Single European Currency

HL Deb 18 October 2000 vol 617 cc1108-25

7.30 p.m.

Lord Harrison rose to ask Her Majesty's Government what are the practical advantages of the United Kingdom joining the single European currency.

The noble Lord said: My Lords, in opening the debate may I say how much I am looking forward to the contribution of my noble friend Lord Fyfe in his maiden speech. I hope that he will join with me in commending the urgency of the debate. It is high time that we set out for the British people what the euro can do for them, their friends and their families. I hope that tonight we can acquit that task.

Everyone in this Chamber believes in a single currency. Indeed, everyone outside in the streets of London believes in a single currency. Everyone in the towns, villages and hamlets of the United Kingdom understands unblinkingly the case, the concept and the utility of a single currency. How can I assert that with such confidence? Because the pound sterling is that single currency; our current single currency, operating in the four countries of the United Kingdom. Aye, and there's the rub.

This single currency works across the four countries of the UK, and despite devolution, and despite the aspiration of national parties such as Plaid Cymru and the SNP for independence, I have never heard that robust belief in the efficacy of a single currency challenged. Even the insensitivity of retaining the name of our national bank as the Bank of England has not provoked nationalist parties to advocate, say, the "red dragon" or the "blue thistle" as their single currency and emblem of national sovereignty. Rather the reverse. They support the introduction of the euro to help them enshrine independence.

I make these points to show that people understand the concept of a broader, trans-national single currency very well indeed. Why do they? Because they can see the chaos which would result if Britain were to fracture into four tribes supporting four separate national currencies. I live in the city of Chester in England and used to work in Wrexham, just over the border in Wales. Fortunately, I was never required to show a passport or change currency going to and from work. Indeed, I would have been very annoyed, returning across the border, to be paid in red dragons and to find that some of my hard-earned wages would disappear in the tax of currency exchange. Say I wanted to visit Chester racecourse and place a bet—a couple of red dragons on Red Rum perhaps. How annoying to win and then pay some of my winnings back because of those currency exchange costs.

The British people, then, back a trans-national single currency. What is in dispute is whether to trade up to a bigger version—that is, the euro. I believe that in adopting the euro the man and woman in the street would continue to enjoy all the advantages of a single currency, with which they are already familiar, but would do so across the wider canvas of the single market and the European Union. In Chester we recall the last time Europe had just such a successful single currency. We still dig up Roman coins from under the turf of England's oldest racecourse.

A single currency, therefore, bequeaths market stability, transparency of competition, elimination of wasteful conversion costs and hedging costs, while spiking speculators impervious to the general good. The added value of a European single currency is the release of the huge currency reserves otherwise locked away in dark, dank, bank vaults, which can be applied to rebuilding Britain's crumbling infrastructure, as evidenced today so tragically by our creaking trains. The economic and political influence earned by being a world currency will also benefit Britain. We have lost an empire but can find a currency and a settled place in the modern world.

But how does this affect the lives of men and women outside this House. Eurosceptics, in repudiating this larger single currency, must answer these charges. Why do you reject the promotion of competition which currency transparency brings to the heart of a single market? Do you believe in fair and free competition? Why do you deny consumers access to better services and cheaper goods, offered in ever greater variety and choice in the bigger market? Indeed, do you believe in choice? Why are you happy for shoppers to pay twice on goods and services when, for example, holidaying on the Continent or surfing the Internet and buying with e-commerce? Why do you want to stop people purchasing the best cars at the cheapest prices? Indeed, do you even acknowledge that the single market and the single currency have already helped to bring down car prices for the benefit of the British consumer?

Again, why do you wish to place burdens on small businesses? Without a single currency, they have to pay extra in transaction costs to suppliers across the market, and to use costly price lists which are one removed from their target customers in that single market. And for small businesses which do not participate in that single market, why do you wish to deprive them of the opportunity of accessing easier finance, cheaper mortgages and competitive insurance, produced by lower inflation, by lower interest rates and by the deeper liquidity of the money markets fostered by the creation of the euro?

Again, what have British tourists going abroad ever done to you that you wish them to throw away holiday spending money before ever setting foot on the continent? Changing pounds into euros means charging pence in penalties of commission and conversion costs. Indeed, why do you hamper our home grown tourism and hospitality industries with the burden of a strong pound? A strong pound means weak profits. But now we have a bouncing pound. This summer alone the pound has declined by 8 per cent against the dollar. No wonder that in future the American tourists will by-pass Britain and in passing "Go" will collect 200 euros saved in exchange costs on their way to the continent. For the Americans and the Japanese it is the pound, not the euro, that will be tomorrow's "Monopoly" money.

To the Eurosceptics I say why do you want to kick the farmers when they are down? The NFU support Britain's entry into the euro, but you do not. Yet, if ever there was a single market that bellows out for a single currency, it is the common agricultural policy. Why lock the farm gate on our farmers competing in that market, where at the moment the vagaries of the pound/euro exchange rate wreaks havoc on farm incomes?

