits will prove too tight. The problem is an immediate one, given continuing signs of significant economic slowdown in the eurozone, with estimates of only 2.4 per cent. growth in the last quarter of 1998. Under the pact's very tough rules, there are circumstances in which even the most modest countercyclical fiscal policy could not be implemented unless sufficient headroom had not already been created by higher taxes and lower expenditure.
That that is incompatible with slow growth and rising unemployment is blindingly obvious. The solution surely lies in the revision of the stability and growth pact to allow governments a more flexible fiscal response to particular economic circumstances, provided that over the economic cycle as a whole a mandated average level of budget deficit is respected. I see no reason why agreement to amend the Maastricht Treaty to accommodate that change cannot be reached. But there will be little or no gain from such a change if governments for their parts fail to implement the supply-side reforms necessary to ensure more flexible labour, product and financial markets.
I am not one of those who believe that the European Central Bank is hell-bent on imposing a permanent deflationary bias on the eurozone in its pursuit of price stability. Its co-ordination of the concerted interest rate cut by the eleven cental banks on 3rd December suggests it is capable of a more flexible, politically sensitive approach than its strict price stability strategy might otherwise call for. But the corollary surely is that governments must co-operate more closely over national economic policies in general, and fiscal policies in particular, if the relationship between the ECB and national governments is to work meaningfully and effectively for the Union as a whole.
That brings me finally to a crucial question for Britain. Are we clear about where the Union is headed? We ought to be by now. The introduction of the euro is a potent spur to further economic integration, measured in growing trade and investment in the euro area. What will naturally follow from this is closer economic policy co-ordination as the countries of the eurozone become more interdependent. But integration does not mean centralisation; it does not mean a single state; it does not mean a single tax rate, as eurosceptics would have you believe. The right to pursue national interests within the parameters of the co-operative endeavour which is the European Union is as strong in Paris and Bonn as it is in London and Stockholm. France has its own national interest in mind in resisting co-financing of agricultural subsidies; Germany has its own national agenda when it calls for more tax co-ordination.
But let us be very clear on one point. Economic integration was never meant to be an end in itself. It is the necessary first step towards deeper political integration. If Britain does not have the stomach for that, then it is better that it remains outside. Personally, I welcome deeper political integration. If the new eurozone is to be a great economic power—or a Colossus, as the noble Lord, Lord Taverne, put it—as I believe it will be, then coherence in its policies is a 606 sine qua non. That does not mean stifling competition among states; it means setting sensible, equitable ground-rules. For the great challenge facing the European Union, now that economic and monetary union has arrived, is the democratisation of its structures and institutions. Martin Wolf put it starkly in a recent commentary in the Financial Times:European integration has, in short been a benevolent élite plot in which a cartel of executives has operated alongside unelected bureaucrats to secure the economic integration of the continent. But what has by now emerged is a proto-federation without many of the requirements of a democracy".So that is the real challenge: the democratisation of the European Union. Can we turn it into a true democracy which retains its internal diversity, competition among states, and individual cultural identities? That was the vision of the founding fathers, and monetary union has now brought us to the point where a rigorous process of democratisation must be launched or the whole project will surely fail. There are those who wish it to fail. I am not among them. I dearly want it to succeed, and I hope that our country, our people and our Government will recognise how much Britain has to offer to that endeavour and how much we have to gain by its fulfilment.
§ 4.30 p.m.
§ Lord Skidelsky
My Lords, we are grateful to the noble Lord, Lord Taverne, for giving us an early opportunity to discuss the launch of the single currency. Whatever our views on whether or when Britain should join euroland, we can agree that the arrival of the euro is a momentous event in European history. We can also agree that it will have important implications for our economy and for the conduct of our economic policy, some of which were pointed out in a characteristically informed and attractive speech by the mover of the Motion, although I must say that it reminded me slightly of those arguments for restoring the gold standard in 1925 when it was said that all Britain had to do was to fix a date and a price and everything in the economy would adjust accordingly.
The line-up of speakers for this debate is a testament to the intellectual and practical knowledge commanded by this House. In particular, we all look forward in lively anticipation to the maiden speech of the noble Lord, Lord Lamont of Lerwick.
I turn to the Conservative case for excluding entry into the single currency until the end of the next parliament. It rests on an assessment of both the economic and the political consequences of monetary union. We believe that monetary union will lead inevitably to fiscal union and then to political union. We do not want Britain to be part of a United States of Europe and we do not believe that the British people do either. I do not think we are wrong about those political consequences. Leading European politicians have repeatedly emphasised that monetary union is a staging post to full political union. Eight years or so—who knows?—but certainly a longish period of time should give us a much better idea of whether we are right about the political and economic dynamics of monetary integration.
607 We believe that it is wrong to hold a referendum on joining the euro before the political as well as the economic implications are much clearer than they now are. We do not want the people of this country to turn on the politicians—politicians of any party—and say, "But you never told us that joining the euro meant signing up to membership of a new European state". We believe that a referendum, if and when it comes, should be held in the light of all the relevant facts—and they are not all in yet. Meanwhile, no British government should feel forced to take policy decisions on taxes or on currency matters which pre-suppose that we will enter euroland in two or three years' time; yet that is clearly implied by the present Government's decision to prepare for entry. We on these Benches will never tire of repeating that Europe is a choice, not a destiny, and we must never knowingly put at risk our freedom to choose.
Of course, I do not deny that the emergence of the euro will change life in Britain. It will confront businesses and consumers with a new set of facts to which they will have to adjust. Consumers and firms will benefit from having many of the prices of the goods and supplies that they buy quoted in a single currency. That will reduce inter-European Union price differentials; for example, the price of cars should fall to the lowest euro price quoted in the single market. Firms will be forced to price competitively. That, after all, is what the single market is all about. But none of this requires us to join a single currency.
It is argued, however, that some of the price differentials are due not to lack of price transparency but to differential sales taxes—hence the move to harmonise VAT. There is a theoretical case for harmonising VAT on tradables, whether the tax is levied at point of sale, as is true now, or at source, as the Commission proposes. But in thinking about harmonisation it is vital to bear in mind that the European Union is not the only place in the world in which to invest. If European Union corporate taxes are harmonised at, let us say, Germany's 56 per cent. tax rate, one may well get a flight of production to more business-friendly locations, such as the United States or central Europe. That means a flight from Britain.
Another problem arises from the unlimited demand for equal taxes made by so many European politicians. It is not just that they want to harmonise something here and there which might make the single market work a little better; they want to harmonise the whole range. We are opposed to using tax policies which might conceivably make a single market work better as a stalking horse for qualified majority voting and other moves towards political integration. We must insist on preserving a tax system which suits the customs of our people and the needs of our businesses, always remembering that approximately 50 per cent. of that business is done outside Europe.
We have been fed a great deal of alarmist stuff: that if we fail to join the euro soon, the City of London will lose its status as the world's leading financial centre and business will emigrate to Frankfurt. I do not believe that to be true for a moment. The view of the British Bankers' Association is that the euro would be a 608 challenge to the City of London, but that is only to say that the City operates in a competitive international environment—it always has and it always will. What keeps it pre-eminent are a critical mass of financial institutions, an abundance of skilled workers and a sound regulatory system. London possesses those attributes regardless of the dominant currency, which is currently the dollar. What all experts do agree on is that the City's position will be threatened by the Commission's proposal to levy a withholding tax. That is a tax levied on the interest and dividends received by a foreign investor. It would raise the cost of financing bond issues in London. There would be every incentive, therefore, for international lending and bond-issuing business to move to financial centres where there is no withholding tax, such as Switzerland and various off-shore islands. Of course the Commission wants to stamp out tax evasion. That is perfectly right. No one wants profits to be based on providing safe havens for tax dodgers. But there will be no gain in tax collection if businesses move out of the European Union altogether. The Government say that they are against the withholding tax. But are they prepared to stand up for the interests of the City? We look for deeds, not words.
The last and most serious topic I want to address is the impact of the euro on our currency. The crucial point is that, if Britain intends to join the euro soon, the Government will have to decide very quickly at what rate they want to fix the pound to the euro. But it is surely inappropriate to make a decision of that kind until we have a much clearer idea of what the euro's long-term relationship with the dollar is likely to be. The main reason is that half of Britain's trade is with non-European Union countries and is denominated in dollars, a fact to which the noble Lord, Lord Grenfell, did not refer. That makes the pound/dollar exchange rate as important for British traders as the pound/euro rate. In the hyperbolic press comments which greeted the advent of the euro it was somehow assumed that all Britain's trade is with the European Union. In fact, a much higher percentage is with non-EU countries than is true of the average European Union member. Britain has always been a global trading nation, dependent on world economic links and conditions and not merely European ones.
It is widely expected that the euro will appreciate against the dollar, not just because of temporary euphoria but also because the rest of the world will no longer have to finance America's 300 billion dollar current account deficit. Countries will have the choice of holding euros or dollars. If we fix the euro/sterling rate now, we run the fundamental risk of sterling being misaligned with the dollar; our trade with "dollarland" will suffer, and we may well be forced into another ERM-style fiasco. In short, the gains from fixing the rate now are relatively small, but the risks are very great. Fixing to the euro now would also make a nonsense of the Bank of England's price mandate. Money supply and prices would be hostage to the fluctuations between the euro and the dollar.
I wish to put some specific questions. Is it the Government's intention to join the euro in the next two or three years? Will they agree that in order to prepare 609 for joining they must have a currency policy? Do the Government have a currency policy? What do they think the relationship will be between that currency policy and the inflation target mandate that the Chancellor has only recently given to the Bank of England? Those are serious questions, and they will not go away. We have eminently sound reasons for waiting to see what are the politics and economics of monetary integration. I trust that this debate will give the Government an opportunity to disclose their intentions more fully than they have done so far.
§ 4.41 p.m.
§ Lord Cobbold
My Lords, it is indeed right that this House should have the opportunity of debating the euro during the first month of its existence. Therefore, I too thank the noble Lord, Lord Taverne, for raising the subject today. I also very much look forward to the maiden speech of the noble Lord opposite which we shall hear shortly.
It is difficult to overstate the importance of the euro to the British, European, and indeed global economy. The launch of a single currency by 11 European states is, as the noble Lord, Lord Taverne, has already said, an important and unprecedented event in world terms. It is probably the most important event in Europe since the Treaty of Rome. Coming at the end of a century—indeed, at the end of a millennium—during which the tribes of Europe have been locked in almost continuous mortal conflict, it is a bright light for peace and economic progress—and, let us hope, a pointer towards a more mature mode of cohabitation for the peoples of Europe in the third millennium.
Sadly, we the British did not have the confidence or the courage to join the venture. Today, we are focusing on the significance to the British economy of that decision.
The most obvious potential impact is on the City of London and our financial services industry. The City, together with the Bank of England, has played a very important and positive role in the implementation of the euro and in the detailed arrangements for payments and contracts.
The City is confident that it can retain its pre-eminence. But there has certainly been a considerable upsurge in competition from Frankfurt and Paris; and there must be some risk of erosion of the City's dominance of certain markets. We have seen some of this in the derivatives markets, where London has lost its preference for a London-based reference rate, LIBOR, in favour of the euro rival, EURIBOR. As stated in today's Financial Times, the London derivatives exchange (LIFFE) is fighting back and is changing its contracts to a EURIBOR base to regain the business.
The Stock Exchange is struggling to find a new role in the euro markets. Competition is fierce and we shall see many changes in the months to come.
The UK retail banks are perhaps the most obvious cases of potential competitive disadvantage. Unlike their counterparts in euroland, the British banks cannot use the strength of their domestic deposit base to compete 610 throughout the euro area. However, on the whole, I think the City is right to be confident, although its worst enemy is complacency.
The most significant impact on the British economy of the euro is the one that is most difficult to assess. Those who are against our joining the euro claim that, by staying out, we retain control of our monetary destiny and have the freedom and flexibility to adjust monetary policy to suit our specific needs. But just how much freedom can we expect to have in the increasingly global economy? We are a sophisticated but small economy, suspended between two economic giants with whom we have to trade to live. About 40 per cent. of our economy is exposed to foreign trade, compared with around 10 per cent. for both the US and euroland. In other words, they will not have to worry about us, but we shall most certainly have to pay attention to them.
To prove ourselves and to remain attractive to inward investment, we shall have to be stricter than strict. We shall have to perform as well as, or better than, our giant neighbours in achieving stable growth. Given that sterling, although small in comparison with the euro and the dollar, is still a trading currency with an open and relatively deep market, we shall have to persuade the currency speculators of our good intent if sterling is to avoid becoming the plaything of the world's currency hedge funds.
To be successful, it seems inevitable that we shall have to pay a risk premium on our interest rates. Short-term three-month sterling interest rates are currently 2½ per cent. higher than those for the euro; 10-year government bonds are about ⅝ per cent. higher. How those differentials evolve in the future is critical in assessing the price that the British economy will have to pay—the price of freedom, one might say.
But let us not be pessimistic. It is a fact of life that we have not joined the euro. Whether we like it or not, the next two or three years will demonstrate to the world and to ourselves whether we can survive profitably on our own. We shall also see how the euro works in practice and whether it will produce the benefits that are claimed for it.
We should, of course, maintain a public policy of wanting to join, as indeed the Government have so far stated. If, by the end of this Parliament, the euro has led to a resurgence of growth and employment, to booming equity and bond markets in a massively expanding capital market, to industrial rationalisation and a thriving small business sector—and if we in Britain have had to pay a significant risk premium on our interest rates and have begun to see foreign investment passing us by in favour of euroland—the euro will sell itself to the British people. Indeed, it must sell itself to them if we are ever to have a realistic chance of joining. There is not much point at present in mounting an expensive propaganda campaign to try to persuade the British people of the importance of the euro. For some time to come, it will hardly touch their lives. Of course, it will affect business, but business is well capable of managing its affairs.
If none of those things happen, the Euro-sceptics will be triumphant. No doubt the Tories will be on the rampage again and little Britannia will feel very pleased 611 with herself. I do not believe that that is very likely. I think we shall find it very difficult to steer our little ship through all weathers.
I believe that we shall find ourselves knocking at the door of euroland—and at that point we shall face a new set of problems. Will the price of entry have gone up? Shall we have to sacrifice the hard-won rebate of the noble Baroness, Lady Thatcher? Shall we have to spend two years' apprenticeship in the new ERM? Shall we or the markets be able to agree a sterling/euro entry rate that is acceptable to both sides?
I repeat what I said earlier: the euro is a step towards a more mature mode of cohabitation for the European peoples than the bloodthirsty rivalry of the past. We should therefore wish it well. But it does raise political questions as to how Europe is to organise and manage itself in the next century. It highlights the weaknesses and the democratic deficit of existing structures and institutions.
Europe will require visionary political leadership in the century to come. There is a need for institutional reform—that is perhaps even more important than the reform of your Lordships' House—but that is a subject for another day.
§ 4.49 p.m.
§ Lord Lamont of Lerwick
My Lords, I am grateful for the opportunity to address your Lordships' House for the first time. It is very nearly 27 years since I made my maiden speech in the House of Commons on the Third Reading of the European Communities Bill. It must have been a terrible speech indeed because it has been both quoted and extravagantly praised in Sir Edward Heath's autobiography. I shall try to do better this time, although I am sure that some of my noble friends will prefer the first speech to the second.
The noble Lord, Lord Taverne, has drawn our attention to the launch of the euro. The fact that the euro has been launched and has existed for 20 days without accident tells us little except that certain European politicians have shown great determination and great willpower in pressing ahead, sometimes even ignoring public opinion in their own countries.
The noble Lord, Lord Taverne, placed great emphasis on influence. When I hear the word "influence", to misquote Marshal Goering, I sometimes feel like reaching for a gun. "Influence" is the word that has been used again and again to justify every step towards European integration that otherwise did not have immediate attraction. Giving up the right to set our own interest rates in exchange for a one-in-11 opportunity to set the interest rates of the euro does not seem to me to be the bargain of the century.
The euro will have influence on us, but we are not without consequence for euroland. Britain is euroland's biggest customer—bigger than the USA and Japan put together. We affect them, too.
Some supporters of the euro believe that its continuation for a few years will make it inevitable that the British people will conclude that we have to join the euro. However, it may work the other way round, when 612 in a few years' time we discover that the world has not come to an end and that we have continued to prosper, even though we have not joined the euro.
Some British companies will use the euro as some today use the dollar. Perhaps British companies will have the best of all worlds: they can use the euro in the market of euroland and at the same time be based in a country which is able to devise its interest rates for its own economic conditions.
We are often told that euroland will give us lower interest rates. As the Russians put it, "There is no free cheese except in a mousetrap". There is no guarantee that euroland's interest rates will always be lower than ours. Currencies get the interest rates they deserve. Sterling will earn its interest rates as the newly independent Bank of England gains credibility—and I wholly applaud the decision of the Government to give independence to the Bank of England.
One day we may have interest rates suitable for a really good currency, where 10-year money costs well under 3 per cent. I am not referring, of course, to euroland, but to Switzerland. There is no interest rate premium there. That is a country outside the ERM, outside the European Union, not intending to join the single currency and which sets its own interest rates for its own economic conditions—and has achieved a very low level of interest rate.
What matters more than anything else is not getting the lowest rate of interest regardless of economic conditions, but getting the right interest rate. The euro will be accompanied by a single rate of interest calculated by an assessment of some average of the different conditions in the different countries of euroland. I have no doubt that it will be a strong currency and that it will produce a low rate of inflation—that is, measured on an average basis, with some countries above and some below. But for most of the countries, most of the time, judged from their viewpoint, the rate of interest will be wrong for them most of the time.
In recent years there has been a remarkable convergence of inflation as the different countries of Europe have prepared for the arrival of the single currency. But let us not forget that that convergence was achieved by divergent means: by different rates of interest. To achieve the same rate of inflation as Germany, Italy had to have much higher interest rates than Germany.
