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Intergovernmental Conference

3.20 p.m.

Viscount Cranborne rose to call attention to the case for measures at the Intergovernmental Conference in Amsterdam designed to enhance the ability of the European Union to compete economically worldwide and thereby lay the foundation for jobs and prosperity throughout Europe; and to move for Papers.

The noble Viscount said: My Lords, I am grateful for the opportunity to raise the question of jobs and prosperity in the context of the IGC. This afternoon I particularly look forward to the maiden speech of my noble friend Lord Lloyd-Webber.

The Government have put job creation at the top of their agenda. They also clearly recognise that a prosperous Europe with high levels of employment is important for us as well as for our European partners. I fully agree with the Government on both those objectives. Jobs and prosperity are after all self-evidently good and, like everyone else in this

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House, I do not share the instincts still to be found that there is something morally superior in squalor and dependency. It smacks perhaps too much of some of the less attractive early Christian fathers before the Bench of Bishops. A prosperous Europe with jobs is more likely to be a Europe that is politically stable and less susceptible to the lure of authoritarian parties of both left and right.

There is no doubt that that part of Europe which forms the European Union is rich in the broadest sense of the word. Gross domestic product per head ranges, I think I am right in saying, from something over 22,000 dollars per capita in Denmark to about 12,000 dollars in Greece. The EU is the world's largest trading bloc. It has a combined economy as broadly based and as diverse as any, rivalled perhaps only by that of the United States of America. Our combined cultural and intellectual inheritance is a source of both pride and, I venture to say, of strength. Our geopolitical position ensures that we are at the fulcrum of world stability. If Europe is at peace, the world as a whole will be unlikely to be engulfed in war.

We are all aware of these formidable assets. It was perhaps above all the sense that Europe had wasted them in the first half of this century, particularly in self-destructive war, that impelled the fathers of the European Union to found the European Communities in the first place.

We also know that in the last few decades, certainly until the 1980s, the core western European economies were the cynosure of all expert eyes. Growth was steady, social compacts brought industrial harmony, prosperity was high and unemployment low. They were the envy of many, particularly, dare I say it, of the United Kingdom itself. One felt the British almost sighing: "Would that we could be like them".

It is a matter for people infinitely more expert than I to say how much of those countries' economic success was due to competitive exchange rates, lack of competition from other economies and the United States' role as the locomotive for the world economy. But it is surely becoming increasingly clear that the performance of what I think are coming to be called the large Rhineland model economies has begun to stumble over the past decade.

It is a stumble that is most starkly evident in the European Union's unemployment figures and, equally important, the employment figures. Since, quite rightly, the Government stand or fall by their performance on jobs, I am perfectly happy, for the purposes of this afternoon's debate, to use jobs as our touchstone. I have also noticed, particularly in the wake of the Question of the noble Lord, Lord Wyatt of Weeford, this afternoon, that there is some argument about the calculation of unemployment statistics. So let me use the Eurostat series which is perhaps as near to a uniform basis as we can get. That series would suggest that of the four biggest European Union economies, Germany's unemployment rate was, last February--the latest figures I can obtain in the series--9.6 per cent.; France's was 12.5 per cent. and Italy's was 12.2 per cent. The United Kingdom's was 7.1 per cent. As at last April, the

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United Kingdom also had the highest proportion of its population of working age in employment--68 per cent. as against 65 per cent. for Germany, 59 per cent. for France and 51 per cent. for Italy.

Apart from the United Kingdom, where unemployment is falling--and I think the Government would agree that it is falling quite rapidly, however we measure the figures--unemployment in the other three countries remains at best (let us put it no higher than that) stubbornly static. It is clear that our own performance still has some way to go before we can pat ourselves unreservedly on the back. But at least we are going in the right direction. For the moment at least, we seem to be doing appreciably better than the other three big economies in the European Union.

Why are we doing relatively well and why are they doing relatively badly? I believe that in the beginning, and in the end, only successful businesses create jobs. Of course, businesses must be competitive to be successful. It may seem a glimpse of the obvious to say so but I sometimes wonder whether the obvious is forgotten in the Councils of Europe. Economies which provide an environment in which businesses can thrive will be economies which create jobs. They therefore have no alternative but to be competitive.

The Foreign Secretary characterised today's world in terms which I quoted during the opening day of the debate on the gracious Speech--terms with which I agreed at the time and with which I agree now. The world which the Foreign Secretary described is not a world which allows economies to thrive on protectionism. Capital nowadays is too mobile for that, if it ever had been the case, and an increasing proportion of what is sold is in the form of information and services--which are notoriously difficult to control or to measure and which are self-evidently highly mobile. This development alone makes protectionism a loser's game. Governments must be able to compete not just within their own trading blocs but with economies further afield.

As we know, protectionism takes many forms: tariff barriers and non-tariff barriers of a conventional kind, of course, but also a trickier and more insidious form. It is a form often presented in the guise of our old friend the level playing field--an expression of which I seem to remember to my cost the late and very much lamented Lady Seear strongly disapproved. In the interests of fair competition, countries within the existing trading bloc agree to harmonise their tax rates or impose the same social costs or even ban so-called competitive devaluations. The result may eventually be to construct a level playing field, but it will be a playing field which will need a tall ladder to climb up to it and will be expensive to maintain at such a height. The competitiveness of the trading bloc which builds such a high level playing field will decline in relation to its commercial rivals just as surely as if it erected tariff barriers of a more conventional kind.

Part of the motive for this structure is thus to prevent one part of our trading bloc enjoying a competitive advantage over another--a rather questionable procedure at the best of times, since competition is one

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of the things that induces commercial success. But it is also proposed to compound the felony--if I may call it that--by addressing another objective. That objective is by any measure a noble one. It is to protect the jobs of workers in the European Union, to protect their health and safety and to ensure that they are not exploited by unscrupulous employers. In doing so it is hoped that the direct effect will be beneficial, of course, but it is also hoped that all sectors of society will discover an interest in the great European project--that they will, if you like, become part of the team. Much of the cost of those measures which is ratcheted up ever increasingly is borne by employers.

The difficulty about that approach is that, although it worked until about 10 years ago, it does not altogether seem to be working now. The high levels of unemployment in France and Germany are evidence enough of that. In fact, your Lordships will be aware that in comparison with the United States, which I believe has created about 36 million new jobs in the past 20 years, the European Union has created only about 5 million, half of them in the public sector. Indeed, it is hardly surprising that employers are reluctant to create jobs in sufficient numbers when for every £100 in wages a German employer must pay an additional £31, a French employer an additional £41 and an Italian employer an additional £44. As your Lordships will also be aware, the figure for the United Kingdom is £15.

The burden on employers is also compounded by a burden on the state which is reflected in high levels of taxation and, since people worldwide are increasingly unwilling to pay high taxes, in high levels of deficit in government accounts. The result is a vicious circle which locks in high levels of unemployment to government fiscal overstretch. It is a vicious circle which contributes very substantially to an increasing lack of competitiveness. It is also a vicious circle from which the United Kingdom has begun to escape, very largely thanks to the reforms initiated under the leadership of the governments led by my noble friend Lady Thatcher, whom I am delighted to see in her place today.

The World Economic Forum's global competitiveness report as recently as a fortnight ago highlighted the fact that the United Kingdom had risen to seventh in the world competitiveness league. Incidentally, I noticed that the Chancellor of the Exchequer implied on the "Today" programme that he did not accept the report's findings. He said that he preferred another report that put the United Kingdom in a much worse light. I must say that the right honourable gentleman has made downplaying good news almost a way of life. I know that in the long years of opposition it is arguable that it has served his party well. But, with the responsibilities of office, it would perhaps in the end serve this country ill. So perhaps the noble Lord the Lord Privy Seal could tell us when he comes to reply whether he welcomes that report. If it is right that our policies over the past 18 years are raising competitiveness and creating jobs, it would be precisely wrong now in Amsterdam to open this country to a European social model.

