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Estimates 1990–91

Volume 175: debated on Monday 2 July 1990

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Foreign And Commonwealth Office

Eastern Europe

[Relevant documents: Third Report from the Foreign Affairs Committee of Session 1989–90 on FCO/ODA Expenditure 1990–91 (House of Commons Paper No. 233).

European Community Documents Nos. 9090/89 on Aid to Poland and Hungary and 10788/89 and 4542/90 on medium term financial assistance for Hungary.]

Class Ii, Vote 2

Motion made, and Question proposed,

That a further sum, not exceeding £74,290,000 be granted to Her Majesty out of the Consolidated Fund to defray charges that will come in the course of payment during the year ending on 31st March 1991 for expenditure by the Foreign and Commonwealth Office on grants and subscriptions etc to certain international organisations, certain grants in aid, special payments and assistance, scholarships, Military aid and sundry other grants and services.— [Mr. Waldegrave.]

4.13 pm

The Select Committee on Foreign Affairs is grateful to the House for giving us this opportunity to discuss the Committee's third report on Foreign and Commonwealth Office and Overseas Development Administration expenditure, and to focus particularly on matters relating to assistance to eastern Europe. The sections of the report dealing with the know-how fund and support for eastern European economic development will be the main focus of attention. It is worth pointing out, however, that the other issues raised in the report relate directly to what is happening in eastern Europe and to the whole range of other issues of concern to the House, including environmental pollution, which we have just discussed.

Paragraph 7 of our report examines the problems of Foreign and Commonwealth Office staffing, which have arisen because of the need to establish stronger posts and a greater effort in the new democracies of eastern Europe. Some changes in the dispositions and staffing policies of the Foreign Office have already been announced and it is clear that further changes will be needed if we are to meet those pressures.

In paragraph 9 of the report, we return to the subject of visa policy—a perennial problem and a frequent cause of complaint to those who visit eastern Europe, where the granting of visas to the United Kingdom is still too slow and there are too many unacceptable delays. We look forward to a time when the visa arrangements for eastern European countries are abolished. That would have to be achieved on a Europewide basis and I know that Ministers have been examining that possibility.

We considered the role of the BBC's World Service both generally and in relation to its role in the liberalisation processes in eastern Europe. The general view of the House would be that the World Service has performed wonders and that it has played an excellent role in assisting the process of democracy to emerge in eastern Europe and in establishing the work, role and reputation of this country. I hope that all hon. Members will support me when I say that we hope that the financial problems facing the World Service in trying to catch up with inflation—admittedly, that is a problem we all face—can be satisfactorily resolved so that the highly worthwhile efforts and the very valuable return per pound spent through adequate support for the World Service are fully recognised in future.

The Select Committee considered the Wooding review into how we can encourage east European and Soviet studies in British universities. We expressed some disappointment and unease about the fact that, despite certain undertakings by Ministers, the full commitment to implement the review has not happened and there seems to be a certain amount of buck-passing who should find the funds to push the matter forward to ensure that we have adequate Soviet and eastern European studies in our universities. Above all, the Select Committee considered the work of the British Council and, in particular, its work in setting up offices in eastern Europe and encouraging English language teaching to ensure that English becomes the second language of eastern Europe.

The know-how funds are part of a much bigger jigsaw. The G24 advanced industrialised countries have already pledged about $13 billion in loans and credits to eastern Europe. That includes $2 billion for Poland and Hungary from Japan, $300 million from the United States and an enormous programme of activities, and support from the European Community to which we contribute directly. All that is embraced in the so-called PHARE—the Poland-Hungary assistance for the reconstruction of economies—system of support for eastern Europe. That is a wide-ranging and fast-developing set of programmes ranging from food aid in the short term to meet immediate emergencies in eastern Europe to vocational training, massive projects for cleaning up the environment—which are certainly needed in eastern Europe—raising loans for infrastructure, opening markets in western Europe for eastern European goods and a host of other developments. In addition, there is the European Bank for Reconstruction and Development which is to be located in London.

The right hon. Gentleman has been talking for a few minutes and I had thought that with the passage of time some of his friends from the Select Committee might turn up to listen to him, especially as Mr. Speaker said earlier that quite a number of hon. Members wished to take part in this debate. I do not think that I am mistaken in saying that only one other member of the Select Committee is present to listen to the right hon. Member for Guildford (Mr. Howell). I wish to address my remarks through the right hon. Gentleman to the Chair. It is a bit odd that in this great debate for the general good and so forth, when we want to talk about the ozone layer there is only one other member of the Select Committee present to listen to the right hon. Member for Guildford. That says a lot about this whole panjangle.

Order. The question was addressed to me. The object of these debates is to give hon. Members who are not members of Select Committees and other hon. Members who are not fortunate enough to visit these places an opportunity to express their views. Of course, the Treasury and Civil Service Select Committee has also recently returned from eastern Europe.

In the first two minutes of my speech I deliberately mentioned environmental pollution, two or three times, in the hope that the hon. Member for Bolsover (Mr. Skinner), whose views are greatly valued by the House—he is an expert on environmental matters and sought to intervene earlier—would be able to catch your eye, Mr. Speaker, and to develop his views at length. Hon. Members hope to hear from him on these issues because his views are relevant to eastern Europe and assistance to it.

All the programmes of assistance pale into insignificance when compared with the gigantic capital needs of eastern European countries. We are talking not about millions or billions of pounds, but about hundreds of billions of pounds, which will be needed to develop and improve the structures of eastern Europe. Those programmes will have to be financed, at least in part, from the resources of eastern European countries. Incidentally, it is encouraging to note that the East Germans already show signs of saving rather than spending their new-found deutschmarks. Other eastern European countries will need to do the same, but they will require large capital resources, which will put a huge strain on the capital systems of the west. If one is a little gloomy, therefore, one can expect rather high interest rates some way into the 1990s as capital is diverted to eastern Europe as the sums involved are absolutely huge.

In thinking about our assistance, we have been focusing on Poland, Hungary and Czechoslovakia, but a far greater problem stands behind them—that of the Soviet Union and what, if anything, can be done to meet the large and rapidly growing needs of that struggling, sinking and disintegrating society and economy. The needs are bottomless. There is an understandable view that the Soviet Union will have to stew for the time being, until it works out its new political order and gets some means of receiving and making use of assistance from the west which many people fear that it does not have at the moment.

I agree with those who say that simply throwing enormous sums of money at the Soviet Union in new loans and grants at this stage would probably be a complete waste and cause only temporary easement before the whole economy continued its downward path to penury.

Does my right hon. Friend agree that, once the Soviet Union has shown the democratic direction in which it wishes to go, one of the beginnings of help could be the extension of the know-how fund to the Soviet Union, whereby we would use our initiative and managment know-how to encourage the development of private industry and private initiative, which would help to fight the shortage of consumer goods which patently exists within the Soviet Union at present.

My hon. Friend is absolutely right—once the Soviet Union shows the beginnings. The first beginning must be some currency and financial reform. In a sense, the Soviet Union needs a major currency union with the rest of the world—that would put it in a position to receive effective assistance from the west—through the creation of a hard rouble, just as East Germany has had a currency union with West Germany and received a hard currency so that it can attract investment and begin to develop. The only hope for the Soviet Union is the development of a hard currency, which would require vast international effort and support. That subject is now being considered and ruminated on and possibly mobilised in the International Monetary Fund, the world bank and other circles.

Is my right hon. Friend really saying that it would be possible to lock all the great currencies in the world into some fixed mechanism?

I was not dealing with that fascinating aspect of the subject. I was merely indicating the virtue and necessity of a hard currency. I think that my hon. Friend would be the first to recognise that that is the only basis upon which one can begin to get economic growth. and reform. Without a hard currency, there is little hope of the Soviet Union being able to check its downward slide. Much as I should like to discuss aspects of exchange rate policy with my hon. Friend, who is an expert in such matters, my present proposition is no more adventurous than that which I have advanced.

Any western aid to the Soviet Union should be geared to changes of the kind that I have described. The goal is a hard currency. Meanwhile, suggestions by European Ministers of billions of dollars for the Soviet Union may be good rhetoric but will not have much effect.

Does my right hon. Friend agree that, although the Soviet Union has not embarked on the reforms that we agree are desirable to trigger resources, there might be a case for giving it an incentive in the form of limited aid from the know-how funds, perhaps to spread the English language to which he has already referred? Such a move would help the leader of the Soviet Union.

I shall deal later with the promotion of English as a second language. Anything that we can do in that respect would be valued in the Soviet Union and everywhere else, not just in a high-minded sense but because it would further the prosperity and interests of Britain. The other country that was in our minds at the weekend was East Germany—the German Democratic Republic.

Will my right hon. Friend give way?

Yes. Does my right hon. Friend accept that a great deal of sentimental twaddle is talked about Mr. Gorbachev and what he wants to do for Russia and for the world? Chancellor Kohl wants to invest £20 billion of the money of all of us in Russia to save Mr. Gorbachev. Until Mr. Gorbachev stops trying to improve communism and attempts to change the communist system, stops giving Cuba $5 billion of aid which he does not have and stops spending four times the amount that we spend on defence, why the devil should we give Russia money that it will use to beat us?

We do not necessarily want to save any individual politican, whether it be Mr. Gorbachev or anybody else—it is up to the Russians to decide whom they want to run their country. However, it is palpably sensible to encourage reasonably bloodless democratic development in all the Soviet republics. If we fail to do that and leave the Soviet stew to bubble over, creating a chaos of tribal and national wars which will spread to central and eastern Europe, we shall create great trouble for ourselves. I agree, however, that we should not back individuals but should encourage the democratic process as best we can wherever it shows signs of growing.

I agree with much of what the right hon. Gentleman says. Does he agree that many Soviet economists have argued against large quantities of western aid at this stage, if only because it would underpin Soviet institutions which they believe can be removed only by financial disciplines? We should recognise that and, if necessary, delay aid in the hope that in finally allocating it we can determine the nature of those institutions.

I agree with the hon. Gentleman, although I would put it a little more positively. Rather than saying, "Let us do nothing until," I would say, "Let us try to work with the many Soviet economists who think that financial reform is needed to see ways in which that reform can be underpinned by western aid." Until something like that happens, there is no point in underpinning or underwriting the present chaos and inefficiency. Money would simply be lost.

I have given way too often. That may count against me on your score board Mr. Speaker, although I hope not too severely. I shall now talk about eastern Germany, which is in the news and which is about to become one vast construction site as the bulldozer and the deutschmark move in. One must marvel at how in three and a half months the German bureaucratic machine has achieved miracles and installed in East Germany an entirely new currency system, entirely new networks of financial control and an entirely new VAT system. In effect, a new official structure is already up and running as of yesterday morning.

It is a fantastic development. Whether it will also produce inflation remains to be seen.

Britain should certainly keep a close eye on East Germany and consider giving it assistance and investing in it. A huge programme is now under way to privatise thousands of small firms and all the large firms, in an effort to break the key log jam—that of private ownership and the problem of who owns the property and title to firms, businesses and real estate in East Germany. A programme has been set up through which a public trustee, the Treuhandanstalt, with an international supervisory board which will include someone from the United Kingdom, will attempt to dispense land on a legal title basis and establish that any land purchased by new enterprises belongs to them and ownership will not be thrown into question. In that matter, the British have been invited to be involved in the most intimate part of the transformation of East Germany and I hope that we can play our part vigorously.

Hope for East Germany turns on achieving the right balance between keeping wages low enough to attract investment without causing strikes, pressures and anger or making immigration to the west resume as people see higher wages over the way, and setting wages too high, creating massive unemployment as whole industries are wiped out because they are uncompetitive. The Germans must get that balance right. If they do, and as they do, we should be able to help them.

The picture in eastern Europe is of a whole range of new countries striving for a free market, privatisation, liberalised trade and free enterprise. Of course, expectations are miles too high. It is believed that, as in East Germany this weekend, the magic of currency reform and pouring concrete can somehow change living standards, but it will not happen overnight. The House will agree that for our own commercial interests we must be closely involved in that process. Eastern European countries are not faraway countries of which we know nothing but our next-door neighbours in the European land mass.