And what about the National Health Service? Recently the Government have come under fire for spending money on preparing the NHS for the advent of the single currency. In my view, such money is well spent. Access to the single market in health products will enable us to create an even more effective and efficient health service, especially in procuring goods and services in the single market. I note that many of the medicines that I use, courtesy of the NHS. are sourced within the EU—in France, Ireland, Spain and Denmark. Were we to join the euro, those savings for the health service would increase. If, like the Danes, we remain outside the single currency, we will be confining ourselves to a Legoland of missed opportunities.

And what of the blind and the visually handicapped, many of whom are older folk? The single currency will help them to see their way round Britain and Europe. Why? Because the embossed notes of the new euro currency, combined with varied shapes and sharply differentiated colours for those with some residual sight, will help users to distinguish more easily between different denominations of banknotes. Familiarity will breed content for those who have to use their hands to see the colour of their money. Notes and coins in Britain compared, say, to Dutch and Belgian money are a disgrace, so user unfriendly they are to our visually handicapped. Why have we never done anything about that scandal in Britain? Adopting the single currency will make us a more socially responsive nation—and about time too.

The most unfriendly currency of all is the American dollar, which our Eurosceptics want to join. Its uniform size, colour and feel is as inimical as it comes. The euro has all to play for in competing with the dollar as a world currency, to serve the world's citizens as well as the markets.

America and Europe are the world's two biggest markets, but at present the EU does not match that market strength with global influence. In the recent Olympic Games, for instance, America won 97 medals, but euroland scored 180.

Our task now, in this House of quiet reflection and debate, is to help the British people to form a rounded and unhurried view of the necessity yet again to trade up their currency for something better. Who now groans for the groat? The euro will be the successful coinage uniting a united Europe.

7.40 p.m.

Lord Howe of Aberavon

My Lords, I begin by joining the noble Lord in looking forward to the speech that is to be made by his noble friend Lord Fyfe. I go on to congratulate the noble Lord, Lord Harrison, on initiating this debate and on packing as much material into 10 minutes as I have ever heard in my life—everything from the Roman Empire to British Rail, to the Olympic games and the euro too!

I should like to pick up the central point of the noble Lord's theme. He well illustrated the value of the single currency to the United Kingdom. It was a useful starting-off point. I want to emphasise the extent to which currency stability for the United Kingdom in relation to the rest of the world is of such enormous importance.

We who argue in favour of the euro often understate the case when we say that it will enable us to enjoy currency stability in relation to more than half our exports—the half that goes to the European Union market. What in fact it will achieve is a single currency for the overwhelming majority of all business transactions, exactly as the noble Lord pointed out. All our domestic transactions and all our transactions with the European Union, 85 per cent or more of all our activity, will be in one currency. It is that that the United States enjoys in relation to the vast bulk of its world trade; it is that that we are depriving ourselves of if we rule out membership of the single currency.

The noble Lord drew attention to the fact that the pound sterling is not as strong as it used to be. People have scarcely noticed the extent to which it has slid in the past few weeks. That has not caused much discomfort yet, but it begins to illustrate what could happen if, as almost everyone believes, the dollar begins to weaken against the euro and the euro to strengthen against the dollar. The pound will find itself wobbling uncertainly between these two large currency zones. My great fear is that, if we do not become part of the single currency zone, the pound will be forever a punchball currency.

I speak with the experience of five or six particular years when I worked alongside my noble friend Lady Thatcher. During that time, for most of which I was in the Treasury, the pound moved between $2.45 at one extreme, and near parity at the other. That is the risk to which we are exposed. That is the consequence of claiming to exercise sovereignty over our currency. What kind of sovereignty? In the words of my noble friend, you cannot buck the market. The best way of overcoming that is by putting ourselves, as we can and should do, into a single currency zone and enjoying the immense benefit of stability over the huge bulk of all our commercial transactions, domestic as well as in the European Union. That is a sensible case, and it cannot be overstated or stated too often.

The risk is of ours becoming a punchball currency at the mercy of the markets in relation to our domestic market of 60 million people. That is not a risk that we should accept. It is not a risk that we need accept.

7.43 p.m.

Lord Newby

My Lords, in a poll conducted by MORI in August and September, some 200 directors of medium and large companies were asked about politics, economics and the euro. Two-thirds said that they were Conservative voters; yet over 60 per cent said that they wanted Britain to join the euro either as soon as possible or immediately after the general election.

Why did that predominantly Conservative group oppose their own party's policy and support early British euro entry? They did so for three intensely practical reasons. First, they said that, because they traded with the EU, it made business sense. Secondly, they said that it would reduce uncertainty in import and export prices. Thirdly, they said that it would reduce the level of sterling.