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Let me remind the noble Lord the Lord Privy Seal of what the report said. Of the United Kingdom it said:

    "The two decade long restructuring in terms of privatisation and deregulation is finally paying off, putting the United Kingdom into a strong competitive position for the new global economy".
It goes on:

    "What we see in the United Kingdom is an economy reborn".
By contrast, the authors expressed alarm about the position in other major European economies. I quote again:

    "The chronic crisis in declining competitiveness in the European Union stems from its fiscal and labour market policies. Strong points--such as outstanding technology, management and infrastructure--are weighed down by the extensive welfare state and a rigid labour market. France is stuck in its 23rd ranking. Germany has slipped two places to 25th and Italy ranks 39th".
The report goes on to say:

    "Until the painful but essential reforms are met, these countries will continue to suffer from sluggish export growth and excessively high rates of unemployment".

That is the reason for the concern that I expressed to your Lordships during the debate on the gracious Speech, when I said that the advocates of the European Union social model were "Little Europeans" and that they covered their nakedness by accusing its critics of being "Little Englanders". The Little Europeans think that the economies of western Europe are together powerful enough to be able to afford the European social model and to prosper in the new world economy that the Foreign Secretary so eloquently and elegantly described to us. The trouble is that powerful economies often think that. If the House does not think me too fanciful in drawing the comparison, the Ming and Manchu empires thought that and their economic weakness led to their political annihilation at the hands of what they considered to be barbarians.

I also noted that the noble Lord, Lord Jenkins of Hillhead--I am sorry to see that he is not in his place today and I apologise to him for not giving notice that I intended to refer to him--described my remarks in the same debate as a "farrago of nonsense". I cannot quite imitate his pronunciation and I hope that the House will forgive me for that. I know that the noble Lord is a very great man of extraordinarily wide experience, whose judgments, he may feel, must be accepted without supporting evidence. However, in view of the importance of the subject, I wonder whether, this once, he might have favoured us with a little supporting argument instead of merely bald assertion, particularly when all the known facts seem to be against him.

Businessmen in Europe are, contrary to what he and the noble Baroness, Lady Symons, in the same debate maintained, concerned about over-regulation and high non-wage labour costs, since they damage investment and jobs. For instance, Technic, a British tyre manufacturer, relocated a factory from Germany to the United Kingdom. As short a time ago as 17th February 1997, the chief executive, Mr. Peter Webber, stated:

    "Productivity in Germany was low because the workforce was limited to the number of hours and days it could work".

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He added:

    "There is no doubt that if Britain were to follow the example set on the Continent, small businesses would find it very difficult to flourish or even survive".
I am sure that the noble Lord the Leader of the House would agree with me that the main source of new jobs is in small businesses, as we have demonstrated in this country over the past few years.

It would also be worth reminding the House that as recently as 17th January this year the head of the German CBI, Hans Olaf-Henkel, said:

    "We have too rigid labour laws. We have too high social costs and taxes. We work the shortest working week in Europe. The German government spends 50 per cent. of GDP as opposed to 42 per cent. in Britain. No wonder we have a problem".
I could continue. There are endless examples at my disposal but I do not wish to weary the House.

So, when very shortly the Prime Minister goes to Amsterdam, he will have to decide whether he agrees with the diagnosis of our European partners or whether he wants to pursue the policies that have begun to work here. I must confess that he shows slight signs of schizophrenia on this subject. As Mr. Peter Riddell pointed out in The Times on Monday, the Prime Minister shows some signs of accepting our diagnosis. Indeed, I understand that he has repeatedly expressed his belief in flexible labour markets and the importance of the single European market, which, if he will allow me to say so, is perhaps the greatest achievement of my noble friend Lord Cockfield. Those expressions of belief are extremely welcome from the Prime Minister, particularly at a time when the French elections have shown that France would rather duck making herself competitive and when, as we have seen, the German Government seem to have surrendered their determination that any single currency should be a strong one, much to the Bundesbank's displeasure.

For similar reasons, I am delighted that the President of the Board of Trade, according to this morning's news, wants to examine ways of making our economy more competitive. I must say to her that she could do worse than examine the conclusions of her two immediate predecessors. Those conclusions and the policies that flowed from them have not only received the approval of an academic report--the one from which I quoted--however eminent; they have also received the endorsement of businessmen worldwide, which is perhaps more to the point. We are now the largest recipient of foreign direct investment into the European Union, totalling (I am informed) in 1995, £160,000 million.

As I said, those signs are welcome. However, they are only one side of the story. I am sorry to return yet again to the social and employment chapters and the working time directive, but they encapsulate so completely the spirit of the policies that have produced high unemployment in Europe that it is difficult not to do so.

The Government are fond of pointing out that so far only two measures have been introduced under the social chapter: works councils and unpaid leave for fathers. The important words are "so far". Equally, four

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important categories of directive under the social chapter are subject to qualified majority voting: working conditions; consultation of workers; equality between men and women in the workplace and health and safety--classic opportunities for closet protectionists intent on building a high-level playing field to exploit on the grounds that everyone is against sin and no decent person would dare question provisions under such heads.

When in opposition the Prime Minister promised to do what he has now announced; that is, that he would sign the social chapter. However, at the same time he promised we would be able to pick and choose which provisions we would accept. That is fine for the five areas where unanimity is necessary; but what about the areas where QMV applies?

Perhaps the Lord Privy Seal could confirm what he failed to confirm during the debate on the gracious Speech--I accept that time was at a premium--that the only way the UK could pick and choose, as the Prime Minister used to want, is to maintain the opt-out we negotiated and to introduce those provisions of which the Government approve in the British Parliament? If that is indeed so--and I am advised that it is--the Lord Privy Seal might also like to reflect that that approach has another advantage. It would mean we could repeal provisions that did not work without the consent of our partners. The Prime Minister's approach is to bet the Bank on a rank outsider on an extremely tricky, small country course. It is not too late to change his mind.

I hope that the noble Lord the Lord Privy Seal will be able to tell us which Prime Minister the British people will have negotiating on their behalf at Amsterdam. Will it be the Prime Minister we have sometimes glimpsed, who understands that competitiveness is what sustains a successful economy? Or will it be the Prime Minister who is willing to sacrifice British interests for the sake of European unanimity? Lloyd George is alleged to have said of Sir John Simon: "He sat so long on the fence that eventually the iron entered into his soul." By Amsterdam the Prime Minister will not have had time to have to suffer that painful experience. But he is nevertheless going to have to make up his mind. It would be nice for all of us to know the answer before he goes.

My Lords, I beg to move for Papers.

3.42 p.m.

Lord Barnett: My Lords, I join with the noble Viscount, Lord Cranborne, in welcoming the noble Lord, Lord Lloyd-Webber, and hope that his maiden speech will be as successful as his music--albeit to a smaller audience: one of better quality if I may say so.

I promised the noble Viscount, Lord Cranborne, when we came into the Chamber earlier, that I would try to agree with some of his comments. It would make too long a speech for me to refer to the points with which I disagree; but I agree strongly with his Motion,

    "to call attention to the case for measures at the Intergovernmental Conference in Amsterdam designed to enhance the ability of the European Union to compete economically worldwide and thereby lay the foundation for jobs and prosperity throughout Europe".

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From listening to his speech, one could be forgiven for wondering whether or not the noble Viscount himself agreed with the Motion. If he agreed with it and that jobs are, as he put it, the touchstone of the matter, one would assume that he agrees that that requires the UK to work within the European Union for precisely that objective. However, he did not seem to be saying that. Indeed, he went on to refer to the social chapter as though that was the reason for the high unemployment in various countries in Europe. That is simply not the case, as he must be well aware.