What are the United Kingdom's interests? What is our role, and how can we strengthen it? The estimates report from the Select Committee attempted to address those questions and gave three categories of answers. The first related to personnel and language teaching. We should recognise that British professional personnel such as accountants, managers, administrators and even, I fear, lawyers are in huge demand in eastern Europe. Perhaps we could export a few lawyers from here. There is a tremendous feeling in eastern Europe that the British professional services can provide the habits of administration and ways for countries at last to get going again as free economies. As we point out in paragraph 42 of the report, there is great demand for British expert consultants to advise on the reorganisation of industries, businesses, utilities, and so on. Here I must declare an interest as energy adviser to a leading firm of British consultants involved in eastern Europe. I declare both an interest and some knowledge that the demand for their services is great.

On the language side, there is a world to conquer. As my right hon. Friend the Foreign Secretary said, we have the opportunity to make English the second language of eastern Europe. The Russian textbooks and grammars are being carted out of the classrooms and there is a call to bring in English teachers, books and teaching methods. The British Council told the members of the Select Committee that it foresees the need for 100,000 English teachers over the present decade, with 20,000 in Poland alone. It would be crazy not to respond to that demand as vigorously as we possibly can, even if it means switching resources from other areas. As I have said, the first category is people and languages.

The second category is private investment flows, which will follow language familiarity, expertise and administrative and legal reform. There, too, we must play our part. At present, West Germany is leading the pack in almost every country, and especially in East Germany.

The third category is our part in the multilateral support efforts that I have already mentioned. These will be made through the European Community, the European regional development fund, the International Monetary Fund and sensible programmes of debt reduction. We cannot continue with the line that the countries of central and eastern Europe should be asked to swim into the deep water of democracy and free markets while wearing concrete collars of impossible debts. I refer to the debts which were run up in the past by the communist regimes. There is a case for recognising the difference between debts incurred by incompetent communists in the past and the need for those countries to strike out without seeing all their foreign currency disappear in debt servicing at every stage. We must adopt a balanced approach.

I hope—the Select Committee had this hope after considering the issues—that the opportunities in eastern Europe will be fully recognised. In due course we might look to the Government for a comprehensive statement on the United Kingdom's strategy in terms of the fantastic and unfolding drama of eastern Europe. Eastern arid central Europe are part of our culture and we can learn much from them. We should not assume too patronising a stance. In other words, we must not assume that the learning is all one way. We have a great deal to learn from the skills, energies and genius that are to be found within the central and eastern European countries. In eastern Europe we are looking at a vast and developing market of about 120 million people, most of whom are highly skilled. As a trading nation, we must be firmly established in that market. I hope that the comments in the report and my comments this afternoon will be of some small help in that direction.

4.37 pm

I welcome some of the remarks of the right hon. Member for Guildford (Mr. Howell), but he would not expect me to be in agreement with everything that he has said. I associate myself and my right hon. and hon. Friends with his remarks about the BBC World Service. We are all conscious of the excellent job that it does with only limited resources. It is essential that its resources are strengthened to take into account the important extra work that it will be called upon to undertake.

Any discussion of assistance to eastern Europe must be seen against a backcloth of some of the most startling political and economic changes that have been seen this century, with countries moving from central planning to social democratic market-oriented economies. In eastern Europe there is excitement, uncertainty and some chaos, but everywhere there is hope. Britain, along with other countries that are giving aid, must take account of several developments that are, or will be, common to each country in eastern Europe. They include the creation of pricing systems and mixed economies that are based in part on private ownership and enterprise, the creation of capital markets, movement towards currency convertibility and the opening of internal markets to foreign competition.

We must be sure also, as the right hon. Member for Guildford said, to take account of the differences between the various countries—differences in history and tradition and in how the revolution was brought about in each country. That means that the pace and type of reform and the role of the western donors will vary from country to country.

We have all been shocked by the sight of Romanian orphans dying from AIDS, Soviet citizens queuing for hours just for a loaf of bread and Polish factories poisoning the air and water for miles around. I was glad that, earlier, the Secretary of State for the Environment made particular mention of the assistance that will be given to improve the environment in eastern European countries. The damage to the environment caused by old, inefficient industrial processes has been immense. In Hungary, even if further pollution by chemicals stopped tomorrow, chemicals would still flow through the water table for the next 80 years. In East Germany and Czechoslovakia, unsafe nuclear power stations and energy production from lignite—a polluting brown coal—threaten the environment. It is therefore essential that aid responds to the needs of those countries for a better, cleaner and safer environment.

The Labour party is pleased to note that the forthcoming know-how programme for East Germany will include advice from Britain on decommissioning clapped-out nuclear power stations. I sincerely hope—I was pleased to note that the Secretary of State for the Environment also touched on this—that eastern Europe, unlike some other developing countries, will receive only the cleanest and up-to-date technology from Britain. In India, for example, British aid paid for British companies to build power stations without sulphur-cleaning flues. As a result, those power stations are now causing acid rain.

The scale of aid is bound to be considerable, but the resources must be found. The annual report of the United Nations Economic Commission for Europe looked at a possible Marshall plan for eastern Europe that would cost some £17 billion for four years. In January, the European Community outlined a programme that would cost about £14 billion a year. It is a tragedy that sums of that order seem to be too big and too challenging for the Government and the Prime Minister to take on board. The pace of change is simply too much for them. The Prime Minister, in particular, is out of sync and out of sympathy with the needs and challenges of the age in which we live.

Is it the Labour party's policy to press for such expenditure? No doubt it would be welcomed in many quarters in Europe and it might be politically attractive in this country. If that is the Labour party's policy, by how much is our contribution to the EEC likely to go up as a result?

As the debate develops I shall answer all the hon. Gentleman's questions. If he cares to spend a little money on purchasing the Labour party's new policy document, he will find that the Labour party supports the idea of a Marshall plan. As my speech develops he will also learn about the other things we support, but he will be aware that we are in favour of contributing 0·7 per cent. of gross national product to overseas aid. We intend to achieve that target in the first five years of a Labour Government.

It is a tragedy that the sums of aid needed appear to upset the hon. Member for Wolverhampton, South-West (Mr. Budgen), especially as I shall seek to prove that they need not hit the British taxpayer's pocket.

If the hon. Gentleman can contain himself, he will find out.

There are limits on resources and none of us would pretend otherwise. It is imperative, however, that aid, whether in the form of grants, know-how, equity financing, joint ventures or balance of payments support, should be carefully targeted. It should be used to build the structures to ensure that funds are productively used so that loans generate long-term revenue.

It is precisely because resources are scarce that third-world countries are anxious that the ideological political pressure for reform in eastern Europe should not encourage western countries to give those countries aid at the expense of the third world. In short, the aid given to eastern Europe must be in addition to that given to the third world. I hope that the Minister can clarify the position by assuring us that aid to eastern Europe will not be at the third world's expense, not just this year—we have already had some assurances about that—but in the years to come.

It is not surprising that third-world countries fear that more aid from Britain to eastern Europe means less for them because they have seen the Government renege on their aid commitments every year since 1979. Far from meeting the United Nations overseas aid target of 0.7 per cent. of GNP, Britain's contribution has fallen to less than half of that target. If the aid had remained at the level achieved when the Labour Government left office in 1979, the third world would be £8 billion better off than it is today. I am glad to note that the Select Committee on Foreign Affairs strongly recommends that the Government should set a timetable for achieving the UN target. Only by doing so can the Government genuinely demonstrate that aid to eastern Europe is not preventing Britain from meeting its commitments to the poorest countries.

Regrettably, the record of aid to eastern Europe so far shows that the performance of the British Government and British industry is far from impressive. One of the stumbling blocks is the Prime Minister, who, despite her love-ins with President Gorbachev, has been slow to realise the significance of what is happening in eastern Europe. Ideologically blinkered, the right hon. Lady has even had the nerve to criticise West Germany and France for providing credits to the Soviet Union. She seemed to fall in line only after President Bush had had to intervene.

Ministers, led by the Prime Minister, too often view the problems of eastern Europe as opportunities for photo-calls rather than for action. Goodness knows how the embassy in Hungary copes, because, by the end of this year, no fewer than 22 British Ministers, including the Prime Minister, will have visited that country. Not to be outshone, the right hon. Member for Henley (Mr. Heseltine) has been there, too.

Would the hon. Lady care to remind us about the number of Opposition Members, as well as Opposition Front-Bench spokesmen, who have also been to the embassy?

Obviously I cannot speak for my hon. Friends, but I am sure that those who contribute to the debate, including members of the Select Committee on the Treasury and Civil Service, will be ready to tell the right hon. Gentleman about their experiences. I cannot understand why 22 British Ministers felt it necessary to visit the embassy in Hungary.

Unfortunately, the Opposition do not have the Government's budget to make such visits possible. We believe in protecting the British taxpayer as far as we can—[Interruption.] I have a suspicion that 20th century grand tours by Ministers are not what eastern Europe needs just now.

It is important to consider the background of the countries to who aid will be given, starting with East Germany. Yesterday there was German economic and monetary union which was historic not only for Germany but for Europe and the world. It will ensure that aid is fast on its way to East Germany. East Germany reckons that it needs 130 billion deutschmarks for investment between now and 1993. It believes that British firms, with the help and encouragement of the Government, could invest in environmental development work, including water and sewage management, in financial services, hotels and transport, for example, in the railways. East and West Germany are anxious that aid and investment in East Germany should come from countries other than the Federal Republic, but it is inevitable that West Germany should carry the main burden.

There is also a firm belief in West and East Germany that the British Government have been slow to help and British companies slow to appreciate existing opportunities. One can but hope that the Prime Minister—

I am sorry, but I shall not give way again.

One can but hope that the Prime Minister, who met the East German Prime Minister last week, will do more to convince British firms that a developing country, which has a hard currency like the deutschmark, presents a unique opportunity for profitable investment. The British Government's know-how scheme for East Germany is, to say the least, bizarre. Although it is not yet under way, it is due to finish when reunification takes place later this year, so it will have a life span of a pathetic few short months.

Some British commentators fear that German economic and monetary union could go sadly wrong, with inflation taking off in Germany. We believe that such fears will prove groundless largely because the markets have already discounted the possibility by raising real interest rates to 6.5 per cent. German economic and monetary union may be going too fast, and its consequences may not be properly understood by the people of East Germany. Undoubtedly, there will be some dreadful results, with up to 25 or 30 per cent. of the population becoming unemployed. But the speed at which aid and foreign investment takes place could be critical in mitigating the damage.

This provokes another problem for East Germans, who must ensure that western capitalists do not rape their country and buy it out for the sale of the century. A warning given by the Organisaton for Economic Co-operation and Development in its publication "Economic Outlook" that eastern Europe risks being asset-stripped by western investors is one that we should all take seriously. East Germany needs productive investment that creates real jobs.

If East Germany is a special case, so too is the Soviet Union, which has special political difficulties and is moving much more slowly towards a social market economy. While the Soviet economy may, at present, be in no state to use the vast sum in aid that it will ultimately need, the immediate provision of credit can obviously help President Gorbachev buy more time for perestroika.

When the Prime Minister returned from a visit to the Soviet Union recently, instead of suggesting a package of aid and assistance, she came to the House and insulted it with an hour-long, condescending and patronising lecture on what a backward country the Soviet Union is—a view shared by some Conservative Members. If reports are true that President Bush is working on guidelines for the United States and other NATO countries, at this week's summit in London, in support of direct economic aid to the Soviet Union, possibly the attitude of the Prime Minister and other Conservative Members will change.

Unlike some other countries in eastern Europe, the Soviet Union can see little prospect of a significant increase in bank lending from the west or raising funds by the use of securities. In addition, it cannot get bilateral aid from the World bank or the International Monetary Fund because it is not a member of either organisation and does not qualify for their assistance. The sooner that Britain and other countries seek to bring the Soviet Union into the orbit of the world's financial communities, the better.

Up to now, the Prime Minister has talked of aid only once structural reform has taken place, which is like ordering someone to build a house and offering to pay for the bricks only when the last roof tile is in place.

No, I shall not give way because the hon. Gentleman has been muttering throughout my speech and I think that we are all aware of his views.

In this instance, the Prime Minister has failed to grasp the fact that the house can be built, indeed may only be built, if the bricks are provided in the first place. By comparison, the Dublin communiqué talks of short-term aid and aid for structural reform for the Soviet Union.

