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European Monetaryco-Operation Fund

Volume 888: debated on Wednesday 12 March 1975

The text on this page has been created from Hansard archive content, it may contain typographical errors.

2.47 a.m.

I beg to move,

That this House takes note of Commission Document R/3594/74 and of the Government's intention, while co-operating in the improvement of monetary consultations in the EEC. to question the suitability of the organisational measures proposed.

The EEC document under discussion is a draft Regulation, the purpose of which is to enlarge the functions of the European Monetary Co-operation Fund to give it a much larger role in consultation on monetary problems between member States.

The draft regulation was introduced by the Commission to the Council of Finance Ministers in December 1974. The whole purpose is to achieve a greater consultation within the EEC on monetary matters.

If I might say something about the history of those consultations, perhaps I might start by pointing out that at the outset the Monetary Committee was set up under the Treaty of Rome, with a committee of officials, its purpose being to report on the monetary and financial situation within the Community and they, of course, issue an annual report, as those interested in these matters will know.

On 8th May 1964, there was set up a Committee of Central Bank Governors. The aim was to take on consultations on policy matters, including credit, money, and foreign exchange markets. The other main purpose of this Committee was and is to provide for the exchange of information and to produce the greater consultation which so many believe to be valuable in this.

Following that we had the setting up of the European Monetary Co-operation Fund, established in April 1973. Its initial responsibility was to manage the snake as well as the short-term credit facility. The position remains that it is hoped that it will have the possibility of undertaking work in connection with the joint Community borrowing scheme.

The snake and the short-term credit facility were the initial responsibilities of the European Monetary Co-operation Fund, but the activity in this regard has been reduced considerably because of the floating of the pound, the Irish pound, the lira and the franc. The EMCF is managed by a board of governors. The members of the board are the central bank governors, plus a Luxembourg representative. At present, it has no staff. The Bank of International Settlements provides the secretariat, and the meetings of the EMCF are held in Basle.

My hon. Friend referred earlier to the function of the EMCF in managing what remained of the Community snake. Is it also responsible for managing the affairs of those non-Community countries which have linked their currencies to the snake?

Yes. The consultations tend to be rather more informal with those countries outside the Community, but the EMCF handles that side as well.

There are premises in Luxembourg set aside for the EMCF. They are not yet occupied. The building is there, and many hope that it will be occupied eventually by the EMCF.

The Commission claims that, despite the progress on consultation, there is still this lack of effective co-ordination of monetary policies within the Community and that with the four currencies floating independently, and that with the foreign exchange market as well as the international capital market being somewhat disorganised, there is a need, which we accept, for close consultation on these matters with all the partners.

That background leads on to the proposals before us. They are that there should be a greater opportunity for consultation on these monetary policies, including the external monetary policies, credit policies and similar matters between the member States. The aim is that there should be a greater and more adequate exchange of information, and it is hoped that this body will be able to make recommendations to the central banks on the monetary situation and exchange rate relations. The intention is that the EMCF will deliver opinions to the Commission and that there will be established a director-general with day-to-day management responsibilities.

The impression that I have is that it is likely that the Council of Finance Ministers will consider this draft regulation on 18th March. If this regulation were to take effect, the consequence would be rather more organisational and procedural than substantive, that these monetary questions should be concentrated in the EMCF rather than divided, that it might be more systematic, as the proponents of the change claim, and that the EMCF could lead to better consultations with direct recommendations to the central banks and an influence on the Commissions.

Anyone who has studied the problem knows that it is at present somewhat difficult to get genuine prior consultations before making a number of the decisions which each member State seeks to initiate on certain occasions. But it must be emphasised that there is no obligation in the regulation to accept the advice arising from this prior consultation.

If this regulation were to go forward, there would be no new legal obligations on the United Kingdom ; nor would any United Kingdom legislation be required.

Everyone will agree that the present consultations on monetary matters are imperfect. But it is not difficult to see the reason why. The monetary situation is under considerable stress at present. The rapid rise in oil prices and the consequential financial flows have made the co-ordination of monetary policy very difficult. Despite that, we got the Joint Community Borrowing Scheme, and assistance was given to Italy.

Currently we are considering whether structural changes in organisational methods can lead to an improvement. That is hard to assert with any great confidence. The EMCF board is really the central banks themselves. The important role of the Finance Ministers also needs to be involved. Because of that, Her Majesty's Government are a little more critical than they would otherwise be of the proposals.

Discussions which have taken place at official level show that within the member States there is considerable opposition to this organisational change, but not all countries have expressed their views on these matters.

Most people would agree that the monetary consultations carried out now are unsatisfactory. Indeed, most of the member States concerned are unsure that the organisational changes proposed provide the best way out.

It is unlikely— in fact, extremely unlikely— that the draft Regulation will be adopted as it stands. Our view is that practical ways of improving monetary consultations are the right way to proceed. I believe that that view will be echoed by a number of other countries.

This general critical attitude, where we accept the value of consultations on monetary matters and seek to improve their quality in more practical and direct ways, is the method by which we would choose to proceed, and that method might have considerable support among the member States.

2.58 a.m.

I was interested to hear the Minister of State's views on the proposed restructuring and enlargement of the role of the European Monetary Co-operation Fund. I have no difficulty in accepting the motion and taking note of the Government's intentions regarding this instrument.

