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8.2 pm

Mr. Mark Simmonds (Boston and Skegness): I am pleased to follow the hon. Member for Leicester, East (Mr. Vaz). Like all other Members who have spoken in the debate, he urged reform, particularly of the lack of democratic accountability in the European Union. He also urged the essential reform of the CAP. Much of the debate has been about the minutiae of the detailed changes that are required. However, much more fundamental reform of the EU is required if it is to be responsive to the demands and the needs of the populations that it purports to represent.

The world and Europe have altered significantly since 11 September. The old enmities and animosities have been brushed aside in an optimistic surge and spirit of co-operation. The United States and Russia are working together to combat terrorism and to reduce their respective nuclear capabilities. Pakistan, Syria and Iran have played their part and have certainly not stood in the way of the eradication of al-Qaeda.

Although Britain rightly continues to fulfil its role in assisting the United States, I have grave doubts that the Prime Minister could and would have been so courageous had we had in place a fully operational and fully fledged common European defence and foreign policy. As the right hon. Member for Hartlepool (Mr. Mandelson) eloquently pointed out, I suspect that we would still be discussing the issues at European level without any action having been taken. However, as a nation state, we quite rightly rallied, as we always do, behind our excellent armed forces.

The fundamental lesson that we must learn from the ghastly events in the United States is that nation states can and will co-operate when it is in their mutual interests to do so. Nation states will not always agree on every issue. It is therefore a prerequisite to co-operate where necessary or where mutual advantage exists and not to have forced co-operation between states when no mutuality of advantage exists.

It is clear that all the interests of one country are not shared with the same countries. This point is exemplified and exacerbated by the current European Union structures where, irrespective of national interest or disinterest, a single policy approach is considered applicable. This forced and often false co-operation both degrades and erodes the necessary flexibility that should be allowed to flourish. It is vitally important that the United Kingdom, with its strong historic transatlantic ties and its historic Commonwealth connections, be allowed to maintain flexibility of social, economic and diplomatic arrangements, especially at a time of ever increasing and accelerating globalisation, as evidenced by China's recent rejoining of the World Trade Organisation.

Flexibility must be the bedrock of any future European integration, particularly as the EU expands eastward. The retention of power in national Parliaments and the principle of subsidiarity must not be maintained just at existing levels, but must be enhanced. The mendacity of fudge and compromise leaves dissatisfied and disaffected countries, Parliaments, national and regional politicians and, most importantly, a disengaged electorate who

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rightly believe that double dealing and duplicity are the order of the day. This democratic deficit is extraordinarily dangerous.

When the electorate feel left behind and ignored, and when the political elite move in one direction and the electorate wish to move in another, it is inevitable that, if only through despair, those who flaunt and propound abhorrent views and policies will attract support. We have recently seen that phenomenon in France, Holland and, thankfully to a lesser extent, in the United Kingdom. There is a direct correlation between the democratic deficit and support for extremists. There is also a direct correlation between this democratic deficit and the continuing downward spiral and low turnouts in the last general election in this country and in recent elections in Europe.

A simple issue requires addressing. Within the European Union, the bodies that have power and control are not in any way democratically accountable. I have a few suggestions as to how we could start to remedy that problem. First, the Commission should become an administrative body—a civil service—with no political authority. Secondly, the Council of Ministers, which has a semblance of democratic accountability, should be charged with greater political responsibility and initiation and enacting powers.

Thirdly and more crucially, as has been alluded to by my hon. Friend the Member for North Dorset (Mr. Walter) and others, this Parliament and other national Parliaments across Europe should have a greater and earlier role in scrutinising, amending and ratifying the legislation, directives and draft directives that emanate from the EU. That would avoid the necessity for unanimous votes within the EU and give real power back to democratically elected and accountable Parliaments, which would have to answer to their electorates for the decisions and changes that they make. It would also allow individual nation states to forge alliances and to enact legislation when it was in their national interest to do so, and to block legislation and directives that may be detrimental or irrelevant to one country without stopping others who might wish to have that legislation or those directives. The other countries would not have to use their veto at the European level.