President Mitterrand went public on the Prime Minister's isolation after the Soviet aid package had been opposed by Britain in the discussions. He said:
"Nobody voted for the British proposal."
He was particularly scathing about the Prime Minister's position. He described her objections as
"Britain's penultimate twitch of life."
He added:
"we can always count on her to ensure debates are long arid that the decisions taken are always retaken."
He said that she would be defeated when the aid package was considered at a Rome summit in October. Whatever the view of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), he will be carried along by the tide of events and his views, and those of some of his hon. Friends, will constitute a lone voice crying in the wilderness.

It is my understanding that the Soviet Union will get little help from the new European Bank for Reconstruction and Development, which is being set up in London because there will be special limits on lending to the Soviet Union. Will the Minister confirm or deny that? If it is true, it is a miserable state of affairs. It is no wonder that some bankers and Governments in Europe fear that the rouble will soon cease to be convertible, even in the rouble area. The world will let that happen and see President Gorbachev fail at its peril.

Of the other European countries, Poland, Hungary and Czechoslovakia are in the process of creating democracies, based on mixed economies and market principles. For both Poland and Hungary, the burden of servicing debt payments presents awesome problems. Poland's debt today, standing at $40 billion, is the largest in eastern Europe. My view, shared by some leading bankers in Europe, is that it will be all but impossible for Poland to succeed in its endeavours unless both Governments and commercial banks are prepared to write off some of Poland's debt. Will the Government set out and justify their own views on that today?

Hungary's debt of $20 billion represents the highest per capita debt in Europe. Hungary's position was not helped earlier this year when a clumsy Bank of England report on the debt matrix created a loss of confidence in Hungary's creditworthiness. Partly because of that, Hungary has since had to get help from the Bank for International Settlements to add to its stand-by agreements from the IMF. Will the Minister ask the Governor of the Bank of England, one of the Prime Minister's family friends, to be more careful in future about damaging the prospects for development in other countries?

The present Hungarian Government say they can repay their debts and are not interested in debt rescheduling or debt forgiveness. I hope that their assessment is correct. Hungary has been engaged in economic experiments for 20 years, and this one certainly deserves to succeed.

The hon. Lady is a spokesperson on aid in general and is asking us to forgive the debts of Poland and Hungary—middle income countries. Therefore, she is also presumably asking us to forgive the debt of all the far lower income countries which she often mentions. Am I right? I want to ascertain the extent of the huge expenditure of which she is talking.

The Minister will have heard the Opposition advance that argument many times, particularly as there seems to be no will on the Government's part to make debt forgiveness a possibility for many developing countries.

Have not the American Government recently announced that they are considering favourably the idea of debt forgiveness for Poland? The United States is Poland's biggest single creditor.

My hon. Friend is perfectly right, and his point is consistently made by Opposition Members.

Naturally, the Opposition are also pleased about Britain's participation in the Poland and Hungary assistance for economic restructuring programme, which the European Commission is co-ordinating to help Poland and Hungary. We also welcome the food aid given to Poland, and lending through the European investment bank. We also approve of the setting up of the £50 million know-how fund for Poland and the £25 million know-how fund for Hungary, although we have reservations about its operation so far. The evidence, from both the recipient countries and the Foreign Office, seems to be that the know-how fund, particularly for Poland, lacks direction, has been unclear, and has confused the recipient countries.

An article in The Economist this month evaluates the fund by stating:
"The most stinging complaint is simple: for expertise read fripperies. The Poles need drains: the know-how Fund has given them seminars … Such criticisms find an echo in Poland, where some claim that money is being wasted, extolling the virtues of the House of Lords, or the subtleties of a free press; they point out that they have a long (albeit submerged) parliamentary tradition, and, thanks to Solidarity, no dearth of first rate journalists."
We must not forget that eastern European countries have political traditions and the roots of democracy. Some of the criticisms and comments of the right hon. Member for Guildford smacked of a patronising attitude towards the established background of those countries. Eastern European countries need assistance to get those roots to flourish throughout society, and to get everyone, not merely business men, on their feet.

If eastern European societies are to become truly participatory they will eventually need their own versions of Greenpeace, Oxfam, the British Medical Association, citizens advice bureaux, farmers' associations and even the CBI, along with the many other varied organisations that represent citizens' views and interests.

The Government should not focus merely on business men and politicians—teaching them English and setting up exchanges—but should help to lay the foundations for a broader link between east and west.

The varied contributions made by the British Council, Voluntary Service Overseas and the World Service of the BBC all greatly enhance Britain's contribution to eastern European developments, but the Government are not providing those organisations with adequate funds to take advantage of new opportunities, except by cutting their work elsewhere. The key to providing the most effective aid is listening to voices on the ground in eastern Europe. At present, there is concern that there has been too much political control from London and that the advisory committee has been ineffective. We hope to see improvements in the programme for Hungary, which has scarcely started, but which should soon be up to speed.

The Foreign Office has had some teething problems in getting to grips with its increased work load in eastern Europe. That has led to cutting diplomatic posts in the third world, especially in Latin America and in Africa—a point made in the report by the Select Committee. The Foreign Office has diverted some staff from the Overseas Development Administration to work full time and part time on eastern Europe. Clearly, additional staff are needed at the Foreign Office and the ODA, but not at the expense of the third world.

I do not want to end my speech on a sour note, but I wonder how the Minister of State responds to the scathing criticisms of the know-how fund in The Times on 1 May:

"Unfortunately, the Know-How fund does not seem to be connected with a coherent vision of a future Europe … So far, £2 million has been spent and there is nothing much to show for it … Britain is dwarfed by West Germany, overshadowed by France, Austria, and even Italy, in trade with Eastern Europe."
Changes in eastern Europe perfectly illustrate the need for countries to work together without one dominating another, and for the European Community—I was privileged to be one of the first elected Members of the European Parliament—to develop and extend its borders, as well as the need to recognise that no nation state can go it alone in today's world.

On our television screens we have seen the tearing down of the wall which divided Europe, the opening of Hungary's borders, and the emergence of Vaclav Havel from the long winter which followed the Prague spring. Britain should now be ready to play a role in such new and immensely challenging developments. When we win the next general election, our imaginative and constructive approach will show how limited and blurred the horizons of the present Government are. The Opposition will see aid to eastern Europe as part of the peace dividend which follows the disappearance of the cold war, the iron curtain and the Berlin wall, and as part of all our hopes for the future of the world.

5.3 pm

I am glad to follow the hon. Member for Cynon Valley (Mrs. Clwyd) if only to say that I agree with her about some of the problems of the environment. Hon. Members who have had the chance to see pollution in the Elbe and Danube must recognise the huge task there, which could be a major opportunity for many of our industrial concerns which have special expertise and which could help to resolve such problems.

I regret that the hon. Lady felt that it was necessary to pitch into party political arguments. There is a genuine job of work for hon. Members on both sides of the House to do.

Will my hon. Friend reconsider his remarks? It is obvious from the hon. Lady's speech that there is a vast division between the two sides of the House on this issue. If she wishes to emphasise that difference, she does a service to political debate. It is obvious that the Labour party plans substantial expenditure in eastern Europe. Since that inevitably means that it intends to print money or to increase taxation, it is right that the hon. Lady should have raised the temperature and told us where she disagrees with the Conservative party.

I accept what my hon. Friend says about expenditure because, although the hon. Lady said that she would tell us more about it, she did not say precisely what she had in mind.

I wish to try to find a common cause, at least in the scope of the problem and the opportunities that arise for parliamentarians seeking to address this issue. I am sorry that the hon. Lady attacked the Government about the number of Ministers going to Hungary. She should be aware that, through the Inter-Parliamentary Union, 30 hon. Members have visited four eastern European countries in the past six months, and I greatly welcome that. I want to discuss ways in which we can build on this process. If the hon. Lady reflects on that and on the other initiatives taking place, she will realise that, if anything, the Government lag behind in the number of parliamentary links we have with eastern European countries.

I make no apology for referring to the IPU, but it does not have a monopoly. There are party-to-party links with eastern Europe and a range of other activities, including the party funding organisation that is being co-ordinated by my right hon. Friend the Minister with other parties in the House—I hope that he will say more about that in a moment.

In the past six months the IPU has had seminars and fact-finding missions, which would not have been possible in the short time scale leading up to the elections—and which have now effectively concluded with the Bulgarian elections—without the co-operation of organisations such as the Great Britain-Eastern Europe Centre. I am glad to see my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) present, because he chairs the centre, with assistance from Opposition Members.

I also recognise the work of the Foreign Office, the Central Office of Information, the Clerks to the Overseas Offices of both Houses and organisations such as the Hansard Society, which have all been working in a common endeavour to understand the needs of emerging democracies and to understand how funding—which we must consider when debating the estimates—is related to such work. Also I am glad to be able to pay tribute to Mr. Speaker—in his absence. As you will know better than most, Madam Deputy Speaker, he is especially concerned with Speaker-to-Speaker initiatives in eastern Europe, and, as an honorary president of the IPU, in support for all our parliamentary links.

The factual background is the reason why I picked up the hon. Lady's remarks about the amount of personal contact with eastern Europe. In the past six months, through seminars and exchange visits, 196 Members of both Houses—the vast majority from this House—have been involved in face-to-face and one-to-one discussions with parliamentary candidates or parliamentarians from eastern Europe—a pretty high striking rate. A third of our membership is involved in that process.

In the six months that followed the Berlin wall coming down, there were flying squad visits by two parliamentarians who went to the Federal Republic and the GDR—which are now emerging as a united Germany. It is important that we try to understand both sides of the German viewpoint. We were able to follow their visits through when parliamentarians from the GDR visited us here last month. It became obvious that they were extremely concerned to keep their bilateral links with parliamentarians such as ours, because as they become part of a united Germany they are conscious that outside links may be harder to maintain. We need to deal with the issue of how we can maintain contact with individual Lander in Germany when that process gathers momentum.

Similarly, the visits and the contacts that we have had with Romania, Czechoslovakia and Bulgaria have been followed up with the sending of observer teams for the elections. That, too, has been an important part of the learning process for us all.

The hon. Member for Cynon Valley mentioned The Times report on 1 May. It made a valid criticism of the extent to which we have demonstrated a lack of knowledge of some of the countries with which we are concerned in the two-way process.

I agree with my right hon. Friend the Member for Guildford (Mr. Howell) that a special concern to bear in mind in all this work is the role of the Soviet Union. That is why I was glad that the Select Committee, whose work is so usefully illustrated in the reports, has been part of the parallel processes. When IPU delegations from the Soviet Union and other countries are in this country, meetings with the Select Committee have, almost invariably, been part of the programme of the work of each seminar.

As it is only a short debate, I shall briefly touch on some of the issues that arise out of those exchanges. The need for seminars has been reinforced. Arguments have been advanced about the need for the English language, about the value of the BBC World Service and about our mature media and parliamentary democracy. Those are not items that people would wish to export—and nobody has claimed that—but it is remarkable how people can relate to that. Above all, the interest in the English language is something on which many can feed quickly. The enthusiasm and commitment of so many who have visited this House have illustrated that fact.

The Times article on 1 May, "Where are the British?", made a valid point in expressing concern about the lack of British industrial involvement in central and eastern Europe. Anyone visiting those countries will quickly find substantial evidence of American, Japanese, Korean, West German and other European investment projects. That is an aspect that we need to keep in mind. On the other hand, we have shown that political initiatives by both the Government and the House have been first in the field, so The Times is quite misleading in suggesting that parliamentary democracy is not exportable. I reject that. It is in the very process of comparing notes and trying to assess our approach to the problems that our work has had value on both sides.

It is perhaps ironic that, at a time when there is a certain amount of excitement about local government finance, our visitors have applauded the superb opportunity—as they view it—to do things on the ground and to have decentralisation. How they go about that is a matter for consideration. No doubt there will be mixed views on the efficacy of the community charge as opposed to other forms of local government finance. The thrust of the exchanges has highlighted an insatiable thirst for political exchange and political dialogue and a need to have a form of parliamentary recognition. That is sometimes underestimated as people come forward in these challenging and difficult areas.

I want to discuss one or two areas that we should think about in arranging our long-term exchanges with those countries. I have mentioned the media and the press, which are of special interest. It is also interesting that the concept of a non-political civil service arouses a great deal of interest among our visitors. It is quite difficult to know how to demonstrate that. However, it is clear that, for many visitors, the opportunity to sit in and observe the work of the Clerks to the Overseas Offices of both our Houses, or to sit with a local government officer, has been a major part of the learning process. That has been highlighted by the one-to-one constituency visits between our parliamentarians and those from other parts of the world. We can reflect only that, perhaps, we have never fully appreciated the way in which our system sometimes gives us advantages in having a particular strength and a particular intimacy. Although others may not use the same system, it is clear that our process of relating to a voter is something that immediately gets their minds working in a way that will assist and, perhaps, be part of their immediate political development.