It would be impossible to divorce the proposal from the history and background of this institution. After all, the institution was seen at a time when the prospect of monetary union in the Community seemed perhaps more real than today. It was seen as the instrument by which, in due course, the monetary union would be translated into something in the nature of a European Community central bank. It is with that in mind that one has to consider changes which are now made regarding both its structure and rôle.

I am very much wedded to the prospect and objective of the attainment of monetary union in the Community, but I have always felt that that was realistic only in terms of a preliminary movement towards much greater economic union, much greater assimilation of the economies by diverse methods that the Community should produce during the course of its development. I have always wondered whether it was right to put the European Monetary Co-operation Fund into a position that was incompatible with the economic development of the Community generally.

Indeed, for me the principal point at issue is both the EMCF's rate of development in relation to the Community generally and its relationships. If in due course it is to be the instrument it was intended to be, it will need to have a proper relationship with the other institutions of the Community. This seems to be essential if, as I expect, the development of the Community policies in a variety of economic and social matters reposes essentially with the Commission and with the Council of Ministers as a decisive force. It is right, in all the circumstances that the Commission, too, should be broad proponents of monetary developments, using the fund at the appropriate time as an instrument of its intentions.

That seems to be a proper way for this operation to develop and therefore it seems that that acceleration of the fund's activity which, despite anything that may have been said in the papers before us, is implicit in these proposals, must appear at least to be out of place with the effective development of the Community. Like the Minister, I have absolutely no doubt that there is a need for both greater cooperation, concentration and greater convergence, to use the regular expression in this and other aspects of the Community's work. Personally, I am of the opinion that it is improbable that developments towards an effective Community will be attained while, for instance, individual countries operate in their own transactions with the Community sometimes with no fewer than three exchange rates.

This phenomenon obviously requires some changes and effective co-ordination of the monetary relationships within the Community to bring about anything that may be considered in any form an improvement in harmony and unity within the European Community. I sincerely believe that there is a great deal to be attained in this respect.

I am anxious, and I think that this anxiety is shared by many who are not necessarily concerned with the purposes of the Community, about the timing and implications of the proposal. We seem to to be moving towards a situation that can only become more and more intricate, both in relation to the nature of the instrument and its relationships. Therefore, I welcome what the Minister has said this evening about the Government's reticence in this respect. I note with interest that other countries are also anxious about the way in which this instrument is currently being put forward. It is necessary to show some reserve about the proposal.

I am always a little anxious when 1 see perhaps the name "director general" in an institution of this kind. It seems to imply that there will be a follow-up staff who, in the nature of things, will be looking for an outlet for their undoubted abilities, and that outlet may not be in conformity with the kind of development that seems to be proper in relation to this fund.

All that being so, I must sound a certain word of caution about the way in which this fund is developed. I am glad to feel that that word of caution is reechoed from the Treasury Bench. I can only say that in these circumstances taking note of this instrument occasions me no difficulty, provided that the reserve which has been expressed is maintained.

3.5 a.m.

I am sure that all Members present at the moment will join with me in protesting at the hour at which we are expected to debate this very important document and its predecessors. I shall deal with those in a moment.

This is the fifth item on the Order Paper today. I admit that the length of a Report stage cannot always be predicted with accuracy, but it is wrong, in view of the statement made yesterday by the Prime Minister, that we should be discussing this instrument at this hour.

Secondly, it is subject to the business motion limiting the debate to 1½ hours, whereas some of the other business that we have had was subject to no restriction. That, again, shows the contempt with which the Government are dealing with discussions on EEC issues that we have had over the last few months.

There is one other matter to which 1 want to refer before coming to the subject of the debate, namely, the preamble to the regulation, which refers to the proposal being based on Article 235 of the Treaty of Rome. This article provides that
" If any action by the Community appears necessary to achieve, in the functioning of the Common Market, one of the aims of the community in cases where this Treaty has not provided for the requisite powers of action, the Council, acting by means of a unanimous vote on a proposal of the Commission and after the Assembly has been consulted, shall enact the appropriate provisions."
As we know, at the moment this treaty is something of a written constitution not only for the Community but for this country, and anybody who is familiar with constitutions who sees a phrase like that at the end of the article will know just what it means. It means that if the Community and the Council think that they should take some powers which are not provided in the treaty, provided it is unanimous, and after consulting the Assembly— they do not have to take any notice of what the Assembly says— they can take those powers. This is one of the regulations which come under that heading.

On might immediately say that that is the sort of innocuous expansion of the machinery which we have heard about from the Minister of State this evening. But why should that need a reference to Article 235, concerning powers? The Minister of State may have been rather less than frank. I may be mistaken in this. No doubt my hon. Friend will say, in his concluding speech, whether I am wrong. He has talked about the background to this document, R /3594/74, which we have in front of us, but I do not think he went back far enough, because this document— as stated in the preamble and in the explanatory memorandum— is an expansion of
" the functions of the European Monetary Co-operation Fund as set out in the founding Regulation…Explanatory MemorandaR/241/73 and R/731/73 …"
supplied to this House on 10th April and 1st May 1973. They were presented under the previous Government.