Greater co-operation between us and our European neighbours should be forthcoming in other ways, which hon. Members have already mentioned. Asylum is at the forefront of concerns and I am pleased that it is high up the agenda for the forthcoming Seville summit. We do not co-operate enough to combat the crime that crosses geopolitical boundaries. We also clearly need to co-operate more on the environment. It is obvious that many parts of the EU suffer from industrial pollution and emissions that damage the atmosphere and other parts of the EU, as the problem crosses political boundaries.

I remain worried that in a fast-moving global economy, with capital not only disrespectful but ignoring political boundaries, the EU seems to be inward looking and introspective rather than outward looking and flexible. We should consider ways to enhance our populations, especially by increasing the choice offered to consumers through encouraging free trade. We should not encourage protectionism, which in agriculture has the additional unpleasant and undesirable side effect of extenuating

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poverty in third world developing countries and perpetuating economic migration and asylum. It is not until we get to the root of the problem, which is resolving and amending the common agricultural policy, that we will start to have an impact on economic migration and asylum.

The arrival of global markets and electronic technology make political boundaries irrelevant in trade terms. The last set of structures required to deal with such a market is an overcentralised, over-regulated, protectionist, over-bureaucratic and undemocratic union of states. We should be promoting competition, not harmonisation, especially of fiscal and monetary policy, and we should be promoting diversity and flexibility, not fostering uniformity and unaccountability.

8.12 pm

Mr. Kelvin Hopkins (Luton, North): There have been many interesting speeches and I am pleased to participate in the debate. Before I focus on my main concern, which is economic, I want to comment on scrutiny. For five years I have been a member of European Standing Committee B and I make the most of it. A Minister is present for two and a half hours. Often not many hon. Members speak, and it is possible to get to grips with the subject. It is probably inadequate—I have no illusions about the extent of our democratic power and my influence—but our scrutiny system is better than those employed in other member states where scrutiny is even less effective.

Mike Gapes: I do not know whether my hon. Friend has studied the Swedish or Danish parliamentary models, but he is wrong about the effectiveness of their Parliaments.

Mr. Hopkins: I am pleased to hear that. I am a great admirer of Denmark and Scandinavia in general, which has a social democratic tradition. The evidence on the effectiveness of the systems used in other member states came out in one of our debates in Committee. I am pleased to be corrected about our Scandinavian colleagues, but I understand that scrutiny is scant in other major nations.

I want to concentrate on the economies of the eurozone which are now in difficulty. There could be a serious crisis if changes are not made. However, I also want to mention Britain's attitude to the euro. A large majority of British voters are against UK membership of the euro. That opinion has not shifted much for a considerable time and it remains firm. There have been many polls on the subject and a recent one suggested that 57 per cent. would vote no and 21 per cent. would vote yes. So a substantial majority is against membership.

What interests me more is that a majority of Labour voters would vote against UK membership. It is right that their view should be represented in the House, and I am pleased that I am in tune with a majority of people who vote for my party.

I caution those euro enthusiasts who are keen on a referendum. Let us consider the opinion polls. Before Denmark's last referendum on euro membership, its whole political establishment—the political class, the political elite—unanimously favoured a yes vote, and the opinions polls showed a 9 per cent. majority in favour of

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it. However, the vote was lost by 12 per cent. Enthusiasts should bear it in mind that referendums do not always go the way they might like, especially when a change is proposed rather than settling for the status quo. A yes for the status quo is much easier than a yes for change.

Opinions can be mistaken, however. Although I do not think that I am wrong, we need to hear the arguments and the facts. Indeed, I spent time with a Conservative Member who said, "Let's look at the facts." So let us do that. I do not suppose that I have much in common with Sir John Egan, the new president of the Confederation of British Industry, when it comes to politics, but he said:

the euro

I agree strongly with him on that.

Let us consider trade. We are constantly told that if we do not join the euro and get into the eurozone our trade, and, as a result, our standard of living, will suffer. In the two years since the euro has been in effect, British trade with the eurozone has increased more than any other member state's. UK exports to the eurozone have increased by 24 per cent.; German exports have increased by 23.1 per cent.; and French exports have risen by 21.2 per cent. I suggest that we are doing rather well in trade terms without being a member of the eurozone. I am confident that we can run our economy successfully outside it. I am also sure that it will remain strong while we continue to maintain good relations with our neighbours on the continent.