For business, the certainty and transparency in pricing which euro membership would bring are major potential benefits. Price transparency will, relatively quickly, force companies to have a single price for their products for the whole euro area. Competitive pressure will ensure that this price is at the lower end of the range that they currently charge. This will bring clear benefits for the consumer, in that prices across the EU will move inexorably towards those in force in the lowest cost region for each particular good and service.

But perhaps more importantly, the general competitive pressure on prices will stimulate more rapid productivity growth. Given that productivity levels in the UK already lag behind those in much of the euro-zone, the longer the UK remains outside the euro-zone, the more likely we are to lag even further behind.

The Question on the Order Paper is, by custom, to ask the Government to explain the practical advantages of the UK joining the euro. It is particularly appropriate that on this issue the Question is directed at the Government themselves. The Chancellor has set out as one of his principal economic goals the improvement in productivity levels in the UK. It would, therefore, seem logical that he, as the Minister responsible more than any other for policy on the euro, would spell out clearly and repeatedly that euro membership would help boost UK productivity. His failure to do so, or indeed to set out the many other practical benefits to business and consumers is one of the principal reasons why the population at large—unlike many of the companies which are actually grappling with the consequences of our being outside the euro-zone—is confused and sceptical about why Britain should join. Perhaps this debate might nudge him and his ministerial colleagues to be rather more proactive.

7.47 p.m.

Lord Fyfe of Fairfield

My Lords, this is my first contribution to the affairs of this House. Let me say at the outset that I am grateful for the welcome that I have received and for the unfailing courtesy and consideration of all Members, officials and staff. I have been in commerce all of my working life. So it is something of a culture shock to observe the elaborate courtesies that often take place in this Chamber. However, political opponents need not be political enemies.

My business experience stems from the Co-operative Movement, serving as chairman of the Cooperative Wholesale Society (CWS), deputy chairman of the Co-operative Bank, director of the CIS, and not least as chief executive of the Midlands Co-operative Society. So my background is in mutuality and co-operatives. One can pay as little as £1 to join a mutual or a co-operative—although a friend of mine who is not persuaded of the virtues of co-operatives and mutuals said that he would happily pay £1 not to become a member! I have no illusions that mutuals and co-operatives must earn their place in a highly competitive environment by achieving commercial success.

Over the next few months, the debate about the United Kingdom entering the single European currency will gather steam. I, for one, do not wish to be drawn into a debate about timing. Government policy is clear: the decision whether or not to enter the single currency will be put to the country by the Government when it is apparent that the economic case is clearly and unambiguously in support of the UK's interests. In shorthand, this has become known as "Gordon's five tests".

However, as the debate about "when" gathers steam, I believe it is imperative that we do not lose sight of the practical advantages that entry will bring to many thousands of businesses and millions of consumers throughout the UK. We are talking about real advantages that will make a real difference—a real improvement—to the lives of people throughout this country.

Although I am new to this House, I bring with me (in all modesty) over 40 years' experience in the retail sector. It is therefore fair to say that I am familiar with the business world and, crucially, with consumers. Responding to, indeed predicting, the changing needs and desires of consumers has formed the basis of my professional career. It is with that understanding that I believe I can say with some confidence that entry into the single currency will bring about a better, fairer deal for business; and, most importantly, for consumers.

For retailers, joining the single currency will bring many challenges. Few of us would dare suggest that the transition from sterling to the euro will be straightforward. I well remember the teething problems of decimalisation in the early 1970s. Indeed, it will not be without cost. The introduction of new IT systems and the provision of staff training are merely two areas of probable additional cost. I am pleased that retailers are, for the most part, preparing to rise to the challenge. Our entry into the single currency zone will, over time, bring very real advantages for retailers and consumers alike. Cheaper transaction costs, greater exchange rate stability, as referred to by my noble friend Lord Harrison, and increased price transparency all represent practical advantages for retailers with a beneficial impact for consumers.

I have mentioned my 40 years' experience in the UK's retail sector—the last 11 of which were spent as chair of the Co-operative Wholesale Society, which is Britain's biggest firm. For the first time since the 1920s, the CWS has lost money in its farming operation, despite general recognition that we are one of the most efficient and effective farming businesses in the country. The reasons for that are many and I shall not go into them. But the strength of sterling against the euro is the crucial one. The strong pound—or, rather, the weak euro—is bad news for the British agricultural community. In January 1999, the euro was worth 70 pence. In the summer of this year, it fell as low as 57 pence. That means that, compared with 18 months ago, we are getting 20 per cent less for our crops.

Increased price transparency will also be of great practical advantage to farmers who, let us not forget, are also consumers. Greater transparency and simplicity in the pricing of supplies and equipment, from fertilisers to tractors will enhance their consumer power.