I shall now discuss the role of the House and of the Government in taking matters ahead. There is a problem with co-ordination. My right hon. Friend the Minister of State has shown great interest in that when talking to hon. Members from all parties. That also reflects the views of my right hon. Friend the Foreign Secretary. If we move, as we hope, to bi-monthly seminars in 1991 and away from the old concept of the semi-state parliamentary visit to working visits that allow people to get down to the nitty gritty, we need to have some understanding of what is taking place in parallel with that. Within the Inter-Parliamentary Union, a committee of the Twelve-plus—that is, Sweden, Italy and ourselves—is seeking to pool all the information and the intelligence about what is happening throughout western countries in assisting in the process. Similarly, there is work in the Council of Europe and the European Parliament. There are party-to-party links and individual activities by members in all these areas.

I hope that my right hon. Friend the Minister will feel that the Foreign Office could serve not only his thinking but that of the House by holding a conference or seminar—it may be once every six months—at which the various interested parties might meet to take stock and to share common experiences. In making our plans, all of us have experienced a little uncertainty about how far we might be tripping over each other in some of the processes. Although there has been a rush to try to achieve a certain amount of common ground before the elections, there is still major activity that needs some co-ordination and planning. In that sense, I reflect and agree with some of the comments about the need for a comprehensive strategy in considering the way ahead. I hope that we can find work that we can share. I urge the House, in considering the estimates this afternoon, to applaud the work of the Select Committee and the work that the Government are seeking to lead.

5.17 pm

It is, perhaps, appropriate that on the day that the two Germanies are sharing a common currency and open frontiers we should be discussing this most central question—the political and economic development of central Europe. The dynamism behind the integration of the two Germanies has been truly staggering.

If we think back to previous debates in the House, few of us would have anticipated the pace of events. Many tributes must be paid, but, above all, the one figure who has shown remarkable foresight and courage has been Chancellor Kohl. His political anticipation of events was important. He overrode the reservations of the Bundesbank about a common currency and, especially, one-to-one personal currency exchange.

I wish to draw attention to one considerable concern that we are not showing anywhere near enough political foresight about—the need for a successful economic transformation to a market economy and a buttressing of the democracies of Poland, Hungary and Czechslovakia. I am fully confident, as I think that most hon. Members will be, that a united Germany will, very rapidly—perhaps in under two years—transform the economy of East Germany, and become a fully democratic member of the European Community and of NATO.

However, if we look even now at the development of Poland, Hungary and Czechoslovakia, none of us can be certain that those three countries, which have made a democratic commitment and a commitment to the market economy, will succeed. It is of fundamental importance to the stability of Europe that those three countries succeed, within a short time, in making that transformation.

There are many candidates for the peace dividend. There is no question but that there will be substantial reductions in defence spending. Those within the Soviet Union will be an important part of its attempt to make perestroika succeed. It is in our interests to hasten the process of conventional force reductions and to increase nuclear reductions. All the NATO countries can also look forward to reasonable reductions in what has been a heavy defence cost ever since the end of the world war. We have contributed greatly to that process.

It is understandable that people will look to an improvement in many aspects of their domestic lives as a result of the peace dividend—whether it is through spending on the health service, the relief of poll tax, or further spending on higher education or training for technical skills. Goodness knows, we need more spending on those sectors. If we are truly buttressing peace, we should be well advised to ensure true democracy in Czechoslovakia, Hungary and Poland.

In the middle 1970s, there was an extraordinary political thrust to buttress the new-found democracies of Spain, Portugal and Greece as they emerged from fascism. That political thrust is now necessary to ensure the success of Poland, Hungary and Czechoslovakia. The European Community has been remiss in not giving those countries the certainty of membership of the European Community. I know that many in Brussels find it suspicious when we talk about enlargement of the European Community because they believe that Britain suggests it as a way to weaken the growth of unity within the Community and its further integration. I can claim a long-standing record of commitment to British membership of the European Community. I believe that, in the immediate aftermath of the crashing down of the Berlin wall and all the epoch-making changes, it was right and natural to look to the strengthening of the Twelve and to ensuring that the Federal Republic of Germany in its unified state was an integral part of the Community.

It is also natural and right to ensure that the Atlantic link remains and that NATO finds increased unity to cope with these challenges. However, it would be a tragedy if the European Community did not also see an extremely important part of its future contribution in Europe as enlargement, at a reasonable pace, to include Poland, Hungary and Czechoslovakia, and also Austria. That prospect, around the year 2000, may be opening up. For all the advantages and the welcome attempts of initiatives such as the know-how funds and the European Bank for Reconstruction and Development, none will be of such lasting value and permanence as the certainty of European Community membership.

I know that people will raise the spectre of the Community expanding to include Sweden, Finland, Switzerland, Turkey and the rest. We have to be blunt. Some of those countries do not have the same democratic imperatives. Sweden is fully democratic and we can grapple with the problem of Sweden as we deal with the need for European economic space in the EFTA-EC negotiations. Switzerland can look after itself. Turkey is, quite frankly, not a European country and it is time that we said so and were open about it. It is an associate member, but it must not look to full membership of the Community.

Poland, Czechoslovakia and Hungary need the buttressing of European Community membership. Those who believe in an eventual common currency, the prospect of monetary union, the need for greater decision making as a result of majority voting in the European Community, strengthening of the European Parliament's powers and an increased role of the Council of Ministers should also argue the case for enlargement. It should come not just from this country but from France, the Benelux countries and Germany.

Germany has made it clear that it will take the financial burden of the integration of the two Germanies. It will pay the full price of economic and democratic development in East Germany, with its environmental pollution problems, and will pay a heavy price to the Soviet Union to ensure that the Soviet forces coming out of East Germany are rehoused in reasonable barracks and, in the short term, that there is continued payment from Germany to those troops in their country. I hope that that withdrawal programme will be conducted with the utmost urgency and I am pleased that the Federal Republic has shown its sensitivity in realising that Russian generals have to be able to say to their forces coming out of eastern Europe that they will go into proper barracks and remain in reasonable conditions.

The country that ought to be asked to pay a heavy price for the development of Hungary, Poland and Czechoslovakia is Austria. That is why it is important to tell Austria that it will come into the European Community after 1993 but that, in that transition, it will be expected to help in the market orientation of those countries, particularly Hungary.

It is reasonable for countries such as France and Britain to jump over East Germany and concentrate their investment and political initiatives on Poland, Hungary and Czechoslovakia. East Germany has help from its fellow countrymen. We should be prepared to see that as, effectively, a responsibility for West Germany and we should go out to the other countries as fast and as quickly as we can. We ought not to be too afraid of the economic doubters. I remember how many people said to us in 1977 that Spain would not adapt and would be a constant drag on the European Community. Given reasonable help, those three countries will succeed as Spain has.

The right hon. Member for Guildford (Mr. Howell), who contributed positively to the debate, pointed out that, when looking at debt, we should differentiate between that which has been incurred by communist Governments and that incurred since transition. It is unreasonable not to treat the mountain of debt that they inherited from the past on a different basis. Debt write-off, project aid and technological assistance have to be geared tightly towards movement to a market economy.

I agree with much that the hon. Member for Cynon Valley (Mrs. Clwyd) said. However, there is a danger in her approach, which almost equated the Soviet Union arid those other countries. It is that the Soviet Union is so vast and that it has not yet made a full commitment to democracy or the market economy. It is not an echo from the cold war to say that the Soviet Union must be further back in the queue for market and democratic assistance. We cannot give to it and those other countries at the same time.

I would make an exception of the extremely enlightened suggestion of the Dutch Prime Minister Lubbers at the Dublin summit for an Energy Community, which has not received much publicity. The Soviet Union is rich in hydrocarbons—oil, coal, and particularly gas. If Europe really wants to make a rapid movement against environmental degradation and carbon dioxide emissions, nothing would be better than to move into natural gas. A certain supply of natural gas from the Soviet Union throughout Europe would be an immensely stabilising and attractive investment. It would also be a way of ensuring hard currency for the Soviet Union.

Will the right hon. Gentleman clarify one point? At the recent summit, politicians instructed the European Commission to go away and find out how the European Bank for Reconstruction and Development could provide investment funds to the Soviet Union and how the IMF and GATT could help out. Is the right hon. Gentleman for or against that proposal?

I am not against it, but I draw some comfort from the fact that lending from the European Bank for Reconstruction and Development will be spread among the countries of central and eastern Europe committed to and applying principles of multi-party democracy, pluralism and market economics. It is the first time that we have ever so overtly tied aid and bank reconstruction programmes to pluralism, democracy and market economy. I should not want to dilute that at the moment with the Soviet Union. We should hold open the prospect of aid to the Soviet Union, but, to be quite blunt, I do not believe that Mr. Gorbachev has yet accepted anything more than a managed democracy and a managed economy. I see no sign that Mr.Gorbachev has accepted the disciplines of a full democracy or market economy. We would be putting bad money after worse if we poured it into the Soviet Union at the moment. We learnt that lesson with the money that we put into Poland too soon in the early 1980s and we would not do well to repeat the same mistakes.

The proposed energy project is a serious commitment of mutual benefit. There is also a danger that the Soviet Union may move too rapidly into charging its former satellite countries full economic prices for their energy. There are many signs that the Soviet Union wishes to do that and to demand hard currency. If that happens too quickly, those countries will have an added burden for which we shall have to compensate. I hope that the Government will carefully consider the Lubbers proposal and ensure that at the next European Council it is given every bit as much consideration as the proposals by France and Germany for extensive Soviet aid. Such a proposal would give more value to the wider Europe from the Atlantic to the Urals. It has strategic and political significance and would provide the economic underpinning that Europe needs.

Finally, it is not easy to overestimate the value of the investment of the British Council and the BBC World Service. I hope that the remarks of the Select Committee in that regard will be taken seriously into account. I understand that the British Council will have to find the money from its own resources in the next few months and that the know-how fund is being made available for only a short time. It is no good looking at the BBC only in terms of radio. The new medium of communication is television. It is absurd that Cable and Network News and American culture is blasting into every country in the world with considerable facility and skill. The BBC ought to be involved in television news worldwide. It should also carry advertising. The sooner the BBC establishes a worldwide challenge to CNN, particularly in Europe, the better. It is no good thinking that we will get the same value that we have enjoyed over many decades from the BBC World Service simply by relying on radio. We have to move into television very fast indeed. Given the atmosphere of our relationship with eastern Europe, it would be a very good place to start.

5.34 pm

Such debates are always fascinating. Yesterday there was one kind of Germany and today, it is said, there is another. This time last year we would never have dreamed of the changes that have taken place. It is natural for politicians, particularly leading politicians, to talk about splendid visions, the ideals of what we should be doing and the money that we should be giving—usually other people's.

I agree with some of the comments of the hon. Member for Cynon Valley (Mrs. Clwyd) about third world aid. It is important that the money that we are dishing out in such huge bucketfuls should not be at the expense of the third world. However, I bring one point of realism to the hon. Lady. It is no good talking about percentages. Socialists are always keen to talk about percentages. Perhaps the Government do not give the right percentage. The socialists might well have given the right percentage, but they gave the wrong sums of money. We are giving greater sums of money and greater real help. It is no good talking about the starving. If our economy were a quarter as good as it was when the socialists were in government, the percentages would look better but money and not percentages fills stomachs.

The Opposition talk glibly about debt forgiveness, but who is to pay for it? We are talking not about a few tens of billions of pounds or dollars but about hundreds of billions. One thing is certain: an individual country can renege on a debt just once, but then it becomes a wasteland of the financial dead because no one in his right mind will ever lend it money again. It becomes a banana republic and people have to give it money because they know that they will never get it back.

Will the hon. Gentleman give way?

No, other people wish to take part. [HON. MEMBERS: "Give way!") I cannot refuse that challenge.

I agree with the hon. Gentleman that debt reduction is a complex business, but does he accept that the sums of money that were sent to Poland and South America have already been spent? Everyone knows that the prospect of many of those countries ever repaying their debt is extremely doubtful. It is no help to continue pretending that the money can be clawed back. Debt reduction is complex and difficult, and we have to take it seriously.