The noble Viscount spoke of taxation. I shall not follow him; I spoke enough on taxation matters when the noble Baroness and I debated them in another place. He spoke of the fact that we are now seventh in the world competitive league tables. He argued that that was because of the low levels of taxation under the previous Administration. That is what I understood him to be saying, but I presume he meant personal taxation and not total taxation. If it was a reference to total taxation, he would be incorrect and I am sure that the noble Viscount would not want to be incorrect.

I want to concentrate this afternoon on the real issue; that is, economic and monetary union. It may not strictly be on the agenda at Amsterdam, but with France and Germany in the situations in which they find themselves at the moment and approaching only 18 months from January 1999 when economic and monetary union with the single currency is intended to start, it is impossible not to discuss the issue. One recognises that there are other important issues on the agenda at Amsterdam, but there is none more important than economic and monetary union and a single currency.

I should have liked the noble Viscount, Lord Cranborne, to have been more positive in his endorsement of the European Union. I hope he was not intimidated by the presence of his noble friend Lady Thatcher--I see from his face that he was not. It is vital for the long-term future of the United Kingdom that we play a full and positive role in the European Union. I hope that my noble friend Lord Richard will be making a positive speech today as opposed to one such as that which we have just heard.

I strongly support the idea that economic and monetary union should be on the agenda at Amsterdam. That does not mean that I support the idea of a federal European Union state. That is not on anyone's agenda other than that of the extreme Eurosceptics. Nobody is in favour of that kind of policy. The major issue therefore concerns what is to happen to economic and monetary union. As I say, it must be placed on the agenda at Amsterdam. If it is not, can my noble friend say that we will seek to put it there? I am sure that he intended to answer that question. I mention it en passant so as to remind him in case it is not in his notes.

There is much uncertainty following recent events. However, we know certain things about the background to economic and monetary union. We know that there is much uncertainty about the French and German position. I have done a fair bit of creative accounting in my time, but never to quite the same extent as that

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which is taking place in France and Germany. I never sought to revalue gold and transfer it to the Treasury. It is not a bad idea, though at that time it may not have given us quite so much money. Equally, I never thought of transferring pension funds from a publicly-owned corporation to the Treasury, as happened in France. I tried to stop people spending money when I was in the Treasury; I never thought of bringing it in in that way. We know that without France and Germany at the outset there will not be any economic or monetary union. The committee which I had the honour to chair reporting on the consequences of, An Economic and Monetary Union of "Ins" and "Outs" was unanimous when it too came to that conclusion.

We know that the presidents of France and Germany, though much weakened at the moment, are still determined, if not desperate, to take their two countries into a European monetary union on 1st January 1999. We know, not just in terms of the Maastricht criteria for 1997, that many countries which want to be in the first wave, including France and Germany, on a strict view--even if we ignore the fiddles--do not meet the criteria on the grounds of the convergence sustainability. That is the crucial matter; it is not simply a matter of achieving 3 per cent. GDP and borrowing in 1997. What happens thereafter is much more important.

I understand that the new French Prime Minister wants to relax the criteria in two crucial areas: first, unemployment, about which the noble Viscount, Lord Cranborne, was extremely concerned, as we all must be; secondly, the political accountability of the European Central Bank. I hope my noble friend will tell us whether the Government support the new French Prime Minister in that regard. I certainly hope so for myself. If he does not feel like upsetting the Government at this early stage in his career as a Cabinet Minister by telling us his personal views, perhaps he can get our noble friend Lord Simon to tell us instead. I have an idea what his views are. I am not sure about the views of my noble friend.

Even more important is the need to press for some delay in the start of economic and monetary union. I say that recognising that some have now come off the fence on this issue and have come down on the side of delay. I am happy that I made the case in your Lordships' House before the election. I hope my noble friend Lord Richard will also support delay. Will we be proposing it ourselves if no one else does?

I make it clear again that I strongly support both the European Union and economic and monetary union. But as I have said before, there is no reason to rush into this. The European Union is not a temporary union. It will be there for centuries. So why on earth do we need to rush to have it start on 1st January 1999? That will only benefit the extreme Euro sceptics, who, I am bound to say--I do not know whether I see any of my noble friends here--are too stupid to recognise that to push ahead at the wrong time will only help the Euro sceptics in their objective of destroying the European Union. It would certainly help to destroy the European Union if economic and monetary union started without members having sustainable convergence. I fear that there are far too many member states which do not have

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that sustainable economic convergence, leaving aside the whole matter of whether one gets into it in the 3 per cent. of GDP and borrowing in 1997. We have already seen the political damage which countries like France and others have done to themselves in terms of rising unemployment in a blind dash to meet the Maastricht criteria. I hope we can do something about deferring the whole question of the starting date of economic and monetary union.

I sum up by asking my noble friend these questions. Will he seek to put EMU on the agenda at Amsterdam? Will the Government support the new French Prime Minister in his wish to relax the Maastricht criteria in terms of employment and the accountability of the European Central Bank? Will he favour delay in the start and will he propose it? Those are the real issues which I hope will be discussed at Amsterdam. I hope my noble friend will be able to give us the kind of reply which the debate deserves.

3.53 p.m.

Lord Taverne: My Lords, I hope that the noble Lord, Lord Barnett, will excuse me if on this occasion I do not follow him in debating the future of monetary union. I prefer to stick more narrowly to the Motion moved by the noble Viscount, Lord Cranborne. However, like the noble Lord, Lord Barnett, I agreed with one or two parts of the noble Viscount's speech. Unfortunately, I cannot say the same for his general thesis, which I summarise in his own words, "At Amsterdam we must not open the United Kingdom to the European social model".

The trouble with the approach shown by the noble Viscount was the rather facile generalisation about the contrast between the UK/US model and the continental model. It is argued that it is the unregulated flexible labour markets of the United Kingdom and the United States which create jobs and that it is the heavily regulated and inflexible labour markets of the rest of the European Union, with their heavy social security burdens, which destroy jobs. United States and United Kingdom good; the rest of the European Union bad. With great respect, that seems to be a meaningless generalisation which is riddled with fallacies and which obscures some of the real issues that have to be addressed.

I shall look at the generalisation first. Because of the barriers of language and culture there is immense diversity between the labour markets of the different parts of the European Union. Indeed there is probably more diversity within the individual labour markets of the countries of the European Union than there is between the European Union and the United States. Perhaps I may give as an example the present levels of unemployment. Those have to be treated with great care because different figures are produced and one has to consider the different stages of the cycle in which different countries find themselves. If one takes the average, in recent years at least 30 per cent. of the population of the European Union have lived in conditions of lower unemployment than the United States. The United States has one unique difference in that it has a much higher degree of regional mobility of labour, although one could also say that inside Sweden

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there is a high degree of mobility of labour. However, there is no evidence that jobs are created and destroyed more rapidly in the United States than in the European Union. Next, there is no evidence that wages are more flexible in the United States than in the European Union.

I wish to cite an article by Professor Stephen Nickell of Oxford University which analyses differences in labour markets. If one looks at the percentage increase in wages in response to a 1 per cent. fall in the unemployment rate, in the long run one gets a very large effect in Italy of 12.9 per cent. and in Sweden of 12 per cent. but a low response rate in the United States of 0.94 per cent., in the United Kingdom of 0.98 per cent. and in Germany of 1.01 per cent. Again, there is no uniformity inside the European Union in the regulation of employment in job protection. It is very low in the United Kingdom and very low in Denmark. It is very high in the southern countries of the European Union, but one has to take into account that they have a far higher level of self-employment, which is the most flexible form of employment of all.