The imposition of a single interest rate across euroland will recreate different rates of inflation again. Differences between national economies will become accentuated. In inflation-prone countries, inflation will rise and, in the weaker economies, recessions may last longer. Instability, rather than stability, is likely to be the outcome. Because of its dependence on, and sensitivity to, short-term interest rates, Britain is more likely than any other country in Europe to suffer from that instability. I believe that the Pennant-Rea Committee estimated that if Britain were in the single currency, something like 40 per cent. of the effect of interest rate changes in euroland would be felt by the British economy.
613 Professor Feldstein of Harvard University has somewhat provocatively observed that he believes that the euro will increase the risk of war in Europe. Even by my standards that would be going a bit far! His underlying point is that the euro will increase tension and friction between individual countries because they will have incompatible and irreconcilable expectations from common institutions.
I know that a maiden speech should be non-controversial. I can join the noble Lord, Lord Taverne, in welcoming the euro because its launch has been accompanied by a mass of declarations making it abundantly clear, to anyone in this country who did not know, what the euro was designed to achieve. Mr. Lafontaine, Mr. Fischer and the Chancellor of the German Republic have all reminded us that the purpose of the euro is to bring political union further forward.
The British Government are alone in maintaining that economic and monetary union is solely a question of economics. I want to be fair to the Prime Minister. His exact formulation is that there is no overriding constitutional bar to joining the single currency. But that does not take us very far. There is no overriding constitutional bar to ending Britain's independence. It is time to be franker about what the single currency is about and what it is intended to achieve.
I should like to address the points made by the noble Lord, Lord Grenfell, and touched on by the noble Lord, Lord Cobbold, about the political future of Europe. I do not believe that British institutions are incapable of improvement; but, if we are to transfer more power to other institutions, we ought at least to satisfy ourselves that they are better or that Britain will be better governed as a result. It is difficult to abandon the nation state because the nation state is inextricably linked with democracy.
Last night William Hague, the Leader of the Opposition, quoted from the book by David Landes, Wealth and Poverty of Nations, in which he describes the advantages that Britain has had because of always being a nation:A nation [is] not simply the realm of a ruler, not simply a political entity" [like the single market but] a self-conscious, self-aware unit, characterised by common identity and loyalty and equality of civil status".That is the basis on which a minority accepts the decisions of a majority in a democracy. Europe is not a nation. A nation is not created by handing out free plastic blue and yellow flags to 1,000 people on 1st January in front of the Charlemagne building. That is not a European risorgimento; it is a PR stunt.
Europe, I fear, will never be democratic because it is not a nation. Where there is no democracy, there is no accountability; and where there is no accountability, there are the kinds of problems that, tragically, the European Parliament refused to confront last week. The issue is not whether political union, which will follow from monetary union, will work for Britain—it will not; it is whether it can ever work for Europe.
§ 4.59 p.m.
§ Lord Barnett
My Lords, I am delighted to have the opportunity to congratulate the noble Lord, Lord Lamont of Lerwick. I must confess that I had wondered how he would make what is usually described as a non-controversial maiden speech on the subject of the euro. I suppose one can define his speech by saying that it was non-controversial to those who agree with him. He will be interested to know that my noble friend Lord Shore of Stepney was nodding his head throughout. He would not expect me to agree with everything that he said. I agree with him on at least one point: the independence of the Bank of England and support for the Chancellor in that respect. I very much agree with that.
I warmly congratulate the noble Lord on his delivery and the way that he expressed sincerely held views on the topic. It is right that your Lordships' House should hear sincerely held views on both sides of the argument. I am sure that I do not have to convert noble Lords here today to the view that the noble Lord, Lord Lamont, will be heard with great interest in the future on this and other topics. I for my part very much look forward to hearing him again on many occasions in the future.
The case that is usually made against the euro—to some extent by the noble Lord, Lord Lamont, but certainly by the noble Lord, Lord Skidelsky, from the Opposition Front Bench—is not just that we should not join within seven or 10 years. If one analyses it the case that they make is that we should never join. It would be better and more honest if they admitted it. The fact is that any scare story will do to make a case against the UK joining the euro, for example tax harmonisation and the fact that not only the UK but Sweden, Denmark, Spain and many others will oppose tax harmonisation that requires unanimity to achieve it. It is a nonsense to use scare stories of that description. I am glad to see that my noble friend Lord Shore shakes his head. There are certain aspects of tax harmonisation that would be very much in the UK's interest, for example the question of tax avoidance and unfair tax subsidies. It must be in our interests not only to talk about it but to seek to do something about it.
I do not have an obsession about joining. I recognise that there are real risks in the UK being a member of euro and the euro itself. We said so in our report on the European Central Bank where we recognised that the euro might fail. That is certainly a fact that needs to be considered. My noble friend Lord Grenfell mentioned some of the areas where this was a possibility. I shall not repeat them. Fiscal profligacy and excessive budget deficits are certainly possibilities given that member states have tried so hard to become members of euroland. There is also the failure to make the essential structural changes that will be needed. That is certainly a risk which may or may not arise. It will certainly take some time. However, these structural changes will be needed whether we or any other member state is in. Therefore, in our report on the European Central Bank we recognised the risks. We said:We do not expect it to be allowed to fail".My noble friend Lord McIntosh regarded that as a feeble response. I hope that he will go even further in his response tonight. We could have said that it would not 615 fail. However, I do not wish to be as dogmatic as that. In the summing-up of the unanimous report of the Select Committee it is said that given the present position it is not likely to fail. We already see that that is likely to be the case.
But if there are real risks to the UK inside the euro there are very considerable risks outside it. There is serious danger, despite the comment of the noble Lord, Lord Skidelsky—this matter was dealt with to an extent by the noble Lord, Lord Cobbold, in his excellent speech—to the banking system and the City of London in particular. At the last count the number of UK and foreign banks was 553. In Frankfurt the number is 194. Can anyone really doubt that if we did not make clear fairly soon that we would be joining the euro that position would not change and some of the foreign banks in London at the moment would not at least contemplate moving? Of course that would happen. (I hope that my noble friend does not mind. I am afraid that I have only nine minutes in which to speak. I shall interrupt him later!)
The same applies to inward investment. We have experienced excellent growth in net inward investment over the past 10 years. For example, in 1988 it amounted to £12 billion; in 1997 it was £22 billion; and in the first three-quarters of 1998 it was £32.8 billion. Can anyone entertain any serious doubt that if we made it clear that we would not be part of the eurozone there would not be a reduction in net investment? Can even my noble friend doubt that that would happen?
§ Lord Barnett
My noble friend gives three "yeses". Perhaps he should have a fourth. I am not surprised that my noble friend takes that view. While I am prepared to recognise risks my noble friend Lord Shore and a few others—he would say more than a few—favour not only being out but staying out for ever. He is at least honest about it. The decisions taken during our period outside, which I hope will be a short one, will seriously affect us because we will have no influence within euroland; nor will we have a voice.
But the real advantage to the United Kingdom is not only as a hedge against the risks of being outside, but the opportunities of being inside. The chances of economic growth without a recurrence of past dangers, for example to the exchange rate, which the noble Lord, Lord Lamont, and I have shared within the Treasury—we do not share much else—are not unimportant. Equally, investment will be helped by the eventual, if not immediate, stability and expansion of trade inside the eurozone.
Comment has been made about lower interest rates as if somehow that would be a bad thing. I cannot believe that anyone imagines that lower interest rates in the UK would be bad for our economy, industry and the City. Of course not. Inside euroland we would be able to have a faster rate of economic growth than anything we have seen before.
616 For all those reasons I regret that once again we have missed out at -the start of what the Select Committee described in its report on the European Central Bank asan immense and surprising achievement".I shall repeat what I have said before. I shall keep repeating it until the Government accept it. My noble friend Lord Grenfell said that it would help industry and the City if we at least made clear our intentions. But there is absolutely nothing to lose and everything to gain—because the option would remain open—if the Government said now not only that they agreed with the euro in principle and intended to join, but that it was a matter of when and not if. I hope that this time my noble friend Lord McIntosh will be able to go further than before, which is what I believe he would like to do. He can ignore his brief and say that he agrees with me. If he did so we would become a major part not just of an immense and surprising achievement in the setting up of the euro, but of probably the most historic achievement this century.
§ 5.8 p.m.
§ Baroness Williams of Crosby
My Lords, first I apologise to the House if I have to leave a little before the end of the debate owing to its delayed start. I have an unchangeable and unbreakable family commitment. I hope that my colleagues in the House will understand.
I took very careful note of the remarks of the noble Lord, Lord Skidelsky, in calling for a full and detailed debate on this subject in the next few months. I fully support that plea. It is rather sad that on a day when we have debated a Statement on the reform of the Lords, which is certainly a matter of moment, followed by a debate on the single currency, which is of equal moment, the media's response to what we have to say is virtually nil. I believe that the media owe it to the British people to pay significant and careful attention to a matter which is so significant for the shape of our future over the next century. This country has suffered greatly from the terms on which much of the debate has been conducted. In many ways those terms shame the capacity of the people of this country to think responsibly and internationally.
First, I strongly commend the excellent speech of my noble friend Lord Taverne. He pointed out forcefully how time and again in this country we have been almost totally sceptical of the ability of our European neighbours to meet their goals and objectives. The euro is as good an example as any. The noble Lord, Lord Lamont of Lerwick, made a clearly important speech. He was among the first of those who have been most sceptical of the capacity of Europeans to achieve their goals. As a careful student of the writings of the noble Lord—he suffers the drawback of us all that perhaps one should never put anything in print—I must quote from the third chapter of his Sovereign Britain published in 1995. It states:The biggest casualty of the collapse of the ERM in 1994 has been the Delors vision of Europe; as I see it, a single currency and the monetary part of the Maastricht Treaty are now unrealisable".That was just three and a half years ago. The noble Lord was not alone in saying that. It was the view of most wise and expert commentators in this country who, as 617 my noble friend said, have consistently failed to appreciate the drive and political will underlying the desire of our European neighbours to integrate more closely with one another.
Secondly, I believe that we are only at the beginning of the process. At present, dollar-dominated trade amounts to 48 per cent. of the world's exports. But the volume of exports amounts to only 11 per cent. The opportunity for the euro to become a more significant trading and reserve currency clearly exists. From statements made by the Republic of China, and Japan, we know that they intend to shift a substantial part of their reserves of currency from the dollar to the euro; and that implies a significant increase in the influence of those who run the European Central Bank. Indeed, that would be part of my answer to the noble Lord, Lord Skidelsky. I believe that the euro will gain rather than diminish in influence and power.
We have had a number of criticisms of the euro. I share one which was eloquently described by the noble Lord, Lord Grenfell, in whose wise company I had the pleasure to serve on Sub-Committee A of the European Communities Committee. The noble Lord expressed one great worry about the euro. It is one which I share, along with the noble Lord, Lord Barnett, who presided over that committee with great judgment and wisdom. It is that the provision for asymmetric shocks under the terms of the Maastricht Treaty are not sufficiently flexible. The fiscal and stability pact is extremely strict. Even the Economist on 9th January said that it was a "dangerously tight" fiscal proposal. We should be able to make submissions on that issue. I should like a greater range of movement within the fiscal and stability pact than the tight limits set at present in a period when the world may be facing recession.
We have already heard about the difference in interest rates. Over a cumulative period—if one assumes that it continues, and there is little reason to believe that it will not—it will be a major burden on economic competitive growth in this country.
We have discussed investment. I share the view of the noble Lord, Lord Barnett. I wish to add only two other points, one of which was trenchantly expressed by the former Prime Minister, Mr. Edward Heath, in another place when he said that he believed the failure to join the euro would leave Britain vulnerable to every speculative whim. That gloomy prophecy was all too worryingly borne out when Mr. George Soros visited this country last month and said that he would regard sterling as a very vulnerable currency if it remained outside the euro currency bloc.
The G8 is already talking about new financial rules of the game. The group is worried by the extreme volatility of currency relationships with one another—the noble Lord, Lord Skidelsky referred to that—and the effect of speculative movements of currency on some of the more exposed Asian economies. Does anyone suppose that if the G8 looks again at the financial rules of the game in a globalised world where we still teeter on the edge of recession, the voice of Britain will be heard with anything like the same weight as that of the 11 member states of the euro? It is because I believe 618 that the financial architecture of the global economy is likely to be reconstructed over the next few years that I so profoundly regret our absence from this major currency bloc.
I conclude by echoing the remarks of the noble Lords, Lord Cobbold and Lord Grenfell. I cannot think of any better start to the new millennium than for the United Kingdom to throw her weight behind the modernisation, democratisation and accountability of the European Union. We are eminently placed to submit and contribute to such an outcome. It is a vital outcome for the future of Europe and an honourable role for this country. So I join my noble friend Lord Taverne in calling on the Government to take a bolder and stronger position than they have done. I can think of nothing more appropriate for a Government intent on modernising than to recognise that this country too is part of Europe and of a rapidly internationalising world.
§ 5.17 p.m.
§ Lord Roll of Ipsden
My Lords, my first very agreeable task is to congratulate the noble Lord, Lord Lamont, on his maiden speech. It was a model of its kind, in particular in the observance of the practices and conventions which govern maiden speeches. As the noble Lord, Lord Barnett, pointed out, it was remarkable in its strict obedience of the injunction not to be contentious. We look forward to future speeches by the noble Lord with great anticipation, as from now on he will not be constrained by the same rules as govern maiden speeches.
This is not the first time that the House has devoted itself to a discussion of the euro. Whenever I have had the opportunity to address your Lordships on related matters, I have referred to the euro and expressed views which I held long before the European monetary system came into being, and before the creation of the single currency was on the agenda. I believe that a number of your Lordships will be familiar with my views. I shall therefore be brief and confine myself to only two specific points, and perhaps one general remark.
My first point relates to the European exchange rate mechanism. It has been referred to briefly. The opposition to the euro, and to our joining the euro, has become, naturally, more vociferous, not to say strident, since 4th January when the euro became a fact. One of the arguments which has made its appearance—it is a very old one—is the disaster which our membership of the exchange rate mechanism involved. Yes, indeed, it was a disaster. But those who now produce that argument are guilty of a mild degree of amnesia. What was it that produced the argument that it was a disaster? It was that we went into the exchange rate mechanism at the rate of 2.95 Deutschmarks to the pound, apparently without any consultation with our partners. That was not only a failure of courtesy, it was a very important failure because membership of the exchange rate mechanism put on all its members certain mutual obligations. Therefore our partners had the right to be consulted, but according to the accounts I heard they were not.
What is more, the disaster, the catastrophe, of that high exchange rate was known to many economists and analysts at the time; we did not have to wait for the 619 result. The relief which the departure from the ERM brought—for a time it produced a better economic climate in this country—was again proof of where the fault lay. One can argue about the virtues or vices of any system designed to diminish exchange rate fluctuations—economists have a field day on that—but the important point about the exchange rate mechanism was the rate at which we went in.
My second point has been mentioned tonight by a number of speakers, particularly by the noble Lords, Lord Grenfell and Lord Cobbold. It is the position of the City. They both spoke with great experience of the City. I know the place a little, too. For the past 30 years or more I have spent most of my waking hours in the Square Mile when I have not been travelling all over the world on City business.
The City is a remarkable institution. It is very strong and has advantages which have been developed over many years. That has produced not so much in the City but outside, particularly among the opponents of the euro and of our membership, a certain complacency. The argument is, "Well, the City deals in anything. It deals in dollars and in obscure currencies. There is absolutely no reason why it should not carry on perfectly well with us being a member but at the same time doing business". Indeed, that is perfectly true, as I know from my own experience. City houses have done a remarkable number of bond issues for sovereign and corporate borrowers, and borrowers have nominated in euros. But is it possible to imagine that over a period of, say, three or five years these advantages will not erode? There is plenty of evidence, but arising directly out of the existence of the euro and the European Central Bank there are certain arrangements, institutions and payment systems of all kinds, which are of necessity confined to the members of the eurozone. In addition, is it not more realistic to suppose that on top of those inherent constraints which the existence of the euro will put upon its members there will be, as a result, if I may quote the New Yorker a famous comment, "Nothing 'propinques' like propinquity". The propinquity that the existence of the European Central Bank and its council and system produces and the continuous possibility of meeting among the members of the euro zone will of necessity produce a much closer relationship which will be bound to influence the decisions of the European Central Bank, the Council of Ministers and so forth.
While I have no doubt that the City can carry on for quite a while, I am afraid that it is totally unrealistic to suppose that we can continue to command today's position against Frankfurt, even Milan and Paris and perhaps Amsterdam, in the light of developments in the five years to come. The fact that the Stock Exchange in London has already reached an agreement with Frankfurt, which Paris appears now prepared to join, is an example that the City itself, as one would expect from a conglomerate of institutions in the financial services which is used to hedging risks, is aware of the risks and is already taking steps. I believe that if a poll were conducted today in the City one would not find the same complacency as one finds outside it.
620 Finally, I want to say a few words about the attitude of our Government. I had the opportunity of speaking during the economic debate on the humble Address. Among other things, in the gentlest possible manner, and with the aid of some verses from Andrew Marvell which he addressed to his coy mistress, I criticised the Government about being so slow in coming out perhaps on the lines which the noble Lord, Lord Barnett, today and on an earlier occasion urged upon the Government.
Since the debate on the humble Address two important events have occurred. First, the euro is now a fact. That has provoked a considerable rallying of the forces against the euro, together with the apparent provision of immense sums of money to sustain the anti-euro campaign. That in itself would be an argument in favour of the Government taking much more energetic steps in the direction of educating public opinion and not waiting, as I said when I previously spoke on the subject, for the media moguls to come round. Incidentally, it is slightly ironic that some months ago one newspaper enjoined upon the Prime Minister, "Don't scrap the pound", when the owner of that newspaper had long since shown his preference for the American dollar. But that is by the way.