I agree with the hon. Lady that each country and each debt is an individual problem. Hungary, however, is adopting the right attitude, having said that it does not want to rephase its debt because it believes that it can earn its way out of the crisis. It may well be that because Poland has so much moribund industry, as the right hon. Member for Plymouth, Devonport (Dr. Owen) said, we have learnt from what we did in the 1980s in Poland, throwing money into things that should have been obliterated.

The Opposition say that they wish to form a Government at some time in the next 20 years, but if they think that they can give away other people's money and expect the world to become a more stable and healthy place, they are living in cloud cuckoo land. The same applies to Mr. Gorbachev. At the moment, Gorbachev mania is running around the world in the same way as Mandela mania. So far as I am concerned, what Chancellor Kohl is trying to do involves some of our money as well. Despite what the right hon. Member for Devonport said, it is not all West German money; £2.3 billion of EEC funds is going to the east and £8 billion of the £20 billion that the right hon. Gentleman spoke about so glibly will come from EEC funds. That is our money, too, and it is to be sent on propping up a man who, as they say in the midlands, "can speak good, can't he". He can certainly speak good, but what has he promised? It is clear that he wants not to change communism but to run it better. We in the western world, even the socialists, know that that socialism is dead. Socialist members of the Select Committee realised that when they returned from eastern Europe. Communism does not work for the good of people.

Chancellor Kohl wants to build new Germany and to throw $20 billion at another wasted enterprise. Russia must learn, as East Germany is learning, that to achieve real change will involve some real pain. Two million people in East Germany are about to experience two years of misery, possibly followed by 20 golden years.

We have all seen the pain of communism. It is not that the people are bad or unwilling to work, but the communist regimes that have borne down on them for generations cannot work. We must teach the Russian people that realism plays no part in their lives.

I should like to say something about Germany, but not in a carping sense. There have been three reichs, the last of which was a war reich. I do not believe that the fourth reich will make anything other than a peaceful transition to another Germany, because it is a new Germany. It is no good people always harping back to the war. Anyone who has met Germans knows that they are more tired of wars than us. Anyone who has visited Dresden, which has been rebuilt but where hundreds of thousands of innocent Germans died, knows that the Germans do not want wars.

I am not saying that the fourth reich will be a war-like Germany, but anyone who believes that the new Germany will not be a desperate battleground for this country and other countries is living in a fool's paradise. East and West Germany together will stand astride the world with Japan and America. There will be desperately difficult and challenging times ahead for our trade and industry. Anyone who thinks that East Germany's growth will provide us with huge oppportunities does not understand the German mentality. The Germans rightly want to build Germany into a huge, powerful unit. They say, "Let us not talk about Germans, British or French, let us talk about Europeans". But when the Bundesbank talks about Europeans, what does it mean? Who is to run the world banking system? Surprise, surprise, it is the Bundesbank.

Our manufacturing industry will have to change and receive more Government support than it has had in the past. The Foreign Office must change its attitude to the ambassadors it supports. Our ambassadors—happily, we saw at least one good one while we were away—must place more emphasis on trade expertise. If the Common Market means anything, it means that each country should not waste its money on having its own foreign affairs channel. We want more emphasis on trade and industry so that Britain can at least play its part in competing in Europe, with West Germany, East Germany and a united Germany. Challenges and opportunities mean dangers. If Britain is to survive, it will do so not on changing the guard at Buckingham palace and on Sainsburys, but on manufacturing and trading our way out of the problems that we face.

5.45 pm

Every hon. Member was thrilled to see the cruel and tyrannical regimes toppled throughout eastern Europe; nothing like it had been seen since 1848, the year of revolution.

All hon. Members support the political liberation of eastern Europe, but the House should consider what the immediate economic and social consequences will be. It should also consider the broader picture and the consequences for the rest of the world, particularly the third world, of events in eastern Europe.

I spent last week in eastern Europe with other members of the Treasury and Civil Service Select Committee. We visited Frankfurt, Berlin and Budapest and met politicians, business men and financiers, including Mr. Pöhl of the Bundesbank, who will sit astride the Europe of the future, like a direct descendant of the holy Roman emperors.

It is hard to escape the conclusion that in the immediate future the big gainer from current events will be West German capital. The short-term consequences for the living standards of ordinary people in eastern Europe look a little bleak and the consequences for the third world could be disastrous.

There is no doubt that West German banks and financial institutions are excited by events in eastern Europe, particularly German economic and monetary union. The word the bankers used time and again was how "emotional" they felt about events—an unusual word for bankers. Huge sums are poised to pour into eastern Europe, particularly East Germany, through Governments, private investment, the World bank, the IMF and institutions such as the European Bank for Reconstruction and Development.

In rebuilding East Germany, West Germany has the edge if not the monopoly. West German business and finance share a common language and culture with East Germany and have well-established links. The House should bear in mind that the interests of West German capital in East Germany are not necessarily focused on the manufacturing sector and job creation. The keenest interest seems to be in the service and retail sector. Deutsche Bank is poised to take over the East German Kreditbank; Lufthansa is poised to take over the East German Interflug; and Allianz, the West German insurance company, will take over the entire East German insurance industry.

When the ownership problems in East Germany are finally resolved, there will be a bonanza for property developers, because some land in East Germany is seriously undervalued. If, as seems almost certain, Berlin becomes the capital of a unified Germany, there is prime real estate in Berlin ripe for exploitation by Germanic Donald Trumps. Some of the East Germans we spoke to regard the precipitate economic monetary union of West and East Germany as, sadly, a once-and-for-all opportunity for West German business interests to buy East German assets at knock-down prices. Some East Germans described German economic and monetary union as the sale of the century for West German banks.

There will not be, as Conservative Members have said, a huge manufacturing opportunity for British manufacturing industry. At present, Britain's role seems to be to provide an army of accountants or management consultants—a carpetbagger army of consultants.

The paradox is that if we take into account the western blockade which deprived the East Germans of access to technical information, the East German economy was relatively successful. But East Germany was saturated with West German television and became obsessed with access to hard currency and consumer goods. Hon. Members will have seen television pictures of people fighting to get their deutschmarks yesterday. Members of the Select Committee saw in Berlin the queues to open banks accounts, but some East Germans are having second thoughts because of the danger of asset stripping, and East German economists know that GEMU has moved too fast. It is driven by politics rather than economics and runs the danger of creating a money society.

Conservative Members said that there was a possibility of unemployment in East Germany because of GEMU. The politicans, bankers and financiers to whom we spoke said that there would certainly be mass unemployment—perhaps as many as 4 million people—and that as many as one third of the companies were expected to go bankrupt. There are already cuts in support for welfare services such as libraries and nurses, and in support for East German sport. Women with children are being sacked because they are not seen as productive. The market economy will work in East Germany because West Germany has the wealth—the long pockets—to make it work. Even in East Germany, the people will pay a grave economic and social price in the short term. It is difficult to see how the rest of eastern Europe can sustain stable, liberal democracies, given the bankruptcies, unemployment, falling real incomes and the doubling and trebling of prices which are certain to be the immediate result of the introduction of market economies.

By all means let us be euphoric about the introduction of political democracy into eastern Europe, but the social and economic road down which eastern European countries have still to go is difficult. For most of the ordinary peoples of eastern Europe, the immediate result of the introduction of capitalism will be a drop in their real living standards, extraordinary instability and uncertainty.

I rise on a genuine point of information because I do not know the answer to my question. Can the hon. Lady enlighten me? Is the standard of, say, child care provision enjoyed in East Germany higher than that available in West Germany or is it lower? Will the East Germans be able, in time, to look forward to an improvement when the two sides of the country merge?

It is not so much that the standard is higher—provision is much more heavily subsidised in East Germany than in West Germany. Interestingly, women in East Germany have free access to abortion but the rights of the foetus are protected in the West German constitution. Not all forms of social provision and all social rights are necessarily better in West Germany than in East Germany. The quality of accommodation in East Germany may not be higher than in West Germany, but the subsidies are much higher. The women to whom I spoke were frightened as the creches were closing because Government subsidy was no longer available.

It was clear from my visit to eastern Europe that racism was surfacing again, particularly in Germany. The neo-Nazis are resurfacing and there have been attacks on black people and immigrant workers in the streets. There have been demonstrations outside migrant workers' hostels. Jewish cemeteries have been dug up and a memorial to Bertolt Brecht was defaced because it was said that he was Jewish. One frightening aspect of unification which has not been given particular emphasis in this country is the surfacing of the dark side of German nationalism, which involves anti-semitism and antagonism towards migrant workers. Thoughtful East Berliners pointed out that there are 70,000 Turks in West Berlin. They are not guest workers but a settled community. There will be unemployment in East Berlin as an immediate result of German economic and monetary union. What will the East Berliners say about 70,000 Turks holding jobs that they will regard as German jobs? In the short term at least, this must increase racial pressures.

The capital inflows into eastern Europe will be at the expense of the third world, whether they come from commercial or from governmental sources, no matter what Governments may say to the contrary. Mr. Barber Conable, president of the World bank, is on record as saying that private sector investment in eastern Europe will be at the expense of the third world. Despite all the euphoria about the new Europe and Fortress Europe, at a time when living standards are dropping all over the third world—perhaps because of poor government and certainly because of greater third world debt—it would be unfortunate if the House blithely looked to events in Europe and did not consider the consequences for the third world and Commonwealth countries.

Debt reduction has been discussed. Bankers in East Germany are already talking blithely about a 70 per cent. debt reduction for Poland. That is all very well, but if there is to be debt reduction for any middle income country, whether it be Poland, Mexico or Jamaica, the reduction should be equitable. West German bankers told us that there must be debt reduction for Poland because the Poles are very poor. There are people in Africa and central America who are even poorer than the Poles. It would be wrong for the long-term stability of the world if we looked at the issue of debt reduction for Poland in a narrow, Euro-centric way and did not take the issue in its totality.

Despite claims to the contrary, interest rates in Germany must rise once the December elections are out of the way. It seemed clear to me from sources close to the Bundesbank that, to attract the capital inflow necessary to rebuild East Germany and to check inflation, West German interest rates must rise. That will make it even harder for the third world to repay its debt—a debt that is crippling economies around the globe.

In Europe's euphoria about the political changes in Europe, the third world is in danger of dropping off the end of the world's agenda. In what will be traumatic economic times, the House and this country should think about the kind of economic support that we can give the countries of eastern Europe. The exact kind of economic support is a difficult matter, but it needs to support progressive economic and political changes and not just prop up decaying regimes.

Let us be in no doubt—the market has no magic wand to wave. In the short term, the consequences of the introduction into eastern Europe of a free market will be a measure of political and social crisis that will vary from country to country. Like many hon. Members and people outside the House, I should be seriously aggrieved if the House were to jettison its long-standing connections with the third world and the Commonwealth in the light of current events in eastern Europe. We must help eastern Europe, but we must be mindful of our responsibilities as citizens of the world and of the interests of the poorest communities in the world.

5.57 pm

In the interests of time, I shall not take up the points made by the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott), much as I would have been tempted to do so in other circumstances.

I welcome this debate on assistance to eastern Europe. I congratulate my right hon. Friend the Member for Guildford (Mr. Howell) on his speech. I speak not only as a member of the Foreign Affairs Select Committee but also as chairman of the Great Britain-East Europe Centre. Hon. Members may not know that the centre was established in 1967 to promote a closer understanding between the British people and the peoples of Bulgaria, Czechoslovakia, Hungary and Romania by fostering cultural, economic, educational and social contacts with them. In 1988, the centre extended it activities to include Poland and the German Democratic Republic. It has organised round tables, symposiums and seminars for exchanges of view between people with similar professional interests, whether in the law, medicine, conservation, urbanisation, economics or the environment. It has invited a wide range of individuals from its six partner countries for two-week visits to the United Kingdom, with the people chosen by the centre and not designated by the previous communist Governments. The centre has sponsored young people coming to the United Kingdom for the first time to attend courses and summer schools.

Since 1989, that annus mirabilis for the peoples of eastern Europe, the centre has stepped up the pace of its activities by organising, in co-operation with the Inter-Parliamentary Union, and with the welcome support of Mr. Speaker, a series of seminars on practical aspects of democratic politics and political organisation. More than 80 people from five countries were brought here for the seminars—many of them involved for the first time in a genuinely pluralistic political process. It was a cause of real satisfaction to me and to many of my hon. Friends that some of them became Members of Parliament or even Ministers on their return to their home countries. It was good to know that, with the indispensable financial support of the Foreign and Commonwealth Office, it was possible to make a real contribution to the building of new democracies in eastern Europe. I entirely agree with the right hon. Member for Plymouth, Devonport (Dr. Owen), who drew a parallel with the countries of the Iberian peninsula and referred to the role that the bolstering of economic contacts—and, ultimately, after some years, membership of the Community—could make to the progress and reinforcement of democracy in eastern and central Europe.