There are different benefit systems within the European Union. I cite again the article by Professor Nickell. One finds that there is a low level of unemployment benefit, and a replacement rate in the United Kingdom of some 38 per cent., which is much lower than that in the United States. But one also finds a very low rate of unemployment benefit replacement in Italy. Elsewhere it is much higher. What is perhaps in some ways more important is the duration of unemployment benefit, which has a considerable bearing on the willingness of people to return to work. It is very low in Italy and it is relatively low in the Netherlands, but the period is four years in the United Kingdom, Germany and Ireland. One finds a very diverse pattern indeed.

If one looks at the question of union structure and the influence of unions in terms of bargaining, one finds that the influence of unions is weak in the United States and strong generally in the European Union. However, that can be balanced, and the effect to some extent mitigated, by the strong collective role of employers throughout most of the European Union. There is a wide difference in the active policies to get people out of unemployment, especially long-term unemployment, and into work. There is a wide variation in terms of payroll taxes, with Denmark having practically no payroll taxes at all.

Professor Nickell's article goes into great depth about the different factors in the labour market which affect unemployment. What are its conclusions? First, there seems little doubt that a very high level of unemployment benefit with a high replacement rate is harmful to unemployment if it is allowed to run on. But if it is of short duration and if there are very active policies to encourage people to take jobs, then that harm is negatived. Secondly, there seems little doubt that strong union influence tends to have an adverse effect on employment, particularly if there is collective bargaining on a unified national basis, but not if that is offset by strong employer co-ordination, as in the

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Netherlands, for example, where inflation is extremely low and unemployment is lower than it is in the United Kingdom.

There is little doubt that, overall, high taxes, not just payroll taxes, but also income tax, have an adverse effect on employment. However, it is the overall tax picture that one must look at, not just that of payroll taxes. There is also little doubt that poor educational skills at the bottom of the market have a very adverse effect on long-term employment. But the evidence also suggests that laws of employment protection and those which relate to hours of work have little employment effect.

In the past a number of commentators have mentioned the stress experienced by Germany, and the noble Viscount has also referred to this. It is interesting and significant that nobody cites the case of the Netherlands, which is probably the most successful economy in Europe, bar possibly Ireland, at the present time. It has a lower rate of inflation, a higher rate of growth, and a lower rate of unemployment than us, although again the figures have to be treated with some caution.

Let us look at the case of Germany. There is no doubt that there are many weaknesses in Germany and that a number of German industrialists are complaining about the high level of taxation and other disadvantages from which they suffer. Of course, it is nothing new for industrialists to complain. Sometimes their complaints should be taken with a pinch of salt and one should look at the overall picture. Nevertheless, at the moment Germany suffers from a high rate of unemployment--higher than it has had for a long time. While it is not dissimilar to that of the United Kingdom, if one takes into account the OECD adjustments, it is still rising whereas ours is falling, as the noble Viscount rightly pointed out.

Germany suffers from high costs and, as a result, often new factories are no longer built in Germany, but in places where labour is cheaper. That applies particularly to unskilled labour. There is also a certain lack of innovation under the German system, particularly in developing the newer technologies which seem to depend on a liquid capital market of the kind for which the German system does not provide. However, one should bear in mind that the main reason for high German unemployment has been its macro-economic background. It has been the result of unification and the settlement with the East of one ostmark for one deutschmark. It has been the result of the very high wage settlements of 1989, 1990 and 1991 in which the German unions also insisted on maintaining a high level of wage settlements for unskilled workers.

The result of these high wage settlements was to produce a reaction from the Bundesbank to create a much more disinflationary climate than would have otherwise been the case. The whole of Europe has suffered from the deflationary policies of the Bundesbank, which flowed directly from German reunification and its consequences. It is the disinflationary policies of the Bundesbank in contrast to the much more balanced policies of Mr. Greenspan of

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the United States, which are the main cause of German unemployment and which have had a pretty adverse effect throughout the rest of the European Union.

The second point which needs to be made is that one should not underestimate the strength of German industry. When the noble Viscount referred to the sluggish export growth of Germany and France, one should bear in mind that German export growth has been better than ours. If one looks at the German record over the past 10 years it has been quite impressive. There has been a steady increase in the unit costs of labour of 0.9 per cent., but, despite that, there has also been an increase in their share of the export markets of 0.1 per cent. per year. The reason is that they have sold on quality. When we boast about our competitive position and our labour costs, let us remember that in the long term our future cannot lie in selling on low costs. In the end we cannot compete with the low wages of the Pacific Rim countries; we have to sell on quality.

We have many lessons to learn from Germany in this respect. They sell on quality and the key to their success in that regard, particularly in the medium technology companies, has been the very high level of intra-company innovation, which in turn has been based on a very high level of training, which in turn has been based on a very high level of security of employment and a steadiness of shareholding and ownership. It would be incompatible with an economy in which companies were bought and sold like widgets.

So one must remember that the German achievement has been considerable, despite their disadvantages. They have a very high level of skills which we would be sorely pressed to match. They are not likely to abandon their institutional structures and it would be an error if they did. Those structures have brought them strength in the past, although there are many respects in which they too could learn from the Anglo-Saxon experience.

What are the morals to be drawn from this? The first is that one should not preach at Amsterdam or anywhere else about British superiority and how the British miracle should now be the model for the rest of Europe. We have caught up a bit on productivity, but we are still a long way behind compared to Germany or France. Certainly, we have certain strong points in the creation of new innovative companies through a liquid capital market, particularly in areas like bio-technology.

But the rise in German unemployment and the fall in our own has a very great deal to do with the economic cycle. We had a deep depression and started coming out of it earlier. They had depression and disinflation at a later period. The cycles of the two are out of whack. Indeed there is some evidence now that German industry is beginning to recover. We must also remember that our levels of retraining and skills are very low. We have something like three times as many unskilled people in industry as Germany.

I suppose that I agree with the noble Viscount that to pursue some of the measures which some people seem to advocate, including an employment chapter in the IGC, is not likely to be very productive. I doubt that they will have much effect. I believe that he is absolutely right that the most important single struggle

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must be against protectionism. We would be very well advised--as the Government seem keen to do--to stress the need for the completion of the single market as one of the prime objectives of the European Union.

I have not yet had time to digest it, but there has been published recently a report which looks extremely interesting. It has been produced by the Action Centre for Europe. It is the Sheppard Report which looks at the whole question of competitiveness in Europe. I am glad to see the noble Lord, Lord Simon, here. He is a great expert on that subject and he has made a great contribution to the question. It would be wise to concentrate on the completion of the single market and to promote measures to create a more liquid capital market in Europe as a whole. But let us avoid generalisations and boastful talk about the marvels of the British miracle and economic recovery. Let us not caricature the social market as something which it is not.

4.9 p.m.

Lord Harris of High Cross: My Lords, I am afraid that it is true that old economists never retire, not while there is breath in their body to deplore the overweening ambition of politicians to play fast and loose with the orderly operation of markets. I begin by congratulating the noble Viscount, Lord Cranborne, on his economic tour d'horizon which saves me the fatigue of going over the record of Britain's superior performance compared with the more recent record of the French and Germans. I agree with what he said despite what I thought was a good deal of nitpicking by the noble Lord, Lord Taverne.