With my past experience on the board of the Co-operative Bank and my current role as chair of Unity Trust Bank, I am also aware of the opportunities and the advantages that the UK's entry into the single currency will bring. I thank noble Lords for their forbearance. I look forward to working with noble Lords and making a positive contribution to the deliberations of this House.

7.53 p.m.

Baroness Greengross

My Lords, I am delighted to be able to congratulate the noble Lord, Lord Fyfe, on his extremely interesting and very well-informed maiden speech. He gave us a very clear picture of the benefits that we shall gain if we join the euro and outlined some of the difficulties that we shall have to overcome in the process. Many of us already know that the noble Lord chaired the CWS for many years and that, during his chairmanship, the society merged with the CRS (the retail society) thus creating one of the biggest business enterprises in Britain. The noble Lord, Lord Morris of Manchester, knows the noble Lord, Lord Fyfe, very well and holds him in the highest esteem, as I know the whole House will do as they get to know him better and benefit from his vast experience, which will certainly enrich our work.

I turn now to the debate. Perhaps I may, first, declare an interest in that I am closely involved in the "Britain in Europe" campaign; in fact, I am one of its vice-chairs. I want to make only a very brief and rather simple point this evening but one that I believe to be important. There is a very widespread but mistaken belief that joining the euro will inevitably mean the creation of a federal European state.

The American dollar was the common currency in the United States well before the federal structure was established. Indeed, Arizona (a state that we now know best for its high-tech and very successful industry), joined the United States only in 1912. Other states followed even later, with Hawaii and Alaska joining in 1959. Other independent countries, especially some in Latin America—for example, Argentina and Ecuador—have pegged their currencies to the dollar but have not become part of the United States. Indeed, the Republic of Ireland was in a currency union with the United Kingdom from 1921 to 1979 and was certainly not part of this country. Moreover, Belgium was in a currency union with Germany for some time before the introduction of the euro, but it in no way lost its independence as a country and kept its own identity.

7.56 p.m.

Lord Tomlinson

My Lords, perhaps I may also join other speakers and pay a very warm tribute to my noble friend Lord Fyfe for the excellence of his maiden speech and for the detailed commercial experience that lay behind it. I am sure that the whole House looks forward to hearing from him on many other occasions when he will have much greater opportunity to develop his thoughts and his advice to us.

It goes without saying that the United Kingdom is an important trading nation. But to improve our living standards, our people need to be able to trade from the solidarity of a successful single market. That successful single market will not be fully operational without it having moved further than being just a market that has eliminated trade barriers between the member states; it needs to have the solidarity of a single currency to make that single market operate fully and effectively.

The benefits of such a single currency are not only those that are identified and associated with the reduced transactional cost to business, important though those factors are; it is the fact that separate national currencies do lead to irrational fluctuations which, in turn, lead to great business uncertainty—uncertainty that certainly hits small and medium-sized enterprises even more dramatically than it sometimes hits our larger companies, which can hedge their forward currency needs.

There are also enormous benefits to be received in such a single market from the greater price transparency that a single currency would bring. No longer will multinational companies be able to charge in local currency whatever they believe a local market will be able to bear. We can see that to the advantage of European consumers in much of the European Union, without enjoying those benefits ourselves.

A single currency also introduces certainty, not only about the level of profitability of a particular transaction, but also the certainty that, when you trade with other eurozone countries, you will be able to remit those profits knowing what value they will represent to the company balance sheet. Only by joining such a single currency will we in the United Kingdom be able to prevent the fluctuations that we have seen and the damage that they have caused.

Finally, I turn to the most important question; namely, the political influence that we exert on economic decision making. It is salutary that we are already finding ourselves on a number of occasions excluded from important discussions in the Economic and Finance Council of Ministers. Indeed, we are having to reduce ourselves to writing minutes protesting at our exclusion and are thus sitting on the sidelines of policy making when we really ought to be fully at the heart of Europe.

7.59 p.m.

Lord Watson of Richmond

My Lords, perhaps I may also join in the congratulations expressed to the noble Lord, Lord Fyfe, on his most interesting and very authoritative maiden speech. I should declare an interest here as a member of "Britain in Europe". I certainly think that the noble Lord's contribution in this House, and similar contributions in the future, will be of real assistance in this critically important argument.

In Warsaw on 6th October, in what was surely a very significant speech about Britain and Europe, the Prime Minister said: We cannot and will not take risks with Britain's economic strength". He was, of course, referring to the famous five criteria. There must be a fear—widespread, I suspect, in this House—that at the end of the day these five criteria may be all too similar to the criterion for ERM membership of the noble Baroness, Lady Thatcher, which was, "When the time is ripe". At the end of the day that appeared to be determined by short-term considerations which were perhaps as much political as economic.

