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5.32 p.m.

Lord Howell of Guildford: My Lords, I welcome the debate not only because it has brought us the treat of the very wise opening speech of the noble Lord, Lord Wright of Richmond, who rightly reminded us that we must have a foreign policy machine which is effectively resourced--that is essential; not only because the debate has also brought us the excellent maiden speeches of my noble friend Lord Hurd of Westwell and of the right reverend Prelate the Bishop of London and the Back-Bench maiden speech of my noble and very good friend, and sponsor, Lady Chalker of Wallasey; and not even because the debate is timely because of our presidency of the European Union, but particularly because I believe that Europe, and particularly those parts of Europe that comprise the Union, is about to confront a series of huge, new challenges for which it is totally unprepared and about which there has been very little debate. I refer in particular to the financial and economic turmoil in South East Asia--from which I have just returned this morning, so I hope that your Lordships will forgive me if I sound a bit bleary--which is of an immensely serious nature, but which is not yet fully understood here, in the West, to judge by some of the rather airy-fairy and cavalier comments about what has been going on there.

I shall return to the subject of Asia in a moment, but I should like first to say something about the European question generally. I have always regarded myself as strongly pro-European. I have a dream of a greater Europe which stretches from the Atlantic to the River Bug and which embraces the brave Baltic states, about which we have just heard from my noble friend Lord Carlisle. I have never found any difficulty in combining that pro-European stance with an economist's caution--perhaps "scepticism" is too strong a word--about the whole euro project and the attempt to impose on this area, this non-optimal zone, a single currency when there is no real convergence of economies--and that is quite aside from the British position. Whatever the Maastricht formulae say--even they have had to be fudged--the reality is that they are still very different economies. It worries me that, far from being able to be a good European and support the euro, one could find oneself in the contrary position. The euro could end up being a divisive force and not at all in line with the kind of Europe that I have always wanted to see.

The real need in Europe is for a very strong strategy of liberalisation and of deregulation, pushing the expansion of the new membership very hard indeed, with flexibility in the labour markets and CAP reform. If, as I understand it, that is the content of the Government's policy and if that is what Mr. Blair means by taking the leadership in Europe, I totally support it--that is entirely the right way forward for a strong and positive European policy--just as I supported it when it was put forward by the previous government when I urged it on those of my friends who would listen.

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Above all, what Europe, particularly continental Europe, now needs is some economic growth. Continental Europe needs that right now in 1998 if it is to get the water lifting and the great boat of the euro afloat and off the slipway on 1st January 1999, which is certainly what is planned and what is coming. The countries of continental Europe need more growth. They need that if they are to escape the enormous levels of unemployment in their economies. In Germany, unemployment is now much higher than it ever was under Hitler. Unemployment is very high in France, leading to colossal social tensions. They need growth if they are to get away from that. As I have said, they also need growth if they are to launch the euro. They now need growth to meet a new challenge: the backwash of the turmoil in Asia. It is coming and it will inevitably dominate our presidency and the ASEAN meeting in April.

Perhaps I may share with your Lordships my impressions of the area after my brief visit to South East and East Asia. Many of the leaders to whom I spoke regarded the whole situation as a nightmare. They spoke of holding their breath during the Chinese New Year to see whether the situation will resume its full awfulness as soon as the New Year break is over. It seems to me that the question of whether it is just a regional crisis, which will still have some effects, or a global crisis, is a very narrow call.

Four conditions have to be met--they are by no means certain to be met--if we are to avoid the effects of what is happening in that part of the world (which, after all, accounts for 30 per cent. of the entire GNP of the globe) driving into all our western economic affairs. First, the huge Japanese economy has somehow to start moving again. I do not think that it will do so for some time. Even now, the reforms that they are trying to push through are beginning to be talked down by whispering Japanese politicians who are saying that it is too difficult. However, it is essential that Japan at the very least rolls forward at a modest pace rather than stagnates or moves down into real contraction and deflation. That is possible. I hope that it will not happen, but it is possible.

Secondly, there is the Hong Kong peg. If that goes--I am sure that Tung Chee-hwa, his excellent team and his very effective monetary authority are absolutely determined that it should not--the pressure will be colossal. I know that they say that Hong Kong is a service economy and that it is not therefore so much a question of manufacturing prices, but the prices of similar goods all around Hong Kong have fallen dramatically. The pressure will be very difficult to resist.

Thirdly, there is also the question of China. Zhu Rongji is a very able man who understands the markets. He says, "We are not going to be pushed off our position. We are not going for another devaluation of the Renminbi and the Yuan, as we did before", but the Chinese have the Koreans on their backs. The Koreans have similar exports and they are very tough. Once the Koreans have got some of their debts under control again, they will cut or halve salaries and have much tighter living standards in order to compete. The Won

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is now worth half its former value and that will knock similar Chinese exports very hard indeed. The pressure on China will be colossal.

Fourthly, in Indonesia anything can happen. In the past 24 hours there has been a slight breath of hope, but there is a very dangerous political situation in that country. They are very near riots. There are dangers of food shortages in Jakarta and after Ramadan a new crisis may break out. I am not sure that the latest idea to roll over private sector debt will either be agreed or if agreed will reassure people for very long.

We cannot push all of these matters aside. Even if all of them turn out right, the impact on Europe will be felt. We shall sell less to these countries. The corporations are already beginning to mark down their prospects in that respect and have noted that demand is falling. There will be imports from Asia which initially will not be cheaper because they have to pay their import costs with more expensive foreign exchange. Oil is cheap and becoming cheaper. I believe that they will re-adjust quickly and that cheap imports will come into Europe and hit European and American production very hard and very soon. I believe that that will come as a great surprise to some of the pundits who have said that nothing like that can happen. We know already that direct foreign investment from Asia is drying up. Projects by Samsung in the North East are being cancelled. There is a real danger that that will cause further damage to our economy.