The second event that has occurred is that during the past week or two the Government have, much to my pleasure, shown certain signs of developing a more energetic, precise and open attitude towards this. One Foreign Office Minister recently made a forthcoming speech. It is said that the Foreign Secretary is setting up a high level committee which will be designed primarily for the very purpose of encouraging, in a more positive sense, the debate on Europe. If those signs are indicative of what government policy will be, I shall be delighted and I shall stop urging them to do more. I hope that tonight we can have an assurance that that is the case.
§ 5.26 p.m.
§ Lord Howe of Aberavon
My Lords, not for the first time I have found myself speaking immediately after the noble Lord, Lord Roll. In the light of his immense lucidity and length of experience in this field, I do so with some diffidence. I speak with less diffidence in response to the maiden speech made by my noble friend Lord Lamont. He and I have been partners in various kinds of activity over many years. It must be at least 30 years since we were the joint authors of a paper on the radical reform of the welfare state—and we are still waiting. We are both patient people, which is just as well because the speech he made today powerfully reminded me of what I believe was the most comprehensive and compelling case for membership of the European exchange rate mechanism which he made to the European Policy Forum in July 1992. Both speeches were of uncompromising clarity. It is difficult to detect whether they are now facing the same direction, but they were both of the same high quality. We have lived for 30 years deciding whether we were right in 1968, so history will be the judge of one or other of those speeches and of all of mine.
I welcome the initiative of the noble Lord, Lord Taverne, in launching this debate. He is right, as were others, to emphasise the risk involved in the 621 decisions affecting our future in the European monetary union. He was right in commending the case for that. The fact that it is going ahead still strikes some people as incredible. We are bound to be impressed by the will of our partners in sustaining it, as the noble Baroness, Lady Williams, pointed out. It is therefore right to consider it carefully.
However, having done that, one must contrast the sheer strength of our partners' commitment to the project with the lamentable indecisiveness with which our own political debate has been conducted. Once again, the Government of this country, whose sovereign authority some people proclaim so loudly, are failing to influence the economic environment of our own people, even of our own country. The case which I and others have made in support of membership is often misunderstood. We "joiners" are regarded as going in because we are afraid of being left behind. We are often regarded as going in for the sake of influence on other, unspecified matters because we are driven by mere modishness. That is not the case. That is far from being the real point of the argument. The real anxiety is that we are losing influence here and now, as we have done in the past, over our own economic ambience and destiny, and others are gaining. If that is not the lesson of 1957, or the lesson of 1978, what is it? The European setting in which we live, work and trade is being shaped to the advantage of our partners, quite naturally, and so often to our own disadvantage.
We still retain the tendency to think that now, as in the past, we can wait in the illusory comfort of self-imposed exile and decide in our own time and on our own terms what we want to do. If only that was the real world.
In reality, our country's relationship with Europe, and with it our place in the economic and political world, is changing before our eyes as we speak. Our largest trading market—our trade with the Community having risen from 32 per cent. to over 50 per cent. since we have been members—is being subsumed in an economic order in which others, not ourselves, will be calling the shots, and from whose key decisions we have chosen, pro tem, to exclude ourselves. I ask the question: is that a sensible use of this much-lauded sovereignty with which our people have entrusted us here in Parliament and Government? Why should we be so fearful when others are not?
When we look back we can reflect on the fact that during the 1990s, for example, our interest rates were twice as volatile as those in Germany, and sterling has varied by as much as 40 per cent. against the deutschmark. We had to experience, and none more dramatically than my noble friend Lord Lamont, the ignominy and upheaval of our exit from the European monetary system in 1992.
As the noble Lord, Lord Cobbold, pointed out, by staying out now, and perhaps indefinitely, we are losing the prospect of exchange rate stability; the actuality of lower interest rates—ours are still twice those in the eurozone—the actuality of significant saving in transaction costs, and, above all, as pointed out by the 622 noble Lord, Lord Barnett, we risk losing our status as a gateway for foreign direct investment in our country as a priority within Europe.
I cannot find it possible to believe that that does not pose a real threat to the City. Again, as the noble Lord, Lord Barnett, pointed out, currently only 5 per cent. of the trading community there now supports the policy of my own party. I understand that. One of my most chilling experiences in the past few years was to speak at the European Banking Conference in Frankfurt in 1995. There were four or five European Finance Ministers present and four or five European Central Bank governors. The Mayor of Frankfurt welcomed us. Eight hundred people were present in the audience and 300 journalists. Helmut Kohl expanded, as only Helmut Kohl could expand, over the whole field of the agenda. The attention of Europe's economic community was focused there. I was the only Briton who spoke. I did not speak in the programme; I spoke as a kind of hors-d'oeuvre to the dinner before the proceedings started. That does not seem to me to be a favourable position for our country to be in.
I speak, I believe, as someone with the unique experience among those present in the House today, of having been chairman of the interim committee of the International Monetary Fund, one of the Finance Ministers responsible for one of the five key currencies of the SDR. Will that prospect be open to British Chancellors of the Exchequer as we become increasingly marginalised, no longer part of this large trading currency with which the rest of our partners are dealing? These are the realities of the world in which economic decisions are being made. I deeply regret that my own party is closing off the option for such a specified period—almost irretrievably if one listens closely to the speech of my noble friend Lord Skidelsky. The arguments are so framed that it is difficult to see how one can reverse one's position easily. In so doing, it has left itself without influence on Government or, indeed, on anybody else. The trouble is that the Government's attitude has not been that much more encouraging.
If ever a government were in a position to make up their minds and to influence events, it is surely this one with the largest parliamentary majority since King Canute, and the largest lead in the opinion polls since they were invented. If they are not in a position to decide, lead, and to persuade on an issue of this importance, which government ever is and ever will be? That is not how my noble friend Lady Thatcher conducted affairs in the 1980s. That is not how we approached the Single European Act. It was not all good. We engaged vigorously in the negotiations and, on balance—with some risks, of course—we came down on the side of British interests. We signed up and ratified. I believe that we need to approach this decision, which is of even greater importance, with much the same confidence.
I listened with interest to the speech of the noble Lord, Lord Grenfell. As I look at him I reflect upon his own political history. I remember him popping up in a conference in Paris, at one time, when he had just joined the Liberal Party saying that he arrived there as a refugee from the Bow Group. I had not noticed until 623 now that his political progress, if that is how it can be described, has taken him still further in the direction of refugeeism. The fact that he has travelled so far has not diminished his wisdom, at least not on this issue.
I agree with the noble Lord that the Government should now set a target date for UK entry. There is nothing inconsistent between that and the prospect of a referendum. They should set that date and make it plain that, provided the economics are right, the key question will be put to the British people very soon after the forthcoming general election. As stated by the noble Lord, Lord Taverne, in preparation for that entry the Government should make it plain that our domestic economic policy will be tailored to promoting the necessary degree of cyclical convergence with the eurozone. That is not something that can happen by accident.
In parallel—and here I go perhaps a stage further than others have done—they should consider the introduction in this Parliament of a "paving" Bill designed to remove legal and other obstacles to membership and to the use of the euro. If that was done and the Government used their undoubted authority with that much confidence, Government and nation will have established a clear policy for the years ahead; business would have a specific planning horizon, and the electorate could be prepared by the debate that that would provoke for making a most important choice about the future of our country.
§ 5.36 p.m.
§ Lord Haskel
My Lords, as pointed out by the noble Lord, Lord Taverne, the euro is now a reality. I congratulate him on moving a Motion to mark this important occasion.
The euro cannot be ignored. I speak from the point of view that our country's economic future lies in Europe. Therefore, it is in our national interest to ensure that the euro succeeds and that we become part of that success. That is why I welcome the Government's practical politics in terms of working with our partners to make the euro a success while, at the same time, making it work for Britain in our own national interest.
I agree with the noble and learned Lord, Lord Howe, that it is in our national economic interest to remain alert and engaged. I do not agree with the noble Lord, Lord Skidelsky that it is in our national interest to close down the options available by arbitrarily ruling out our membership of the monetary union for a number of years. If that policy is intended to provide certainty, I think it is misguided because this is an issue where certainty does not exist.
The Government's macro-economic policies of stability, convergence and flexibility will help to create the right economic conditions for our membership. At the same time, I believe that those policies are right for our economy because they are delivering the low inflation and low interest rates which encourage investment in the real economy.
However, the introduction of the euro gives rise to a number of challenges for British business, not only in the City. Foremost among those is competition. As the euro 624 rapidly becomes the standard currency for business throughout Europe, so price differentials will become exposed. Here, I agree with the noble Lord, Lord Skidelsky.
Today's long supply chains and sophisticated financing will ensure that that affects all businesses, not only those which trade directly with Europe. No longer will companies be able to vary their prices from market to market as they have in the past. Prices will have to be standardised, particularly the prices of branded goods. Indeed, the arrival of the euro will challenge some of the existing conventions on pricing.
Noble Lords who travel in Europe and buy the Economist will have noticed the huge variation in price on the cover of that publication in different countries. That is a matter which will have to be standardised. I notice also that in the rapidly growing area of business-to-business electronic commerce, prices are being quoted in euros. That will speed up the impact of price competition resulting from the euro.
As the euro becomes more commonplace in British business, so British business will have to invest more in the euro as a business currency. It will not be a gift, as some have implied. Business will have to invest in dual currency capability and eventual conversion, in pricing, in planning and awareness with customers and suppliers, in training and in rewriting software. To make sure that all that investment is well informed and not wasteful, I welcome the Government's current efforts to make sure that businesses are aware of the issues they will face and so help them to prepare.
But now that the euro has been launched successfully, that is not enough. Further practical problems arise. Business will have to watch interest rates and inflation in euros as well as in sterling. Business will have to watch the harmonised index of consumer prices as well as our own RPIX. Business will have to watch the euro/sterling exchange rate and decide in which currency to trade and in which currency to raise finance in order to avoid speculation and any turbulence in financial markets.
Therefore, business will have to know what the Government are doing to maintain stability in the sterling/euro market. Business will need to know where the Government stand in relation to the euro. The Government will have to be open and clear about that. We have been promised a plan outlining the steps which both the public and the private sectors need to take to facilitate entry into the euro.
I hope that those points which concern business will be covered because it seems to me, as it does, I believe, to my noble friend Lord Barnett, that the continued success of the euro will mean that we shall have to make a decision about joining sooner rather than later.
If the Government are active and open and continue to show the same leadership in taking preparations to the next level, business should view the euro as an opportunity for commercial gain. A negative attitude by the Government will cause concerns about market turbulence. The euro will be seen as a commercial barrier and a difficulty to be overcome.
625 However, the greatest danger to British business comes from those who play politics on the issue of the euro. Certainly Europe has not got it all right. Certainly there are constitutional matters which need to be explored and answers found. Certainly there needs to be more democratic accountability in the affairs of the Commission to tackle fraud and incompetence. Certainly there are differences on tax harmonisation, voting and budgeting.
But those are not reasons for distancing ourselves from Europe. We are not alone in those concerns; neither are we isolated on those issues. Our commitment to working with our partners to solve those problems is right. The biggest threat to business comes from those who exaggerate those issues to suit their own agenda—normally a backward-looking agenda.
I hope that the Government will look forward and increase their guidance and support for business as regards the euro. I join my noble friends Lord Barnett and Lord Grenfell in saying that that must include the Government's open and frank views about joining the euro because, increasingly, business needs to know where it stands in order to avoid speculation and uncertainty. I hope that the Government will continue with their sensible economic policies leading to convergence; in return, the Government can expect business to invest in the necessary preparation. That will reduce the risk about which we have spoken because, with all that in place, we shall have the essential ingredients for an informed referendum and a genuine and informed choice about joining the single currency.
§ 5.44 p.m.
§ Lord Ezra
My Lords, my involvement in the affairs of Europe goes back a long way, right back to 1950. That was the year in which the European Coal and Steel Community was formed and Britain was invited to join. The then Labour government decided against that but a Council of Association was formed to represent the interests of Britain in the newly formed Community in Luxembourg.
I was then at the Coal Board and I was appointed to represent the interests of British Coal on that body. When I was summoned by the director who appointed me he said, "We have appointed you because you speak French and you understand these continentals. But you will not be away long because it is not going to work. We shall see you back here in a few months' time". In fact, I stayed for five years. The initiative taken by Jean Monnet and the founding fathers in 1950 has lasted already for nearly 50 years—and the betting is that it will certainly last another 50 years, if not more.
My noble friends Lord Taverne and Lady Williams have pointed out that at every stage of the development of the Community grave doubts and scepticism have been expressed by people in this country—and yet, at every stage the political will exhibited by our continental friends has prevailed. The concept of Europe—the "construction of Europe" as it is called—has moved step by step until we now see the creation of the single currency.
626 In considering the terms of this Motion—namely; the significance for the British economy of the introduction of the euro—we must make up our minds as to whether the euro will be successful. On the basis of past experience, we must assume that it will be so and that our policies should be directed accordingly.
I should like to consider what our policy should be in what I hope will be the relatively short time between the introduction of the euro, which has now taken place, and when we, as a country, join. No doubt the noble Lord, Lord McIntosh, who has been enjoined by several of his colleagues to do so, will tell us later precisely when we shall be joining. But I shall concern myself with the period between now and then. What should our policy be?
There is no doubt at all that our policy should be to work towards the success of the euro. That is in our national interest, whenever and whether we join. That was stated by Mr. Eddie George in a speech in Bruges, a city in which seminal European speeches seem to take place from time to time, on 21st October 1998. He said:It is clearly in our national interest to do all that we can to help ensure that the Euro is successful".What should we be doing in that interim period? I believe that there are three main issues to which we should be addressing ourselves. They all happen to coincide with policies to which the Government are already committed. The first is to pursue macro-economic disciplines: disciplines of fiscal and monetary policy. Those are coincidentally laid down clearly in the Maastricht Treaty. The Government, by taking the step of making the Bank of England independent so that, through its Monetary Policy Committee, it can decide on the rate of interest in the prevailing circumstances of the economy, have moved very much in the direction which is laid down in the Maastricht Treaty and is the way in which the European Central Bank will be operating.
In the matter of fiscal policy, the Government are pursuing also the line which is laid down in the Treaty of Maastricht to achieve the various objectives there established and, in particular, to maintain a low level of public borrowing in relation to GDP. We can say that we are therefore, of our own volition, moving in the same direction as the Treaty of Maastricht laid down and which is now enshrined in the adoption of the euro.
I should like to raise a point on the index for inflation. Our inflation index in this country is to achieve 2.5 per cent., based on our own calculations. Within the European Union, the calculation is based on the harmonised index of consumer prices. On that index, we have achieved 1.4 per cent.; that is below the 2 per cent. rate which the European Central Bank established. It would be desirable if we could come into line with that index.
Secondly, the euro offers a great opportunity for increasing our competitiveness. My noble friend Lord Taverne and the noble Lords, Lord Skidelsky and Lord Haskel, referred to that. There is to be greater competitiveness and greater transparency within the single market as a result of the establishment of the euro. That will fit entirely with the policy on 627 competitiveness which the Government recently announced in their White Paper and on which we recently commented in the House.
Thirdly, there is the issue of the City of London, to which many noble Lords referred, in particular the noble Lord, Lord Roll, in his effective speech. We have become used to his effective delivery in these matters. The fact is that the City reacted remarkably well to the introduction of the euro. By a lot of overtime working in the square mile we adapted ourselves to the appearance of the new currency with vigour and effectiveness. There is every prospect that the City can maintain its important position in the financial operations of Europe and the world so long as within a limited time our intention is to join it, as the noble Lord, Lord Roll, and others have said.
I believe therefore that the policies now being pursued in this country, in what I hope will be the short interim period before joining the euro, are entirely in line with the policies we would be pursuing if we were full members. That augers well during the preparatory period before we join.
§ 5.52 p.m.
§ Lord St. John of Bletso
My Lords, I join in thanking the noble Lord, Lord Taverne, for introducing this debate. However, I must admit that when I read the wording of the Motion:To call attention to the significance for the British economy of the introduction of the euro",I read it as meaning that the debate would be more focused on the practical implications for British business with the introduction of the euro this year rather than what most noble Lords have spoken about today; that is, the advantages and disadvantages of joining up to the single currency and the cost of late entry.
I must also say at the outset that I entirely agree with the noble Baroness, Lady Williams of Crosby, when she commented that it is a pity that this debate is taking place on the day when the fate of hereditary peerages is announced, as it is unlikely that this debate will receive much coverage in the media. I was privileged to be a part of the sub-committee of the noble Lord, Lord Barnett, and also of Sub-Committee A of the noble Lord, Lord Grenfell, on trade, finance and foreign affairs, and feel that it is a great shame that the many excellent debates and reports that come out of this House on European matters are not given a wider audience and wider coverage in the media.
There is no doubt that for British business, even though we are not part of European monetary union, the introduction of the euro hailed the start of a new and exciting era. While it is well known that most British businesses are ill-prepared for the introduction of the euro, I commend the Bank of England for its series of useful publications addressing the practical issues and implications for the introduction of the euro, particularly to the financial services sector. I have also found the series of fact sheets produced by the Treasury on the introduction of the euro and the implications for the UK, 628 most useful. For those noble Lords who wish to draw reference, the Treasury has an extremely useful website with all that information.
Whether one is a vehement supporter of the euro, like the noble Lord, Lord Taverne, or a vehement sceptic, like the noble Lord, Lord Shore, the harsh reality is that the single currency is here to stay and will certainly sharpen competition throughout Europe. The advantages of cheaper transaction costs, stable exchange rates and transparent price differences have been well rehearsed by previous speakers.
Clearly the significance of the introduction of the euro to the British economy will vary between sectors and firms, particularly those with large export and import exposure to the rest of Europe. What is certain is that the introduction of the single currency is a strategic, and not just a technical issue for British companies. As many commentators pointed out, European monetary union has been designed to trigger widespread change, and many markets in Europe will look very different in five years time. Despite my view that EMU is largely a political rather than an economic project, I believe that it will bring significant economic benefits. Already there has been much publicity that home owners in Britain will be offered a range of attractive, cheaper mortgages, which will be euro-denominated.