I want to take a more reflective and nostalgic view of the political follies that we have witnessed in this country in the past and which we now see in full force on the Continent. As an economist, I must confess to positively rejoicing in the impending failure of the European monetary union. I rejoice in its failure not least as another example of the grandiose political schemes that are brought down by humdrum economic realities. I have said before that if there is one fault in this House--if this House has any faults--it is that we are not sufficiently backward-looking. We have a great advantage compared with the young MPs in another place: we can look back further. Most of us here can recall from direct observation and experience the high political hopes of the post-war years. In 1945 we were all young--at least, some of us were. We were then, as now, enjoying a post-election euphoria. We held our breath as we saw both the great parties--in fact, including the Liberals, all three parties--set their collective sights on combining Beveridge's welfare state with Keynesian full employment, economic growth, stable prices and a fixed exchange rate. It all seemed so simple to brush aside economic constraints.

Alas, 50 years later, we can trace the frustration of each one of those well-intended hopes. Rather like today's innocent Bishops, the Butskellites of those days had the most elevated ideals but, as the Dunkirk spirit faded, they shrank from the economic disciplines necessary for success. That collapse of ambitious party programmes conforms precisely to the predictions of the Austrian economists some 100 years ago. Their

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elaborate theories can be succinctly rendered as asserting the supremacy of economics over politics. Transient politicians may propose, but permanent economic realities have a way of disposing. In the end, market forces prevail and show themselves to be stronger than puny politics.

Let us take another more homely example which we might now in these post-Thatcher times find it easier to agree upon; namely, the doomed pursuit throughout the 1960s and 1970s by all parties of an incomes policy as a remedy for inflation. How politicians strove to establish what might now be called "convergence criteria" between trade union wage claims and inflation targets! Exhortation gave way to sanctions, yet the result was escalating inflation alternating with recession.

When today's CBI loftily pronounces in favour of the single money, or when Mr. Blair hand picks highly paid businessmen to support his European administration, we should all fasten our safety belts. In the 1960s and the 1970s, the same CBI and some of the great captains of industry meekly fell for every fashionable spoof political panacea--from incomes policy to national planning, from the NEDC to the NEB to the IRC. In his absence, I truly wish the noble Lord, Lord Simon, more success than some of those earlier hopefuls whose names I am tactfully omitting to mention.

So we come to the chequered history of this doomed European project. Growing public disillusion can again be ascribed to the fundamental conflict between noble political ambitions and inescapable economic realities, culminating in a flawed attempt to impose a unitary monetary policy on 15 diverse economies. The baneful consequences of that high-handed political dictation have long been clear in the rigging of the single market. Thus competent market economists would have allotted a major role to clear per se rules outlawing tariffs, subsidies and other restraints of trade, enforced by a truly independent European Court of Justice. As for that "ever-closer union" about which we read, liberal economists would have relied chiefly on spontaneously evolving integration through free trade, based on mutual recognition of national goods and services.

Instead, we have had the bureaucratic nightmare of pervasive, pernickety controls over every aspect of the shape, size and quality of products. At the last count, in 1995, there were 24,000 regulations and 1,700 directives. In an earlier debate, my noble friend Lord Moran compared the 297 words of the Ten Commandments with the 29,911 words of the EEC directive on the export of duck eggs. That misguided crusade for a level playing field is like ruling that competitive cricket is allowed only on perfect pitches where every blade of grass is trimmed to the same length. Such a dirigiste perversion of free markets is attractive to Commissioners whose power, perks and pensions depend on their monopoly of the grass-trimming business. Coming very near home, there are seven former Commissioners among the Members of this House. They are spread around all three parties. I venture to say that apart from occasional mild doubts expressed by the noble Lords, Lord Tugendhat and Lord Dahrendorf, I can recall very few occasions when the other retired Commissioners have paused in

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their Euro-eulogies to put a warning shot across the bows of the Brussels juggernaut--for example, over the abuse of health and safety regulations, the contempt for subsidiarity, the missionary partisanship of the European Court of Justice or the recent devious bending of the rules to permit Gordon Brown to repay his voters by knocking tuppence halfpenny off the VAT on fuel.

On EMU, instead of persevering with the hard ecu as a parallel currency accepted throughout Europe as legal tender and competing with national moneys to win acceptance, we have had this grandiose, artificial, political counterfeiting of a single Euro-currency. Since it is now collapsing of its own accord--or even of its own discord--I turn to warn the Prime Minister against another danger.

I perfectly understand and am being very patient when I see Mr. Blair feeling obliged to go to Europe to sign the social chapter as a political sop to the Cinderellas of the TUC, but I noticed that at the same time he called urgently for labour market flexibility and warned Commissioner Flynn not to take the social chapter too seriously. He wanted no avalanche of regulations under its cover. Unfortunately, it is the same egregious Mr. Flynn who dreams of a level European playing field in sexual harassment and may yet get round to imposing a common European bedtime. Furthermore, he is an Irishman--I mean no disrespect--but he will not be as easily silenced as Mr. Blair's docile Back-Benchers. So, as a well-wisher, I urge Mr. Blair to beware. According to an MEP, Graham Mather, there could be up to 87 further social measures in that particular pipeline.

Just as the Bundesbank has at last spoken out against EMU, the German President, Roman Herzog, recently returned from Asia to warn his countrymen of what he called "the German sickness". He referred to 4.3 million unemployed. In describing the state of his countrymen he used the words "despondency", "angst", "ossification", "paralysis" and "a mountain of regulations". I must send to the noble Lord, Lord Taverne, a clipping of this particular speech. Uncharacteristically, the German President even made a quip. He said that if Bill Gates had tried to start up in Germany,

    "his garage workshop would have been closed down by the health and safety inspectors".
Even the pioneers of the market economy have discovered the old Austrian principle that in the end politics must yield to economics. I urgently warn Mr. Blair that if he amiably allows himself to be ambushed in Amsterdam he will relearn that timeless bitter lesson from early experience.

4.20 p.m.

Lord Lloyd-Webber: My Lords, the day of my introduction to this House was one of the most memorable in my life. It is an immense honour for me to take my place among so many noble and learned Lords who have made notable contributions to our society. I hope that in some small measure I too can make a contribution on issues of which I have some experience and a few others about which I care passionately.

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Today it is my privilege to address your Lordships in my maiden speech. I hope that the traditional courtesies that the House extends to new boys will also be extended to me. My confidence in this regard is based on the many kindnesses already shown to me by the Officers of the House and by many noble Lords who have expressed their condolences at the near-impossible task of having to refer to myself as Lord Lloyd-Webber, particularly after six o'clock.

The debate about Britain's future in Europe has centred on the single currency, the exchange rate mechanism, Britain's sovereignty, fishing disputes and common foreign policy--in other words, where we stand in the European Union. However, one matter that I have not heard discussed to any great extent is tourism. Tourism is worth some £40 billion a year to our economy, which amounts to 5 per cent. of GDP. I am happy to say that theatre and related leisure activities contribute hugely to that figure. However, the Government's commitment to signing up to the social chapter of the Maastricht Treaty may well change that. Recently, I read a report that a restaurant in Paris was considering closing down and moving to London. I discovered that the social and employment costs demanded by the French Government's interpretation of the social chapter added nearly 50 per cent. to the staff costs of that particular restaurant. If that were not enough, a restaurant in France must pay tax for putting tables on the pavement, gas and electrical fittings and for training staff. In the United Kingdom at the moment employers are liable only for national insurance contributions of between 7 and 10 per cent.

The new French Government propose to reduce unemployment by cutting the working week from 39 to 35 hours. No wonder there is already talk of certain businesses not opening on Friday at all; no wonder that Paris is losing its role as world leader in food to London. This concern extends to a business about which I know something. The imposition of the social chapter as interpreted by the German Government more than doubles the cost of theatre tickets. The London production of "Cats" charges £32.50 for a top price ticket, whereas in Hamburg the identical show charges the equivalent of £66.50. The top price ticket for "Phantom of the Opera" in Hamburg is £75.50, whereas in London it is still £32.50.