Perhaps the mechanism of which we in Britain can be the most proud is the know-how fund, set up since the momentous events of last year. The fund, which was unjustifiably criticised by the hon. Member for Cynon Valley (Mrs. Clwyd), has been a pioneering model of its kind and is now being replicated by some of our European partners. I hope that its coverage will soon be extended to Bulgaria and Romania—a point touched on indirectly by the Prime Minister in her statement on 1 May following the special European Council in Dublin, when she said that the group of 24 intended to extend their assistance to Bulgaria and Romania. In that context, it would be logical for the know-how fund to cover those two countries as well.

Once again, I should declare an interest as I am a member of the advisory board of the know-how fund and have been able to build up some experience in that way. My experience and involvement have taught me several things. First, a shortage of funds has not been a problem for the countries that we seek to help, as we understand that more money will be made available as new, worthwhile projects are identified.

Secondly, the aid and assistance that Britain has been able to channel to those countries is additional to the resources already allocated to our overseas aid budget. That is absolutely clear, and it is worth putting it on record; indeed, my right hon. Friend the Minister may wish to endorse that point in his winding-up speech.

Thirdly, the fund is engaged in nothing less than helping to provide the people concerned with the skills needed to run a market economy and a democratic pluralist society. For example, the fund has been able to help the Poles by providing them with basic skills in banking, accountancy auditing and commercial law—all of them vital in effecting the transition to a market economy. Equally, we shall be helping the Czechoslovaks with their embryonic policy of privatization—on which, as I know from a recent visit, they are very keen—and with the establishment of small businesses, which will be absolutely vital to their chances of avoiding mass unemployment.

I recently returned from a visit with a delegation to Czechoslovakia, where I was able to see at first hand the scale of the tasks to be tackled. Sober people estimate that the whole economy of Czechoslovakia is probably 15 to 20 per cent. over-employed. Were the Czechoslovaks able one day to achieve western levels of productivity, the existing level of industrial output could probably be achieved with half the present work force. That is the scale of the problems that confront Czechoslovakia. In other words, Czechoslovakia and all its partners in the now moribund Comecon need to engage in the most extensive economic restructuring. There is much that we in Britain—especially in the private sector—can do to help to bring that about.

So far—with the notable exception of the German Democratic Republic, which is really a special case—British business men seem to have been a little slow to explore the potential for joint ventures, foreign equity participation and all the other mechanisms of economic co-operation. It would be good for this country and for countries such as Czechoslovakia if more firms followed the rather rare example of Barkotex, which has already formed a joint venture in textiles, and Bovis, which has launched two joint ventures in construction.

Certainly British industry and commerce have a lot of ground to make up before they can begin to match the efforts of big firms in other countries such as Bata in Canada, Volkswagen in Germany and Fiat in Italy, all of which are much further advanced than our firms in forging the necessary economic partnerships.

In general, I think that it is fair to say that so far the record of our public sector in providing practical training and assistance to the countries of eastern Europe has been superior to the performance of our private sector in direct investment and joint ventures. For the good of Britain and for the good of the recipient countries, we must hope that such an imbalance will be rectified as soon as possible. Both public and private sectors have a useful part to play in helping to transform the eastern European economies and to strengthen what Ralf Dahrendorf has rightly called civil society in those countries.

I commend Ministers for the timely and effective lead that they have given, especially via the know-how fund, and I urge them to use all their influence within the Community and within the OECD framework of 24 to bring about further practical progress.

In my view—and I agree once again with the right hon. Member for Devonport—it is a vital British and Western interest that the economic and political revolutions in central and eastern Europe should not fail. The fact that they were successful in the first flush of enthusiasm does not necessarily mean that the countries will find it so easy later on. We should do all that we can to assist them in practical and cost-effective ways, preferably concentrating our help on those things that we do best in this country. It is all to easy to make snide remarks about help with the police, local government and the civil service. The fact remains that those are our relative strengths and it is right that we should give them priority in our efforts to help the countries of eastern Europe.

At the same time, however, we should use our influence with the new democratic Governments of those countries to encourage them on the difficult but necessary path to price reform, currency convertibility and much more extensive private ownership, without which their bold and magnificent experiments may not succeed.

6.6 pm

Like the hon. Member for Carshalton and Wallington (Mr. Forman), I shall be brief because time is pressing and many hon. Members wish to speak.

I am still euphoric about the events in eastern Europe, and that will, I suppose, affect what I think and say. The glorious achievement of a long-deferred hope remains very exciting, but it lays on us a great responsibility. That responsibility may be difficult to fulfil, but we have a duty to take it on and not to be mean or exploitative about it.

Let me deal first with the Soviet Union—the big one. I do not agree with the position adopted by the Prime Minister in Dublin and stated today by the right hon. Members for Guildford (Mr. Howell) and for Plymouth, Devonport (Dr. Owen). We must look seriously at ways of giving Gorbachev economic support and help. I said that first in the Western European Union Assembly in December last year, so it is not a new view.

Because—I shall quote myself, which is always useful—as I said then:

"The price of helping Russia to change must be balanced against the cost of defending ourselves against her … It is a time when I believe that boldness, not timidity"
should guide us. It is all very well the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) uttering remarks from a sedentary position, but it is extraordinary to suggest that Chancellor Kohl is anxious to pour money down a black hole. I do not believe that that is the German approach to such matters. Of course there must be prudence and order and care must be taken and I do not believe that the proposals coming from the Germans involve anything other than that—nor am I afraid of the link that the Germans are making with NATO and troops. We must face up to our responsibility to assist the changes in the Soviet Union.

Does not the hon. Gentleman understand that GNP in Russia is dropping by 5 per cent. a year? How can giving the Russians £20 billion bolster anything unless there is real change?

I am not saying that we should give them £20 billion. I am saying that we should look at constructive ways of assisting their economy.

I was not clear about what the right hon. Member for Devonport said about some sort of accelerated membership of the European Community for Hungary, Poland and Czechoslovakia; I do not know how that would work. I take the view that the existing Community must sort itself out and give those countries assistance. We must offer them associate status as and when and look to the point at which they can join, but that cannot all be done at once.

Like the hon. Members for Hamilton (Mr. Robertson) and for Carshalton and Wallington, I am also a member of the know-how fund advisory board, which has been confined so far to Poland and Hungary, but will probably cover Czechoslovakia. I hope that the Minister of State will refer to East Germany when he replies because we would like to know what the position is with regard to East Germany.

The British Council and our embassies are a little overwhelmed at the moment. They need more people. There is a genuine area of cross-party co-operation in that regard and perhaps hon. Members can help in an organised way. The hon. Member for Cynon Valley (Mrs. Clwyd) referred to overlap, and I am still worried about that. It has been suggested that the Council of Europe has a role to play, and clearly the European Community also has a part to play. However, we must consider what is happening. In general, I believe that the progress has been constructive.

My hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) has just returned from a Treasury and Civil Service Select Committee visit to the east. He has stressed that the Hungarians do not want their debt cancelled because they believe that that is unnecessary. That is contrary to the point made by the hon. Member for Cynon Valley.

The context of German reunion must involve faster and more confident European integration. Bulgaria has held its election and has produced the successor Communist party and the Bulgarian socialist party is now in office. That party won what most observers considered to be a reasonably conducted election. One of my party members, Miss Sarah Ludford, witnessed the elections and said:
"Forty-five years of Communist totalitarian Government obviously leave a legacy which cannot be removed in a few months … this undoubtedly produced a climate in which a lot of people felt pressurised to vote"—
for the successor Communist party—
"we were told of none-too-veiled threats about loss of jobs and pensions … although the vote itself was secret … that secrecy may not have given people enough confidence to vote for the opposition."
That is also true of Romania. I was in Romania during the election and I saw almost the same thing. There were then also the awful events when the miners rampaged through Bucharest and the west said, "Hold off. It looks like Iliescu is simply a repetition of Ceausescu." I do not believe that that is true.

In Innsbruck the day before yesterday I was fortunate enough to spend half an hour with the new deputy Prime Minister of Romania, Dr. Severin. I wrote to the Minister of State about that meeting, but he will not have received the letter yet. The Romanians are trying hard to give the opposition a place. The leader of the Romanian Liberal party, Mr. Campeano, is now the deputy president of the Senate, and the Peasants party is also getting opportunities. In the west we must decide whether the Romanians are behaving openly and, if they are, we must help them.

The hon. Member for Carshalton and Wallington referred to the collapse of a civil society. Nowhere did that happen to a greater degree than in Ceausescu's Romania. The civilised society had almost disappeared there. However, it is surprising how quickly it can be brought back.

It is important to be prudent. However, we must also be positive and generous. We must not exploit or asset strip. Instead we should try our best to show the acceptable face of democracy and capitalism.

6.13 pm

Recently I had the honour to host the first ever conference for Members of Parliament from both east and west Europe, that is, democratically elected Members of Parliament from east Europe and candidates from countries such as Czechoslovakia which had not yet held their elections. The conference was held at Lancaster house and involved nearly 30 Members of Parliament and 80 delegates. I want to thank my right hon. Friend the Minister of State for his support and for making know-how fund money available to the British Atlantic group of young politicians, of which I am chairman and which organised the conference. His help was invaluable.

In my brief speech tonight, I want to share with the House some of the impressions that I gained from the delegates from all the east European countries, including the Soviet Union. I want also to refer to the special position of the Soviet Union and consider what we can do to help. Then I will consider the changes in the European Community which the reforms in eastern Europe are bringing about and the way that those changes are being addressed. The British Atlantic group of young politicians is a NATO-supporting organisation. Last year it decided that, because there were glimmers of hope and democratic developments in east Europe, the group should try to develop contacts with those countries. As chairman of that group, I can say with some pride that we perhaps anticipated events and our conference at Lancaster house was set up well before November last year.

The first impression that I gained from the conference was that the know-how fund has been tremendously welcomed by all the countries that are favoured by it. It is a great credit to my right hon. Friend the Minister of State and to my right hon. Friend the Foreign Secretary that they have come up with the package. The delegates from Czechoslovakia and Poland very much hope that more investment will follow the British know-how.

I spent election day in Czechoslovakia in the Civic. Forum headquarters. In that country, it is not a matter of pushing at an open door; it is a matter of walking right through the door frame. Those people desperately want British investment because they are frightened to a certain extent of German investment. In the Sudentenland they are particularly worried that too much German influence will come across the border and will damage their independence.

I was in Poland last year and I was aware that the Polish people are worried that the disproportionate amount of West German investment in Poland, and particularly in Silesia, is affecting their independence. That view was confirmed at the conference. There is great scope for British investment in those countries.

Does my hon. Friend agree that the important point about private investment is that it is likely to change the political and economic structure of the recipient country because only by changing will it attract that investment? On the other hand, public investment is more likely to shore up the existing political circumstances and prevent change.

I accept my hon. Friend's point, but we must differentiate between different types of aid.

The delegates at the conference also wanted the English language to be the paramount international language in eastern Europe. Anything that we can do to develop and improve the English language in that area will be most welcome. That was particularly evident when I spoke to Czechoslovak delegates. Delegates were also very concerned about the environment. Britain has a great role to play in that respect.

If my right hon. Friend the Minister of State were to consider the problem with visas, he could ease the relations between the countries. We visited the embassy in Prague on a Sunday and saw the embassy staff working overtime to process visas for Czechoslovak citizens wishing to come to Britain. We must review our policy towards eastern Europe. The east Germans and the west Germans have dispensed with all visa controls. We must move ahead and consider doing the same.

It has been said this afternoon that there is a strong argument for not throwing money down the well, putting it down the plug hole or throwing it at ancien régimes. However, the House must differentiate between different types of assistance. An article in The Economist this week also suggested that we should not repeat mistakes that were made in the past by providing aid to countries which just wasted it.