Taking the argument further and broader rather than purely concentrating on the implications for British business, one of the greatest challenges facing the European Union will be the need to reduce unemployment. Certainly for monetary union to be a success in Europe there will need to be adequate labour market flexibility. The single currency will bring with it not just risks, but also rewards. There will be winners, there will be losers. The winners among British companies will be those that make adequate preparations for our joining up to the single currency now. Whether the forecasters are right that we will join in either 2002 or 2003, all sectors of the British economy need to consider the implications now.
Despite the many planning check-lists, notably those prepared by the Treasury in its fact sheets on the implications for British business, European monetary union preparations will not just be about what businesses have to do, but also about how British companies will be setting their objectives for the future. Quite apart from changes to companies' financial and accounting systems, and pricing policies, as well as the information technology permutations, British business will need to raise awareness among its key staff, as well as undergo extensive training programmes for the transition. Companies will also need to reconsider their marketing strategies, particularly where products and services are priced in euros. EMU will make it easier for businesses to organise themselves as pan-European. That will happen through mergers, acquisitions and initiatives such as shared service centres. It is already apparent that more and more businesses will adopt the euro for trade in the United Kingdom. With some large multi-nationals about to adopt the euro as their trading currency, this will affect business right down the chain. However, the concern from recent statistics is that fewer than a quarter of small to medium-sized enterprises in 629 the United Kingdom have started to make adequate preparations, even though half of them trade with the other European Union countries.
In conclusion, uncertainty about when, not whether, the United Kingdom joins the single currency, is no reason for inaction. I commend the noble Lord, Lord Taverne, for having given us the opportunity to debate this issue and I look forward to hearing from the Minister about the measures that the Government will take to implement the enormous amount of groundwork carried out by the Treasury, the Bank of England and other organisations for when, not whether, we eventually join the single currency.
§ 6 p.m.
§ Lord Currie of Marylebone
My Lords, I welcome the opportunity to debate the implications of the euro for the British economy. A number of noble Lords have referred to the risks that the City of London may face if we stand aside from this project.
Initially, I would like to follow the previous noble Lord by emphasising the broader risks to British business from our delay in joining the euro. Over the past few years I have spoken to many companies in the United Kingdom and overseas and three years ago most companies in the United Kingdom and the City of London thought that this project would not happen. One or two years ago they were thinking of this purely in operational terms—a headache, rather like the Y2K problem. Only a few companies—the best—in the UK saw this a year ago as an opportunity for a strategic repositioning of their company in a changed European environment.
I contrast that with what I saw in continental Europe. I visited Deutschebank just under three years ago and I was given its manual for preparations for the euro. It was about 10 inches thick and in a large box. As I do not speak German, I used it to wedge open my door and to remind me of the importance of the issue. Similarly, German manufacturing companies are well prepared and have long thought about this, not in operational terms alone—although that is clearly important otherwise the companies may fall over in their operations and take a hit on the bottom line—but also as a strategic opportunity. Companies considering the issue in that way will benefit.
As regards British business, the problem is that too many companies are considering it as something that is going on out there, outside the British economy that does not affect them. That may be true for a short while, but fairly quickly, we shall see many companies, whether trading internationally or not, being asked to invoice in euros. They will have to face those operational issues quickly.
My concern is that when we join we shall be a number of years behind the competition. In the reshaped competitive battlefield we will be left behind. I believe that that will be damaging for Britain.
We cannot do much about that now, having started from behind. However, we can ensure that continual delays on the issue do not inflict further damage on the position of British business. For that reason, it is 630 important that, having missed the first wave, the UK does not stand aside from the euro for too long. Therefore, I join other noble Lords who have called for the Government to commit themselves to the euro more firmly than they have done so far. I hope—not tonight because I do not expect my noble friend the Minister to announce a change to government policy on this occasion—that later this year my right honourable friends the Prime Minister and the Chancellor of the Exchequer will say that the Government are in favour of joining the euro and will commit themselves to a timetable that is not too extended.
There will, of course, have to be a referendum. I believe that is right on an issue of this importance. It is important that we enter this venture with the firm commitment of the British people. But it is also important that the Government put their weight behind the "yes" vote and do so early. There are several reasons for this. If they leave options open, it will be extremely difficult to jump start a referendum campaign soon after the next election. The arguments have to be built up now if the "yes" vote is to be won.
As has also been said, the commitment to join the euro will encourage British business. It will give business the steer that corporate boards need to commit major expenditure to the required preparations. If that commitment is not forthcoming, and if British business, on a significant scale, does not prepare, the danger is that after the British people have said "yes", there will be a further extended delay before we can join because the practical preparations have not been made.
Another point is that such a commitment may help to restrain some of the worst excesses that we can expect to see from the City of London and other financial markets in terms of speculation on the value of sterling. Imagine the next election campaign being fought in the midst of speculation about whether, when and at what rate sterling will join the euro. Every statement from Ministers will be scrutinised for a shift of policy, a supposed split or division, and that will cause sterling to bounce around against the euro and other currencies, causing damage to British business and making the question of ensuring the transition to the euro in the subsequent period more difficult.
There is a great deal to be said for trying to rule out those excessive convergence plays that will otherwise affect us. A commitment to enter will also free the hands of government to consider more fully the preparations required. Those include not just the transition in terms of the nuts and bolts issues of the changeover, important though those are, but also the questions touched upon as to whether the monetary policy objective given by the Chancellor to the Monetary Policy Committee would need to be changed in the period of transition and discussion with our European partners about the transition process that we would envisage for sterling to join the euro. We failed lamentably to do that when we joined the exchange rate mechanism. We should not fall into the same trap again. None of this would take away from the British people the power to express their will on the issue, but it is the Government's responsibility to give a lead and to make appropriate preparations.
631 The Government and those who favour entry into Europe will also need to tackle head-on the question of tax harmonisation, raised in the debate by the noble Lord, Lord Skidelsky, who said that the euro will inevitably lead to fiscal union and political union. I do not believe that proposition. It is certainly true that there are voices calling for that, but there are equally strong voices arguing on the other side. We have to recognise that there is a genuine agenda of tax harmonisation and we need to be clear about what that represents. Successive British governments have argued for tax harmonisation—indeed in an upward direction. In some areas, such as excise duties on alcohol and tobacco, we have wished to see other countries raise their tax rates.
It is also worth recalling that the European Union and the single market, which I believe the vast majority of the House supports, were based on an initial, crucial act of tax harmonisation, which was the abolition of a vast disparate range of sales taxes and the introduction of the value added tax system. That was an act of harmonisation of the tax base—not of rates—without which the single market could not have been created. There is a strong case along those lines for harmonising corporate tax bases across Europe to avoid the games that otherwise companies can play to minimise their tax liabilities by moving transactions around the European Union.
That point illustrates the fact that the main impetus for tax harmonisation comes from economic integration, resulting from the single market. The euro will enforce that, but it is the single market that creates the pressure. We are part of the single market. We will be involved in those processes come what may. So whatever our view on the euro, we need an intelligent debate on the issue of tax harmonisation.
I believe that the British people are a sensible and pragmatic people. When the issue is put to them at the appropriate time, I have no doubt that they will look at the smooth operation of the euro—because I think that our European partners will make a real effective "go" of it—they will also look at the arguments on both sides, the weight of the teams arguing on both sides, and they will vote "yes" at that point. I welcome the launch of the euro and look forward to the timely adoption of the euro in the British economy.
§ 6.10 p.m.
The Earl of Caithness
My Lords, I, too, welcome the opportunity to debate this important subject. I am grateful to the noble Lord, Lord Taverne, for introducing it. I can remember many occasions when your Lordships have discussed matters relating to the EEC, the EC and the EU. Clearly there is a wealth of knowledge and experience around the Chamber; indeed, today's debate has shown that to the full.
However, the more that I look back on those debates, the more a common thread has emerged. It is this. The real significance of what we were discussing at the time was seldom apparent then and turned out very differently from what many had envisaged. I have no doubt that that will also be the case today. I recall the 632 debate on joining the EEC. Extremely powerful arguments were mounted by the "pro" lobby. I admit to being persuaded that the proposals were, indeed, self-contained moves limiting us to joining a common market. As hindsight has shown, they were not. It was the start of a gradual erosion of the sovereignty of this Parliament.
When it came to the ERM, I recall that many businessmen and those from the City came to lobby my noble friend Lord Lamont and me in the Treasury to persuade us that it was time to join and that, like the noble Lord, Lord Barnett, has argued today, it was time for us to set a commitment date for joining. When we did join the ERM, we all know that it did us no good.
Now we are debating the significance of the euro for the British economy in the shadow of increasingly optimistic reports about its success and with the chances of us participating in it sooner rather than later. The pressure on us to join euroland will undoubtedly increase and it will appear to develop an inevitability similar to that we have seen before. The argument, "If they are part of it we must join them", which, I believe, was one of the arguments mentioned by the noble Lord, Lord Taverne, is a weak one as it obscures rational discussion and the full significance of what is happening.
The euro, the single currency of 11 out of 43 nation states in Europe, is not an economic project. As many of your Lordships have said, it is a political project—and an amazing one at that—which gives us both huge opportunities and huge disadvantages. However, it will have very real economic consequences in every sphere of our lives: jobs, tax rates, growth, investment, mortgages, welfare and NHS spending. There are other noble Lords more qualified than me who have talked, and who will talk, specifically about the economic consequences. But one has only to look at euroland, dominated by France and Germany, to see their higher costs in, for example, unemployment, where the real jobless rate is at least three times as high as in Britain. They are seeking to level the playing field by raising our costs, not by lowering theirs. Many noble Lords have argued that the City is likely to suffer, but if Switzerland can play the role that it does, I do not see why Britain cannot play a similar role by controlling its own economy. No noble Lord has ever given me any reason why that could not happen.
The political results of the euro are of major significance. The euro is a political child born of a perceived need not only for Europe to unify but also a desire in some countries to challenge the United States and its dollar, which have long been resented particularly by the French. Eighty per cent. of the world's financial transactions and close to 60 per cent. of the world's commercial transactions are denominated in US dollars. To some, this needed to be challenged. For them, it was entirely logical that if Europe was to unify and try to play a greater role on the world stage, not only was a single currency necessary, but also nation states should hand over control of their interest rates, exchange rates, and gold and currency reserves, as well as control over tax and spending, to Brussels and Frankfurt.
633 Many have not realised—this also tends to be forgotten—that with the euro there is EMU. To many people, EMU stands for "European monetary union", but we all know that in reality, and in truth, it means economic and monetary union. Having been created by political will, I have no doubt that the politicians will fight tooth and nail to make the euro a success and to maintain its success; but with that will come huge unquantifiable and different results for each of the member states involved. It is also a prelude to a single government. I can recall many Ministers of potential member countries telling me that that was never their intention, but it is increasingly clear that it is and always was. Once more, the full significance of what is being proposed emerges only after the event. The significance for Britain is, however, much clearer now. If we join the euro, we shall be setting off on the road to inevitable constitutional changes leading to the extinction of Britain as a self-governing nation.
However, I have a deeper reason for my dislike of the euro for it has an effect on the rest of the world in the same way as it does on Britain. It is as fundamentally flawed as the currencies it replaces. It is a debt-based currency. A new central bank of last resort has been created with all the same deficiencies as the old ones, only on a grander scale. With its appearance of strength, the euro will allow the European banks, supported by the new central bank, to increase the burden of debt in the world—as if there was not enough already. Surely we have witnessed so much creation of debt and its effects over the past decade that we would not invent another debt-based currency. Your Lordships have only to look at what has happened in China, Mexico, Japan, and Thailand, followed by the other tigers in south-east Asia, Korea and Brazil. The burdens of their debt have been adjusted, redistributed and increased rather than being relieved.
If noble Lords think that we have now seen the worst of such currency crises, I contend that this is just the beginning. There will be further defaults with enormous repercussions on business cycles, inflation and unemployment. Further currencies will be devalued, robbing the citizens involved of wealth and making it harder for the poorer sections of those communities to escape from the trap that they are in. More money will be created vis-à-vis loans to the countries in difficulties by lending institutions and the business cycles will continue. The financial bubble will continue to expand, supported by the new central bank, but with a difference. The 11 currencies have been locked on a fixed exchange rate for political reasons, done in a time-scale to meet political not economic objectives, and with the manipulation needed by some countries to meet the criteria for membership of euroland. This will mean that when the bubble finally bursts—as, indeed, it must for it is the very nature of a debt-based monetary system that it is created with the seeds of its own destruction—the bang will affect all of us. The results will be more severe than anything that we have seen to date. When that happens, I fear for the future of our children.
634 Had we helped to create a currency based on equity or substance rather than debt, Europe could have been different. It would have had a currency with a stable exchange value and one that was not dishonest to its citizens. We could have begun to reduce the level of debt in the world and to build a collection of assets for future generations. That is something of which we could have been proud. It would have had a positive significance not only for the British economy but also for the rest of the world. On that criteria, the euro has failed.
§ 6.18 p.m.
§ Baroness Sharp of Guildford
My Lords, like others, I welcome the initiative of my noble friend Lord Taverne in promoting this debate and in giving us this opportunity to discuss this important subject. Like other speakers, I should like to reiterate the degree to which, contrary to many of the predictions, even as recent as a year ago, EMU (economic and monetary union) has now happened. The euro has been launched and is becoming the medium of exchange of business in continental Europe. Within three years it will be in regular use among consumers. We cannot now turn back the clock. The launch has been successful and surprisingly trouble free. While, as all of us admit, there will be testing times ahead, short of financial meltdown the euro is here to stay.
At this point I wish to say how much I disagree with the comments of the noble Earl, Lord Caithness. Any currency is built on debt. It is a fiduciary issue, if you like. The extent to which the euro is built on debt is not greater than that of any other currency. The dollar has been largely held up by the debt of other countries. Europe has taken on the burden of looking after the countries of eastern Europe and helping them to move ahead. I do not think that we can attack it for that.
I wish to explore with your Lordships one aspect of the euro that has not so far been mentioned. As some of your Lordships know, my own area of expertise is in the economics of science, technology and innovation. I am not an expert on financial markets, nor a macro-modeller. My concern is with what some people call the "innovation system"; that is, the interplay between the worlds of discovery and invention, and practical application and exploitation. In a sense my concern is with that hoary old question of why a country such as Britain can be so good at science but so bad at carrying it through to innovation.
In this context I wish to stress two points: the word "system" and the fact that the system is interdependent. There is no simple answer to the British conundrum because a vast number of different factors impact upon each other. But among those different factors one thing stands out; namely, that there are important relationships between the macro-economic climate and micro-economic decision-taking. When the macro-economic climate is positive and optimistic, business feels confident and invests in expansion. But investment also means innovation. When we buy a new computer we replace a 486 with a Pentium. Much innovation comes about with new investment.
635 Like many of your Lordships, my job entails talking to people who are involved in these issues. As far as I am concerned, this means the innovators. It is clear that for them Britain's boom-bust economy has been a major factor inhibiting precisely those decisions which are crucial to innovation—risky investments which may pay off handsomely in the long term. In other words, the sheer volatility of Britain's boom-bust economy has reinforced the short-termism of British industry.
That brings me back to the euro. We have heard much in this debate about the pros and cons of joining. However, it is also clear that life outside the euro will be tricky. We face a great deal of volatility. Sterling in effect will become a marginal currency caught as a yacht between two great liners and tossed about in the rough seas of the eddies of the two liners. We face the possibility of far greater volatility in both the exchange rate and interest rates, whereas joining euroland, offers us, surely, what we have sought for so long; namely, the guarantee of a stable exchange rate, lower interest rates and insulation from long-term external risks. The reduction of risk, cheaper capital and longer-term certainties—all of these will help to create an era of confidence for industry, boost investment and boost longer-term decision-taking.
Many of us have had reservations over the years about the euro and about the Maastricht timetable that was announced way back in 1991. Then it seemed to us unlikely that convergence could be secured across so diverse a range of economies. I for one have been surprised at how much has been achieved. As we have stressed, it has been a case of political will creating economic reality. The costs of convergence have, however, been considerable, especially in terms of fiscal stringency and unemployment. It has constrained macro-economic expansion, which in turn helps to explain Europe's poor record of innovation over the past decade.
As has been mentioned by the noble Lords, Lord Barnett and Lord Grenfell, there are dangers that the stability pact may still be too restrictive. However, there has already been a change in European industry as confidence begins to ebb back. For example, I have been immensely impressed by what is happening in Germany, which is now forging ahead with exploiting new technologies such as bio-technology and developing a new venture capital market, buoyed on by the confidence and certainties with which they look to the future.
Now that the elixir which we have for so long craved—a world of low inflation, low interest rates and exchange rate stability—is within our grasp, I do not understand why we continue to procrastinate. I therefore join my noble friend Lord Taverne in urging the Government to take a firm lead on this issue. Let us have at the very least a commitment to entry and a projected date for the referendum.
§ 6.26 p.m.
§ Lord Harris of High Cross
My Lords, I join others in thanking the noble Lord, Lord Taverne, for giving us 636 the opportunity to have this interesting debate. I am in some difficulty because I do not know whether he received my note giving notice that I wished to recall our first encounter at a student union debate at Exeter University, from which I think some lessons might be learned. It was 30 years ago that I moved the motion that George Brown's national plan was no more than a form of necromancy. The noble Lord, Lord Taverne, was then a junior Minister in Harold Wilson's government and his side won by approximately 200 votes to 20.
When I privately recalled the event to the noble Lord some years later, he said with characteristic candour and modesty, as near as I can remember, "Yes, I may have won the debate, but you won the argument". That is roughly my recollection. Of course in the meantime he had broken away from the old Labour Party to become one of the first standard bearers of the Social Democratic cause. Next to the noble Lord, Lord Barnett, and my old friend, the noble and learned Lord, Lord Howe of Aberavon—on this one occasion I almost said Lord Howe of Aberration—there is no europhile I would more earnestly wish to wean away from human error than the noble Lord, Lord Taverne.