The explanatory memorandum to R/3594/74 says that
"The EMCF would become responsible for co-ordination of the domestic and external monetary policies of the EEC Member States and for the exchange of information on international capital and foreign exchange markets."
That sounds reasonable enough. The hon. Member spoke of the exchange of information, and so on, but if we look at the original instrument we come across something quite different. R /241/73 states, in the preamble
"Whereas the purposes of the Fund will be to contribute to the progressive establishment of an economic and monetary union between the Member States of the European Economic Community, which in the final stages would be characterised: either by the total and irreversible convertibility at a fixed parity of Community currencies against each other or by the introduction of a common currency."
That is why the fund was founded, and it is now to be speeded up by the latest proposal. But I did not hear from my hon. Friend any reference to those specific objectives, nor was there much about them in the explanatory memorandum then. It says:
"The fund will be concerned in its initial phase in the arrangements for operating the scheme to narrow the margins of fluctuation of EEC currencies and with short-term monetary support."
When I read that I thought that it was the initial phase, and wondered what would happen in the later phases. I turned over the page and found that that was the end of the policy implications, and that all we had was the timetable.

The explanatory memorandum to the document R/241/73 was not signed by any Minister. It just said "HM Treasury. 10th April 1973 ".

I should say in fairness to the Government that the lack of a signature was a matter of a technical, timing problem rather than any delinquency on the part of the Department concerned.

I am obliged to the right hon. Gentleman. It was a Government of which the right hon. Gentleman was a member.

It seems less than frank that in talking about the objectives the document speaks of the initial phase and does not continue. The right hon. Gentleman says that it was not produced by a Government of which he was a member, but it was dated 10th April 1973.

The Explanatory Memorandum for R /731/73 is dated 1st May 1973. I think that the right hon. Gentleman was a member of the Government then. It says:

" This document is therefore no longer a draft but is the text of a regulation in force"
It repeats the words I read earlier about the introduction of a common currency, parities, irreversibility and so on. On page 3 of the regulations we read:
"Whereas the conferment of these responsibilities constitutes merely the first stage in the progressive development of the Fund ; whereas it is therefore important that the statutes of the Fund should be drawn up in such a way as to permit the scope of its activities to be gradually extended ; whereas it is necessary to establish the Fund if Community objectives are to be attained, in particular as regards the progressive harmonisation of the Member States' economic policies, the proper functioning of the Common Market and the establishment of economic and monetary union."
So we are going quite a long way further along this road, even to the extent of
" the progressive harmonisation of the Member States' economic policies".
One might expect something to be said in the accompanying explanatory memorandum from the Government, but it says very little. It shows that R /731/73 is an expansion of an earlier document, R241/73. The Memorandum is dated 1st May 1973, unsigned and with no mention of the Treasury.

In these debates we have had a succession of incomplete documents and incomplete and misleading explanatory memoranda. I do not want to do my hon. Friend the Minister an injustice, but to that list we can now add a misleading speech from the Dispatch Box.

I fear that it goes even further than that. The Scrutiny Committee has had a look at these documents. We have been given an extract from what I think is a forthcoming report from that Committee— paragraph 2 of the Committee's 12th report. The Committee goes into this matter— because it is its job to scrutinise this sort of thing— and says:
" The Committee noted the objects for which the Fund was established in i973 (as set out in Document R/731 /73) as being primarily for promoting the reduction of margins of fluctuation between Community currencies, interventions in Community currencies on the exchange markets, and settlements between Central Banks leading to a concerted policy on reserves. The Fund also had a responsibility for concerted action in the Community exchange system ; for multi-lateralisation functions in relation to interventions by Central Banks in Community currencies and in relation to intra-Community settlements ; and for the administration of the short-term financing provided for by the Agreements of 1970 and 1972 between the Central Banks."
That is jargon to many of us. It may mean something to people concerned with international banking, but there is nothing whatsoever there from the Scrutiny Committee, which is supposed to look at these things, about progressive harmonisation of economic policies of member States.

The right hon. Gentleman says that it was unnecessary to be there. I am always willing to be corrected in the line of logic that I am pursuing. No doubt the right hon. Gentleman will say why he thinks that it does not need to be there. But on my reading of these documents, as an ordinary back-bench Member, I should have thought that the implications of the European Monetary Co-operation Fund— and this last document in a long line of documents which hastens its expansion and, therefore, hastens its objectives— are very much more than the House has been told about.

The motion before us and the speech from the Minister do not in any way question the objectives of this fund. All that the motion does is to reserve on the methods which are being adopted to achieve those objectives. We have had no reservation whatsoever from the right hon. Gentleman or in any of these documents I have quoted concerning their objectives.

I find that unacceptable. There has been a great deal of talk recently about manifestos. The manifesto which the Foreign Secretary quoted in his speech to the Council of Ministers in Luxembourg on 1st April last said:
" We would reject any kind of international agreement which compelled us to accept increased unemployment for the sake of maintaining a fixed parity, as is required by current proposals for a European Economic and Monetary Union."
I shall not say that this is immediately and necessarily counter to what I have said about convergence of the economic policies of member States, because there may be a chink in logic through which one could move. However, it has a great deal to do with it, because the acceptance of increased unemployment is part of the choice of economic management of any member State— quite clearly.