German work practices insist on a maximum 48-hour week as well as full sick pay for six weeks. My German colleagues tell me that that is often used as an excuse for extra holiday. With 28 days paid holiday and public holidays that adds up to 12 weeks paid holiday. I would have thought that even fat cats would be impressed by that. One can translate all of that into the production of "Cats". In London there are eight performances a week, as there are in Hamburg. However, the London production, which at present is free from the rigours of the social chapter, employs 25 actors in the cast. In Hamburg the identical show must employ 45 for the same effect. In London there are 36 backstage staff; in Hamburg 105 must be employed. This extra staffing is the only reason why the London production of "Cats" has a top price ticket of £32.50 while in Hamburg it is

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£66.50. The top price ticket for "Phantom of the Opera" is an absurd £75.50, as discussed earlier. I must tell your Lordships that the figures for the "Phantom" are worse.

I am encouraged by the Prime Minister's stated commitment to develop and promote the arts--we all are--but I am worried that the signing of the social chapter and the consequences of introducing the working practices currently in place in both France and Germany will stifle the arts to such a degree that only publicly subsidised theatres will be able to mount large or adventurous productions. There is a near certainty that extra costs cannot be passed on to the public and thus that shows and the thrillingly newly-burgeoning restaurant business may be in danger of closing. That will have an immediate effect on the contribution of tourism to Britain's balance of payments as well as the money available to encourage and feed the next generation of artists who can continue to build the reputation that this country has earned for its art, restaurants, fashion and theatre.

I have every sympathy, in theory, and respect for the European social model. It is based on a real desire to create jobs and protect employment. It has deep and honourable origins, not least in the social teachings of the Church. However, the problem is that in its present form it simply does not protect employment; it undermines it and makes it more difficult to employ people. I speak only from my own experience, but I trust that your Lordships understand that I do not make a personal plea. I am well aware that I must steer clear of controversy in my maiden address to your Lordships' House. I merely state the facts in the hope that the Government's commitment to signing the social chapter will not jeopardise the pre-eminent position that this country enjoys in the arts. I urge your Lordships to consider carefully the experience of fellow member states and to support an environment that continues to allow Britain to be a world leader in the theatre and the arts in general.

4.26 p.m.

Lord Kennet: My Lords, it falls to me to congratulate the noble Lord, Lord Lloyd-Webber, on behalf of the whole House for his maiden speech which, while steering clear of controversy, did not steer clear of trenchancy and was all the better for that. I welcome the noble Lord here particularly for one achievement in his achievement-studded career. I refer to his ability to add music to the already very well known words of T.S. Eliot and carry them into even more households and into the minds of even more children than was already the case. That is an extraordinary achievement and one for which he will be remembered, even if he is not remembered for all the others as well.

I should like to make only one minor point this afternoon. It concerns research. At the moment there is a complete blackout on anything military in the activities of the European Commission. The European Union is perhaps the most puritanically civilian and absolutely non-military organisation that the world has ever seen. It blushes if it beholds a rifle. In most fields that is an intended effect. It was set up as a non-military outfit and it has remained so. However, in the field of

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scientific and technological research it has an effect that reduces the benefit that it is able to confer on Europe. I discovered this on a recent visit to the International Technology Foresight Institute in Seville, which is the joint research centre of the European Commission. It receives a very large amount of research money.

The many research stations all over Europe, which are 100 per cent. Commission funded, are not allowed to back any research that has any military bearing, however remote. As one gets larger and larger industrial agglomerations in multi-purpose firms, of which the aircraft industry is a prime example--half of what they do is for military purposes and the other half is for civilian purposes--there is the lowering of a green baize curtain through the middle of the whole entity of international research in Europe, which is to the detriment of Europe. This is referred to in the original Treaty of Rome, and it is maintained in the Maastricht Treaty. It does not appear to be questioned in the draft Amsterdam treaty. I ask my noble friends on the Front Bench whether it would be possible to see if there could be some small derogation from the ban on all things military to permit a freer flow of interest, money and the employment of scientists on the research front?

4.30 p.m.

Lord Marlesford: My Lords, as the first speaker from these Benches perhaps I may be allowed to add my words of congratulation to my noble friend Lord Lloyd-Webber. One of the great contributions that he has been able to make, not just to our life but worldwide, is to put, with immense clarity, points which are of great importance. That applies to many of his great musical productions. They may have reminded us of happy poems that we have loved; they may have portrayed some fundamental things to do with the Bible; they may have been about major political events throughout the world. When we discuss Europe, one feels that the public as a whole, not just here but elsewhere, is immensely confused. As I heard the noble Lord, I felt that if he could somehow produce in such an entertaining, agreeable and clear way a musical to explain some of the crucial issues facing us on Europe, that would be a tremendous service.

I say that because I believe that the EU is now facing one of its periodic crises. There is a danger--it is a real danger; I hope a remote one, but still a real one--that we might lose the EU as a result of two forces of opposite extremes, as is so often the cause of bad events. On the one extreme are those who are wholly opposed to Europe and all its works, and on the other are those who are unashamed federalists.

Let us think of the great achievements of the EU. The first 10 years (1957 to 1966) were successful. We established a free trade area and a common external tariff. We then had a period during which a battle was fought by President de Gaulle. It is a battle which would have had to have been fought by my noble friend Lady Thatcher if he had not fought it. It was to sustain--something under real threat at that time--a Europe des patries. That of course resulted in the famous Luxembourg compromise of 1966. It was a crucial development. Although it led to some extent

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to what is commonly called Eurosclerosis for a while, it was a battle that needed to be fought. Europe des patries survived.

My noble friend Lady Thatcher then made a tremendous contribution when she fought the battle of the budget, because the EEC had descended into total economic and financial unreality. Again, that is relevant to what we face today.

We then had another great success--I believe that it is a success--to which we should hold firmly; that is, the Single European Act of 1986. M. Delors then came on to the scene. In an infamous speech on 6th July 1988 to the European Parliament he declared his ambition that 80 per cent. of all legislation (domestic, social, financial and economic) would, within 10 years--we are just coming to the end of the period--originate from the European Commission.

A perhaps even more important occasion--certainly for the old Labour Party--was M. Delors' descent on the TUC conference at Bournemouth on 8th September 1988 when he revealed his vision of a socialist Europe. The consequent TUC strategy envisaged Europe-wide bargaining. It may be difficult for workers in Greece to know that they are being paid different rates for the same job from people in Finland and Austria when the currencies are different. It would be a great deal easier for them to know that the rates were different were there to be a single currency. But can anyone imagine anything more economically unsustainable than that people in wholly disparate countries be paid the same wage for doing the same job with different levels of productivity?

The noble Lord, Lord Barnett, was right to focus on the crucial role of the relationship of France and Germany. There are three things that we must bear in mind. First, the French have a great desire for, based on an assumption of a right to, hegemony in Europe. That is of course coupled with the centuries-old conflict with England. I say "England" advisedly, because of course at many stages the French were united with Scotland against England. Let us remember that the real fault line in the political geology of Europe is not between Britain and Germany or France and Germany; it is between France and Britain.

The relationship between France and Germany has always struck me as paradoxical, and yet it is crucial to understanding what is happening now. Germany, which beat France in three wars, has, since the Second World War, been constantly seeking the approval of France. It may all be mixed up with the fact that France had a Roman civilisation while Germany wishes to live down the reputation of the Germanic tribes of Goths and Vandals who 1,500 years ago did so much to challenge that civilisation, and, let us be fair, it may be due to the undoubted cultural supremacy of France in the 18th century.