From wide acquaintance with market economists in Britain and throughout Europe—in France, Germany, Italy and Spain—I can say without qualification that I do not know one who is enthusiastic for the euro, or believes that it will have a happy history. That is not surprising as euro-phoria is based almost entirely on political hopes and fancies rather than on severely objective economic analysis.
Against that background I suggest to the noble Lord, Lord Taverne, that the failure of the euro is as inevitable as the collapse of the national plan was from its inception in 1965. In a single sentence, both are examples of well-intended, even idealistic projects, based on the same fatal conceit; namely, that ambitious, artificial political constructs can for long prevail against the ineluctable pressures of fluctuating and unruly market forces. Why look at a crystal ball when we can consult our fairly recent memory?
A month or two ago the governor of the Bank of England was asked in a House of Commons Select Committee why he appeared to have let slip that high unemployment in the north was a price worth paying to check inflation in the south. In a diplomatic non-answer, Mr. Eddie George acknowledged that interest rates were a rather blunt instrument. Of course, no single rate can possibly fit the diverse circumstances in different parts of Britain. Some months earlier, a spokesman for the Scottish Nationalists—with whom I have less sympathy—posed exactly the same dilemma when he complained that interest rates were being kept too high for the comfort of Scotland just to suit the booming south-east. I could see the justice of that argument. But what if this blunt instrument of a single interest rate was being wielded not from London but from Frankfurt, to suit we know not whom?
The importance of these little local difficulties is that they remind us that the United Kingdom is itself an example of a single market within a single currency 637 area. And yet, despite the advantages of a common language, internal geographical mobility and a roughly uniform tax system, the remaining differences in the United Kingdom impose severe regional disparities. If a single currency and interest rate can cause tensions within the United Kingdom, imagine the intractable, incipient conflicts among the diverse economies of euroland, which is locked into fixed exchange rates and a single interest rate. In a dynamic global economy, where is the adjustment mechanism, the buffer, to absorb the inevitable impact of changing fortunes? If the price of a nation's currency can never move or adjust, the strain will be thrown onto real magnitudes such as output, trade and employment.
Many speakers have conjured up phantom fears of our terrible future outside euroland. If the Monetary Policy Committee maintains the value of sterling, there is no reason whatever to expect that the euro/sterling rate will exhibit the volatility that the noble Baroness, Lady Sharp, referred to as being our recent history. Being able to regulate our own affairs means that our domestic rate of interest will help to achieve euro/sterling rate stability.
For smooth operation, a regime of inflexible exchange and interest rates would require increased flexibility of domestic economies. In Europe it would require the adaptation of employment, wages and working arrangements to unforeseeable changes in natural resources, such as North Sea oil, to changes in foreign trade, such as the emergence of China at some stage, and to unexpected changes in politics and technology such as I cannot even imagine.
These are real anxieties and are not to be brushed aside by the description of the noble Lord, Lord Taverne, of the strong political will that is ruling Europe today. The choice remains as it always was, between flexible exchange rates or flexible domestic economies. Even the arrogant barons of Brussels cannot have it both ways. This is a truism which the rigid political class of the European Union—which was exposed to view last week in Strasbourg—has not begun to grasp. In my view, they are heading at great speed towards a buffer; it will not provide an easy landing.
I conclude by saying that, like the other 200 trading nations who are content to dwell outside of euroland, Britain is also better off outside.
§ 6.34 p.m.
§ Lord Cockfield
My Lords, perhaps I may start on an entirely non-controversial note by saying how much I agree with one specific point made by the noble Baroness, Lady Williams of Crosby, and repeated by the noble Lord, Lord St. John of Bletso: for some reason best known to themselves, the Government have decided to sabotage this debate by unveiling today their plans to emasculate the House of Lords. This is a Liberal Democrat debate, and at least the Liberal Democrats know what friends are for.
I return to the subject matter of the debate: the euro. The euro has come; it is now a fact of life. We will join—sometime; we need have no doubt about that. Individual countries are no longer masters of their own 638 destiny as politicians so much try to suggest. The power of national governments over major international economic events is very limited. Governments are at the mercy of factors over which they have little or no control, ranging from the weather to the activities of rogue bankers and incompetent and irresponsible governments. The best that an individual national government can do is to see which way the wind is blowing and to take maximum advantage of it.There is a tide in the affairs of menWhich, taken at the flood, leads to fortune;Omitted … is bound in shallows and in miseries".Sadly, we show a much greater propensity to miss the tide than to take it at the flood. What is more worrying is our inability to learn from our past mistakes.
Our relations with the European Union, going right back to its origin in 1952, is a prime example of mistaken diagnosis and failed policies. We are set fair to make an equal disaster in the approach that we have adopted to the euro. Of course, in the end we will join—late and tardy as ever. Even then, the decision will not really be taken by Mr. Tony Blair—still less by Mr. William Hague, even assuming he ever gets a chance—it will be dictated by economic pressures and market forces.
We have lost a great deal already. We have lost the European Central Bank, which has gone to Frankfurt when it should have come to London. We are excluded from the new Euro XI Council, which increasingly will set the economic policies, not just of the present Europe but of a new Europe stretching from the Atlantic to the Russian border. The claim by the Government that they have secured agreement that ECOFIN will remain the supreme economic policy body shows how little they understand Europe. ECOFIN is now little more than a talking shop. Power has already passed to the Euro XI Council—and the longer we stay out, the more we will suffer.
Of course we have problems of adjustment, but to suggest that we could not have done what 11 other countries—many in much worse positions than ourselves—have succeeded in doing is absurd and insulting. Are we really less competent than the Italians, the Spaniards, the Belgians, the Portuguese and even, for that matter, soon the Greeks? If the Government have a genuine reason for dithering and sitting on their hands—and I am trying to be fair to them as I accept that on this issue their heart is in the right place, even if their head has been lost somewhere in the clouds—it lies not in economic circumstances, but in cold-blooded and purely political calculations.
The launch of the euro on 1st January 1999 was a launch at the wholesale level and effectively it concerned only the banks, the financial institutions and large companies. They know on which side their bread is buttered. They had made their preparations and the launch was completely successful.
It is not until 1st January 2002 that the euro comes into everyday use at the retail level and it is over the six months from 1st January to 30th June 2002 that the euro will replace national currencies. It is at that stage and during that period that the ordinary citizen—the man 639 and woman in the street, the shopper—will be directly affected. Anyone whose memory goes back to 1972 when decimalisation was introduced will remember the appalling upset it caused, the public reaction, the criticism, the accusations of profiteering and the widespread discontent. But decimalisation was a very minor matter. It was simply the introduction of new decimal pence in place of the old shillings and pence. The pound sterling itself remained in place. In comparison, the introduction of the euro is a gigantic operation with an entirely new currency and a whole different schedule of values. Every single price will be affected. Its introduction will inevitably lead to a storm of criticism—some genuine, much bogus—and it will be some time before all this settles down.
By a genius of timing, or a disaster of timing, whichever way ones cares to look at it, the timing of the introduction of the euro for use by the public coincides with the date the next general election would probably be held. It would be a disaster politically for the government in power—whatever government—for the election to be held at a time when the storm of public dissatisfaction, or indeed anger, was still blowing. It is up to the Government to decide how to tackle this situation. At present they are keeping their heads down, pretending the problem does not exist, hoping it will go away. Unless the Government face up to this, decide on a strategy and publish that strategy, they will bungle the introduction of the euro in this country.
I know that the Government are proposing to issue what they describe as a timetable, but a timetable in itself is no good unless accompanied by a calendar which validates it and shows how this extraordinarily difficult situation is going to be resolved.
I myself, if I may be sufficiently impartial to say this, do not mind the Government getting into serious trouble on this issue. What does matter is that the country will pay dearly for the Government's failure. Enough time has been lost already. It would be a disaster for the country if failure was to crown dithering and incompetence.
§ 6.44 p.m.
§ Lord Shore of Stepney
My Lords, a suitably gloomy note has been struck in the past few minutes which reflects a great deal of the thinking and articulation that we have had to endure during the past few hours. It is an absurdity to attempt to judge the effects of the euro on the British economy 20 days after its introduction. In that sense the holding of this debate is ill-timed and indeed is almost frivolous. What I find deeply depressing is that once again not only the noble Lord, Lord Taverne, who introduced the debate, but the Government, like their predecessor, have failed to rethink sufficiently their relationships with Europe.
For God's sake, let us get away from the absurd charges and the bandying across the Floor of the House against each other. I am not speaking with any sense other than of friendliness and a wish to co-operate with my European neighbours. Nor do I minimise the important part that they are playing and will play—and 640 with my blessing—in the world in which we live. But what we do not seem to be able to understand is that for entirely honourable reasons they are pursuing a different goal from the one that we, the British people—most of them—wish to pursue. That different goal is what they constantly state. But we do not hear it or do not listen to it. They want to create a state. They say it and they have never said it more clearly, more loudly or more persistently than in the few weeks that led up to the introduction of the euro and with the opening of the German Presidency.
Good heavens, I have in my hand the speech made on 12th January by the German Foreign Minister, Fischer, to the European Parliament in Strasbourg outlining the aims of the German Presidency. He said—rightly, to begin with:On 1 January 1999 with the introduction of the euro … an important part of national sovereignty, to wit monetary sovereignty, was passed over to a European institution … The introduction of a common currency is not primarily an economic, but rather a sovereign and thus eminently political act".He went on to say:Political union … must be our lodestar from now on; it is the logical follow-on from Economic and Monetary Union".Herr Fischer was not speaking alone. I ask the House to listen to what a former Spanish Prime Minister has said:The single currency is the greatest abandonment of sovereignty since the foundation of the European Community … It is a decision of an essentially political nature. We need this United Europe".What does Mr. Duisenburg, the President of the European Central Bank, have to say? He said this:The process of monetary union goes hand in hand, must go hand in hand, with political integration and ultimately political union. EMU is, and always was meant to be, a stepping stone on the way to a united Europe".I finish with what Oskar Lafontaine, the German Finance Minister, has said:The United States of Europe has been the aim of the Social Democratic Party [of Germany] all along".Why do we not face it? That is their will and wish. It is not disreputable at all that they should wish that. But we do not wish that. And because our history and institutions—all the things that make us what we are—are different from those of continental Europe, we cannot and will not go along with this enterprise.
Why do we not face it? Why do not people like the noble Lord, Lord Taverne, my old friend, the noble Baroness, Lady Williams, and my friend, the noble Lord, Lord Barnett, who are frankly crypto-federalists, come out and state what their aim is—that they actually want to create that state and they welcome economic and monetary union because they know that it carries them forward a very long way?
Until we can be honest about the fundamental difference between our continental friends and ourselves, we shall not earn their respect. We shall not be able to engage in honest debate, and we shall find ourselves, willy-nilly, always in a minority, having to use the veto to prevent a common fiscal policy. Of course they are going to have a common fiscal policy. Fiscal union follows economic and monetary union as night follows day. If Britain uses the veto, virtually alone, with only one ally or so, where shall we be then? 641 We shall be exactly where the Government feared most to be and criticised their predecessors for being—on the fringes, on the outside, not playing a central part, not giving a lead to Europe. I almost despair of anyone on the Europhile side ever being brought to face what the real difference is. Until they do so, debate is almost meaningless.
However, perhaps I may say a word about the economics. Of course the situation cannot be judged after 20 days. The currency will succeed within its limited terms. It will succeed or fail according to whether genuine convergence has taken place. If the minimum convergence criteria laid down in the treaty were not met, if they were fudged and avoided, then as every year goes by the differences between the real performance of different member states will grow, and the disadvantages of the weaker areas will show in terms of rising unemployment and general dissatisfaction with what has been done, and there will probably be major political disruption inside Euroland as well.
The noble Lord, Lord Cobbold, made an impressive, knowledgeable contribution. But the noble Lord asked whether we can survive if we do not join the single currency. Whether we can survive! Frankly, I wonder where he or I have been over the past 70-odd years. There are 182 separate national sovereign states registered at the United Nations. Until 20 days ago 180 of them each had a separate currency. Gosh, how did they manage it? How could they survive? Now, 11 have come together. That still leaves 169 nation states, each with their own currency. Oh dear, what are they going to do? Are they to give up? What happens to Canada? There are only 22 million people, but somehow Canada still manages to be among the G7. What happens to Australia and New Zealand? They cannot exist. They must give up at once. They must join up with Japan, or whichever is the largest economic neighbour state—just as Canada must join up immediately with the United States in order to survive! What rubbish it all is!
I shall make one final point, and it is my noble friend Lord Barnett who provoked me. It relates to the idea of inward investment being choked off. Britain alone among the member states of the European Union for nearly 18 years was a member of the EMS, but not of the exchange rate mechanism—the inner grouping. During the two years that we were a member, it was awful. Yet, throughout that period, Britain attracted the largest amount of inward investment—much larger than that of any other European Union state.
For heaven's sake let us in future face the real choices that exist between ourselves and the Europeans. Let us face the difference in genuine national objective. And, frankly, let us all be a little more sensible and balanced regarding the economic advantages and disadvantages of the single currency.
§ 6.54 p.m.
§ Lord Stewartby
My Lords, we have heard a number of robust and powerful speeches. Most have been strongly committed on one side of the argument or the other. I therefore feel rather timid in confessing that 642 I have not yet made up my mind as to whether entry to the single currency will or will not be the right thing for this country.
I commend my old friend, the noble Lord, Lord Grenfell, on a most lucid speech, putting the point of view that he represents. I have always admired the noble Lord's independence of mind, since he stopped me in the street in Cambridge many years ago, just after the Suez crisis, and told me that he was cutting a supervision to buy some elicit petrol for a motor car that he was not meant to have at Cambridge. I am glad to know that the noble Lord's independence of mind has continued over the many years since then.
We have heard speeches on both sides of the argument. I very much agree with the noble Lord, Lord Barnett, that there are risks both ways. The choice is not nearly so simple as it is sometimes presented. I wish to make one point, not so much from a political or constitutional point of view, about some of the risks that are inherent in membership of the single currency.
I do not see how the economies of individual member states can fail, at some point, to become sufficiently divergent to find it difficult to correct themselves without more instruments being available to them. If we remove the flexibility of the exchange rate and of interest rates, we remove the two readiest tools with which states have normally tackled imbalances that have arisen. That leaves us with taxation and public expenditure—the budget solution—or possibly more fundamental structural changes such as labour mobility and subsidies from one state to another. The constraints of the stability pact and of the treaty as to the degree of freedom that individual countries might be able to use are not necessarily sufficiently powerful or quick-acting to enable divergences in different economies to be sorted out in such a way that they would be politically acceptable within those states. That is my main reason—a practical one—for being concerned about the risks of membership.
However, there are some measures that we could take. I suggest that we do not have to be completely inactive while we wait and take a view about the future. As the noble Lord, Lord Taverne, will recall, this is the 530th anniversary of the monetary union between England and Burgundy: in 1469 Edward IV and Charles the Bold agreed that they could use each other's currencies, and indeed did so for several years. It is not by any means an exceptional instance. There have been many periods in history when currencies with international qualities have been used domestically in other jurisdictions as part of the normal circulating medium. Obvious examples are the major currencies of the Middle Ages, the florin in western Europe, the ducat in Venice and the eastern Mediterranean, and English sterling on the Continent in the 12th and 13th centuries. A later example was the monetary union in 1865 between France, Belgium, Switzerland and Italy.
It would be useful if we could accept that there will be a considerable amount of activity in euros in this country, whatever decision we ultimately take about our membership. This will start in the business community. I was pleased to read an article in the House Magazine 643 recently by the Economic Secretary in which she stated that businesses could pay their taxes and rates in euros, file their accounts in euros, and so on. I must confess that I was not aware of all that. When the currency becomes tangible in 2002 it will inevitably have a degree of use in this country. I see no objection to our welcoming that and accepting that there should be a readiness in this country to use the currency whenever it is convenient. There are many examples where currencies are used in that fashion, as in the case of the dollar, which is used in many countries of Latin America and Asia alongside domestic currencies.
If I may put a rather cynical, political spin on the idea, it seems to me that those who are greatly opposed to British membership of the single currency could find this an acceptable alternative to joining, while recognising the impact and influence of the euro; and those who are anxious that we should join could see it as a valuable step in the direction which they want to take.
I therefore ask the noble Lord, Lord McIntosh, to say whether there are other measures which could reasonably be taken or which the Government have in contemplation which would facilitate this process. I do not anticipate that it would be possible to go as far as making the euro full legal tender, but I believe it would be worth exploring whether there are ways in which the euro, which will undoubtedly become an important part of economic life in the area in which this country operates, could be taken advantage of in our own economy.
§ 7.2 p.m.
§ Lord Glanusk
My Lords, I too wish to thank the noble Lord, Lord Taverne, for giving us the opportunity to discuss this matter. I must also offer him and your Lordships my apologies for not being able to stay until the end of the debate.
I thought that I would illustrate for your Lordships by way of example what the euro is already doing for one business. I do not believe that that business is unique. I want also to consider the euro by itself as a currency and for the moment to ignore its political overtones.
Until the end of last year, I worked for a small import/export company. I will not take up your Lordships' precious time with a promotional description; suffice it to say it was a mathematical software company. The English office was responsible for selling and distributing the product on behalf of its American makers. We sold it using a range of independent reselling agents throughout Europe.
In traditional British style, we used to stipulate that all agents should pay in sterling. All the difficulties of balancing local currency were their problem. The consequence was that there were a number of differing prices, both below and above the norm, which was established by the international nature of the technical advertising of the product, originating in the technical journals of both the United States and the United Kingdom. This gave customers a very variable view of the product and its quality in the marketplace. It also encouraged the customers to try to set their own prices.