The fact is that if we are not to take risks with Britain's economic strength, we cannot and must not exclude ourselves from the euro. I believe that the reasons for that have already been outlined in the debate. However, I touch briefly on them. First, because of the scale of our trade within the single European market, the success of the single European market is critical to our prosperity. A single currency is in a real sense the precondition for realising the potential of the single market. It is what gives it scale and pace. That is the experience of other single markets which likewise have required single currencies, including, of course, our own here in the United Kingdom, as well as those in Japan, India and, above all, the United States.

Secondly, it is not in our economic interest to have the pound "bob" between the euro and the dollar. The noble Lord, Lord Harrison, described it as the "bouncing" pound. The bouncing pound is not in our interest or that of our businesses.

Thirdly, the pound is too expensive for our own good. I declare another interest because I have for a long time closely studied Germany and I am president of the British-German Association. The Germans may have many reputations, but one they do not have is for being näve in terms of their own economic interest and particularly in terms of their own exports. If German tourists are good at landing their towels on the beach, German exporters are brilliant at maintaining and increasing their share of export markets. The fact is that German business has been united in its support for the euro. The reason for that is that, given German history, it has not been possible for Germany to reduce the value of the deutschmark in any way. It was the arrival of the euro which enabled Germany to do that. The result is what we now know: German exports are at an all-time high and the German trade surplus has risen extraordinarily.

To gain exchange stability at a competitive rate is clearly in the real economic interest of this country. If we are not to take risks—unacceptable risks, as the Prime Minister puts it—with the economic strength of Britain, the entry to the euro is something which must not, and cannot, be delayed.

8.3 p.m.

Lord Willoughby de Broke

My Lords, I am delighted that we are not having a referendum on the euro in the Chamber tonight because I feel that I might lose it!

This is rather like one of those radio games where you have three minutes to say how wonderful the euro is. I have not been disappointed in the speakers so far but they have skirted round the main issues. We usually hear empty threats that if we miss the various buses, trains, planes, bicycles and scooters that will take us to the promised euro dreamland, we shall be left eating dust if we do not join. That, of course, is utter rubbish. I pray in aid a quotation—I shall tell noble Lords who said this in a minute— Our economy is now the fourth largest in the world; at its strongest for decades; unemployment is at a 25 year low; record inward investment; long term interest rates below those of Germany". The same speaker said on a different occasion: Britain boasts six of the top ten businesses in the whole of Europe, is a world leader in technology and communication and the businesses of the future … has overtaken France and Italy to become the fourth largest economy in the world". The speaker also noted that Britain has the lowest overall tax burden of any large industrialised nation in the world except Japan and the USA and the lowest inflation rate in Europe. Who said that? I shall put noble Lords out of their misery; it was the Prime Minister, of course.

Therefore, I ask, why the euro? If we are doing so well, why do we need the euro? We have not heard a good reason tonight. Earlier this summer we heard threats that inward investment would disappear if we did not join the euro only a day before the bureau of inward investment—I believe that was its name—or some kind of government organisation announced that we had record inward investment far higher than any other country in the eurozone. Indeed, it appears that investment in the eurozone went down and ours went up. Therefore it seems clear to me that investment came in because we are not in the eurozone rather than because we are going to join it.

I worry a little about the euro. Who can forget the triumphalism at its launch and all the boasts that it would replace the dollar? How richly ironic that only a few weeks ago it was the dollar that scraped the euro off the floor like a punch-drunk boxer and led it back to its corner where it still remains breathing heavily and worth less than it was before the intervention.

But, of course, the real agenda, in spite of what the noble Baroness, Lady Greengross, said, is political; hence the result—that was extremely encouraging for us—of the Danish referendum. I should like to change the words of that wonderful song by Rodgers and Hammerstein to, "There is nothing like a Dane". If the Minister can explain why higher inflation, higher taxation and high unemployment are somehow good for Britain he will still have to explain why the euro project means political union. I shall sit down now as my time is up.

8.6 p.m.

Baroness Billingham

My Lords, I first thank my noble and excellent friend Lord Harrison for initiating tonight's debate. This is not the first time that my noble friend and I have sat in a parliamentary Chamber discussing this very issue, but it is the first time without headphones, instantaneous translation and 11 different languages ringing in our ears. So tonight is already significantly different and I want to add a further radical change and introduce yet a new language into our debate—the language of "lingua femina", a language to which women want to listen.

Why do I make this bizarre request? Look at the speakers' list; look around the House tonight; pick up the financial journals—where are the women in this debate? If they are not involved in it, why not? Equally seriously, look at any analysis of opinions of women on the subject of the euro. The majority of women are strongly against any change and frankly show little interest in the issue. Therefore we must change. We must talk about the euro in a way that relates directly to women's lives and to the lives of their families. Unless we do so we shall inevitably lose the argument.