The problem with the French--we have seen it with this week's election, which is of great importance--is that there is a certain flabbiness: an unwillingness to face up to the real challenges which affect their nation. All too seldom do they seem to have rulers who can

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lead them to greatness. Of course they had them in Louis XIV, Napoleon and de Gaulle. That flabbiness descends all too often into an effeteness and even into a corrupt and unattractive society. I cannot help but remember the difference between the administration of President Mitterrand in his sleaze and President de Gaulle who, when he dined alone with his family in the Elysee Palace, insisted that the cost of the dinner be deducted from his presidential salary.

That flabbiness is, in a sense, a product of, and yet contrasts strangely with, the arrogance of a ruling elite who lead the people of France to believe that the state is indeed all-powerful. There is nothing new in that. It dates back to Louis XIV; it survived the revolution. France, after the revolution, was run by very much the same type of people who had been running it before the revolution. It applies now to the products of that magnificent higher education system, to which I pay great tribute, which produces the polytechniciens of the Grande Ecole and the enarques who run the grands corps of the French civil service. Parliament has of course a very modest role in France.

The present structural problems of Europe, about which my noble friend Lord Cranborne was right to speak, have been referred to by others. They include taxation and the added cost of labour, and how dramatically that was illustrated by my noble friend Lord Lloyd-Webber although I am not sure whether the examples he gave were wholly a result of the social chapter. The added costs of employment are indeed a fundamental structural problem in many European countries. It is not levels of employment as such that matter; it is real jobs that matter. Without real jobs--that is, with huge amounts of under employment--economies quickly descend into a Soviet type of system where everyone is working and yet no one is well off. I emphasise that to the noble Lord, Lord Taverne, who was trying to make a case for there being very little difference in employment levels.

Finally, on the question of European monetary union, of course there is a value from the discipline of fixed exchange rates. We have been through that for years, ever since Bretton Woods. However, it has a very high political cost because all too often, if a discipline is imposed by exchange rates, whether it be a Bretton Woods type system or something like the ERM, a country is forced to run its economy in a way which is not in the interests of the people of that country. As we saw when the ERM collapsed, that is very dangerous and can be extremely costly.

It is a great deal better to have self-discipline and to achieve necessary structural changes on one's own. That is a real problem that we have. I agree with the noble Lord, Lord Harris, that it is now most unlikely that we shall have EMU but if we were to have it, we should lose that crucial function of exchange rates which adjust to strains. There are three other ways in which those strains can be adjusted if exchange rates are not available: first, deflation, which means unemployment; secondly, inflation, which leads to unemployment; or thirdly, there can be, and must be, on a massive scale, regional or sectoral subsidies. That implies that a federal budget must be available and therefore axiomatically it

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transfers from rich to poor countries. We have had something of that in embryo in the common agricultural policy. Indeed, although the CAP applies fairly evenly, there was an attempt at the time of the MacSharry CAP reforms to introduce a differential policy. I am glad to say that that was seen off by Mr. John Gummer when he was Minister of Agriculture.

I believe that EMU is almost certainly doomed as a result of what happened last weekend when France turned its back on the need to restructure its economy. I am fearful of the consequences of the kind of measures which may as a result be adopted at Amsterdam. I hope very much that the new Prime Minister with the policies of new Labour--and it seems to me that new Labour has disposed of all the clothes, and perhaps even the underwear of old Labour--will use his undoubted position of tremendous power and his formidable reputation as a politician, which he has justly earned, to begin, perhaps at Amsterdam, to acquire the reputation of a statesman.

4.42 p.m.

Baroness Ramsay of Cartvale: My Lords, we should all be grateful to the noble Viscount, Lord Cranborne, who unfortunately is not in his place at the moment, for giving us the opportunity to express our views on such an interesting and wide-reaching topic as we have before us today.

It is no matter that those views vary widely, and that has been evident from the not so many interventions that we have had in the debate. The noble Viscount will not be surprised to hear that my gratitude does not extend to all the views that he has expressed to us and he will not be surprised either to hear that I do not agree with many of those views. But this topic is particularly timely since the IGC, which began in Turin in March 1996, is due to be completed at the Special European Council on 16th and 17th June in Amsterdam.

The aim of providing a basis for increasing employment and prosperity throughout the world is one which I should certainly hope commands universal support and is, of course, dear to the hearts of the Labour Party as well as to that of the noble Viscount, Lord Cranborne, as he indicated. The Labour Government have made clear already that among their priorities in the European Union is action against unemployment and for flexible labour markets.

The IGC is very much about, among other issues, completion of the single market and paving the way for enlargement. Enlargement negotiations will start within six months of the end of the IGC and Poland, Hungary and the Czech Republic are at the head of the queue. As well as strengthening countries which are neighbours to the EU, both in terms of their economy and stability, enlargement will open up new markets and opportunities for the UK and other member states.

The IGC is also about bringing the European Union more into touch with its citizens. The need for that was demonstrated only too clearly by the problems encountered in various member countries when ratifying the Maastricht Treaty.

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The Commission's action plan for the single market will be considered in Amsterdam. In brief, that has broadly four main strategic targets. The first is to make the rules more effective. That includes simplifying the rules at Community and national level whenever possible in order to reduce the administrative burden on businesses and to create more jobs. It includes also proper enforcement of existing single market legislation which, to be effective, must be adopted and enforced in member states.

The second deals with key market distortions. That includes tackling anti-competitive behaviour. The third is removing sectoral obstacles to market integration. The fourth is to deliver a single market for the benefit of all citizens. That must include measures to ensure that people are made aware of their rights and opportunities in a single market.

The European single market is the world's largest domestic market. While it has already achieved much, its potential is still to be realised. Europe needs a better single market for more growth, innovation and jobs. It must be a market which works for the benefit of all--for large companies and small businesses as well as for consumers and citizens. It must be a dynamic market as well as socially responsible and sensitive to the concerns of all who are affected by it.

The single market is not simply an economic structure. It is 370 million people who want better employment opportunities, better living and working conditions and better choice of products and services. That is what the single market must deliver and what we must be working towards achieving.

There is no contradiction between competitiveness for a company and a well-educated, involved and satisfied workforce. It is quite the reverse. They are inextricably linked. The Motion refers to worldwide competitiveness. Of course that is exactly the context in which the European single market must function and be judged. Everything that makes for a productive and effective single market aids that competitiveness.

As my noble friend Lord Barnett said, one important factor in all that, which is not part of the IGC, is EMU. In this particular debate, I do not wish to enter the many-faceted and complex discussions on the future of EMU but I say only that a single market would, in my opinion, undoubtedly work better if there were a single currency.

I make no apology for repeating a point that I have made before in your Lordships' House. Europe creates one-third of the world's wealth and the USA creates one-fifth. But global invoicing is carried out in dollars. In other words, the dollar is used as a settlement currency in 40 per cent. of international transactions. That brings significant advantage to American business. A single currency could offer the same kind of advantage to European business which no single European national currency could do.

I am not in any way underestimating the enormous hurdles on the course to EMU for everyone, including not least for Britain. I speak in the full knowledge that the British Cabinet, Parliament and people would have to agree before the United Kingdom could join. I also

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strongly believe that sustainable convergence among the economies which take part is essential for a successful EMU. However, I also strongly believe that it is a subject deserving of more informed, detailed, rational and national debate than it has had in the past in the UK, especially under the previous government. I conclude by quoting one sentence from the excellent report from the Select Committee on European Communities, entitled An EMU of 'ins' and 'Outs', where it is said:

    "The current debates should be conducted in the language of progress, not the rhetoric of the battlefield".
That was true when the report was written about a year ago and I believe that it is equally true now.

4.50 p.m.

