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4.18 p.m.

Lord Barnett: My Lords, first, I welcome the noble Lord, Lord Howell of Guildford. I look forward to sharing with him debates on this and other subjects, as I did in another place. I hope that in this debate I shall agree with him more than I agreed with his noble friend Lord Cranborne, who opened for the Opposition.

My noble friend the Lord Privy Seal made the Amsterdam Summit sound like a huge success. "A good result" were the words he used. It certainly was not a failure because it did so little, but to pretend that it was a huge success is overdoing it just a little. I believe that the general principle of the treaty sums up what was achieved--or not achieved. I read from the general principles underlying the Union at Item 4 that the Union shall provide itself with the means necessary to attain its objectives and carry through its policies. Amen, my Lords! We should all love to carry through policies with which we agree and which we like. However, in a moment I shall come to what precisely was achieved and what was done in Amsterdam.

On the other hand, the noble Viscount brought party politics into this issue. I was sorry to hear that. The noble Viscount referred to further steps being taken to integration in Amsterdam and he referred of course to the social chapter. The social chapter is accepted by most member states within the European Union and over the years, their economies have done much better than ours. But to condemn the social chapter in the way that he did is to bring the issue down to a level which I should have hoped he would not have done.

The plain fact is that the noble Viscount should be embarrassed by his own party's policies. I noticed that he did not refer to too many of them, which is understandable. Perhaps he is embarrassed. He is shaking his head in that direction so he does agree. He agrees that there should be a referendum. However, I am not sure on what subject a referendum would take place. He did not make it clear what question would be put to the people of this country in relation to

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Amsterdam. He suggests that they should be asked to agree or disagree but with what? I shall return to that in a moment.

The Treaty of Amsterdam is littered with phrases which show just how little was achieved at Amsterdam. As regards qualified majority voting, there is no decision on the reweighting of the Council's votes. It did very little else, as the noble Viscount knows. It was decided that the European Parliament should not exceed 700 members. It has now 626 members. However, no resolution was passed and no figure was agreed. Perhaps the noble Viscount has a figure in mind which he would wish to put to a referendum.

It was suggested that a year before the Community reaches more than 20 members, there should be a comprehensive review. Perhaps the noble Viscount wants a referendum on whether there should be a comprehensive review. The noble Lord, Lord Moynihan, who is to wind up the debate, will no doubt tell us whether he agrees with his noble friend.

Everything on common foreign and security policy must be more flexible. That is wonderful. Perhaps we should have a referendum on that. Perhaps it should not be more flexible. The Court of Justice is not given power to amend. Shall we have a referendum on whether it should be given that power?

As regards defence, any move would be subject to the unanimity rule. Should we have a referendum on that? The noble Viscount is not nodding now so I assume that he does not mean that there should be a referendum on that item. On human rights, action, if any, should be unanimous and we should have a veto. Perhaps the noble Viscount does not wish us to have a veto and we should have a referendum about that. He is smiling now. That is good to see. He does not agree with anything that he said. I hope that that is the case.

The two major issues which were barely discussed at Amsterdam were: first, economic and monetary union, about which I shall say a few words in a moment; and, secondly, enlargement. There was an odd little discussion about enlargement. There is to be a comprehensive review. We do not know what will be the outcome of that but this Government have already implemented enough reviews not to want many more. Certainly we do not need a referendum on whether we should have reviews.

But if Amsterdam did not discuss very much of any real value or moment for the future, I should like to take up one major issue--that is, economic and monetary union. I hope that at least some Members of your Lordships' House on all sides will agree with me about that.

Given the need to make a success of the single market, economic and monetary union at the right time would be beneficial. It would be of great benefit to this country and to the European Union if it were the right time. If it were the wrong time, it would be a disaster both for us and the European Union.

We did not have a referendum on the Maastricht criteria but the Treaty of Maastricht was rather important. There were four criteria laid down in relation to economic and monetary union. I believe that some of

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those criteria were foolish in the extreme. However, the first, which deals with inflation, makes sense. Clearly, it would not be sensible to have a wide divergence of inflation within a single market or a single currency. There would need to be not just convergence within the Community but a sustainable convergence. That has not been emphasised sufficiently.

The second of the Maastricht criteria is that the total debt--not a single year's debt--to GDP should be at particular levels. We all know that many countries which are likely to be allowed to join a single currency are miles outside the GDP debt ratio of 60 per cent. But that is now being largely ignored as an issue and yet it will be years before member states which are widely in excess of the 60 per cent. will meet that criteria, and yet it is being ignored.

