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Lord Marlesford: My Lords, before the noble Lord sits down, perhaps I may ask him a simple question about a matter which I did not understand from his most interesting speech. If exchange rates, among many other things, measure the difference between the functioning and structure of economies, why would he expect there to be stability between the dollar and the euro?
Lord Desai: My Lords, I do not know that a long-term level of equilibrium exists between currencies. I agree with the noble Lord on that point. However, I expect policy to be at least marginally effective in keeping fluctuation between currencies down to a small band. I am not in favour of fixed exchange rates but I believe that, at least in the short to medium term, we should aim to manage currency better. In this case, six months before the euro was launched, no care was taken to stabilise the money flowing into the component currencies. Therefore, the euro started too high. That was the first failure of the ECB and we are still suffering from it.
Lord Newby: My Lords, I join many other noble Lords in congratulating the noble Lord, Lord Tomlinson, and his committee on an extremely valuable report. I agree that it deserves a wider audience than almost certainly it has. I do not know whether, in addition to sending it to the FTSE 100 companies, the noble Lord sent it to the editors of the eurosceptic press. If he did, clearly they have not read it. I also agree with noble Lords who said that the report deserved a better response from the Treasury. Its document was pathetic.
I am sorry not to see the noble Lord, Lord Pearson of Rannoch, in his place. I had hoped that he might use this debate as an opportunity to explain to the House why he withdrew his Bill this evening at such a disgracefully late hour. Perhaps the noble Lord, Lord Saatchi, can enlighten us. The report will of course make extremely depressing reading for the noble Lord, Lord Pearson, and those who share his views. It demonstrates that the euro is achieving the goals set for it and that it is helping the euro-zone to deliver more growth, more jobs and more stability.
I want to refer to the robustness of the euro-zone and the "one size fits all" argument. A number of noble Lords said that we have been in a benign period over the past few years. They forgot to mention that we have seen extreme volatility in the oil price, which in previous decades has had a severe effect on domestic economies. No such severe effect has occurred in the euro-zone, where inflation remains low and stably low. The rise in the oil price has also had a somewhat asymmetric effect, not least on Ireland--an economy much discussed this afternoon.
I want to say two things about Ireland before moving on. First, according to the harmonised index of consumer prices, the latest inflation figure for Ireland has fallen significantly to 4.6 per cent as excise duty rises have fallen out of the index. I believe that it is generally accepted within Ireland that by the end of the year the inflation rate will have fallen to some 3 or 3½ per cent. That is hardly a horror story.
My second point with regard to Ireland is that one of the other main reasons why we have experienced such a high level of inflation is that the Irish economy has been extremely successful. We heard from my noble friend Lord Hooson about recruitment from Wales. Can any noble Lord say when the Irish economy has been so strong compared to the UK economy that the Irish have recruited large numbers of workers from this country?
Why is the Irish economy so strong? The answer is principally because, virtually more than any other member of the EU, the Irish have realised the benefits of membership, played by the rules, worked the rules to their advantage and done jolly well out of it. There is a lesson there for the UK. Unfortunately, I fear that many noble Lords who have spoken about Ireland this afternoon have drawn the wrong conclusions.
Before I return to the effects of EMU on the real economy, I want to refer to the ECB. I had the privilege of being a member of the House of Lords Select Committee on the MPC of the Bank of England. Many of the issues discussed in relation to the ECB are those which we examined in relation to the Bank of England. I agree with the noble Lord, Lord Peston, that the inflation target of a single point in the UK has advantages over a range, as is the case with the ECB. However, the two greater problems which have been identified are transparency and accountability.
With regard to transparency, I believe that some evolution has occurred. There have been positive developments in the publication of forecasts and, now, the publication of the models which the ECB uses.
Leaving to one side the question of voting, which may or may not be included in the minutes by choice, at present many people argue that one should be able to identify from minutes of any type how individual governors have voted. However, if the last paragraph showing the voting intentions is removed, I defy anyone to carry out a textual analysis of the minutes of our MPC and to identify who said what. Therefore, I do not believe that to be a creditable argument against greater transparency.
With regard to voting, I understand why the governors seek the protection of anonymity. However, I am also conscious that the arguments which they use are those which are always used by those in power to justify secrecy. It is possible that at present the publication of voting is a step too far. However, if minutes are published--I do not believe that a compelling argument exists against that--the publication of voting would be the logical next step.
I believe that there are two ways to improve accountability. The first is to strengthen dialogue with the European Parliament. Although the noble Lord, Lord Peston, said that that dialogue has been pathetic, I believe that my colleague, Chris Huhne, and his colleagues in the European Parliament would argue that over the past two years they have been relatively successful in moving the ECB slowly towards greater transparency. Certainly, they believe that they have not yet finished. However, the Parliament is clearly the logical principal body to which the Bank should be accountable and they should keep on trying.