Lord Reay: My Lords, as a preliminary, perhaps I may say how pleased I was earlier to see the noble Lord, Lord Simon, in his place--although he is not now in the Chamber--on the Government Front Bench. His appointment and job title, Minister of State for Trade and Competitiveness in Europe, embody the promising aspect of the Government's approach to Europe, the one which is only too likely to run into conflict with their approach to the social chapter, as my noble friend Lord Cranborne pointed out earlier. As someone who has sat on the Government Front Bench in your Lordships' House, I regard with awe someone who has given up an annual income of the better part of £1 million to be able to do so. I look forward to the times when he is able to contribute to such debates in this House.

I should like to continue, if I may, with what may appear to be a digression by congratulating the Government on their decision to let the Bank of England in future determine interest rates. Such arrangements are now in force in most other successful modern economies and their record in maintaining monetary stability, except in the most recent years, has, for the most part, been vastly better than ours. I wish the previous Government had taken that decision. My noble friend Lord Lawson proposed independence for the Bank of England in 1988, and even had a chapter in his memoirs headed "Towards an independent Bank of England", in which he concluded:

    "I sense that its time will come--as indeed it should".
But somehow we never arrived there. I suspect that the reason why, latterly at least, it did not happen was that it would have been represented as a step towards, and a preparation for, joining a single European currency. In such ways did the government become increasingly paralysed as their majority shrank, and the Eurosceptics and the Europhobes increased their influence and grip on policy.

I welcome therefore the recovery of room for manoeuvre by the Government of this country in their conduct of European policy. They will be able to, and indeed have been able to, adopt a constructive approach, even make concessions, in a way which is essential if full use is to be made of our influence in Europe. The debate will be about what those concessions should be.

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I have no difficulty myself with the agreement reported today on a limited extension of the use of qualified majority voting in foreign policy matters.

On the other hand, the Government's rush to join the social chapter, though well advertised in advance, is nonetheless disturbing for those who want to see the economy of this country continue to operate as a job-generating economy. It was encouraging, however, to hear the Prime Minister follow that up by stating his intention to oppose new laws proposed under it that might impede competitiveness. I sincerely hope that he pulls this trick off although, like my noble friend the Leader of the Opposition, I am sceptical. I must say that I am extremely grateful to my noble friend for tabling the Motion today because it has given us the chance to probe the Government further in this vital area. No one did that better than my noble friend Lord Lloyd-Webber in his brilliant and devastating speech on the social chapter which gave the Government many questions to answer.

I should now like to know how the Government intend to react to the Commission's proposal--which, according to press reports, is to be published today--to require all companies with a workforce of more than 50 to establish workers' councils. Business leaders have said that this is a matter which should be left to member states. In his concluding speech, perhaps the noble Lord the Lord Privy Seal can tell us if he agrees with that view.

Large multinational companies may be able to live with Europe's social legislation; indeed, to some extent, they may find it simpler to have the same legislation covering all their European operations. But that is not so with small firms. Additional social legislation can be extremely burdensome to them and could easily stunt their growth. Yet it is small firms that have largely created the additional jobs in this country and that have been encouraged and have proved successful in a way that has not happened on the Continent. Other member states are simply not in a position today to ask us, in this respect, to follow their economic example. It is they, surely, who have lessons to learn from us, as our respective levels of unemployment show and as my noble friend the Leader of the Opposition fully illustrated with the relevant figures in his excellent speech.

The Amsterdam summit has of course been completely overshadowed by the unfolding drama of the single currency. Indeed, I agree with other speakers that the likelihood of a viable single currency coming into being seems to be receding all the time. In Germany, the Bundesbank's reaction against the government's proposed gold reserve revaluation, and the threat that that implied to a strong euro, has alerted the German public to those dangers. I find it almost impossible to believe that the German public will accept the prospect of a weak currency.

Meanwhile, France has been preparing to move in the opposite direction. In the election campaign the Socialist Party, now in government, demanded a relaxation of the Maastricht criteria and insisted on the entry of Italy and Spain as a precondition to joining themselves. The party

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also promised 350,000 new public sector jobs, which would be unlikely to do much to improve the public finances.

So a rift threatens to open up between France and Germany, the two countries without whom a meaningful monetary union is impossible. On top of that, the French leadership will cease now to speak with one voice. So Chancellor Kohl's policy of economic and monetary union, on time, at whatever the cost, is beset with new difficulties. Despite his passionate reiteration even today in the Bundestag of his commitment to it, there must be grave doubts as to whether it will really come off.

I have no objections on principle to a single currency. I can see that if a single currency was introduced in more appropriate economic circumstances than we have today, with convergent economies and flexible labour markets and with the likelihood of it becoming successfully established, the arguments for us to join, rather than to stay outside, might be very strong.

I believe that the former Prime Minister's policy of refusing to rule out joining a single currency, thereby maintaining the right to continue to be involved in preparations for its adoption, was entirely correct and heroically persisted in. One day in the future, however far off that may be, the country may have cause to be grateful to him for it.

Recent developments in France do not, on the face of it, look very helpful for a policy of seeking to improve Europe's competitiveness if that, as I hope, really does emerge as being the policy that the Government intend to pursue. France has voted to escape austerity. But everything depends on how the new French Government decide to proceed in practice. As a French banker, quoted in today's International Herald Tribune, said:

    "The people around Jospin are not naive about global economic realities, and they are probably in a better position to ease through changes than the right--if they want to".

So the British Government may acquire allies over time if, as I hope, they pursue such a policy, or they may have to continue having to endure the silent response that President Chirac told us greeted the Prime Minister's appeal for labour market flexibility at the recent summit in Noordwijk. At least I hope that the British Government develop and stick to the song, of which they have so far only sung snatches, are true to it in practice, and simply forget that they once used to say that, unlike a Conservative government, they would never be isolated in Europe.

I hope I may ask the noble Lord the Lord Privy Seal one specific question relating to quota hopping and the Amsterdam summit. The previous Government intended to withhold agreement at Amsterdam unless the treaty was modified to make quota hopping illegal. As I understand it the present Government have maintained the objective but not the threat. Can the noble Lord the Lord Privy Seal say what the Government hope to achieve at Amsterdam on that issue?

I conclude on a wider note. Whatever our differences in Europe with the other member states, even if on matters of great importance to us we are in an isolated minority, nevertheless I believe that our future lies within the European Community. I see no future for us

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outside, nor do I interpret the election result as giving any sign that a majority of the public are ever likely to vote in favour of a policy of disengagement from Europe. We must fight our battles from within, making our own contribution to the creation of the sort of Europe we can be happy to live in. Once we used to turn our backs on Europe and then after some years were forced to fight another war for our survival or in the defence of our other interests. Now we must face and argue with Europe continuously. Surely it is much better that way.

5.2 p.m.

Lord Stoddart of Swindon: My Lords, I was intrigued when I saw the Motion on today's Order Paper because it seems to me to be an integrationist Motion, recognising the European Union as a total entity--a sort of federal union--not as an organisation of co-operating and competitive independent nation states, which I understood was the policy of the Conservative Party. I was even more intrigued when I heard the Leader of the Opposition speak against his own Motion, because that was what his speech appeared to me to be. I appreciate that he is in some difficulty at the present time. It may well be that his speech was compiled by a committee of six and had to be hastily revised to reflect the views of a committee of five. Nevertheless his speech seemed to show some confusion.

The Motion seems to indicate that the Conservatives never learn. They have just lost an election by an enormous majority. However, they do not appear to have learnt that the reason they lost that election was their involvement with Europe. There was the ERM which caused the slump that made the Government so unpopular, the signing of the Maastricht Treaty and the forcing of the Maastricht Treaty through Parliament in the House of Commons on a guillotine, and their refusal to rule out a single currency during the lifetime of this Parliament. The Conservatives never seemed to learn that their policy on Europe was deeply unpopular. It will remain unpopular so long as we have such integrationist Motions on our Order Paper.

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