If we are not going to accept economic and monetary union with that tie in it— which the document I have read certainly says is there— then the spokesman of the Government has come to the House at this early hour of the morning and has kept from this House—

My hon. Friend does not agree. But the Government spokesman has kept from the House the implications of the European Monetary Cc.-operation Fund, which as I read it is, if not contrary to a manifesto commitment, at least near enough contrary to a commitment so as to call the whole thing into question.

My hon. Friend has no doubt had a chance to read the instrument we are now considering as distinct from a number of other instruments from which he has quoted at some length. If he reads through this instrument he will see that the new Articles 3, 4, 5 and 6 are being substituted for those in the Council Regulation 907/73, which established the European Monetary Co-operation Fund, and he will find a set of pragmatic practical proposals which in no way refer to a linked rate of exchange.

I do not doubt what my hon. Friend has said. I have read the new articles. As I understand it the document R/3594 concerns the expansion of the function. It does not necessarily amend or cancel the other points I have made. It expands what is already there and is therefore adding a small additional function, through machinery about which the Minister has some doubts. While I agree that my hon. Friend may be factually correct I do not believe that that negates :he general thesis I have tried to put forward.

We have been under pressure here in the past few months on these matters. Our debates have suffered from procedural and information difficulties, and difficulties concerning timing and the time at which those debates have taken place. On the day after the conclusion of the Community negotiations, when the interpretation of the budget and of economic and monetary union have loomed large, we have not been given the proper facts. In this House, in this Sitting, when I asked the Foreign Secretary about the future of economic and monetary union he tried to laugh it off. He said that it was just as far away as disarmament. Do these documents show this?

3.12 a.m.

We are once again presented in the document before the House with a dilemma which we have already encountered several times in this series of debates. It is the dilemma between considering these proposals at a relatively early stage and considering them at a relatively late stage. This evening we have had the document, accompanied by an intimation from the Minister of State that the Government think it extremely improbable that it will be adopted by the Council of Ministers in anything like its present form.

Therefore, any anxieties we might have about its content and form may well prove in the event to be irrelevant. From that point of view it is hard to feel that our debate is a practical debate. Even the argument, often put forward, that by having these documents before us at a fairly early stage we are enabled to influence subsequent action upon them and to impress the Government with a sense of what should be done, hardly applies on this occasion because the Minister more or less made a clean sweep of it before the rest of us could get at the document.

I confess my belief that it is more practical for these documents to come to the House at a relatively late stage in their gestation. I am nevertheless sure that it was right for the Scrutiny Committee to draw attention to this document. There is a certain paradoxical appropriateness in our considering it in this day's sitting. The Foreign Secretary at an earlier stage of this sitting made almost merry with the notion that economic and monetary union in the EEC was visible on the furthest of possible horizons. If he had used an alternative metaphor, it is a date, he was telling us, as remote as the Greek kalends.

Now, in the same sitting, we are reminded of what has followed from that summit meeting in October 1972— the summit meeting which fixed 1980 as the intended year of the achievement of economic and monetary union, an intention which, despite some milder expressions of subsequent communiqués, has not been disavowed or laid aside by the EEC.

The Minister of State in his evidence to the Select Committee and again this evening treated the proposal as one of machinery. His words to the Select Committee were that he did not see the proposal as having
"…any particular significance in relation to any future move towards economic and monetary union."
If he does not, the evidence that it is such is writ large upon the documents.

The explanatory memorandum which accompanies this document says that as a result of the proposal
"The EMCF would become responsible for co-ordination of the domestic and external monetary policies of the EEC Member States … "
Those words may be mistaken, but they are far reaching. The explanatory memorandum to the document itself says :
" That is why the Commission proposes that the Fund should henceforth be made responsible for co-ordinating the internal monetary policies of the Member States of the EEC in so far as they affect interest rates, capital movements and foreign exchange rates:'
That does not mean, if words mean anything, that it is thought to be a convenient forum in which there could be chats between representatives of independent States as to how respectively they intended to conduct their affairs. The word "co-ordinating" presumably has its normal meaning and the phrase "responsible for co-ordinating" equally has its normal meaning. What is to be coordinated is the heart of the economic policies of the countries involved.

Perhaps the right hon. Gentleman would agree that in these matters it is better to turn to the instrument itself. If he will turn to page 3, he will see that Article 4 deals with the matter in some detail and says:

" The Fund shall be responsible for arranging continuing and prior consultation … "
— which is close to the right hon. Gentleman's suggestion of friendly chats.

In the enactment clauses the document does not fulfil as yet what is the declared object, but at least I have disposed of the inability of the Minister of State to see that the proposal has any particular significance in relation to any future move towards economic and monetary union. Undeniably it has a significance and indeed it must do so. This is one of a series of documents that follow from orders given at the summit meeting which took the decision in October 1972 to aim at economic and monetary union by 1980.

We now arrive at a dilemma with which the whole debate on Britain and the EEC is shot through. At any stage in this debate it is possible to expose the contrast between what is actually being done at that moment and what are the professed intentions. But we cannot resolve that dilemma by simply treating the professed intentions as appropriate to be disregarded, by simply treating them as mere professions which will continue not to have any corresponding consequence in what is binding and mandatory— by assuming, for example, in this particular case that at no time is it intended that there shall be a body and an organisation responsible for co-ordination of those economic policies of the member States which have an impact upon the value of their currencies and consequently upon the possibility of maintaining a fixed parity between the currencies.