The second thing I hope to do tonight is to sweep away some of the myths which surround the single currency and distort the debate, jeopardising rational argument and giving false justification for resisting change. There is one area in which I can claim parity with the Prime Minister; namely, in meeting with the WI. However, I have done much more. I have addressed women's groups up and down the country, business and professional women's groups, women in trades unions, women co-operators and lots and lots of WIs. The message from them is abundantly clear—they are fearful of change that could prove damaging to their families' finances. These are women most likely—although, I concede, not always—to have the day-to-day running of the family budget, balancing the books between buying food, paying rent, forking out for fares, putting trainers on lively feet and the other hundred items which form part of the family outlay. The last thing they need is a threat to an already tight budget.

The fear is real, but where does it stem from? Believe me, it goes back 30 years—my noble friend Lord Fyfe has already alluded to this—to decimalisation. I promise noble Lords that if I mention that "D" word in any room full of women it will be greeted with a groan.

Let us consider what some women currently believe on this subject. I give some examples from my own experience. I refer to myth 1 which I heard from a woman in the Northampton Trades and Labour Club who said, At the time of decimalisation inflation and interest rates soared, the value of our money was halved and the price of everything went up overnight". The reality is that that is absolutely wrong; nothing like that happened. Any statistical record of the time will show that, following decimalisation, the economy was remarkably stable. There were no significant rises and the converted cost of goods was strictly controlled. But these myths colour judgment and must be rebutted at every opportunity. We must talk about the way this issue affects people's lives, whether in better jobs, better schools, better hospitals or better social welfare. That is the language we appreciate.

In conclusion, let us take heed of this agenda divide, for I believe that unless we do so we may win all the arguments but still lose the case, and that would be a very sad day for Britain.

8.10 p.m.

Lord Phillips of Sudbury

My Lords, I join other noble Lords in thanking the noble Lord, Lord Harrison, for this debate and congratulate the noble Lord, Lord Fyfe of Fairfield, on his maiden speech.

No one today has talked about the politics or political context in relation to the debate apart from a comparison by the noble Baroness, Lady Greengross, to America. I believe that that is no comparison. The Question asks what are the practical advantages of joining the single European currency. "Practical" is a funny little word sometimes used to fob off larger political issues. Until the Labour Party conference, that was consistently the Government's line on entry into the single currency; namely, that it is a purely economic issue to be decided according to five mechanical criteria. As a result of that and many other failures over 27 years to involve and consult the public, people are now suspicious and resentful. We need to start listening to the down to earth, concrete concerns of the man and woman in the street not just about the single currency but about the future of the European Union as a whole.

They are worried about its essentially bureaucratic nature; its impersonality and scale; its suffocating, clodhopping regulation; its oppressive complexity; and its uniformising and centralising tendencies. In short, so-called ordinary people feel utterly insignificant in relation to Europe. It is not "theirs".

It is frequently said in reply that the public are not interested in the European Union, or are ignorant or prejudiced, or all three. It is said that the duty of Westminster is to lead on the basis that the great unwashed will eventually catch up. Yet leadership implies followers and there are precious few behind those zealously marching towards ever closer union in Europe, in relation to which entry into the single currency would be a huge political step.

If noble Lords doubt that, let us consider the euro elections of May last year. Only 23 per cent of those entitled to vote did so. There were fewer still under-25 year-olds. Some ignore that writing on the wall saying that it was all the fault of the tabloids and the petty parochialism of most voters. Even if that were true—and I believe that it is a grossly patronising and out-of-touch judgment—it would only emphasise the democratic disaster of pushing on regardless. It would certainly intensify the existing estrangement of the British people toward the EU where, according to the EU's own six-monthly euro-barometer, only 22 per cent of our fellow citizens now think that membership is "a good thing". It would also play into the hands of the xenophobes.

My last point is the most practical. Democracy is bottom up or it is nothing. The EU is essentially top down. There is thus, I believe, a danger that its continuing integration so far outruns public allegiance here and elsewhere as to jeopardise its very survival. The realisation of that prospect would be as tragic as it is ironic.

8.14 p.m.

Lord Lea of Crondall

My Lords, I, too, congratulate my noble friend Lord Fyfe on an excellent maiden speech based on much practical experience.

It is true that we in this country have never been constitutional visionaries. Nothing could be further from our national history and temperament. We do not like taking steps into the unknown. But being outside the currency area will quickly be a step into the unknown. It is not we who are taking a step into the unknown. Those who would oppose our entry will be outside the superpower of which the central element will be the common currency. Who can then doubt that the real choice in Europe is between a two speed Europe with Britain outside or the difficult but historic compromise, which we can help to factor, between the continental and the global principles?

The pound will be caught between what I like to call the two tectonic plates of the euro and the dollar—to vary the metaphor of the noble and learned Lord, Lord Howe of Aberavon. But that leads to the next point in refuting a fallacy. We would be exposed to the shocks of external fortune, not the people in the eurozone. Those in the eurozone would be more protected against those shocks because of the extent of trade in their home market.