644 These price differences were not always based on the actual standards of local support provided by each agent. In fact, the opposite was often the case: the less competent agents charged more and sold less. Not surprisingly, attempts to standardise the selling price were strongly rebuffed as any success in that direction would have been contrary to European resale price maintenance regulations.
By introducing a euro price list and invoicing in euros as soon as possible, a measure of standardisation was automatically introduced and resale price maintenance and the image of the product were restored. The agent must fix the price in his own country on the basis of the perceived added value that he provides. His price variance cannot be disguised as contingency allowances for exchange rate variations because he is buying and selling in euros. Customers are much more aware of the price in neighbouring countries because those prices, as well as all the necessary technical information, are on the World Wide Web.
By using one currency there is only one risk-taker in the chain and no one else in any of the European operations needs to add "just in case" margins to cover the contingency of currency variations. It is to be hoped that that streamlining will be passed on as keener pricing to the customer, although the cynical will say, "Not so".
The euro is here as a currency. If it survives it will transform the day-to-day transactions of most export/import businesses. Whether the United Kingdom should sign up to the political and economic baggage of the single currency I leave to those with more experience than I have.
§ 7.6 p.m.
§ Baroness Ludford
My Lords, I wish to start by reflecting on the false gods of patriotism and sovereignty that some are invoking to obscure the real national interest in joining the euro. I am not an economist; I speak as a politician. However, I must disappoint the noble Lord, Lord Shore of Stepney. I am not a crypto-federalist; I am a real federalist in the sense that the noble Lord, Lord Taverne, used that word, meaning a decentralised union.
On Monday the Leader of the Opposition, Mr. Hague, warned the Conservative Party not to be the nostalgia party. He defined "Britishness" as being ambitious and self-confident, among other things, and declared that he wanted an open and mobile society.
The battle for the soul of the Conservative Party is at its most exposed over the euro. How can the Conservatives hope to appeal to the modern, multi-ethnic, urban, ambitious, "brassy" and self-confident people of Great Britain whom Mr. Hague says he wants to attract if they rule out the euro for a decade, even if it is successful? Such people know that the spurious arguments put up by the Euro-sceptics about loss of sovereignty if we join the euro make absolutely no sense. Such sovereignty as we still possess in a globalised world—as the noble Lord, Lord Cockfield, pointed out, that is not much—is a tool to be used to further the security and welfare of the nation, not preserved in aspic. We have pooled sovereignty in 645 NATO because that is the best way to secure the protection of our citizens. Similarly, the achievement of prosperity for our citizens justifies pooling monetary sovereignty.
The acceptance of the euro by British people and their rejection of "little Englandism" will in the end be on pragmatic grounds of economic advantage—cheap money and protection from a volatile pound. But I believe that there are two other factors that will be influential, one perhaps weighing especially with older people, the other with younger ones.
An acquaintance told me the following anecdote: "My boss is your archetypical traditional Tory businessman and an ardent Thatcherite. However, he shocked me recently with the following remark, 'I fundamentally disagree with the euro when it comes to economics and sovereignty; but when I was four years-old I witnessed London being blitzed and saw many horrific casualties. If the euro can in some way guarantee that those things will never happen again on this continent, then I will live with any economic or other consequences'".
Clearly, that gentleman and I do not see eye to eye on some aspects, but we are at one in believing that a united Europe which delivers peace is an enormous prize, as the noble Lord, Lord Cobbold, also pointed out.
The other factor, more persuasive with younger people perhaps, is that they are becoming used to change in all areas of their lives: technological innovation, flexibility at work, no jobs for life, social mobility and constantly changing fashions and homes, not to mention partners. Such young people, used regularly to upgrading their mobile phones and keeping up with the latest trendy clubs, are utterly unfazed by the prospect that the pound in their pocket will become the euro in their pocket. When they see that Britain's choice is to swap the glorious "national sovereignty" world of high interest rates and high currency volatility, from which we have suffered so much since the war, for the iniquitous "integration" world of low interest rates and nil currency volatility, there will be no contest.
Is it not extraordinary that the party which produced the stricture by the noble Lord, Lord Tebbit, about getting on your bike to look for work, the warning by the noble Baroness, Lady Thatcher, that we must face the brave new world because "there is no such thing as society", and the musings of Mr. Major on an evolving classless society, should be so shy of embracing movement and change in something so practical as the currency we use?
In my remaining time I want to talk about the benefits of the euro in lower costs, particularly for small businesses and individuals, and the costs to the British economy, and especially that of London's, of isolation from the eurozone.
I was astonished to hear the noble Lord, Lord McIntosh of Haringey, state in his rather dismissive reply to me on Monday:We have never said that a reduction in transaction costs is one of the principal benefits of European monetary union".—[Official Report, 18/1/99; col. 366.]646 If that is the case, why does the Treasury's pack on "Business Preparations for the Euro" include in question and answer format the following in a factsheet entitled, "the introduction of the euro and the implications for the UK"? It asks:Will the euro help my European competitors?".The answer is:The single currency will sharpen competition throughout Europe and it will influence the markets in three important ways".First, it refers to the removal of exchange risk, and, secondly, to transparent price differences. As an aside, many small firms are forced to publish euro price lists and then bear the currency risk. The Treasury document refers thirdly to "cheaper transactions costs". It says:The single currency will allow countries in the eurozone to trade with each other without changing currencies and that will reduce transaction costs. It will cost less for companies to make payments within the eurozone".I suggest that the Minister needs to come up to speed on what the Government, according to their own printed material, are saying to British business.
The same applies to individuals who go on holiday. British people even now will be affected when they go on holiday. If the Minister wants to win a referendum—I am sure that he does—it may be advisable for him to make an effort to promote the virtues of saving money.
I turn to the impact of exclusion from the euro on the City and the rest of London. The City's official view is that London's position as Europe's premier financial centre is unassailable. I share the appreciation of London's assets, from its relatively enlightened financial services regulatory regime to its critical mass of international banks and its attractions as a cosmopolitan world-class city. There are approximately 250 EU-based banks with branches or subsidiaries in London. One-sixth of the City's turnover originates in other member states. But there is an element of whistling in the dark about official pronouncements. The report already quoted this afternoon that only 5 per cent. of City opinion supports the Conservative policy of a 10-year self-exclusion from the euro shows where the City believes its real interests lie.
There are 250,000 financial services jobs in the City. There are half a million more jobs in London—many in Docklands or other new centres such as Croydon—that depend on the financial sector. That is almost one-quarter of London's jobs. If one adds in the service industries, particularly tourism where a high pound will harm or destroy vital jobs in hotels and catering, one sees that a good number of jobs in London depend on the health of the financial sector.
Even if the risk of the UK and the City being marginalised from the biggest financial event for decades is not felt in London in a spectacular and immediate way, it will be so felt in years to come. The City is at least as well prepared for EMU as other European markets. I congratulate the City on its massive effort over the new year, but the inaction of government damages that.
There is already evidence of disadvantage, such as the loss of the long-term bond market business from LIFFE to Frankfurt, the launch by German banks of tracker 647 euro funds, and the GEC-Alsthom listing in Paris. There will be disincentives to foreign direct investment which London's other attractions may not be able fully to overcome.
Londoners will not thank a government who put their jobs at risk by prevarication and lack of resolve. The longer we stay out, the longer the risk. That risk is indirect, through loss of political influence, as well as direct in terms of risk to business. How will we be able to argue as effectively as we would want for financial services regulation to avoid excess bureaucracy, such as against the imposition of a withholding tax which the City strongly believes will deter business from London (and should be dealt with on a bilateral basis between Germany and Luxembourg), if we are excluded from the inner core of eurozone countries and specifically the Euro-XI meetings of finance Ministers?
In conclusion, the Government need to switch from "prepare and decide" to "decide and prepare" because the delay and uncertainty is harming the UK and the London economy. The British public is willing to be persuaded of the benefits of joining. Eighty per cent. of people believe that we will join eventually and the sooner they are given the chance to vote yes in a referendum, the better. All that is lacking is leadership from the Prime Minister and his colleagues.
§ 7.15 p.m.
§ Lord Nunburnholme
My Lords, first, I congratulate my noble friend Lord Lamont on his speech. I have always considered him to be one of the best Chancellors that we have had. I am also delighted to hear that he agrees with most of my views. I also congratulate the finest speaker that this side of the House has at the present moment. I refer to the noble Lord, Lord Shore of Stepney.
I begin by dispelling very quickly two current myths. The first is that we have to go into the euro; otherwise, we shall lose trade. The assumption is that the European Union will put in place tariff barriers against us. It is not in a position to do so. The trade balance in its favour is £6 billion to £8 billion sterling, apart from the £4 billion that we contribute to the European Union at the present time. Furthermore, if they erected tariff barriers there would be a by-product. Over the past 25 years there has been considerable inward investment into this country, for example from the United States of America and Japan. If tariff barriers were put up, which is what would happen in effect, for example in relation to Japanese motorcars, they would retaliate. The EU can do nothing about it. We do not have to go in. It is a myth and propaganda.
The second myth is that if we are not in the Council of Europe we shall lose influence and we will not be able to bend the results of the decisions of that body. With the Franco-German alliance, which is almost an axis, if we are in we must abide by the decisions of those two governments and we can do nothing about it. We shall be outvoted every time. If we are outside and they want us to do something by way of tax harmonisation, for example, we shall say that that will 648 cost us so much and ask what they will give in return. They may say that it is for the good of the EU but we will say that it will cost so much and ask what we can have back in return. If they say that they cannot do anything we shall say, "We are sorry, gentlemen. Good afternoon".
The next point is perhaps very unpalatable, but I must make it. Last week M. Jacques Santer with his bluff, aided and abetted by Pauline Green, MEP, demonstrated, first, the uselessness of the European Parliament and, secondly, the fact that Brussels is a cesspit of corruption. I do not have to give precise examples; we all know them. However, it is endemic in Italy. Apart from anything else, the situation is very unfair to poor people who cannot afford to bribe the judges. Noble Lords who are good Socialists should consider what is happening to the poor people of Italy.
Another example relates to the farmers of Greece and Italy. They have been given farming subsidies by the EU. Unfortunately satellite photographs have proved that some of the crops for which they have claimed have never existed.
If we stay out, we retain our independence and economic flexibility. If we wish to have a competent economy we must be fast on our feet. It is no good going to the Commission and receiving the result three months later. One has to do something within three minutes. I know that from days of old as an options dealer with the Stock Exchange. One had to be very quick.
§ 7.21 p.m.
§ Lord Beaumont of Whitley
My Lords, I intervene to put a view from the loyal opposition within my own party. I say "opposition" because the stand I take on the euro is against the trend of Liberal Democrat policy; and I use the word "loyal" because I take that stand for essentially Liberal reasons. There is a widespread assumption that all Liberal Democrats are solidly in favour of EMU and a federal Europe. I have heard several people say recently on this subject about my party, "Oh, they're the worst"—a compliment which will be appreciated by my own Front Bench. But that idea of a monolithic Liberal Democrat party is most misleading. Monolithicity is not a notable characteristic of Liberals for the simple reason that it is not liberal.
If I am to support the statement I make that the party is not monolithic on the subject, I would point out that there is a strong Green element in my party. Indeed, when I and others make the claim that the Liberal Democrats are the greenest of the established parties represented in Parliament, I seldom find myself contradicted; and, sitting as I do on the Executive of the "Green Lib Dems", I find myself among a group of people who have irreproachable credentials as Liberal Democrats but who find themselves increasingly opposed to GATT, WTO and the economic side of the European Union.
Before I am dismissed as another eurosceptic whose views are therefore not worth listening to (and I must say that there is a lot of that kind of dogmatic intolerance among Europhiles), I should like to state my 649 claim to being a Europhile. As long as I can remember, I have been passionately in favour of closer co-operation within the countries of Western Europe. Some of your Lordships may remember that in 1962 a conference was held in London called "Europe After Britain Joins", organised, among others, by the European Commission with the help of Mark Bonham-Carter, the then Lord Gladwyn, and, to a lesser degree, myself. Indeed, I remember with pride that immediately after Britain's entry, I was one of the guests at a small dinner party given by the European Commission for those who had helped lay the foundations before the other parties jumped on the bandwagon. So, to anyone who would dismiss me as a Eurosceptic tout court, I can display my medals and my scars earned on their side in the dispute.
I would not go back on anything that I then believed. But, along with many others, I was the victim of a con trick. The campaign to get Britain to agree to join centred on the economic advantages, and few of us ventured to murmur that that was,not it at all, that is not what I meant at allto quote a poet who, judging by his Notes Towards the Definition of Culture would have been on my side of the argument today. Many of us were principally concerned with questions of peace in Europe after centuries of war; and some of us with the revival of the concept of Christendom. But we were told that we could not win a referendum unless we had the City on our side and that just as the European Iron and Steel Community had been a necessary stepping stone to the EEC, so the EEC was a necessary stepping stone to the EU. So we smothered our not very strong doubts and went along with it.
Now I find myself in a union which is more and more dominated by the conventional economics which I increasingly see as irrelevant to the important things of life. I find myself more and more appalled by the bureaucratic restrictions and persecutions revealed week by week by Christopher Booker in the Sunday Telegraph and more and more sceptical of the justifications for them which are put forward. We are told that we must have a level playing field. Why on earth should we have a level playing field? Heaven knows that I am not a subscriber to Ricardoan economics, but I gather that Europe is, and, as I understand the economics of Ricardo and Adam Smith, we should not be in favour of a level playing field; we should be in favour of recognising and using comparative advantage, and that is the opposite of the level playing field.
We now find ourselves being lured into this common currency. Once again it is a stalking horse for something much more important. There is widespread agreement—and hardly anyone ventures to deny it—that a single currency is hardly separable from a federal Europe. To take one simple reason, with a single federal bank and a single currency it will be more difficult to help the economies of outlying regions of Europe without a single central political power base to take decisions which will be unpopular with rival claimants.
I am a Liberal and a Green. I believe in devolution, and that small is beautiful. For all those reasons, not least the first, I am adamantly opposed to a single 650 currency. If there is a referendum on it, I shall campaign as strongly against it as I can. What is more, I suspect that we shall win.Smile at us, pay us, pass us; but do not quite forget:We are the people of England [and for that matter of Scotland and Wales] and we have not spoken yet".I have spent much of my life having the wool pulled over my eyes by those who serve Mammon. But even at the age of 70 it is not too late to see the light. I shall fight for Europe, but it will be for the Europe we liberated in 1945, the Europe of the Council of Europe where I once had the honour to lead the British Liberal delegation, and not the Europe of the Economic Community, the common agricultural policy and uniform VAT. It will be for a Europe which respects and nurtures diversity within its ranks; a Europe of culture, not of economics.
§ 7.27 p.m.
§ Lord Tanlaw
My Lords, I am disappointed that the noble Lord, Lord Beaumont of Whitley, has changed views as a Whig that we shared at university many years ago. Nevertheless, I am grateful to him for his contribution. The noble Lord, Lord Taverne, drew attention to this important point. The Liberals—the Social Democrats and Liberal Democrats—have been entirely consistent throughout their political time in these parliaments in asking since the 1950s for a quick and clear decision on Europe.
I listened with great interest to the powerful maiden speech of the noble Lord, Lord Lamont of Lerwick, advocating the case for wait and see. However, in declaring my interest and views as a proprietor of a manufacturing export business in this country, I believe that I shall express the worries of hundreds, if not thousands, of other British manufacturers, large and small, which are faced with the problem of high interest rates, and high sterling value plus its possible volatility. If Britain does not join up with euroland very soon, many companies will be faced with economic extinction. Alternatively, they will be forced to transfer their manufacturing businesses to mainland Europe. I totally disagree with the noble Lord, Lord Shore of Stepney. Without doubt, such a stand will discourage inward investment. That will be to our complete disadvantage. I have plants in this country and in Germany and I know that that stand will be to the disadvantage of British plants here—and, if it continues, there will be considerable unemployment.
The other point that has not been put forward in the debate is that other European countries, Germany in particular, will be able to export into this country European goods at a competitive price, which at present deutschmark goods are not, and that will be to the disadvantage of British workers.
The debate is a timely opportunity for the Government to say exactly when they intend to join Euroland and how they intend to go about it. That information is equally important for businessmen as for the Opposition when they are considering how long we should wait and see before going into Europe: 10 years, five years or 20 years? I do not know. It is important for business people to know. As a businessman, which 651 I am most of the time, I have to deal with practicalities. It is difficult to deal with some of the "high-falutin stuff" which we have heard from around the Chamber today. It is divorced from reality.
We have listened to more than 20 speeches, but perhaps I may take up a point made by the noble and learned Lord, Lord Howe of Aberavon. He went back in time to King Canute. I want your Lordships to imagine that this Chamber is a time machine and to go back 35,000 years to the onset of glaciation. We would find over the banks of the River Thames perhaps a darkened sky and flecks of snow. The Thames would be frozen. The time of year would be mid-summer. There would be a bonfire around which on one side might be the Neanderthals and on the other side the homo sapiens. They had to make a key decision: whether to go south into Europe or to remain and wait and see whether there would be a change in the weather. Palaeontologists have told us that the Neanderthals became extinct because they chose a wait-and-see policy and did not go into Europe! I said that they were extinct, but having heard some of the speeches today I wonder whether some of their chromosomes still exist in homo sapiens. Some of the cases put forward today were totally absurd and unreal. It is about time that we had something more definite from the Government, or will the Minister say that we must wait and see?
Although I am a manufacturer, my subject is time. One of the other important points which businessmen want to know is when we are going to adopt European time. There will be an opportunity to debate a Bill on that, but what is the Government's attitude? Are they going to put us off again? They must be aware that in 1748 Benjamin Franklin wrote in his Advice to Young Tradesmen,Remember that time is money".If you are going to change the money, you have to change the time. If we are going to adopt European money, why not adopt European time?