The second form of accountability is no less important, if somewhat less formal. It is for the Bank's president, chief economist and other senior staff to explain constantly to a range of audiences what the Bank is doing and why. In his evidence, Mr Issing, the chief economist, said,
They should also follow the practice of some members of the UK MPC in making considered speeches to financial and business audiences, setting out the Bank's thinking on the developments and the outlook for the European economy and explaining how the Bank seeks to fulfil its remit. I believe that all those issues about the details of how the Bank operates are of secondary importance when put alongside its achievements in successfully managing the introduction of the euro and the euro-zone inflation rate.
We can also see that considerable success has been achieved if we move away from the inflation performance of the euro-zone and look at the real economy. A number of noble Lords referred to the degree of structural change which has flowed from euro-zone membership. Rightly, the Government have attached great importance to the ability of the euro-zone to introduce greater flexibility into the labour, produce and financial markets. The report sets out changes in labour markets to increase flexibility which have taken place in Spain and the Netherlands, and it refers to the Lisbon commitment to increase flexibility across the euro-zone. Other member states, such as France and Germany, have made less progress. However, to use the words of the German ambassador, they have "made a start".
The key point is not the absolute pace with which individual countries have begun to move and how far they have moved to date but the fact that they have begun to move and are committed to make further changes. On that point, I agree very much with the noble Lord, Lord Plumb, who talked about the fact that the EU is not a static body and that developments are occurring across a wide range.
In addition, we must accept that the structural changes which are suggested and implemented are often extremely politically difficult to achieve, whether they be cutting unemployment benefit, reducing non-wage labour costs, introducing fixed-term contracts or reforming pensions--an issue covered by my noble friend Lord Taverne.
When the UK went down that road in the 1980s and 1990s there was a huge political debate and reform was achieved at some political cost. It is hardly surprising that that is exactly what is currently happening in France and Germany. There is considerable resistance to change--it is difficult to introduce changes. We should now have the wisdom to accept the judgment of many euro-zone members that EMU membership has given the reform process substantial extra impulse.
If we look elsewhere in the real economy, as the noble Lord, Lord Cobbold, explained, we see that there has been an explosive growth in the volume of euro-dominated corporate bonds which is having a strong positive effect on business investment. There has also been an explosion in cross-border mergers and acquisitions, which is another area in which EMU membership has given a boost to economic activity and which is likely to lead to improved productivity and therefore to sustainable growth. As my noble friend Lord Taverne explained, that has almost unanimous business support.
With all that going on, I cannot agree with the noble Lord, Lord Desai, who said that there is no movement. There may at times be a lack of the visionary rhetoric that was apparent 20 or 30 years ago but, as the noble Lord, Lord Peston, pointed out, people were talking about EMU in the 1960s. In the more pragmatic 1990s, we actually got round to introducing it.
Lord Saatchi: My Lords, it is a great pleasure to wind up on behalf of these Benches after such a thought-provoking and timely debate on such an interesting report. Although I enjoyed the debate, if it had been a football match, the score at the moment would be 13-2. However, I shall try to make up for that in extra time.
I must first praise the noble Lord, Lord Tomlinson--I am sure that my praise will not go to his head--and all of the other distinguished members of the committee, who have, as many noble Lords have said, done an outstanding job in producing the report. As the noble Lord, Lord Bruce of Donington, said, it is truly a formidable report. It has tremendous breadth of research and analysis, and evidence was taken from the key people at the highest level. The report's quality of writing is remarkable--it is a tribute to all of the members of the committee, the Clerk and the specialist advisers. It brings great credit to your Lordships' House. The noble Lord, Lord Hooson, said that such reports are one of the greatest contributions that this House can make to public life. I should go further. As the noble Lord, Lord Desai, said during our consideration of another Select Committee report--I believe it was a report on the Monetary Policy Committee--Select Committee reports of your Lordships' House should be required reading in schools and universities. I totally agree.
When I got down to reading the report, I was struck by the committee's definition of its basic purpose, which the noble Lord, Lord Tomlinson, repeated today. He said that he was trying to make a contribution to the debate on whether the single currency has so far been, to use the Government's word, successful. As the noble Baroness, Lady Sharp, reminded us, the report's authors conveniently set out in one paragraph--paragraph 28--some of the criteria by which the euro's success or failure can be assessed. Those criteria include: increased rate of growth; greater incentives for fiscal responsibility and structural reforms; increased transparency; enhanced competition; greater liquidity; savings on transaction costs; and higher investment. No one could desire a more worthy wish list.