We have to get the exchange rate right. But the announcement of serious negotiations would be the starting point towards reaching that result. I believe that the referendum could take place before or after the fixing of the rate. Perhaps the Minister will acknowledge that point, one way or the other, when responding.

I am glad that the noble Lord, Lord Willoughby, referred to inward investment. The living standard of the Republic of Ireland has now reached the European average. It stood at only 62 per cent 25 years ago. Let us make no mistake about it. The Irish are selling Ireland as the country inside the eurozone, full time, speaking English—not Britain. If noble Lords doubt me, that comes from the Irish investment board. Our labour agreements will also be in euros. I am sure that we shall be confident of winning this argument in a few years' time.

8.17 p.m.

Lord Taverne

My Lords, one of the crucial questions in a referendum debate will be the impact on consumers. I doubt whether there will be a more persuasive champion of the case for the euro than the noble Lord, Lord Fyfe, with his experience on the issue. He has given us a glimpse today of what he could contribute.

We have heard a great deal about the practical advantages of our joining the euro. I take up the point made by the noble Lord, Lea of Crondall, on the practical obstacle at present—the level of the pound. The noble Lord suggested that we must open negotiations as soon as possible. But he believed that the negotiations about the level of the pound could take place before or after a referendum. I take issue with him on that. The only way one could conduct the matter effectively is to have the negotiations before the referendum. We must know at which level we are going to go in. There must be some agreement; otherwise we appear to be arguing to buy a pig in a poke. Negotiations should take place once the Government have made up their mind. We should then aim at a rate that is sustainable.

The committee set up recently by the Liberal Democrats, chaired by Chris Huhne, MEP, produced a valuable report. It argued that a reasonable rate would be between 2.45 and 2.85 present deutschmarks and between 1.25 to 1.45 euros per the pound. The moment that those negotiations were opened they would have an effect on the market. Immediately the market would start to look at what would be a reasonable rate for the pound. I believe that the consequence would be favourable because the market would recognise that the present rate is not sustainable in the long term and that would have a downward effect on the pound.

We could also reasonably expect the level to stick once agreement had been reached. That would be beneficial. First, it would make the referendum realistic. Secondly, it would be beneficial because the downward pressure on the pound would help our farmers, manufacturers and those who now suffer from the high pound. We would expect it to stick because the experience of the other applicants was that in the period before they joined—the relationship between the currencies was fixed in January 1999—the very prospect of doing so steadied the market. It would be of great benefit in terms of the stability attained.

8.20 p.m.

The Earl of Northesk

My Lords, I thank the noble Lord, Lord Harrison, for bringing the matter to our attention. I also congratulate the noble Lord, Lord Fyfe, on his highly illuminating maiden speech.

I agree with the noble Lord, Lord Harrison, that the debate is urgent. The Chancellor of the Exchequer has observed that the decision on the single currency is probably the most important that this country is likely to take in our generation. That makes it essential that the issue is analysed in the round so that a balanced conclusion can be reached based on all the available evidence.

We can all perceive what the "practical advantages" may be. In addition, there are the Chancellor's five economic tests which, if satisfied—in my view, that is quite a big "if"—could translate into further practical advantages. The Minister will recall his recent reply to a Question from my noble friend Lord Blaker. He said: The treasury's five economic tests define whether a clear and unambiguous case can be made". That is all well and good. The issue is important, if not crucial. However, just a few minutes later, in response to the noble Lord, Lord Marsh, who asked about the objectivity of the five tests, the Minister said: I do not know what is wrong with matters of opinion. We can agree that they"— that is, the tests— are matters of judgment rather than of absolute certainty".—[Official Report, 3/10/00; col. 1261.] If that is the case, it becomes more difficult to discern the practical advantages of joining the euro. As Victor Keegan has observed: Don't believe the proselytisers who argue that staying out would be suicidal or that entry would beget economic nirvana. They simply do not know. It is all a question of balancing unknown risks". Here, it is the Minister's insistence (at col. 1263) that, if I say anything new, I apologise, because that is not my intention"— that makes the Government's reticence towards the five tests so indigestible. It is an illusion to suppose that they are so set in aspic. As the Minister observed in the context of the Government's decision to intervene in the foreign exchange markets to support the euro: Circumstances change and we change with them; we did not we would be very foolish".—[Official Report, 9/3/00; col. 4.] Which of those contradictory approaches do the Government believe to be correct? More importantly, would not a more pro-active approach define more clearly the potential advantages and disadvantages of the single currency?