The criterion which is being spoken of constantly is the 3 per cent. annual target for this year. But 3 per cent. of GDP is too tight for one year. Some will achieve the 3 per cent. for the wrong reasons in the wrong way. Whether they will be able to sustain it is another matter. If they achieve it this year by all kinds of strange methods, they would be trying too hard and could do great damage both to themselves and the European Union. Too much emphasis cannot be placed on that.

The fourth of the Maastricht criteria is that exchange rate stability is crucial. For example, as I accept, we should not join at our current exchange rate. I never thought that I should have to say that. But it is a fact that if we joined at this exchange rate, as the previous government joined the ERM at a slightly lower level, that would be a disaster for us and would not be sensible for the European Union.

But the real risk is of either a weak euro, which would not be worth anything at all and would create huge headaches, or a strong euro with weak member states within it. Both of those would not be sensible and would be a wrong approach.

Therefore, at the moment economic and monetary union is so risky that, in my view, it could blow Europe apart. Some noble Lords, probably on both sides of the House, would not mind that. I see one of my noble friends nodding. But I would mind very much indeed. Some argue that failure to proceed would be seen as a high risk. There is hysteria within Europe about the real high risk. The real high risk would be that some member states would have temporary success in achieving the 3 per cent. of GDP this year and then not be able to sustain that inside a single currency. To my mind, that would be a total disaster.

As a European Union and as a country, we should stop pretending that we should try to get in in current circumstances. Decisions will be taken when we have the presidency in the first half of next year. At those council meetings in the first half of next year, we should fight very hard for delay in the start of a single currency. I regret having to say that because I want to see it start and succeed. But to start and make a decision about it next year in my view is quite wrong. Given the presidency that we shall have at that time, with the increased strength that we shall have then, I hope that we shall press very hard for the deferral of the start of a single currency.

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4.30 p.m.

Lord Howell of Guildford: My Lords, I am grateful for this first opportunity to address your Lordships' House and extremely grateful for the kind anticipatory remarks from the Lord Privy Seal and also from my noble friend Lord Cranborne and the noble Lord, Lord Barnett. I hope that my comments do not disappoint after those generous trailers. I must confess that I regard it as quite a challenge to follow the very proper rule that a maiden speech should be unprovocative and uncontroversial, especially when dealing with issues of this kind which generate such intensely strong feeling and leave behind, like an American whirlwind, a trail of political wreckage. So it will not be easy; but I must stick to the rules.

I hope that it is not too provocative to say that this is a treaty I have actually read, although I must confess that I do not understand every word of the word-processor English that tends to find its way into these documents. It is even more of a challenge for me to think how, as a newcomer, I can contribute to the huge granary of accumulated wisdom in your Lordships' House on European issues. The size of that collective wisdom is amply demonstrated by the excellent reports of your Lordships' European Communities Select Committee and its sub-committees which are very widely read all over Europe. I can vouch for that fact because, over the past 10 years, I had a role in the other place which involved my visiting all the parliaments of Europe--both EU members and would-be EU members. Everywhere I went, there were very favourable and constant references to the reports of your Lordships' House. There is not much that a newcomer can add to that kind of learned wisdom; however, I shall endeavour to contribute my pennyworth.

It has been said on all sides of the House, so it is not controversial to say, that the Amsterdam draft treaty to be agreed in October is a fairly modest affair. It is not the great leap forward that some hoped for; nor is it the great leap backwards or sideways for which other people hoped. It will not create the entirely new directions for Europe that some were hoping for, but it does not unravel Europe which was the hope of others.

One mild test that can be applied to the draft treaty and to the presidency conclusions--this was mentioned by the noble Lord, Lord Barnett--is to ask what it does for what Foreign Office officials are fond of referring to as the "three Es"--enlargement, employment and EMU--or balanced and sustainable growth, whatever the jargon is in the treaty and in the presidency conclusions. In the few moments that I shall have your Lordships' attention, I propose to try out that test. I turn first to enlargement. Again, I believe it has been agreed on all sides of the House that the draft Treaty of Amsterdam really does not register much progress on the matter. The presidency conclusions claim that it paves the way for enlargement and it is true that, since then, we have had the Agenda 2000 document from the Commission setting out its priorities.

However, priorities are one thing. Creating the practical steps to get enlargement going is something quite different. It is a matter of regret that the draft treaty

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does not contain any proposals on how on earth the Commission is to be reorganised to cope with 20 or 24 members. Similarly, as my noble friends have observed, it does not address the question of the weighting of votes. Nor does it really come to grips with the huge issue which dominates the whole enlargement question and stands in its way; namely, the need for fundamental and radical reform of the common agricultural policy without which the enlargement process will not be able to proceed when it comes to grapple with the vast capacities, low cost but also very impoverished capacities, of Polish or Hungarian agriculture.