The noble Lord who is to reply cannot give an answer because he works for the Department of Trade and Industry, which has nothing to do with time zones. The Home Office deals with that subject, but when asked it says that it has received no representations for a change in time; that all the representations have gone to the Department of Trade and Industry, so that so far as it is concerned, there is no demand for a change to European time. Is it not the moment to consider the absurdity of having one senior Minister for the big hand of time and another senior Minister for the small hand of time; that is, one for the time zone and another for the timescale?
The Government have lost one of my Bills on the timescale and will do nothing with the Bill to be introduced by the noble Lord, Lord Archer of Weston-super-Mare, or will they? Businessmen want to know. We have heard nothing except that there is no demand for a change. Will the Minister say whether the chambers of commerce, the Confederation of British Industry and the trade associations made any representations to him or his department for a need to change to European time? Not to change is most 652 inefficient. Will he say that the Government will use their public relations machine to encourage us to go into Euroland, into the market of 300 million which we all want to enter, without any penalties? Will he say whether we shall change to European time?
It is absolutely pointless to put forward a pro-European view, if that is the Government's intention—many people thought that it was—if they do not intend to change to European time. When I spoke to those in the office of the noble Lord, Lord Archer, I was told that he was looking forward to his Bill coming to this House in March. Can the Minister say anything about that? No, he cannot because he has to wait for the Home Office to comment. Can he say whether there is a possibility that the subject of time will come under one ministry, which should be his and not the Home Office? Time and money are related—and it is about time that that was recognised by this Government.
§ 7.36 p.m.
§ Lord Newby
My Lords, one thing on which all speakers in the debate are agreed is that the introduction of the euro will have a significant impact on the British economy and the politics of Britain and Europe. We on these Benches are grateful to all noble Lords who have taken part in the debate.
The importance of the introduction of the euro on 1st January was not obviously shared by the Government or the Opposition. The Chancellor and his Treasury Ministers chose not to attend the launch because, according to the Treasury, no substantive issues facing Britain were being discussed. That has been a refrain over the decades in terms of Britain's relations with Europe. One noble Lord spoke earlier about missing the tide, which I suspect is an example.
While the Chancellor was choosing not to attend the launch, Francis Maude was in Hong Kong, courtesy of the merchant bank which supplements his meagre salary as an MP. Given the Tory policy on the euro, I can well understand why he wanted to be as far away from Europe as possible, but I thought that that was taking things to ridiculous lengths.
Today we have heard many arguments about why it is in Britain's economic interest to join the euro. We have heard about the benefits of lower interest rates; the automatic ending of exchange risks for 55 per cent. of our trade; and the ending of extreme speculative attacks on the currency such as that which drove us out of the ERM and which many of us fear will be repeated if we remain outside the euro. We have heard about price transparency and reduced transaction costs. We have also heard about the more stable framework for business which the euro will bring and the positive effect it is likely to bring in terms of economic growth and investment. We have also heard about the economic cost of staying out.
Many noble Lords, including the noble Lords, Lord Cobbold and Lord Barnett, the noble and learned Lord, Lord Howe, and my noble friend Lady Ludford, spoke about the potential cost to the City of Britain remaining outside the euro. Although the noble Lord, Lord Skidelsky, suggested that the City's position as the 653 pre-eminent financial centre of Europe was not threatened, I believe that that view is complacent. During the short time that the euro has been in operation there has been a loss of business from the City and I believe that that loss will inevitably accelerate unless it is clear that from some near date Britain and the pound will form part of the eurozone.
We have heard about the potential cost in terms of inward investment and the related point made by the noble Lord, Lord Tanlaw, about British businesses transferring their operations into the eurozone if we stay out, and we have heard about our inability to take a full part in international discussions on, as the noble Baroness, Lady Williams, expressed it, the new rules of the game. We have heard too about the problem of our lack of propinquity as the noble Lord, Lord Roll, put it, to the European Central Bank.
Along with those economic costs, we have also heard about the political costs of staying out. Being semi-detached within the EU, has, in our view, over the years cost Britain dearly in terms of our ability to influence the shape of the developing union and also, as the noble and learned Lord, Lord Howe, put it, our ability to control many decisions which affect the economy and society domestically. That political cost will now be compounded for as long as we remain outside, the more so as the three other non-members of the euro zone, Denmark, Sweden and Spain, rush to join, leaving Britain once again in unsplendid isolation.
The principal fact which has been dawning on me over the past three weeks is the speed at which the euro is being adopted, not just within the euro zone but also in Britain. We have begun to see invoicing in euros, staff asking to be paid in euros for mortgage purposes, euros being used in economic commerce, as the noble Lord, Lord Haskel, pointed out, and people opening euro bank accounts.
Like the incoming tide on a low, flat beach, the euro is rushing in with a speed and certainty which, in my view, is threatening to outstrip the action of government and the thinking of opposition and many pundits alike. Standing against the flow are an increasingly waterlogged set of British Canutes. The noble King has been invoked by three speakers during the course of the debate. However, unlike him, the latter day Canutes simply do not accept the inevitability of what is happening around them. They contain several distinct strands of opinion.
The noble Lord, Lord Harris—uniquely, I think—believes that the failure of the euro is inevitable. He also seems to believe that the UK is not an optimal currency area. I am afraid that I disagree with both his analysis and his prognosis. Another strand of opinion is represented by the noble Lord, Lord Lamont, who has never believed or, at the time, did not believe that there would be a single currency; that if there were to be one, it would be unworkable or that if it worked we should not be part of it. He believes that Britain can best fulfil its destiny with the maximum degree of independence from the EU. I profoundly disagree with that view, but I see that it has the advantage of clarity.
654 There is also the official Opposition policy, which is, basically, to wait and wait and wait and see. That policy may paper over many of the cracks in the Tory Party but it has clearly not dealt with the problems identified by Messrs. Stevens and Connolly. But, in my view, any logic that it might contain disappears by ruling out membership during the lifetime of two parliaments.
If, for example, the euro was clearly a success in a couple of years' time, the Conservatives would still be committed to waiting at least another five years before being prepared to enter, although, frankly, if they continue to adopt the line of the noble Lord, Lord Skidelsky, in terms of putting up a whole series of economic tests which are, almost by definition, impossible to be met in advance, it seems to me that in reality their policy would be never to join.
The noble Lord, Lord Skidelsky also made the point that Europe should be a choice but not a destiny—that is, that one should retain the option of one's relationship with Europe rather than committing oneself irrevocably to it. In my view, that attitude has bedevilled our relations with Europe. That is why we are not taken seriously in Europe and, if we continue to entertain that view as a nation, we shall never play a full part in Europe and we shall remain frustrated.
There is also a group of people who claim to be pro-European but anti-European currency. I am extremely sorry that a number of the leading exponents of that view within your Lordships' House have been in the Palace of Westminster today but have not been able to find time to join the debate. I believe that that view is the least intellectually credible. The euro is the centre of the European project; it is the single most important thing that Europe is doing. In reality, to be in principle against British participation in the euro makes it impossible to be at the heart of Europe or even to be a credible long-term member of the EU. Incidentally, I do not include my noble friend Lord Beaumont within that group. He has impeccable green credentials, but I would love to be a fly on the wall at any discussion he might have with the German Foreign Minister, his fellow "green".
However, what unites all those policies is the lack of a realistic alternative long-term view for the future. Just how will Britain prosper, either detached from Europe—the Lamontian view—or semi-detached, the Official Opposition view. I had hoped that the noble Lord, Lord Lamont, would have had time to deal with this today. I look forward to hearing his blueprint for the future at some future date.
Certainly, nothing in Mr. Hague's speech yesterday suggested that he had any alternatives. On Europe, the speech was noticeable only for saying that integration had gone far enough and that in advocating further moves towards integration, Europe, in its entirety—those poor misguided fools—was living in the past.
Before David Landes' book becomes a text for the sceptics, anybody who reads it will have found a long description of Britain's relative decline ascribed to the lack of systematic approach to scientific and technological inquiry and how that was translated 655 through the education and industrial system into economic growth. I strongly agree with what the noble Baroness, Lady Sharp, said on that issue.
Finally, watching the euro tide rise around their feet are the Government. Their attitude reminds me of that of the reluctant bride. This is, perhaps not so erudite a simile as Andrew Marvell's "coy mistress", who was invoked by the noble Lord, Lord Roll, but a proposition has been made. Secretly, she would like to accept. She knows her family would accept it but is scared of what her friends would think and say, so she prevaricates. She sets conditions while she flirts with her intended but goes coy when a date is proposed. If the Opposition are ingloriously temporising because they do not really want to go in, the Government are ingloriously temporising because they do not have the courage to say that they want to go in.
In this debate we have heard about the benefits of joining the euro and the costs of staying out. We have also heard of the potential costs of going in. However, we on these Benches have no doubt as to where the balance of advantage for Britain lies; we should be in and the sooner the better. It is time for the Government to accept the economic realities, grasp the political nettle, announce a target date for entry and, as suggested by the noble and learned Lord, Lord Howe, introduce a paving Bill in this Parliament. For many years to come we shall bear the cost of any further and unnecessary delay.
§ 7.47 p.m.
§ Lord Higgins
My Lords, I join with those who have congratulated my noble friend Lord Lamont of Lerwick on his maiden speech. It is fair to say that it was uncontroversial, although, as the noble Lord, Lord Barnett, pointed out, that might depend a little on whether you agreed with what he said. None the less, he made a number of extremely important points, not least that a single rate of interest in euroland was wrong for most countries. More important perhaps, were the points he made in relation to the dangers to democracy of treating euroland or, indeed, the European Union as a whole, as a single state. We shall certainly look forward to hearing from him on many future occasions. We have also had excellent contributions from a number of hereditary Peers. Alas, in the light of the events earlier this afternoon, our opportunity to hear them on future occasions will be severely limited.
One matter upon which all major parties now seem to be agreed is that the issue of a single currency should be put to the people in a referendum. From a strictly personal point of view, I have always viewed referendums as an alien concept, incompatible with our system of representative democracy. However, given the current situation, it is absolutely essential that the issues we are debating today should be put to the people in a way which is, as far as possible, easy to comprehend. My experience of my constituency over some 30 years was that most constituents were inclined to ask their Member of Parliament what it was all about rather than to express any firm view one way or the other. Given the point made by the noble Baroness, Lady Williams, 656 that we need publicity on this matter, perhaps we should produce a video of today's debate and circulate it ahead of the referendum.
Be that as it may, there are two aspects of the matter which we have been discussing. The events of 1st January were clearly of considerable significance both to the UK economy now and, of course, in a different set of arguments, in relation to the future. I was not surprised that the events on 1st January went very smoothly. That is the easy part of the job. I noted carefully what my noble friend Lord Cockfield said about the decimalisation experience. In fact, the mechanics of it did not go at all badly. But what is now being undertaken is vastly more complicated. There were undoubtedly some unfortunate effects in relation to inflation resulting from the public's problems in coping with the new currency.
But the fundamental issue here to which we must pay close attention is the fact that those joining the single currency are proposing to give up for all time the major means of adjusting for differential movements in costs and prices. The larger the area is where that single currency exists, the greater the problems are likely to be. The jargon of one size fits all in relation to exchange and interest rates and fiscal policy overlooks the serious problems which are likely to arise if that major economic mechanism is given up over a large area.
Indeed, it is likely to cause either endemic unemployment in certain parts of the area or alternatively there will have to be major transfers of resources from one place to another in order to compensate for it. That is the crucial problem which is likely to have implications both for the European Union generally and for our own country.
I was rather surprised by the opening remarks of the noble Lord, Lord Taverne, when he referred to various countries qualifying. The reality is that with regard to the domestic criteria, a number have not qualified. I believe that eight out of the 11 applicants are still in excess of the deficit. Indeed, in the cases of Italy and Belgium, the figure is something like 120 per cent. compared with the requirement of 60 per cent. The problem with that is that given they have gone ahead, there will be serious strains in Europe which will have repercussions not only for them but also for us. While the noble Lord argues that we should not delay, he overlooks the costs which have been imposed on those who have gone ahead before there has been genuine convergence. That is a point of considerable importance.
In that context, there has been some confusion as regards the distinction between convergence in the sense of deficits being similar, within certain limits and so on and the issue of whether the economic cycle in particular countries should be synchronised. We have rather slid into the view that somehow it would be a good idea if all countries within the European Union were synchronised. It is fairly apparent that if that is so, the size of the fluctuation is likely to be greater than if there were a variation in the state of the economic cycle. I shall be interested to hear the Government's view on the extent to which they believe it is important that our economic cycle should coincide with that in Europe before they contemplate joining.
657 Various points of view have been expressed today, but it is not really in doubt that there is clearly considerable pressure for tax harmonisation in the European Union. In that context, the noble Baroness, Lady Williams, complained about the dangerous tightness of the stability pact and the arrangements in relation to that. I share that concern. But clearly there is enormous pressure for moving towards harmonisation of taxes. That has massive implications on sovereignty. The Government's attitude on that has changed considerably. In April 1997, the present Prime Minister was saying that the single currency is not just about economics but about sovereignty as well, a view which has been modified significantly by the Chancellor who has said that the constitutional factor is not an overriding one.
We must remember that the power of Parliament and the power of the House of Commons in particular throughout history has been based on the control of money, the right to raise taxation and control over how it is spent. Consequently, it must follow that giving up powers with regard to flexibility on taxation must have a significant effect on the sovereignty of Parliament. Indeed, that is an issue which cannot be disregarded.
There are other more specific problems with regard to tax harmonisation. The Government's attitude is not clear. My noble friend Lord Skidelsky referred to withholding tax and whether the Government will use their veto if a satisfactory outcome is not reached in relation to that. There are pressures also in the field of indirect taxation, with regard to VAT and so on. I remember my experience in a previous incarnation when I was trying to protect VAT zero-rating, the issues on the sixth directive and so on. They suggest that it is not an easy issue. I am reminded of a remark made by one of my senior officials at the time that, "If the Italians collect it, we will harmonise it". But that was perhaps a rather biased view in the course of hectic negotiations.
One point which I find rather difficult is that made by a number of noble Lords who have great experience in industry and so on; namely, the issue of inward investment. A number of people have said that inward investment will suffer if we do not join, but that has not really been backed up by argument. I listened extremely carefully to the point made by the noble Lord, Lord Tanlaw, but it depended on the assumptions he was making about the relative exchange rate. Nevertheless, it is an important point which we should consider.
The other extremely important issue is the position of the City. I listened with great interest to the points made by, for example, the noble Lords, Lord Roll and Lord Cobbold, who have immense experience in that field. Clearly it is a tremendous challenge for the City but we should not feel that it will be impossible for the City to meet that challenge. To a large extent, it will depend on the way in which the Government support the City on a number of specific issues, some of which have emerged only recently. There was the point rightly made about the move from LIBOR to EUROBOR and also, whether one quotes the euro in terms of sterling or sterling in terms of the euro. In the event, that has not worked out in the way one might have expected.
658 It is right that we should be concerned about the City and we must watch the situation very carefully, but in that respect there are a number of important aspects in which the Government can play a major role.
Listening to the noble Lord, Lord Taverne, I was interested to note that while I presume he chose the terms of the Motion, he dealt in a relatively small way with the significance for the British economy and dealt largely with the broader political issues which were touched upon with great passion by the noble Lord, Lord Shore.
The noble Lord, Lord Taverne raised the question of whether it is reasonable to say that one is in favour of Europe but not in favour of a single currency. My own feeling is that if one analyses the problem very carefully, it is not an unreasonable view at all to say that one is enthusiastic about Europe, and in particular, one is enthusiastic about the single market, but the implications of going ahead with the single currency in Europe itself raises problems. We must certainly all hope that the initiative taken in Europe is a success. If it breaks down for the reasons that I mentioned earlier, the implications for the British economy and Europe as a whole will be extremely serious indeed.
Having said that, we must consider whether, on all the merits, it has worked out satisfactorily and whether it is in our interests to join. That raises important questions of timing and there is a strong argument for pursuing the policy which we, on this side of the House, adopted; that is, we should see how it operates in practice and then take a decision on the merits, taking fully into account the interests of Britain.
§ 8 p.m.
§ Lord McIntosh of Haringey
My Lords, let me be controversial at the outset by congratulating the noble Lord, Lord Lamont of Lerwick, not for the reasons given by the noble Lord, Lord Higgins, but on his magnificent and entirely justified scorn for the convention of this House that maiden speeches should be uncontroversial. It was a controversial speech and a good speech. I just wanted to get that off my chest before I said anything else.
The noble Lord, Lord Cockfield, accused the Government of upstaging this debate by having it on the same day as the Statement on reform of the House of Lords. Not only did we not do that—it was the Liberal Democrats' choice of date—but also they upstaged themselves pretty effectively by announcing today that their leader will stand down from leadership later this year. I do not believe that they will get many column inches—nor will I—for this debate in the future.
The noble Lord, Lord Taverne, described this as one of the most important world events since 1945. I would have agreed with him except that, as he was saying those pregnant words, the Chamber was emptying noisily and rapidly. Perhaps some noble Lords think that their own future in this House is more important than world events. I only suggest that as a possibility.
I have to make two speeches—or perhaps two half speeches; one on the wording of the Motion which concerns the significance for the British economy of the 659 introduction of the euro and, listening to the debate, one about government policy and whether or not we should enter EMU. But I shall do both to the best of my ability.
My format for the first half of the speech will be the words of the noble Lord, Lord Taverne, himself. The argument seems to go from, "It will never happen" and "If it happens, it will fail", to "Even if it happens and works, it is not for us". That has been proved to be the case in recent times and in the course of this debate.
In our view this debate could not have come at a more significant time. The launch of the euro 20 days ago marks a dramatic change in the European economic landscape. The repercussions of this historic step will be felt not just by the countries which chose to join economic and monetary union, but throughout the rest of Europe and indeed across the globe. Overnight the introduction of the euro created the world's second largest single currency zone with nearly 300 million consumers, accounting for around one-fifth of global trade and GDP. That is a currency bloc of equivalent size to the United States.