The right hon. Member for Knutsford (Mr. Davies) over and over again in these debates has reminded us that the European Economic Community is what it professes to be. It is to be a common market in which there will be a common regime, a community, at any rate in the economic sphere. Such a community is not conceivable unless there is monetary union. If the States themselves pursue policies which result in different impacts upon the value of their money, so that they can be kept in interrelationship only by exchange rates which either float or are from time to time adjusted and altered, there cannot be a workable common agricultural policy aiming at a co-ordinated scheme of identical prices for the whole Community, nor can there be a Common Market ; for the very fact of the division of the Market by the different exchange rates, by currencies which are influenced by different national policies, is a negation of a Common Market.

It is not a mere example of the celebrated French logic that whenever the leaders of the EEC review their position they identify economic and monetary union— of course, once again the right hon. Gentleman is quite right in saying that economic and monetary union is not two things, it is one thing— they identify economic and monetary union as an indispensable aim to which they must continuously be moving. Therefore, we cannot escape from this contrast between the very nature of the Community and that independence of national decision which the Labour Party has declared that it embraces and which many far beyond the ranks of the Labour Party are determined to maintain.

As the manifesto of the Labour Party said, European economic and monetary union requires whatever is necessary in the parts of the Community in order to maintain either a single currency or else a fixed system of parities between the domestic currencies. It requires the surrender by the member States of the very heart of their respective economic policies—policies which will influence unemployment, growth and the whole nature of the trade and intercourse between the respective countries and the rest of the world. When control over these policies is relinquished, then indeed the separate States have lost the greater part of what is worth having in self-government.

I was following the right hon. Gentleman in absolute agreement, but I was struck by the word "relinquished ". The whole thesis of the Community is that the rights and duties are shared. The principle of relinquishing seems to me to imply a complete abandonment of a real part in the conduct of one's own affairs. This is not the purpose of the Community.

It is relinquished by the parts of the Community, by the States, in order to be assumed by the common government— I mean to import no prejudice by the use of the word "government "— of the Community as a whole. It is a merging of the States into a new State. It is the transformation of the existing independent States into provinces of the new State.

Here, on this day of all days, we are asked to take note of this document, a document dismissed as innocuous by the Minister of State, and in its content, indeed, as the hon. Member for Farnworth (Mr. Roper) pointed out, not really very effective— a document moreover, which the Government and their supporters will not accept in its present form— yet we are reminded by it of the heart and reality of what we should be doing and what we should be solemnly undertaking on behalf of the British people if we were to ratify, in the procedures which are to follow this year, Britain's membership of the European Economic Community.

With its very superficiality, with its very triviality, the document now before us brings us to the solemn heart and reality of the great national decision.

3.36 a.m.

Once again, I follow the right hon. Member for Down, South (Mr. Powell) and have to discuss with him some of the text of the manifesto on which I— and, in an honorary capacity, he— fought the February election last year.

The right hon. Gentleman referred to the passage in the manifesto dealing with economic and monetary union. It did not, of course, condemn out of hand all kinds of economic and monetary union. It condemned the current proposals for economic and monetary union, a phrase in which I am particularly interested because it was derived from an earlier document prepared by a Labour Party study group on which I served. At the time when we were considering the section of our report dealing with economic and monetary union, it was made clear— I think that I moved an amendment— that what we were condemning was the particular proposals then being put forward for economic and monetary union, which compelled us to accept increased unemployment for the sake of maintaining a fixed parity as is required by current proposals for a European economic and monetary union.

The right hon. Gentleman will know that in the speech which my right hon. Friend the Foreign and Commonwealth Secretary made on 1st April last in Luxembourg, he went into considerable detail— this is paragraph 6— on the problem of economic and monetary union, pointing out that the summit programme
" seemed to us to be dangerously over-ambitious : over-ambitious because the chances of achieving by 1980 the requisite degree of convergence of the rates of growth of productivity and wages rates, of investment and savings, seemed to us to be very small : dangerous because of the impossibility for any country, particularly a country with a relatively low growth rate, to manage its own economy efficiently and provide for full employment if it accepted permanently fixed parities without such convergence having been achieved."
My right hon. Friend went on:
" I understand that much new thinking is going on in the Community on the subject of economic and monetary union and that the proposals now being considered for a second stage in it do not provide for automatic movement towards permanently fixed parities. You will find our objections very much lessened if we can all agree that there can be no question of trying to force the pace, of compelling member countries to accept permanently fixed parities if this means accepting massive unemployment or before their economies are ready."
I quote at length to make clear that my right hon. Friends have never suggested that they are opposed root and branch to the concept of economic and monetary union as an ultimate objective of the Community. Indeed, in his reply today to my hon. Friend the Member for Newham, South (Mr. Spearing), my right hon. Friend the Foreign and Commonwealth Secretary said that he considered it to be an ultimate objective, in the same way as, when we are pursuing arms control measures within the United Nations and elsewhere, we see general and complete disarmament as an ultimate aim. This is something to which we are moving within the Community.