A counterpoint to the economic tests is the Government's attitude towards constitutional issues. To be fair, they have always maintained, even if more quietly than some would have wished, that entry to the single currency would involve some "pooling of sovereignty". However, the impression is that the Government's capacity to assess the issue in the round is constrained. At the very least, we, if not the public, should be told in detail the Government's view of what is involved. I hope that the Minister will address that. Flowing naturally from that, will he tell us whether the Government regard the "pooling of sovereignty", however it may be comprised, as a "practical advantage"? After all, the Government have called for a national debate on the single currency. Dare I say that they have a duty to engage in all aspects of that debate and to give it adequate time? Only then can the potential advantages and disadvantages of joining the single currency be properly understood.

8.24 p.m.

Lord McIntosh of Haringey

My Lords, it is no good the noble Earl, Lord Northesk, talking about adequate time. I am down to five minutes and I was supposed to have 12. I do not know how I am expected to answer under the circumstances.

It is all very well for you lot, because you can say what you like, whereas it is well known that I have to say exactly what the Treasury dictates. I have no shame in that, because it is right that we should have a consistent line, even though it is subject to the textual criticism that the noble Earl, Lord Northesk, enjoys. I sympathise with the noble and learned Lord, Lord Howe of Aberavon, who was reported in yesterday's Evening Standard as saying: I was made to say that we would join the exchange rate mechanism when the time was right. I repeated that so often that when I was asked about it on the continent, eventually people laughed at me each time that I used the phrase". I am in that position and it is better for the Government that I should be.

Our policy on the single currency remains as set out by the Chancellor of the Exchequer in October 1997 and restated by the Prime Minister is February 1999. The Government firmly believe that, given the right economic conditions, a successful single currency within a single European market would be a benefit to Europe and to Britain.

The noble Lord, Lord Phillips, is right that there are political and constitutional issues as well, but the benefits would be realised only if the economic case for Britain joining economic and monetary union were clear and unambiguous. That has been shown by the vast majority of speakers, not least by my noble friend Lord Fyfe in his excellent, very well informed and authoritative maiden speech.

The national economic interest counts. The five economic tests, which I shall not repeat, are significant. I do not believe that the noble Lord, Lord Watson, was right to say that this is similar to the "time is right" argument on the exchange rate mechanism. They are real tests. Of course elements of judgment are involved, but the tests are so challenging that we do not believe that it is possible to make a decision on the basis of them during this Parliament. We need a period of stability and settled convergence before membership can be considered. The Chancellor has said that he will make another assessment of the five tests early in the next Parliament.

The noble Lord, Lord Willoughby, quoted the Prime Minister vaunting our economic success and suggested that that somehow showed that we should not join the euro. This country's economic success is a fact. I notice that the Conservative Front Bench makes no attempt to contest it. We have achieved a great deal of stability in the past three-and-a-half years in the public finances and in macro-economic conditions, but that does not mean that the advantages that have been described in this excellent debate are not still there.

We have made the necessary preparations during this Parliament so that if the tests are met, a decision to join can be made early in the next Parliament. Without preparation, that would not be a practical option. The British people should be able to exercise genuine choice.

Europe is fundamental to the economy. The issue is not just our existing trade with Europe. As the noble and learned Lord, Lord Howe, said, if we consider our internal trade as well, the vast majority of our economic activity will be in euros. As the Chancellor said in October 1997: The potential benefits for Britain of a successful single currency are obvious: in terms of trade, transparency of costs and currency stability". There has been remarkable unanimity on currency stability in the debate. The noble and learned Lord, Lord Howe, drew attention to the risks of a punchball currency, the noble Lord, Lord Harrison, talked about the bouncing pound and the noble Lord, Lord Lea, referred to tectonic plates. They each made clear the importance of the issue.

I do not want to underestimate the importance of transaction costs—what the noble Lord, Lord Harrison, called the "red dragon"—but the issue goes much further. We need to make more progress and build on the foundations of the single market to improve the functioning of Europe's product, labour and capital markets. In product markets, for example, the emergence of price transparency should have a significant impact on price differentials across Europe. That has not happened yet. The noble Lord, Lord Tomlinson, was right to draw attention to the constraints that will be imposed on multinationals.

The transparency of the single market will make it easier for consumers to identify price differentials—the noble Baroness, Lady Billingham, made that point effectively—and encourage them to question why prices for similar products are so much higher in some European countries than in others. All those issues will be magnified by technological change and telephone sales. The Internet will make it easier for consumers to compare prices.

One of the most serious challenges is for member states to push ahead with programmes of structural reform. We shall continue to argue that employability, flexibility, more structural reform of the product, labour and capital markets and stronger competition must be top priorities so that monetary union can be successful. Those measures are foundations for a modernised, high-skill, high-productivity European economy. They are the foundations for growth and job creation across Europe. They are ideas which lie at the heart of this Government's agenda, both domestically and in Europe, not only because of the euro but because they make sense in their own right. Britain is already playing a key role in taking them forward.