I urge noble Lords not to underestimate the Asian economic strength. It should not be written off as some journalists have done as though the Asian miracle is over. It is not. Asian power is enormous. It can recover from these difficulties. If it does not recover it will damage us, if it does recover it will damage us somewhat. We must be prepared for that. We must have a very strong, resilient and open European structure. If our leadership means anything in Europe it means keeping to the fore openness, resilience, the expansion programme and reform of all the arthritic structures which have made Europe a protected and inefficient zone. That is the real leadership needed in Europe and that is what we should put first.

5.42 p.m.

The Earl of Sandwich: My Lords, our European way of life, so long as it lasts, is highly valued not just by ourselves but by large numbers of our friends all over the world, including refugees from many countries who have made Europe their home. Although we are an island nation, historically we have been outward-looking and welcoming and even able to absorb other cultures, at least since Norman times. This open-mindedness has been reflected by the Foreign Office. But, as a post-colonial power, have we recently become too diplomatically reticent to give our former colonies and distant allies the attention they deserve and once received?

We have been ticked off for meddling, as in the case of Kashmir last year, but I believe that where we can we should take every opportunity within Europe on behalf of the developing world to encourage and assist

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the countries where we have had a particular experience. In the case of Africa, Algeria is a good example provided we act together and the Algerians allow us to help. As the noble Baroness, Lady Chalker, said, we could do more as Europeans to support our friends in the African Commonwealth, notably Presidents Mandela and Museveni who have tried to inspire a new African leadership, entrepreneurial spirit and grass roots democracy, and persuade the French to do the same. We could do more in the Middle East to convince our Moslem friends that in our new European role we are not just the creature of the Atlantic Alliance. Somehow we have to combine these roles, but we can do more as Europeans. For a start, in the Middle East we can convince our European partners and Russia that we are looking beyond the psychological war with Saddam Hussein. We could discuss the economic and humanitarian problems of the Iraqi people alongside human rights and compliance. We should be aware that Iraq is now one of the poorest countries and that the oil-for-food deal is not working adequately. We merely toe the US line which seems to be drawn somewhere between Jerusalem and South Dakota. As a nation we are hardly Europeans yet. How can we join EMU when we have scarcely learned any European languages, let alone speak them; when our suspicions of French diplomacy continue; when we rarely take German holidays; and competition for world trade and contracts is as fierce as ever? We still have a lot of ground to cover

Our new Government have made a brave and promising start in international development. I was present today at international Question Time and was impressed by the large attendance of young Members of Parliament--a rather larger attendance than on these Benches. I hope that the Government will keep their stated objectives in the White Paper within the European framework, especially during the coming Lome negotiations with 71 mainly African, Caribbean and Pacific countries. Human rights is an important new initiative provided it is coupled with the relief of world poverty which is now a strong foreign policy objective in its own right. Surely, we can expect European coherence in that.

As has been rightly said, development has its own ministry and new leadership, but this does not mean that aid is divorced from foreign affairs. On the contrary, it means more interdepartmental co-operation which is something that the non-governmental organisations have urged for some time. The Treasury's continued interest in debt is to be welcomed, especially the Government's lead in the Paris Club on Mozambique last weekend, but this needs to be extended. It is an urgent priority for the least developed nations, as Oxfam, Christian Aid and the Churches quite rightly remind us, and will continue so to do.

An economically stable society means a sounder political system and a safer world. This is not in doubt. Yet we are not pulling our weight among the DAC countries either financially or politically. Debt apart, we have not taken a lead as have some other countries in raising the issue of poverty above the level of regular

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EU and UN meetings. The prospect of Tony Blair, or even Gordon Brown, becoming our Willy Brandt still seems a long way off.

There are urgent problems in the third world which seem far away but in the end will affect us. Civil wars, drought, poverty and AIDS also involve us. Diplomacy must now cover a vast range of social and economic issues that affect developing countries, including trade. There is concern among NGOs and church agencies that the liberalisation and globalisation process has forced developing countries into a straitjacket which is not in their best interests; in other words, to achieve financial results before they have advanced socially and politically.

The early process of structural adjustment caused havoc in Africa. While generally favoured by OECD aid donors, it led directly to hunger and starvation through austerity measures and required new aid mechanisms to help them recover: extra programmes of assistance, Lome, debt relief initiatives and 20:20 programmes which have been important but wholly inadequate. The new WTO rules and the latest Multilateral Agreement on Investment are just more waves of globalisation breaking over vulnerable societies and taking more power away from third world governments. I very much welcome the remarks made by the noble Lord, Lord Gillmore, on this subject. The International Monetary Fund and multinationals should not presume to fill the vacuum of good government and strong leadership. The thesis that globalisation automatically brings liberalisation and democracy in Africa as in Eastern Europe is difficult to sustain. While decentralisation and democratisation sound good to western ears--and some Asian ones--they can also contribute to the breakdown of fragile economies. This can be an impossible dilemma for traditional diplomacy. How does one reconcile the need for good governance and human rights at the centre and top and the urgency of strengthening local institutions and civil society at the grass roots?

Perhaps the Minister with her particular experience will confirm that the new management seeks people with a real commitment to change and social justice in other societies. This process is not a threat to Europe as we know it but an extension of subsidiarity and devolution to the developing countries where we are working for improvement.

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