Can the hon. Member conceive of monetary union without either a common currency or an irreversibly fixed parity between domestic currencies, and, if so, is that not, in spite of all that he and the right hon. Member for Knutsford (Mr. Davies) said, exactly what is already expressly rejected?

Monetary union would, of course, be part of economic union and it would take place at a time at which the economies had converged, at which there would not be vastly diverging rates of inflation, at which there would be community-wide instruments such as the regional fund, not on the petty scale which now exists but on an adequate scale, to deal with unemployment in certain regions. We would see a Community which would have both economic and monetary policies. At that time, I believe, in the same way as within these islands we have economic and monetary union, we would have a wider-scale economic and monetary union which would involve a common currency for many purposes, if not necessarily for all.

I had hoped that I would be able to be grateful to the Minister who introduced this debate for his explanation of the slightly odd take-note motion which he has put down. I have previously expressed my dissatisfaction with this type of motion which attempts to add a substantial rider. The one we have tonight is somewhat enigmatic and I hope that before we agree to this instrument the Minister will explain in a little more detail which matters of organisation he wishes to see dealt with.

I do not think that I intend to carry my dissatisfaction with the take-note procedure into the Division Lobby tonight, but this form of motion with a rider, particularly of the vague character of the one now before us, seems to be not particularly helpful. I feel that Ministers can convey any reservations they have much more adequately in a speech than in an unclear form of words tacked on to a take-note motion.

I hope that the hon. Member for Kensington (Sir B. Rhys Williams), if he catches your eye, Mr. Deputy Speaker, will be able to tell us a little more of the opinion which was given by the European Parliament on 6th February 1975 about this instrument. I see that the hon. Member was personally present at the committee meeting which adopted that opinion almost unanimously. There was one abstention. Of course, the hon. Member might have been the abstaining member of the committee on that occasion. but I gather that he was not.

Paragraph 4 of the opinion by the Committee on Economic and Monetary Affairs states that the Committee remains of the opinion that even in its new form the fund will not of itself constitute an effective instrument of Community monetary policy unless economic policy is implemented on a Community-wide basis and the responsibilities of the Community institutions to this policy are strengthened. I should be most grateful if the hon. Member for Kensington would explain what was in the mind of the committee when it made this reservation. It could perhaps have been better explained in the document.

I turn to the point referred to in passing by the Minister. It concerns the slightly unusual arrangement for the location of the European Monetary Cooperation Fund. As I understand it, the fund is at the moment operated from outside the Community by the Bank of International Settlements. That bank does not choose to have its headquarters in any of the nine countries of the Community but in Basle, Switzerland. It may be that that is an appropriate way for the Community to operate, but from what my hon. Friend the Minister of State has said it seems that there is a splendid building standing empty in Luxembourg. I wonder how much rent we are having to pay for that empty building. I wonder whether my hon. Friend the Minister of State can tell me what waste of resources is represented by that empty building. Perhaps that is a matter of organisation which my hon. Friend finds not altogether satisfactory.

My hon. Friend referred to another matter which is not altogether satisfactory — namely, the relationship on the governing board of the European Monetary Co-operation Fund between the central banks and the Treasuries concerned. We know that relations between them sometimes run more smoothly than at other times. I understand that the International Monetary Fund has for some time operated on the basis of co-operation between central banks and Treasuries. Perhaps my hon. Friend can explain why a system which has been satisfactory for the IMF appears not to be satisfactory in the case of the EMCF.

My hon. Friend referred to more practical and direct ways of improving the organisation. I should be most grateful if he will give us some further details. In spite of what has been said by my hon. Friend the Member for Newham, South and the right hon. Member for Down, South, the changes which arc being made to Regulation No. 907/73— it was not, I think, on,: of the regulations quoted by my hon. Friend the Member for Newham, South--are practical and sensible ways of gradually increasing mechanisms for consultation and co-operation within the Community. That surely is the sort of co-operation that my right hon. and hon. Friends have come to appreciate during the 12 months since they took office and since they have become more aware of the workings of the Community.

3.48 a.m.

I join the hon. Member for Newham, South (Mr. Spearing) in his protest about the time at which we have to consider this important subject. It is wrong that the House should be expected to begin a debate of this kind after half-past two in the morning. It is difficult to take a sparkling or favourable view of the document which has been put before us at such a time.

I must also express a criticism of the Minister of State. He poured a great deal of cold water on the Commission's proposals. What he said on the way in which he would prefer the Commission to be proceeding was so vague as to be meaningless. I must also protest, as did the hon. Member for Farnworth (Mr. Roper), about the phraseology of the motion. It does not just ask the House to take note but includes some vaguely disparaging indications without being at all specific.

What we are considering is a very small proposal. As it is clearly common knowledge that it is unlikely to make headway, perhaps we need not concern ourselves too much with the details. However, the important issue is raised of economic and monetary union. One has only to say those words to find the vultures circling round looking for signs of carrion to pick over. The concept of economic and monetary union seems to frighten some people so much that they work themselves into a pitiful state of the terrors at the very thought of what it means. Perhaps it might help them to calm themselves if they asked what a country like Britain, which depends on trade and investment, could hope to gain from economic and monetary disunion. Surely, it must be to the benefit of our traders and investors that we should work towards conditions of greater stability and greater predictability in the world economy. Although we may differ whether we should move forward in the direction of unity or possibly through still greater freedom, we cannot want to lapse into a state of anarchy.