There is a case for extending the know-how fund, and I shall explain how it should usefully be done. During the conference at Lancaster house, I took great care to spend time with the Russian delegation, because it was the largest from eastern Europe—there were six recently elected Members of Parliament and a member of the Praesidium. Afterwards, I entertained the delegation privately in the evening. I sat next to the Russian ambassador at lunch at the Russian embassy but two weeks ago. It is my conviction that the Russians are anxious to move closer to Britain, and they want to do so for several reasons. First, they still feel a bond between our nations. It pre-dates the 40-year cold war—it goes back to the fact that we were allies in the last war. Secondly, they believe that our nation can deliver reform. Thirdly, they recognise the success of our privatisation ideology.

It is my profound belief that we would be mistaken if we did not extend the know-how fund to the Soviet Union in a specific way. I am not suggesting that all the reforms in the Soviet Union that should take place have taken place, but, when a reformist leadership is under great pressure, the very least that we can do is to offer something so that the Soviet leader can say to the people, "We really have support; it is tangible." We could give help with desperately needed English lessons—that help would not go into the war machine—and we could help with training in western accountancy methods.

I now refer to the pace of change within the EEC and what should be done about it. In his moving speech, the right hon. Member for Plymouth, Devonport (Dr. Owen) addressed the way in which the EEC is looking at eastern Europe. I agree with him 100 per cent., but I go a little further. Not only should Czechoslovakia, Poland and Hungary be within the EEC, but it behoves the EEC to move much faster to achieve that end. We have just seen the west Germans mobilise a tremendous effort to effect change in their country. In Poland, the Catholic Church built churches as soon as restrictions were lifted. There have been vast changes in the Soviet Union also. The EEC must move faster. It is no good saying that we must wait three or four years before other applications are processed. We must consider setting up some structures much sooner than that.

I am grateful to hon. Members for listening to my speech.

6.22 pm

I am glad that there have been at least one or two mentions of the problems facing Romania. I was a member of the Inter-Parliamentary Union delegation which visited Bucharest, Timisoara and Lipova, and many villages in that country. I was able to confirm what our local government officials had said of Romania. There was also a 75-man delegation from the United States. As far as we could tell, in the circumstances, the election was carried out in a perfectly just way. On 20 May, the people of Romania went to the polls in a spirit of freedom. They argued among themselves about the respective merits of the parties. I was accompanied also by the hon. Member for Derbyshire, South (Mrs. Currie), and we were of the opinion that, even if there were procedural problems, there was nothing sinister on election day.

I recognise, of course, that there were certain events in Bucharest when miners—party vigilantes—were brought in, and all hon. Members will deplore that. Someone must tell President Iliescu that democracy does not depend entirely on what happens on election day—there must be a spirit of tolerance. Perhaps some tolerance will be imbued by inviting Romanian Members of Parliament to this country to show them that, although we may slander one another across the Chamber, we can have civilised political debate. There must be a price to pay for the lack of tolerance in Romania.

It would be wrong to exclude Romania from the know-how fund or from any other economic and social assistance that we can give. Anyone who has seen the children's hospital in Timisoara knows of the urgent human needs of the children and the conditions there. The floors of the kitchen are swilling with germ-ridden water. There is an urgent need for assistance.

The Government must act alongside Romanian politicians. We know that 20 May was a great day of hope. We recognised that it was the beginning of Romanian democracy. Romanians have never known democracy, no matter what regime was in power.

I shall not give way as there is insufficient time.

I remind the Government that, when they consider human rights as a condition of assistance, they must bear in mind that we do not withhold assistance from Turkey. In the estimates, we find that, even after the events in Tiananmen square, the Yue Yang power station in China will consume £3·5 million this year and £47·9 million in future years. I ask the Government to bear that point fully in mind. Country house seminars are one thing, but they are not all that is available from Britain. We need drive on the part of British business to invest in eastern Europe.

I was chairman of the economic development committee on Merseyside county council. I hope that the Government will not advise the Romanian Government on how to dissolve Bucharest city council as they dissolved the Greater London council. That would not be a lesson in democracy.

Some of our small business men went to the Hanover trade fair. We must use the facilities in Leipzig, Zagreb and other parts of eastern Europe. British business is led by laggards—people more interested in asset stripping than in real investment. That is true in this country and wherever British business features in other parts of the world. We want real drive for real investment, which will not only be to the economic advantage of the United Kingdom but will help to restore the lives of many people in eastern Europe. I ask the Government to act alongside Romanian Ministers and talk to them. Of course there will be conditions, but we should not dissolve all aid.

6.28 pm

This debate has been based in part on the valuable report produced by the right hon. Member for Guildford (Mr. Howell) and his Select Committee. The debate has been wide-ranging, consensual, constructive and informed, as was demonstrated by the speeches by the hon. Member for Bosworth (Mr. Tredinnick), with his experiences in Czechoslovakia, and by my hon. Friend the Member for Liverpool, West Derby (Mr. Wareing), who pleaded that Romania be not left out of consideration.

As the hon. Member for Arundel (Sir M. Marshall) has said, the Inter-Parliamentary Union has played a large part in building bridges and in providing facilities for hon. Members to see at first hand the dramatic events taking place in eastern and central Europe. We all welcome those changes, although the dramatic nature of developments has revealed some of the darker aspects of the past on the eastern side of our continent. My hon. Friend the Member for Hackney, North and Stoke Newington (Ms. Abbott) spoke about that.

Fears have been expressed about the danger that aid to the third world will be sidelined to eastern and central Europe. One sees that trend in the deployment of foreign service personnel, a matter which was mentioned in the Select Committee report. I commend to the Minister the idea of uncoupling aid to eastern and central Europe from the overseas development vote. Perhaps he would consider a separate unit based on the British Council precedent. That would make quite separate the very different areas of the third world and eastern and central Europe. As my hon. Friend the Member for Hackney, North and Stoke Newington said, the third world finds it increasingly difficult to attract private capital. Eastern and central Europe have human and physical infrastructures which make them highly attractive to private capital, some of which is employed in an abrasive and voracious manner.

We must decide how best to respond to the many needs of the eastern part of our continent. There is general recognition that political changes in the past six months must be underpinned by economic changes. That means providing the management and accountancy training which are part of the know-how funds on which the debate has concentrated. The genesis of those funds was in June last year, when the Prime Minister met General Jaruzelski and promised to provide Poland with training and advice on political pluralism and the market economy. Political changes in the rest of the region have extended those concepts.

We broadly welcome what has been done within the ambit of the know-how funds, although we are understandably wary about the Prime Minister's enthusiasm for privatisation, which at times conjures up visions of the Adam Smith Institute careering around eastern Europe organising seminars on the image of Thatcherism or seminars at which Lord Young lectures east Europeans on honesty and transparency in privatisation. Perhaps the Secretary of State for Transport, bless him, could talk about competence in privatisation and how to bring the continental railway system up to the standard of British Rail.

The know-how funds are but one part of an overall package of assistance which includes the Development Bank and the Lubbers proposal from the energy committee at the European summit which was pressed by the right hon. Member for Plymouth, Devonport (Dr. Owen). It also includes trade—are we prepared to open our markets to products from eastern and central Europe? It includes debt reduction and the range of activities which the hon. Member for Arundel and other hon. Members have set out on behalf of the Inter-Parliamentary Union. We acknowledge the way the Government have worked in concert with the advisory body. The Minister said that the Government had learnt from their mistakes in the early operation of the know-how funds. It would be interesting to hear about those mistakes, because the projects which have come forward since that admission by the Minister seem strikingly similar to those which came forward in the first part of the operation.

There are reservations about the implementation of the funds. One concerns the degree of co-ordination and who directs it. Will it be done by the group of 24 or by the European Community? Such co-ordination is necessary if we are to avoid stumbling over one another in the desire to help eastern and central Europe. Questions have been asked about amounts of money. Perhaps the Minister will confirm that about £2 million of the total pledged at the end of May has been disbursed. In the context of the debt and the need, that is small beer.

Some hon. Members have asked about the narrow profile of democracy and multi-party politics that the Government have adopted—a point in relation to Professor Dahrendorf and his social society. There is a need for intermediate bodies because democracy involves diversity and not just bankers and accountants flocking to eastern Europe. Will the Minister say at what point he thinks that East Germany, after yesterday's economic and commercial union with greater Germany, will no longer be able to benefit from the know-how funds? Perhaps he will also talk about the relationship of the funds, if any, to the Soviet Union's enormous needs. That has been mentioned by several hon. Members.

As funds are limited, have the Government considered the know-how funds as pump primers? Companies which will benefit could surely make a contribution to enable Government funds to go that much further. How much liaison is there with business? A major British company to which I spoke says it thinks that the Government have been insufficiently commercial. Perhaps in terms of distribution Britain has had the short end of the stick in that we have been assigned financial expertise, the benefit of the City, while other countries have been assigned areas in which commerce is more evident. I hope that the Minister will confirm that we have not been short changed.

The Minister will be aware of the criticism contained in a recent article in The Times. It suggested that France has been more successful in setting up institutions for teaching banking in Poland, whereas the seminars that we have promoted have been of much less benefit. Tourism has many benefits, not only because it employs many people but because it will earn foreign exchange. Yet know-how funds have been directed to only one small tourist project in Cracow. The Minister should look at the claims of tourism.

The Opposition welcome the scheme as far as it goes. It is but a small part of a panoply of measures which seek to cope with the changes in eastern and central Europe. Those changes are wholly unprecedented and are turning a command economy into one in which the market will have a place, albeit in a social context. We are ready to co-operate with the Government but, as I have said, we shall be wary of any attempt to mould eastern and central Europe in the image of Thatcherism. We are reassured by the fact that the Minister of State, Foreign and Commonwealth Office, the right hon. Member for Bristol, West (Mr. Waldegrave), is in charge of the programme, making it less likely that a narrow ideological vision will prevail.

We stress the need for flexibility. The Government should not take the view that all the countries in eastern and central Europe have the same problems. They should pay attention to each of the countries and policy should be subject to constant review. When there is a change of Government, we shall try to ensure that the right hon. Member for Bristol, West remains a member of the advisory committee. In working with the Government on the matter, our objective is to target aid and assistance as well as possible and to improve its scope.

With all the reservations that I have mentioned, we give a broad blessing to the know-how funds.

6.40 pm

I am grateful to the hon. Member for Swansea, East (Mr. Anderson), although I am not at all grateful to him for his unfortunate remarks about me personally at the end of his otherwise admirable speech. On a more serious note, I greatly welcome the tone of what he said.

The introduction to the debate by the Chairman of the Foreign Affairs Select Committee, my right hon. Friend the Member for Guildford (Mr. Howell), was exemplary, as was the Committee's report, which was extremely useful to us on a number of counts. I wish that I could say the same for the speech of the hon. Member for Cynon Valley (Mrs. Clwyd), which was mildly deplorable. To mock her colleagues and ours for going to find out about the eastern European countries seemed sad. To say that one must listen to the people on the ground but not go to the countries seemed odd. She then spent several billions of pounds and we look for the normal rebuttal from the right hon. and learned Member for Monklands, East (Mr. Smith) tomorrow.

We have had a good debate with speeches from hon. Members on both sides of the House. The hon. Member for Hackney, North and Stoke Newington (Ms. Abbott) made a good speech. My hon. Friend the Member for Arundel (Sir M. Marshall) brought us back to sense. We now have the task of helping the east European countries. We must not impose anything on them. If they are interested in privatisation, it is not because we have sought to impose it on them but because they want to diversify and pluralise their economies. The demand comes from them. They look to us because they have seen us undertake a much smaller but similar task.

The east European countries do not look to us only on economic matters. The hon. Member for Swansea, East said that, as did the hon. Member for Inverness, Nairn and Lochaber (Sir R. Johnston). The institutional help that we can give to such countries is greatly valued by them. They have come to us to ask for help in setting up non-political civil services, local administrations and police forces. The industrial and commercial aspect of the debate is vital, but it is not the only aspect. The know-how funds were not set up solely as a commercial and industrial support operation. I hope that we shall use them, fairly, as much as we can in the interests of this country to bring business here. The problems posed by the moral and institutional wastelands left by the communists, as well as the environmental wastelands referred to by several hon. Members and the commercial and financial wastelands, are a much more difficult aspect.

The right hon. Member for Plymouth, Devonport (Dr. Owen) made a powerful speech. I agree with him that we must be absolutely clear that if the eastern European countries manage to put their economies and their institutions into free and democratic shape, the Community will welcome them. I take a slightly more pessimistic view than him about the time scale in which that might be possible.

