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3.46 pm
Mr. Michael Portillo (Kensington and Chelsea): During the course of my speech, I shall try not to allude to the Chancellor's five economic tests. The main reason that they were invented was to bamboozle people into believing that the main criteria, on which we should judge the euro were economic criteria, whereas there are, in fact, important political and constitutional matters at stake. As Chancellor Kohl once said, there cannot be political union without monetary union, and vice versa.
I pay tribute to the hon. Member for Yeovil (Mr. Laws) for at least pointing out that political and constitutional factors are at work. It is disappointing that, once again, the Chancellor of the Exchequer failed to admit that such factors are involved. It appears that his principle is that he cannot lose votes by insulting the intelligence of the British people. He not only insults the intelligence of the British people but he insults our European colleagues. There is at work on the continent of Europe a great deal of idealism—people who wish to build a new Europe. They are driven by a wish to avoid the problems that scarred our continent in the 20th century. They believe in creating a country of Europe. We should understand and be respectful of such idealism and should not deny that the euro is a part of that process.
I want to consider some recent political developments. Why did the Prime Minister come back from his leadership of the country in the war against Iraq so full of enthusiasm for the euro? Why did he want to go to the Cabinet as quickly as he could to convince it that it should take the euro to a referendum of the British people at the earliest possible opportunity? The reason was that an important event occurred in January when eight countries signed a letter in which they expressed their support for the United States in the Iraq crisis. However, they did that not only because they were talking about Iraq, but because, more broadly, the eight countries concerned, which included Britain, Spain, Italy and eastern and central European countries, had reached the conclusion that they did not wish to see a Europe in which all the decisions were pre-cooked by France and Germany. They wanted a Europe in which we took more account of the need to be globally competitive, in which we would have more flexible labour markets and in which we would try to have lower rates of taxation. In other words, that is a Europe in which many of its characteristics would be more Anglo-Saxon.
Our Prime Minister saw an opportunity to lead that faction—that large minority or perhaps even small majority—of countries in Europe that wanted Europe to be run differently. He realised that unless he was able to get this country into the euro, he would have no opportunity to offer leadership to that faction. That was what gave him the urgency and why he returned so enthusiastically. Having turned around the opinion polls substantially on Iraq, he believed that the fact that the majority of the people in this country were against entry into the euro would be no impediment to him.
With his charm and charisma, he would simply be able to persuade the British people of the need to go into the euro. All that was a few months ago; it looks rather ridiculous a few months later.The Chancellor of the Exchequer stood in the Prime Minister's way and prevented him from realising his European policy. That policy is now in a state of collapse. Indeed, I would go further and say that during the Iraq war the Prime Minister demonstrated enthusiasm not only for leading the country on Iraq and, subsequently, for the euro, but for a new political radicalism on foundation hospitals, student fees and ways to oppose some of the excesses of trade unionism.
The bursting of the Prime Minister's balloon of European policy by the Chancellor of the Exchequer has led to a more generalised collapse of the Prime Minister's morale. He has abandoned his radicalism on hospitals, education and standing up to the trade unions. He has lost the Health Secretary who was going to implement his policy. The Chancellor's opposition to the Prime Minister on the euro is typical of his more generalised position, and it has left the Government in a thoroughly becalmed situation. However, at least the Prime Minister's actions during the past few months demonstrate that he knows perfectly well that the euro is a political issue.
Without alluding to the bogus five tests, I shall deal briefly with a couple of the economic issues. I do not understand why it was expected that applying a single interest rate to all the economies of Europe could ever be successful. Although convergence tests, which were fairly easy to pass, were applied to the countries that joined the euro at the first stage, it was perfectly obvious that Europe was composed of economies that were at thoroughly different stages of development and had different cycles and characteristics.
The application of a single interest rate to all those economies was a guarantee that the rate would be wrong for most places most of the time—and so it has turned out to be. The interest rate is too low for Ireland, which has inflationary pressures, and too high for Germany, which has severe economic problems, as several hon. Members said. I was amused to hear the hon. Member for Dumbarton (Mr. McFall) quote Professor Moore's comment that those who had been in the euro since the beginning would have experienced greater convergence. Tell that to Ireland and Germany, because any convergence that might have occurred has not saved them from the grave economic damage that the interest rate is doing.