The noble Lord, Lord Cobbold, mentioned some other categories that were related to progress in bond and equity markets, and my noble friend Lord Northbrook described the impact that the euro was having in some other countries. I do not propose to analyse any of those criteria today. Other noble Lords have done so better than I can. Those criteria are indeed the stuff of tests and measurements, which can be carried out by what the noble Lord, Lord Barnett, called an objective observer in a laboratory.
Five hundred years ago, Dante--I shall quote him only to relieve the noble Lord, Lord Newby, of the stress of hearing me quote Plato--set out the premise on which the euro is based. I shall quote him at some length. In 1459, he wrote:
Today, the public--the noble Lord, Lord Bruce, called them the ordinary people--are being confronted with powerful arguments for the modern version of Dante's vision. The noble Lord, Lord Hooson, and many other noble Lords who have spoken today are deeply affected and attracted by that. We are told that although everyone wants to be in charge of their own fate, nothing is completely sovereign. No man is an island, not even this one.
We are reminded that with global financial markets, economies are interdependent. We are invited to see the euro as just another symbol of global capitalism; to observe daily mega-mergers and global corporate alliances; to note that jobs move to wherever it suits global corporations to employ people; and to hear employers teaching every day the meaning of e pluribus unum--that unity is strength--and that the strong go forward, that the weak go the wall, that size is everything and that only a few will survive. If nobody can stop the globalisation of companies, can the globalisation of countries be far behind?
That is what political leaders in euro-land argued to great effect in order to give birth to the euro in the first place. From their perspective, it is only misplaced romanticism that leads Britain to refuse, as my noble friend Lord Renton of Mount Harry put it, to cross the Rubicon.
Yet, after all of those powerful arguments, the latest opinion poll in our country shows that 71 per cent of our citizens will not vote to join the euro. That is not a success for the euro but it is, I contend, a tribute to the rationality and sophistication of the great British public. I shall try to explain why. Because, in arriving at that judgment, the public have carefully considered two sets of objections to the euro, both of which are well documented in the report. The first set involves economic objections: that it will fail; that it will cost jobs, raise taxes and lower pensions; and that bad things will happen. The public have worked out that that first set of defects--the economic objections--are capable of remedy by delay. In other words, a rational person could say, "I am a cautious man. I think that this may go wrong. Therefore, I will be prudent and wait and see. What's the rush?". In the event that time passed and that man's fears proved to be groundless,
The public have also considered a second set of objections, which involves our sovereignty, nationhood and traditions and, fundamentally, the accountability of the rulers to the ruled. The noble Lord, Lord Peston, referred to that as accountability to democratic institutions, which, he said, was of the essence. The noble Lord, Lord Desai, made similar remarks. The public have concluded that such constitutional objections are not capable of remedy by delay. There never will be a time when the arguments of sovereignty and accountability can be overcome by observation of economic outcomes or the results of tests, particularly not tests prescribed by the noble Lord, Lord Barnett, as "pretty meaningless".
No, my Lords. Perhaps it is true that, as the noble Lord, Lord Bruce, said, the £20.30 price of this report was too much for the public and, therefore, the public may not have read it. But they are well aware of its conclusion. In the "And finally" paragraph of the report, it says, starkly:
One of the witnesses was the governor of the Bank of France, M Trichet, whom several noble Lords have mentioned today. I do not know whether noble Lords are aware that when M Trichet was asked why it is necessary to have the euro, what is the fundamental reason, his response, which he deploys as a party piece--it is quite effective--is to ask his audience first, "Are you aware, ladies and gentlemen, what is the share of world trade accounted for by America?" The audience is usually baffled and he says, "It is 30 per cent". Then he says to his audience, "And tell me, what
Those issues of sovereignty and accountability will come to the fore when the debate on the euro begins. But as the Select Committee says, the response to the debate on the referendum, when it begins, will depend on the extent to which the public is provided with accurate information.
At the moment, the Government show no desire for a debate on the euro. One reads every day that the Government's strategy is for no better reason than the polls show that they will lose it. They prefer the sort of language of which Sir Humphrey would approve, as in Dr Itmar Issing's phrase quoted in the report. He said:
I fear that the Government think it better to follow the strategy of President Johnson in the White House when he was asked by his aides, during a particularly heated period during the Vietnam war, whether he would conduct a public debate on the Vietnam war in America. He thought about it for a few moments and then his famous answer was, "If you have a one-eyed mother-in-law and her one eye is in the middle of her forehead, you do not bring her out of the kitchen". That appears to be the Government's view. They want us to fret alone in the dark with our fears and insecurities in our heads about how we can make it on our own: are we not too small; are we not too weak? Theirs is a basic appeal to fear. But when the referendum comes, I think that they will find that the British public are made of sterner stuff.