Many people may wonder whether in the last few years democratic economies have been going forward at all in their relationships with each other. Within the Community we have passed resolutions on economic convergence, but in setting up the European Fund in 1973 without a fund and without even any staff the Council merely, in the famous phrase, legalised anarchy and called it a constitution.

Many people who feel that in going forward with floating rates we achieved something useful— and I have been one of them— may not agree that what we are suffering at the moment is anarchy in the exchanges but, if not anarchy, the floating rate system we have enjoyed since the Nixon shock of August 1971 has brought dangerous instability. It has brought loss of confidence, lower investment and the almost uninsurable risks of the currency markets which make inflation harder to control. It is certain that we have to admit that we are not managing the floating rate system as well as we might.

Central banks have done much by their co-operation with each other. The Bank for International Settlements has covered itself in glory, and the IMF has done what it can. But, although things might have been much worse, they could have been much better. The democratic countries, in spite of returning to freer markets for their currencies, are slipping away from freer movement of capital and are risking the loss of wide and relatively undistorted markets for the exchange of goods and services built up under the Bretton Woods system. The oil crisis has not made matters any easier.

Without the political will to keep their currencies together, without gold, without a single dominating financial centre and without any effective monetary institution, the democracies cannot keep their economies in line and, as a result, confidence of trade and investment are suffering. The system has, worked better than many experts feared when we had to abandon the Bretton Woods system, because informal co-operation has reached a much higher level than many people realise.

The new proposals from the Commission merely give a formal nature to procedures of co-operation and consultation which are already well established although not publicised. That was recognised by the Minister of State in his speech and in his evidence to the Scrutiny Committee.

No doubt the monetary authorities of the Community and of the democratic countries have learned a lot in the course of practice of the floating rate system. We have abandoned the false start of economic and monetary union achieved in stages by a monetary sleight of hand without either political or economic union having first been achieved.

It is instructive to compare the text of the new proposals from the Commission with those that were adopted in 1973. The new text is generally weaker. The references are to be deleted to the progressive narrowing of margins which was the heart of the Werner concept. Intervention by the fund in Community currencies perforce had to be abandoned because the fund does not have any funds, and the new text abandons the idea of a concerted policy of reserves.

In effect we are seeing in this document the end of the old snake concept which frightened people so much when they started to study the implementation of economic and monetary union, and although we still retain in the text the idea of
" the total and irreversible convertibility, at irrevocable parities ",
no one who has been associated closely with the thinking of the Commission or other monetary authorities closely concerned with the policy of the Community believes that there is now even a dim idea of economic and monetary union by 1980. It is simply not spoken of any more. But the alternative remains of the introduction of a common currency. In this area much more thought needs to be given. We have here only half a document, and that gives some reasons for anxiety.

There is no mention of a Community unit of account. It remains in Article 5 of the Statutes in terms of gold. Whatever or may think about the desirability of that one has to agree that for the time being, at all events, the gold basis is out of fashion, if not obsolete. The Commission has come down in favour of the snake in the basket, a new concept, with the basket containing unfortunately in the case of the Community, some bananas as well as some hard nuts. I am afraid of what will happen if the unit of account is revised on the basi of a basket of currencies because the. will then always be one unit of currency which is stronger than the unit of account. That does not seem too good a basis.

Some other questions have to be asked. What is to happen as regards the relationship of the Fund— and to the funds of the Investment Bank too— to the Council, the Commission, the Economic and Social Committee and the Contact Committee, apparently a new body referred to in this document. Where does the European Fund fit in? And do we want the fund to be subject to political influence like the Bank of England or the Federal Reserve Board, or relatively independent like the Bundesbank and sited away from a political centre? As regards the premises in Luxembourg, I believe a single room has been taken so that the Fund appears to be sited within the Community, but it is operated in fact from the Bank for International Settlements in Basle.

What sort of man will be chosen to be the first Director-General? What have the Commission in mind? Will he be the embodiment of the elusive European monetary personality of whom President Giscard d'Estaing has spoken or just a faceless man at the end of a Telex machine from Basle? The latter seems more likely.

It seems to be the general opinion in the Commission and the expectation of those who are well-informed that this draft will make little progress, and therefore inevitably our debate is rather academic. The hon. Member for Farnworth (Mr. Roper) in taking the trouble to ascertain what happened in the committee where I have the honour to be vice-chairman, was simply confirming the obvious fact which, in the committee we had to recognise, that these are modest proposals and that, even if carried through as they are, they carry us only a short stride to economic and monetary union and much remains to be done. Only when we have settled the basic policies will the practical aspects begin to take care of themselves. It is futile to try to take care of practicalities without settling basic policies.

As Rapporteur in the European Parliament for questions of Economic and Monetary Union, I welcome the Commission's initiative. It is what I have pressed it repeatedly to do. But it must advance on a broader front if it is to achieve anything of value.