Moreover, Agenda 2000, which perhaps your Lordships will be debating in due course, does not really come to grips with the enormous sensitivities of choosing one Baltic state--Estonia, which I am very glad is in the preference list--and leaving out the other two. It fills me with alarm that we may be recreating historic problems which in the past led to great tragedies. Similarly, none of us has the remotest idea of how we are to tackle the problem of Cyprus and bring a divided island into the European Union without sparking off huge new antagonisms of the kind featured in today's press reports. The Turkish Government are already cutting up extremely rough. Therefore, on enlargement, let us pray, hope and work for what we have always wanted to see; namely, an enlarged, free single market running from the River Bug in eastern Poland to Lisbon in the west. Let us hope that that is achieved, but there is not much here so far to encourage us.

As to the questions of employment and monetary union, which are both wrapped up together, the treaty and the conclusions call for a high degree of sustainable convergence. Those are rather inelegant words, but it is the language used. There is a problem here; namely, that the European economies are not converging. If anything, they are at present in a divergent mode. The contrast is obviously particularly strong between the major continental economies of Germany and France and our own country. All the major trends are moving in opposite directions, notably on the employment side but also in other fields. There are people who will say that we should not worry about it because it is really just a question of the business cycle, the phases of which will bring France and Germany along and the differences will diminish. I do not believe that, so perhaps I may put the alternative view to your Lordships.

People like Dr. Walter Eltis, the former distinguished adviser to the President of the Board of Trade, are much nearer the truth when they point out that there are fundamental structural reasons why convergence is not taking place between the UK and the continental economies. Until those fundamental reforms of structure are addressed in Paris and in Bonn--and, indeed, throughout the whole of those two great countries--with much more vigour, the divergence will remain with all the dangers inherent in trying to impose a system requiring convergence on a pattern of countries and economies which are not moving in the same direction at the same pace.

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I have to agree with noble Lords who have spoken that it is doubtful that the soft euro, which the markets and the experts expect--indeed, they assume that there will be a soft euro--will be very good for us, for Europe or for the entire global monetary system; indeed, it could be very damaging. As for 1999, the treaty and the presidency conclusions express the hope that the relevant conditions will be achieved by that time so that we can have the irrevocable locking of currencies. I do not want to comment in my first speech to your Lordships' House on whether or not the single currency is a good idea. I shall just concentrate on the technical problems of the years after 1999 when it can be observed that there will be three years during which these currencies will be locked. However, that will, of course, be a golden opportunity for everyone in the currency markets to go long on the deutschmark and the guilder and short on the lira, the peseta and the French franc. I say that because it is a costless exercise. Astonishingly, they are being offered a three-year, costless one-way currency option. They cannot lose. If the currency link is broken, the hedging funds will make billions.

Therefore, it is rather an unnerving prospect which lies ahead. I, for one, agree with Alan Greenspan who is quoted as saying that the,

    "euro will come, but will not be sustainable".

If we even pause to think about that, we must accept that, after 1999, we will be heading into a period--indeed, it may already have started--of immensely dangerous currency volatility for which, frankly, the conclusions of Amsterdam and the revised treaties which govern the EU do not really prepare us. It is no surprise to me that people are already beginning to talk about yet another treaty, possibly in the year 2000, in order to cope with the entirely new conditions coming into play, especially on the currency side, which may indeed be very disturbing.

I share those thoughts with your Lordships. I am grateful to noble Lords for listening. I believe that the European Union is not the most important issue today in either this country's foreign policy or global foreign policy. We should give more attention to the emerging markets and to the Commonwealth with its fast growing economies. Perhaps more than is recognised, a great deal of our future interests, assets, prosperity and jobs will be determined by what goes on there rather than in the European Union. But the fact remains that it is our region, our neighbourhood, and we have to get our relations with the European Union right.

Even after Amsterdam, the opportunity is still open for the noble Lord the Lord Privy Seal, his ministerial colleagues and the Government today to pursue a highly positive European line. That opportunity is open less through developments in this country than because of developments in Bonn and Paris where entirely new perceptions are developing on how Europe should be shaped.

I hope that what I say is non-controversial. I believe that the Government have the capacity and the opportunity for various reasons--some of their own skill and making--to pursue a more positive policy, in the interests of this country narrowly but of Europe more broadly, to create a Europe which is more robust and more

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competitive, and a Europe able to deal with the oncoming currency storms, which will be severe and difficult, and to produce the kind of Europe for which many of us over many years have been hoping but now have an uneasy fear may be threatened.

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