When we compare the transition to democracy in the eastern European countries with that which took place in Spain, it is clear that, although the political rebuilding when a country escapes from communism is similar to that when it escapes from fascism, the economic rebuilding is more difficult. Some elements of a free economy existed under fascism in Spain and Portugal which greatly speeded their transition. That has turned out to be a fact.

The relationship of the eastern European countries with the Community is vital. Opposition Members are mesmerised by the Prime Minister and bring her into their speeches frequently. It is extraordinary how easy I find it not to mention the Leader of the Opposition in my speeches. The Prime Minister is leading the battle, with help from Holland, Germany and other countries, for an open trading system and a liberal trading Community. That is far more important to the interests of the eastern European countries than anything else that we could do. It has turned out that Lenin's old joke about the capitalists selling the communists the rope with which to hang themselves was wrong in every respect. First, they managed to strangle themselves with the rope and then they did not pay for it.

I noticed the hon. Member for Workington (Mr. Campbell-Savours) nod from a sedentary position during the debate when the concept of differentiation was mentioned. It seems absolutely right that there should be differentiation in the jargon. We should try to relate our support to the development of the institutions which the reformers whom we supported in the years of communism sought to build. Those reformers urged differentiation on us. We have not thought it up for ourselves. That is why there is hesitation about giving aid to the Soviet Union, and it is right that there should be. We do not say that we should never offer support, but we should offer support that helps the transition to new institutions and does not simply undermine the forces that are pressing for change. If we simply pay to put consumer goods on the shelves for a year or two, we shall have done nothing to help produce more consumer goods in the long term. We are not saying no. We are saying yes. In the words of my right hon. Friend the Member for Guildford, if we can be assured that the analysis has been done and that the money that we put in will help the transition, we shall consider it seriously.

I have referred to the European Community, which has a crucial role to play both as an ultimate target for the eastern European countries and in the meantime in our association agreements to provide markets in which the liberalising economies can sell their goods. Other multinational and multilateral organisations are vital. First, there is the European Bank for Reconstruction and Development, which we shall welcome to London with its French chairman. We agree with the Select Committee's recommendaton that the EBRD should be paid out of the Overseas Development Agency eastern European support line and not out of the multilateral organisations line.

The EBRD will be one of the key institutions. Conditionality will work with it in relation to the Soviet Union at least at the beginning. That has been made clear by its founding members and it is right. It is vital to achieve international co-ordination on the broad thrust of the work of the group of 24. That work is being done for the first time in a wide forum by the Commission of the European Community. That is a considerable step in showing how central the EC is to all the changes taking place. Commissioner Andriessen has done extremely well in the work that he has undertaken.

The hon. Member for Liverpool, West Derby (Mr. Wareing) made a good short speech about Romania. I agree with him that we should not cut off contacts with the Romanians. On the contrary, we should show them what we mean by democracy, which we criticise them for not yet having established. Before it becomes established as part of the folklore, I emphasise that Conor Cruise O'Brien was wrong to say that I said that President Iliescu was indistinguishable from Ceausescu. I carefully did not say that. I said that it was depressing that some of the methods used were exactly those used by Ceausescu and that that shook us, but we still asked our ambassador to go to the inauguration to show that we recognise the enormous step forward that has been taken by holding an election.

We do not believe that Romania yet meets the criteria for the know-how funds. We hope that we have sent a sharp signal by not inviting it to the first group of 24 meeting. We hope that that shock produces results. We do not want to push Romania out. We hope that the shock will encourage Romania to do things that will enable us to bring it in. I hope that both sides of the House agree with that.

We had 40 minutes of speeches from the Opposition Front Bench during my right hon. Friend's debate, so I cannot give way if other hon. Members wish me to comment on their speeches. I am in the hon. Gentleman's hands.

There has been a major operation in the multilateral forums, with the Community at its centre, to respond to events in eastern Europe. As the right hon. Member for Devonport said, the security aspects of changes in eastern Europe are far more important than much of what we laboured to negotiate in the Vienna arms control negotiations, important though those negotiations were. If we have a group of free, democratic, economically successful countries at the centre of Europe, it will do far more for our security than any negotiations about a few hundred aircraft or tanks. That is why events at the NATO summit this week are crucial. The multilateral security negotiations are not irrelevant to the debate.

I now come to what we have tried to do bilaterally. First, there are the know-how funds. It was unfair of the hon. Member for Cynon Valley to quote from The Economist only the critical remarks. She quoted the following passage:
"The most stinging complaint is simple: for expertise read fripperies."
In fact, The Economist set out the criticisms and then knocked them down. Unfortunately, the hon. Lady did not quote the knocking-down passages. Her research assistant was either idle or unfair. I shall right the balance by quoting the final paragraph of the article. It reads:
"Many of the business men who have brushed with the fund have been impressed. They agree with its view that eastern Europe needs know-how even more than cash, and they generally endorse the fund's decision to make aid conditional upon countries holding free elections and introducing free markets."
The hon. Lady may not like the following passage:
"Why not extend the good idea, several have asked, and apply the same conditions to debt-ridden dirigiste countries in the third world?"
I shall reply to Mr. Boyes, who I do not consider to be one of the leading commentators on these matters, with the opinion of the man who, along with Timothy Garton Ash, is the best writer on eastern Europe—Neal Ascherson. On Sunday 3 June, Mr. Ascherson wrote—I commend hon. Members and the hon. Lady's research assistant to read the article—
"The know-how fund, aware of this, warns its experts not to be too British in their approach. It is a limitation but no other western country anxious to assist infant democracies in eastern Europe has produced anything half so adaptable. Here is the starving man. There is the pig. The British response is to offer him neither a pistol nor a tub of apple sauce but a cooking pot."
I like it.

The hon. Member has spoken already at enormous length and has delighted us all with a range of sedentary interjections throughout the afternoon.

If the know-how fund is beyond criticism, as the Minister is saying, why are staff in the embassies in eastern Europe criticising it so severely?

I accept that the know-how fund is not beyond criticism. Indeed, I am about to make some criticisms of it. The hon. Gentleman has produced another example of how he does not facilitate our debates. During the last financial year we spent about £2.5 million on the fund. We were spending money as we were setting up the organisation. I am well aware of the justified criticism that was made—the customer is not always wrong—that it was not always easy to learn how to contact the fund and to ascertain the criteria. Those difficulties arose because we were setting the criteria as we went along. I am willing to believe—this may be astonishing to some—that the fund is not perfect yet. However, it is becoming very much better by the day and more and more satisfied customers are writing to tell me that. As the hon. Member for Swansea, East said, it is in the interests of both sides of the House and of the country generally that we get the fund right. We shall listen to criticism and try to put things in order. The structure of the fund has become considerably better. That is why people like Neil Ascherson write as they do.

The hon. Member for Cynon Valley criticises Ministers for visiting eastern Europe. I shall rebut her argument. One of the purposes of the know-how fund is to involve every Whitehall Department in using British expertise in the round. It should not be the Foreign Office alone that is involved. In some ways the know-how fund is unique.

My right hon. and learned Friend the Secretary of State for Employment has been to each of the countries that are involved with the know-how fund. We have the skills for which they asked and they have been deployed by officials of the Department. The three countries wanted to know how to set up small businesses and how to diversify from collapsing major capital-intensive industries into new industries. I pay tribute to my right hon. and learned Friend and his Department for taking on new work and performing extremely well.

The same comments can be made about agriculture. It is necessary for contacts to be made at ministerial level. My right hon. Friend the Minister of Agriculture, Fisheries and Food has visited several countries. In Poland, for example, there is a scheme worth £50 million which will meet exactly the purpose for which the Poles asked. They want small productive businesses effectively to distribute the food that at present never reaches the shops.

My right hon. Friend the Secretary of State for Wales and a team of Department officials have helped, as they were asked, to advise and assist on and with local government administration. That is another example of sensible assistance. Other schemes have focused on police training in Poland and environmental matters. Some of these activities have been almost too big for the know-how fund. The fund, with British utilities, has been undertaking some work, but the big capital spending must come from multilateral organisations such as the World bank and others. We are doing a little where we are requested to intervene.

Are any discussions taking place with Soviet authorities about the transfer of agriculture technology and managerial expertise to improve distribution in the Soviet Union? Would not that be a major contribution to resolving the distribution problems of the Soviet Union?

Those who want us to rush at the Soviet Union should understand that that country has not yet asked for anything. It might be polite to wait until it does. If we were to get involved, I would have a personal bias in favour of exactly what the hon. Gentleman suggests. Some of the elements are already in place. For example, ICI has been working for the Soviet Union to try to help that country to develop agriculture, especially in distribution and retailing. I can imagine that a sectoral project would be attractive. I am speaking personally and far ahead of any analysis. I am sure that note will be taken of the hon. Gentleman's suggestion.

I note the views of the Select Committee, whose Chairman is my right hon. Friend the Member for Guildford, on the range of projects that should be supported by the fund and on the range of organisations and individuals that should be consulted. The point is well taken. There is no shortage of proposals, and that is partly why we are attracting some criticism. When individuals are turned down, they sometimes write to their Members of Parliament to tell them that it is scandalous that certain projects have been rejected. That is not an unknown phenomenon when dealing with aid. We should do better with our publicity, and any criticism of it is valid. We are trying to bring some thought to bear on improving it. We wish to make it easier for those who have never had any experience of eastern Europe or of aid products to get in touch with the know-how fund.

I note with interest the suggestion of my hon. Friend the Member for Arundel that a general stocktaking seminar should take place in due course—perhaps after six months, for example—to be attended by a range of the organisations involved so as to ascertain whether there is adequate co-ordination. That might be a job for the Great Britain-East Europe Centre, which is so ably chaired by my hon. Friend the Member for Carshalton and Wallington (Mr. Forman). The speech of my hon. Friend the Member for Carshalton was succinct and right on the ball. The same can be said of the speech of my hon. Friend the Member for Bosworth (Mr. Tredinnick), who referred to the problem of visas.

The bilateral programme—I have referred already to multilateral agencies—starts with the know-how fund and then moves on to a difficult job that will take years to complete, which is to shift the general diplomacy of the United Kingdom so that it occupies a rather more eastern-Europe-oriented stance. I think that the Foreign Office has done well already. It has found 60 new London-based or locally engaged staff. That is not a bad record in such a short time. It is not easy to transfer that number of staff so quickly. We are looking for 37 more staff by the end of 1992. At a time of necessary expenditure constraints, we are having to impose some strains elsewhere. Surely it is right to shift these people. As I have said, the Foreign Office is moving.

No. I have only three more minutes in which to bring my reply to an end.

We shall ask the British Council to undertake a good deal more, I am certain, on the English language front. I cannot say more than that now. Negotiations and discussions are taking place. As my right hon. Friend the Secretary of State has said, we should respond, with Canada and the United States, to the explicit desire of the countries in question to replace Russian as their second language with English. We shall not do it all ourselves but we must make a contribution. We are doing so already with specific projects through the know-how fund. These projects are aimed at providing English language training for those whom the know-how fund wishes to involve.

The British Council should take the full weight of the major expansion, and that is something that we shall have to consider in future.

As my hon. Friend the Member for Bosworth and the Select Committee on Foreign Affairs said, visas will represent another change in the relations of British institutions and British Ministries with eastern Europe. Like other hon. Members, I am all too conscious of the continuing strain that is put on our relations with eastern European countries because of the pressures that are brought to bear by the application for and granting of visas. We shall do what we can to simplify and to provide a quicker service, but we must examine each country individually and judge separately the case for each country to determine whether, at the right time, we can abolish visas entirely or in part. That would be much the best way of dealing with the problem in general. We must look carefully at the interests of our country before we do so.

Our bilateral help is additional to and separate from the United Kingdom's overseas aid budget for developing countries. The hon. Member for Swansea, East asked that such aid should be treated separately. My right hon. Friend the Minister for Overseas Development has already said that that aid is a separate item in the ODA budget. I am sure that the hon. Gentleman welcomed that.

The hon. Member for Cynon Valley was right in saying that there is anxiety in the third world about the fact that private capital may go to eastern Europe, but there is nothing that she or I can do about that. The only people who can do anything are those responsible for financial policies in third-world countries who will now have to compete against Europe.

It being Seven o'clock, MR. DEPUTY SPEAKER interrupted the proceedings, pursuant to paragraph. (3) of Standing Order No. 52 (Consideration of Estimates).