In the Conservative Party at Westminster, we recall the success of the European Payments Union, launched 25 years ago. We would like the European Monetary Co-operation Fund to enjoy a similar success as a practical but not over-ambitious project. But we treat the Commission's proposals with some caution. On the road to economic and monetary union, we do not want another false start.

4.0 a.m.

The right hon. Member for Knutsford (Mr. Davies) asked what steps were being taken towards the convergence of monetary policy. This was a matter echoed by most if not all right hon. and hon. Members who spoke in the debate.

When we talk about a convergence of monetary policy, I recall that this was the aim put forward late in 1969 or in 1970 which enjoyed a burst of publicity and acclaim well beyond what the facts as they then were ever warranted. For such a move towards economic and monetary union there was such an excess of enthusiasm over the facts as to be almost beyond belief.

As for the aim itself, of course one can find many aspects of life from disarmament to any other form of idealism to which, eventually, in a better world than that which we currently inhabit, we hope to be able to move. But the bogy man of such a scheme was rapidly taken up by a number of right hon. and hon. Members in this House who really believed that there was a scheme afoot to enchain and imprison our right to operate our economy in the way that we wished.

I find it inconceivable that people really believe this to be true. But I am convinced by what right hon. and hon. Members say that they take this view. it is not one which I share. The Government believe that these are matters on which we have to proceed on day-to-day assumptions on a day-to-day basis. Anyone who assumes that we have been moving in this direction, let alone to that exalted goal, must be ignorant of what has been happening.

So far from a convergence, there has been a very considerable divergence of exchange rates, monetary policies and rates of inflation which underlie much of that, as well as a certain amount of discord about which no one can be happy but which does not lead to and cannot be the prelude to the kind of convergence which certain right hon. and hon. Members oppose.

When we look at this proposal, we are not looking at some scheme which certain people dreamed about five years ago and do not appreciate today that the dream has long since faded. We are talking about the problems of Europe now. The Government's intentions are directed towards practicable and realisable goals.

Is my hon. Friend suggesting that the EEC, given the amalgam of national States, has made any inroads into the concept of an economic Europe within which there would be assistance and remedies for economic problems? Is there emerging a European economic concept in which countries with a balance of payments surplus would assist others?

My hon. Friend has put forward an important point. We are talking about ways of making that kind of inroad into those problems where member States can be of assistance to each other. We want countries which are adopting certain economic, monetary, and other policies to get together and see the impact of these changes with the kind of consultation for which we would hope. I am not referring necessarily to member States, but to any grouping of countries with any kind of common interest. We do not want a subterfuge to impose fixed rates of exchange which will bind countries' economic policies. Such a concept would be wholly artificial. The draft regulation does not advocate a move towards fixed parities. It presents a case for better machinery for ensuring that kind of consultation.

The right hon. member for Down, South (Mr. Powell) was worried about loss of independence over national decisions. If that were true, it would be a serious matter. The concept of economic and monetary union would mean that, to maintain the relationships between the various standards of living in the face of changes which were not equal throughout the Community, vast financial flows would be needed to overcome the inherently different inflation rates in the member States, the different social systems, and the different ways in which the peoples of the Community behave. I think that almost all who have commented on these matters have underestimated the size of the financial flows required to offset the rigidities which frighten so many right hon. and hon. Members.

I appreciate the problems of implementing some of these policies, but is my hon. Friend telling the House that the objectives outlined in R/731/73 dated 26th March 1973 have now been withdrawn?

The document that we are discussing deals with the more mundane subjects of consultation and the exchange of information. The innovations that we are discussing do not concern tighter control of exchange rate policy. The draft regulation refers to the great changes in monetary relationships since the EMCF was set up. That is the answer to my hon. Friend. But we are here concerned with improving machinery and methods for consultation.

My hon. Friend the Member for Farnworth (Mr. Roper) asked a number of questions. He mentioned the building at Luxembourg. I assure him that it is reserved for the EMCF and that no rent is payable for these vacant premises. I am sure that he will be pleased to be assured that there is not, as he suspected there might be, any waste of money.

He asked in what practical ways consultations could take place. They are the ways that we should like to be explored and developed. The methods, consultations and discussions come first and the machinery is then built to suit the requirements, not the other way round. It is not as though there is nowhere for these discussions to be held. What we want to do is to improve the facilities. The practical ways are the joint borrowing scheme and within that there is the practical problem that we had with the medium-term loan to Italy last December. That was a valuable example of assistance and consultations — the Community met to solve the serious problems of one of its member States.

My hon. Friend the Member for Farnworth mentioned the rôle of the finance ministries. Both the banks and the: finance ministries are represented on the Monetary Committee. As anyone interested in these problems knows, a number of points of contact exist now. If we are to create another, one wants to know its precise nature and the reason for it. Those we now have are not perfect, even for the limited purposes for which they were set up, and to make use of them this kind of consultation has to be extended in other directions.

We look forward to receiving the views of other member States and hearing how the machinery can help, for machinery would seem to be not the first requirement. We hope to find much sympathy for the views that we have been expressing.

Question put and agreed to.


That this House takes note of Commission Document R/3594/74 and of the Government's intention, while co-operating in the improvement of monetary consultations in the EEC, to question the suitability of the organisational measures proposed.


Motion made, and Question proposed, That this House do now adjourn.—[ Mr. Harper.]