The real problems relate to the exchange rate. A recent estimate by Oxford Economic Forecasting suggests that if an exchange rate for entry was 10 per cent. above an equilibrium exchange rate, that would cost 4.2 per cent. in terms of output and would cost 300,000 jobs. It is difficult to estimate what an equilibrium exchange rate would be, but that would be the effect were we to be 10 per cent. above it. The only way to have an equilibrium exchange rate is to maintain one's own currency so we can adjust it over time to ensure that it is at an appropriate level in terms of value relative to other currencies. A single currency does not allow that to happen.

It has been said—a suggestion leaked by the Treasury, apparently—that before entry Britain would have to depreciate its currency, or devalue, by 30 per cent. That might be excessive. A more recent figure suggests 20 per cent. because the pound has come down slightly against the euro. Those figures are considerable. I suspect that the eurozone would not accept Britain into the euro with a pre-entry devaluation of that order, because it would give us a substantial competitive advantage and we are already doing quite well. However, it would be disastrous in the long term if we locked in at a high exchange rate.

We have to retain exchange rate flexibility. I am not a floater. I would like a stable exchange rate system, as we had after the war, with perhaps more frequent small changes in rates. That was called "crawling peg" in the 1960s and I am a fan of it. Such flexibility is an essential lever of macroeconomic policy. When we talk about little England, let us not forget that Britain is the fourth largest economy in the world. When one travels to smaller countries in Europe, one realises that we live in a populous and economically powerful country. We are not little England; we are actually quite big Britain.

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Let us consider the rest of the eurozone, because that is where the problems lie. There are 4 million unemployed people in Germany. Last month, unemployment increased by 60,000. Growth there is optimistically forecast to be about 0.5 per cent. in the next year. So Germany has serious problems. By any standards Germany is going into, or is already in, recession.

In such circumstances a sensible Government would do one of three things, or possibly two or even all three of them. They would try to depreciate their currency if they had a competitiveness problem; they would try to cut interest rates; they would relax fiscal policy. However, Germany cannot do any of those because it is in a single currency arrangement—it cannot depreciate, it cannot cut interest rates and it cannot relax fiscal policy because the stability and growth pact specifically forbids that.

Germany is now in deficit. The deficit is still below 3 per cent., but if Germany gets close to that figure it will be told by the Commission to cut its deficit. If a country is already in a recession and it is told to cut its deficit, it is being told to deflate its economy. If one deflates an economy during a recession, it goes further into that recession; it does not recover. That is what would happen to Germany, so I suspect that it is very worried about its difficulties. Given that its Government are facing an election this year, I imagine that they are trying to hold off any serious decision about the matter until afterwards, but at some point the reckoning will have to come, and I suspect that this will be a topic of discussion in the bars and restaurants of Seville in a few days' time.

One can understand that many Germans are worried about their position in the euro. My hon. Friend the Member for Glasgow, Pollok (Mr. Davidson) pointed out that 54 per cent. of Germans want the deutschmark back, and that is not because they are being xenophobic or hostile to the rest of the world, but because they realise that they went into the euro with their currency over-valued, and they cannot devalue. That means that there is now an inherent deflationary force in their economy which they cannot change.

France, quite sensibly, has suggested, as has my right hon. Friend the Chancellor of the Exchequer, that the growth and stability pact should be made more flexible. However, a member of the Commission—I believe that it was a German—recently said that any attempt by a large country to break the pact would be a disaster, and reminded the French Government that

On the one hand, the Commission is saying that there will be no change and the pact must be rigidly enforced, but on the other hand France is saying, "Let's be a bit flexible." I suspect that this will be another topic of conversation in the bars and restaurants of Seville.

The reality is that it is essential that major economies have separate currencies if there is to be sensible economic management and if countries are to get on well with each other. We can have a mutually agreeable international arrangement for running our economies, as we did in the post-war era, but if we try to force countries together into a single currency when their separate currencies would naturally diverge over time, that will cause serious economic problems.

Britain is in a very advantageous position at the moment. Our economy is stronger than that in the eurozone and our inward investment is higher. There is

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absolutely no argument for entering the eurozone or joining the euro. Indeed, it is possible, if not probable, that in a few years some countries inside the eurozone will be considering whether they ought to recreate their own currencies.

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