That disposes of, "It will never happen". Now we can look at, "It will fail". A number of noble Lords, notably the noble Lord, Lord Lamont, and my noble friend Lord Shore said—I understand their point—that 20 days is not a test of whether or not the EMU will fail in the longer term. But it is a hurdle which has been successfully overcome which many people said would not be overcome. In fact, the launch of the euro in financial markets across the world could not have gone more smoothly. The markets' verdict on EMU has been positive. In other words, for this stage at any rate, the dog did not bark in the night!
All participating member states have made significant progress toward achieving the stability and convergence needed to join the euro. I acknowledge that some of them had to go to considerable extremes in order to do that, but they have done it. They have shown (because the test is not only meeting the convergence criteria, but also staying with it), that they can stay with it.
That progress on economic convergence has been backed by a strong political commitment to the success of the project. At the European level time and again common ground has been found, agreement has been reached and negotiations have been progressed. So, whether the UK is in or out of the single currency, the euro will make its presence felt. The impact of the euro's arrival will spread to Asia and the United States. Those who choose to ignore its arrival do so at their own risk.
In the UK we are no different. The facts are clear. Britain's economic future is bound up with that of Europe and of the 11 countries of the eurozone. The eurozone is by far the most important marketplace for British business. The eurozone and the UK are each other's largest trade and investment partners. The prosperity of the British economy, both in manufacturing and in services, is closely linked to the euro's success.
660 Almost 50 per cent. of total UK trade in goods and services is conducted with the eurozone compared with only 15 per cent. with the US. The noble Lord, Lord Skidelsky, used some complicated statistics which I shall have to read carefully in Hansard, but I suspect that the effect of his calculations was to deny what seems to me to be a self-evident fact. Over 40 per cent. of total UK overseas investment is destined for the eurozone, compared with under 30 per cent. to the United States; over one-third of all UK investment income generated overseas stems from the eurozone. Investment income generated from the United States amounts to only 20 per cent. of the total. Forty-five per cent. of British small and medium-sized companies have trading links, either directly or indirectly, with countries in the eurozone. Indeed, in some sectors such as manufacturing as many as 90 per cent. of firms have such trading links with Europe.
This Government want the single currency to succeed. The strength of our economic ties mean that there can be no other sensible position to take. A successful single currency means benefits for Britain as well as Europe. A successful euro will help to deliver growth, stability and jobs across the European Union, including in Britain. The Government remain fully committed to doing all we can alongside our European partners to ensure the success of the project. That was a priority throughout our presidency of the European Union and will continue to be a priority for the Government in the future.
We need more emphasis on structural reforms to labour, product and capital markets; modernisation of the single market; more work to promote entrepreneurship and competitiveness. These reforms lie at the heart of the Government's agenda in Europe. They are shared by many of our European partners and by business throughout the European Union. They make sense in their own right and they will help to ensure that the benefits of the single currency are realised.
At home we must position ourselves to take advantage of the euro. It is not just another foreign currency; it is much more. It is a fundamental change to the European business environment. The euro will reduce transaction costs—I will come to the noble Baroness, Lady Ludford, in a moment—and exchange rate uncertainty on trade within the eurozone.
Let me pause and make this point in relation to transaction costs. I did not say that they were insignificant; I said that other things are much more important. Transaction costs are limited. The benefits of removing exchange risks between the 11 European currencies is more important than transaction costs, and the transparency in prices with the increase in economic growth and stability to which that will lead is far more important than transaction costs. Of course, they are properly referred to in government publicity to business about the use of the euro and, as the noble Baroness rightly said, in due course they will apply to individuals as well. However, I persist in my view that, although transaction costs are significant, there are many other benefits of the euro which are far more important.
661 The euro will make prices more transparent; it will make it easier to compare prices and that will boost competition across the common market. I am fortified in that view by the comments of my noble friend Lord Haskel, the noble Lord, Lord St. John of Bletso, and indeed the acknowledgement of the noble Lord, Lord Skidelsky, that that is true.
Of course it will bring challenges, but it will also bring opportunities. The introduction of the euro may provide for new business and export opportunities as new markets are opened up by the increased openness that the single currency will make inevitable and as it becomes easier to expand business operations across borders.
I cannot overstate the potential impact of those changes. That is why, over the past year, the Government have stepped up work with British companies to ensure that they are fully equipped to do business in euro and able to harness the challenges and opportunities that the euro will bring. During this time we have run a nationwide information campaign to raise awareness of the issues involved in preparing for the arrival of the single currency. We have taken several steps further to facilitate the use of the euro by business, for example, by allowing for the payment of taxes and the filing of accounts in the new currency, and for certain grants to be paid in the new currency.
I am grateful to the noble Lord, Lord St. John of Bletso, for his recognition of the work carried out by the Treasury. I confirm that he is right to congratulate the Bank of England on the guidance that it has issued to the financial community.
It is right that this work should and will continue. Early this year, the Government will publish—as referred to in debate—an outline national changeover plan setting out the key steps which need to be taken by business and the public sector to facilitate British entry into EMU.
To paraphrase Harold Wilson, it is true that the euro is not yet in people's pockets. However, as my noble friend Lord Haskel said, it is the business currency. It is already very much a reality in dealing rooms and on trading floors across the world. The noble Lord, Lord Stewartby, asked us to make a policy of what is sometimes called the "creeping" introduction of the euro. In a sense we do not need to because that is happening without any Government intervention whatever. A number of noble Lords have referred to the introduction of the euro by stealth and without government intervention. That is certainly the case.
Many noble Lords have, quite rightly, referred to the position of the City of London. Already it is the most international of the world's financial centres and it is the world's leading centre for foreign exchange business. It is the principal centre for business in the international bond markets.
I was interested to hear the well-informed speech of the noble Lord, Lord Cobbold, who described the threat to the City of London and the extent to which the City is fighting back against that threat.
662 A number of noble Lords expressed the view that, although the City of London is fighting back, it cannot go on forever. The noble Lords, Lord Barnett, and Lord Newby, the noble and learned Lord, Lord Howe, and the noble Baroness, Lady Ludford, referred to that. We believe that the City of London will continue to thrive on the euro because London markets have the depth, expertise and infrastructure to take this major opportunity to build on their pre-eminent position. The success of the conversion weekend reflects the amount of planning and preparation which firms and institutions in London have undertaken. Over the New Year, some 30,000 London staff were involved in adapting systems and preparing for the start of euro trading. London is ready to be the international centre for the euro.
The Government welcome the launch of the single currency. A successful single currency is in our national economic interest, whether or not we join. We wish it well and we are fully committed to do all we can to ensure its success.
Before I move on to the second half of my speech, which will be shorter, I shall say a word about some of the issues raised in the debate, particularly the issue of tax harmonisation. I do not think I can do better than to distance myself moderately from an article by Mr. Kenneth Clarke in the Observer in December, which some of you may have read. He said:In reality there is at present no serious or credible euro tax threat to Britain. There would only be so if we elected a government which wanted positively to persuade others to engage in tax harmonisation. Even then it would confront a series of governments flatly opposed to it in principle or practice, including Sweden, Denmark, Spain, Italy and Ireland. A massive new raft of euro taxes is not about to hit Britain. Indeed, there will be no harmonisation of any kind except on British terms".Mr. Clarke is banged-to-rights.
I do not believe that the threat described of tax harmonisation exists, other than the removal of unfair tax competition, which is a proper objective of all governments, including this one.
§ Lord Shore of Stepney
My Lords, my noble friend totally misjudges the seriousness of the tax harmonisation initiative. For the sake of giving credence to his optimistic assertion, will the Minister tell us how he distinguishes between unfair tax competition and fair and desirable tax competition? We are already pledged to go along with fair tax competition and we shall agree with our European partners on a whole range of matters involved in that proposition.
§ Lord McIntosh of Haringey
My Lords, as far as our powers are concerned, the words of Humpty Dumpty will suffice:When I use a word, it means just what I choose it to mean—neither more nor less".If we think it is unfair we shall veto it and it will not happen. It is as simple as that. The failsafe position is on my side of the argument and not on my noble friend's side.
The noble Lord, Lord Ezra, referred to the difference between RPIX and the HICP as a way of measuring inflation. He will have noticed that we are now quoting 663 both measures in official statistics. I do not know which one will finally win out. However, we recognise, as we do with labour market statistics, that it is important to have international comparisons.
I turn to the issue of British entry to the euro. I have done a count and not a single speaker spoke in support of the Government's point of view. It was now or never as far as the debate was concerned. I can deal with "never" quite quickly. The noble Earl, Lord Caithness, and the noble Lords, Lord Skidelsky, Lord Lamont, Lord Shore, Lord Beaumont, and especially the noble Lord, Lord Harris of High Cross, spoke on this point. I found the argument of the noble Lord, Lord Harris of High Cross, about market economists rather strange. He said that there were no market economists in favour of the euro. There are lots of economists in favour of the euro and most people involved in markets are in favour of the euro. The noble Lord's category of market economists is a rather strange category in the middle, which does not seem to fit in with anything else.
I counted those who want us to join now, those who want us to announce now that we are joining, and those who want us to announce a date for joining—the noble Lords, Lord Taverne, Lord Grenfell, Lord Barnett, Lord Roll of Ipsden, Lord Haskel, Lord Ezra, Lord Currie of Marylebone and even the noble Lord, Lord Cockfield, Lord Tanlaw, and Lord Newby, and the noble Baronesses, Lady Williams of Crosby and Lady Ludford.
§ Lord Cockfield
My Lords, I did not say that we should enter now. I was telling the Government what the problem would be if we enter. I asked how they would propose solving it.
§ Lord McIntosh of Haringey
My Lords, I believe that that is in the category of those who want to enter now, those who want us to declare now that we will enter and those who want us to set a date. I believe that the noble Lord, to a considerable extent, did come into the latter part of that category. I do not think I have misrepresented him.
§ Lord Skidelsky
My Lords, I am sorry, but even at the risk of prolonging the Minister's speech, can I ask the noble Lord why he thinks that anything I said suggests that we should never enter the euro?
§ Lord McIntosh of Haringey
My Lords, I am glad that the noble Lord, Lord Skidelsky, has intervened. He said that we should exclude entry before the end of the next Parliament, which I understand to be one of the positions of the Conservative Party.
However, I have to contrast the point of view of the noble Lord, Lord Skidelsky, which is cautious, with that of others. The noble Lord, Lord Higgins, was in fact more cautious. Indeed, he was wonderfully cautious and virtually avoided expressing an opinion at all until the 12th minute of his 12-minute speech. Nevertheless, I have to remind him that Mr. Hague, Mr. Redwood, Mr. Howard and many others are on record as saying that they are opposed to British entry into the single 664 currency on principle. Moreover, in an interview in the Observer on 27th November last year, Mr. Francis Maude went so far as to say that, whether or not the euro is successful is not in itself an argument which will affect the decision of whether or not to join. There may be criticism of the Government's point of view—and no doubt there will be—but there are certainly criticisms to be made of the Opposition's point of view, which have been very clearly revealed in the speeches made in this Chamber tonight.
This Government have set out very clearly their position on UK entry. We have said that, in principle, a successful single currency should bring benefits to Britain and to Europe. I put it to your Lordships that that is very different from the position of the previous government and even more different from the position of the Conservative Opposition now. If the single currency is successful and the economic benefits to the UK from joining are clear and unambiguous, then Britain should be part of it. There is no overriding constitutional bar to British membership.
The Government's central economic objective for Britain is to achieve high and stable levels of growth and employment. Britain's economic interests in the single currency need to be judged against that objective. That is the basis for our five economic tests. The tests define whether a clear and unambiguous case can be made for British entry. The noble Lord, Lord Higgins, queried one of them and asked whether we were requiring that the economic cycle should coincide. I should tell him that economic cycles are never going to coincide in that sense exactly. The judgment that we have to make is whether the balance of advantage falls one way or the other. At present, our cycle is clearly so far out of kilter with those of other European economies that the risk is not worth taking. Our position is that we will recommend joining when it is in the national economic interest to do so—something we think possible early in the next Parliament.
Those who want us to declare intent now and those who want us to set a timetable are, in my view, taking a position which is illogical. They are taking the position that the date is more significant than the achievement of economic targets. I put it to your Lordships that, under those circumstances, the present task for government and for business is to continue making the necessary preparations so that we can exercise genuine choice on entry in due course. We have always said that our policy is to prepare and then decide; that is, of course, to make a recommendation on the basis that, as we have always promised, the decision is for the British Parliament and for the British people. That is the only way in which a realistic choice can be presented to the British people, and the Government are on course to do just that.
§ 8.23 p.m.
§ Lord Taverne
My Lords, the noble Lord, Lord McIntosh, expressed some regret that there would perhaps be no publicity given to tonight's debate. I should not be in the least surprised if that were the case. Economic debates in this House are not reported in the press. Indeed, if it is any consolation, economic debates in the other place are not reported in the press; 665 nor are the proceedings of Parliament. Of course, there are occasional parliamentary sketches, which enable commentators to exercise their rather caustic wit. However, the idea that what we say in this Chamber is recorded in newspaper reports is an illusion.
Nevertheless, I have found this to be one of the most interesting of the Euro debates. I say that not just because on this occasion those who are in favour of European monetary union greatly outnumber those who are against it, but because there was perhaps rather less repetition than there sometimes is in such debates. Quite apart from the powerful arguments advanced on both sides, the debate was most interesting because a number of noble Lords spoke from their own experience in a way that was particularly valuable.
Perhaps I may first sound a personal note. I was delighted to be reminded by the noble Lord, Lord Harris of High Cross, of a trip that we both made to Exeter and the debate that we had in the Exeter Union on George Brown's National Plan. I was then a newly appointed Treasury Minister and found myself defending the plan. I do not think that the majority with which I won the debate was quite as enormous as the noble Lord said, but I do remember saying afterwards that I thought he had the better of the argument. That does not mean to say that I became an instant convert to every part of the Friedmanite doctrine and philosophy on economic affairs. I do not share that view as a whole, but I believe that the institute that the noble Lord set up has played a most valuable role and has obviously had enormous influence. It also did a great deal of good in spreading the message for deregulation and in favour of capital markets. However, I do not quite see what that has to do with the European Union.
I say that because, on the whole, the European Union enshrines the principles of competition and capital markets and did not go for the kind of blue-print laid down by the commissariat du plan, which was temporarily fashionable in the early 1960s and on which George Brown's National Plan was based. I believe that the noble Lord, Lord Shore, played a considerable part in the latter.
I turn now to the debate as a whole. I was hoping to hear a little more from those who are hostile to our entry into monetary union about the alternatives that they have to offer. As I said before, the position of the noble Lord, Lord Shore, is absolutely clear: he wants nothing whatever to do with the institutions of the EU. As I understood those noble Lords, what they were saying in effect was broadly, "We don't have to do anything because it will not work". I shall turn later to what the noble Lord, Lord Skidelsky, said. The noble Lord, Lord Lamont, concluded by saying that EMU could not work for political reasons. He made a very eloquent, delightful but controversial maiden speech, which I very much enjoyed.
The noble Earl, Lord Caithness, spread a message of great gloom. The only sort of inkling of an alternative was the mention of Switzerland. I do not think that the UK could ever find itself quite in the position of Switzerland. Apart from anything else, and with no 666 disrespect to the Swiss, I feel that, for historical reasons, we have a rather different and greater role to play in the world than has Switzerland.
The noble Lord, Lord Higgins, said that of course it was possible to be pro-European and against, or sceptical about, monetary union. Theoretically that may be possible, but it really depends on expecting the European Union to break down. If one is simply relying on delay, there are dangers—I shall address them in a moment—as has been pointed out by other speakers. The noble Lord, Lord Skidelsky, said, "Let us wait and see what the relations are, for example, between the euro and the dollar; and, in eight years' time, we might then reach a decision". But why eight years' time? Why not six or 10 years' time? The euro is not going to be fixed in relation to the dollar and one will never be sure what the next five years will bring in that respect. Indeed, that is just an argument for postponing the decision for ever.
It seems to me that the official Opposition have not grasped the very real dangers of delay. The only speeches to which I wish to refer are those in which noble Lords spoke from their own experience. Many powerful arguments were advanced in a number of very eloquent speeches. However, I do not think that the Government should disregard the comments made by the noble Lord, Lord Cobbold, and the noble Lord, Lord Roll, about the impact on the City. They sounded a very severe warning that there would be a great danger to the standing of the City and its role as the financial centre of Europe if the decision was long delayed.
I believe that the Government should pay the greatest attention to what was said about the impact on industry by the noble Lord, Lord Currie, who has very special experience through the London Business School. His message was absolutely clear: business is already falling behind and, if we delay much longer, it will fall further behind. Those concerned must know where they are going. The same message was strongly conveyed by the noble Lord, Lord Haskel—
§ Lord Hoyle
My Lords, as I understand it, it is the convention of the House that the Peer who has introduced the debate merely thanks the speakers and then sits down at the end of the debate.
§ Lord Harris of Greenwich
My Lords, I say with great respect to the noble Lord that having been in this House for years—nearly 25—I fear that that is not so. The debate lasts until nine o'clock. I am not suggesting that my noble friend intends to speak until nine o'clock, but in terms of the traditions of the House, that happens to be the position.
§ Lord Taverne
My Lords, I apologise if I have in any way infringed the traditions of the House. I thought that there was time to comment briefly on the debate out of courtesy. I shall finish simply by saying that I am grateful for the contribution made on the subject of innovation by my noble friend Lady Sharp of Guildford. She speaks from wide experience of the subject. The unparalleled experience of these matters held by the noble and learned Lord, Lord Howe of Aberavon, was revealed in his speech. He illustrated the dangers that 667 will arise from our total political isolation and lack of influence if we are not part of the main direction in which Europe is proceeding. As I said, I apologise if I have transgressed the rules of this House, about which there seem to be two views. I thank all the speakers who have taken part in the debate. I beg leave to withdraw my Motion for Papers.
§ Motion for Papers, by leave, withdrawn.