The hon. Member for Yeovil demonstrated extraordinary naivety by clutching at the 0.25 per cent. growth rate that has apparently been offered in the Treasury documents. Why should he believe anything that is published in a Government document? How can the Government precisely put their finger on a figure of 0.25 per cent. growth that is waiting to be grabbed if we join the euro? In any case, does the hon. Gentleman have any idea of the impact over time of applying the wrong interest rate to an economy? It is absolutely devastating, as the 4.3 million unemployed in Germany can attest.
Mr. Bryant: The right hon. Gentleman is making the argument that one interest rate cannot possibly fit a variety of economies. Surely the United Kingdom consists of several economies. The interest rate that is established in
the United Kingdom might be right for the housing market in the south-east and his constituency but wholly wrong for the manufacturing industry and my constituency.
Mr. Portillo: If the hon. Gentleman understands that—apparently he does—it is a tragedy that he does not understand that the problem will be worse if one interest rate is applied from Dublin to Athens. Whatever the differences between the north and south of England, more substantial differences exist between east and west Europe and north and south Europe. I am pleased that he intervened because I would otherwise have had to make that point in my own time rather than getting a bonus minute from him.
Hon. Members have discussed the growth and stability pact, which was recently subjected to a most intemperate and vituperative attack by a senior Italian politician. I refer, of course, to Signor Prodi's description of the growth and stability pact as stupid. That is all very well, but the pact was a product of deliberation among many of the wise minds of Europe. People thought that it was appropriate and the fact that he simply called it stupid provides us with no grounds on which this country could contemplate going into the euro. The Chancellor of the Exchequer is thus perfectly right that now is not the time to enter the euro, not least because the growth and stability pact is in such a mess. He offers the prospect that an alternative arrangement might be made over a long time to take more account of cycles, and so on, but we do not have such an arrangement now. For this country to dream of going into the euro when the growth and stability pact is attacked by even Europe's most senior political figures is an extraordinarily stupid thing to do.
Mr. Love: To take up the logic of the right hon. Gentleman's argument, if in five years' time the eurozone has high growth rates and low inflation, will he change his mind about joining?
Mr. Portillo: It would certainly give the hon. Gentleman, the Chancellor and the Prime Minister a sporting chance of persuading the British people of their case. The position at the moment, as the Chancellor of the Exchequer wisely advised the Prime Minister, is that the Prime Minister would have to go to the country and say, "Look at Germany. We want a little bit of their 4.3 million unemployed. We want a little bit of their stagnation." I am a practical-minded person and take account of facts as I find them, and it is clear that even the hon. Gentleman would find it difficult to convince his constituents of such an extraordinary and foolish proposition.
Talking of foolish propositions, people still look for stable exchange rates. It makes me laugh because it puts me in mind of Monty Python and the quest for the Holy Grail. What has happened since the invention of the euro? Have we had stable exchange rates? No, of course not. The euro has varied enormously against sterling and the dollar. Many people who are advocates of the euro are not so much worried about whether they have the right exchange rate, but whether they have a strong exchange rate, so they can feel a certain euro machismo. I congratulate them because they have a nice strong exchange rate. That is very good for euro machismo, but desperate for European industry, which is trying to export with a high euro exchange rate.
I am also amused by those people—the hon. Member for Yeovil is a good example—who lament that what went wrong in the past is that we joined the ERM at the wrong rate and say we must avoid that in future. That is a complete misunderstanding of what is involved. Exchange rates in different countries mean that if economies move at different paces and in different cycles, some of the shock of the differentials between one country and another can be absorbed by the exchange rate—it is a shock absorber. If we lock all our exchange rates together into one currency, we lose the shock absorber. The shocks that would otherwise be reflected in a rising or falling currency are reflected in higher inflation, higher unemployment or recession. We have good examples of that within the eurozone. It has nothing to do with the rate at which we go in. What it involves is giving up in the long term—permanently—the ability to have an exchange rate that reflects those varied movements.
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