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Mr. Austin Mitchell:
I do not intend to follow the hon. Member for Woodspring (Dr. Fox) because it is sad to see a new generation of Conservatives denying the realities of their own Government of the 1980s and 1990s. I was one of those who tramped through the Lobby against the Maastricht treaty and against the decisions of the Conservative Government in conspiracy with the Labour party.
The convergence document is one of the greatest works of fiction I have seen since I participated in the internet story in the Grimsby Evening Telegraph. It was called "Future Perfect" and I made a contribution of 500 words. It is now to be published as a book. That was a great work of science fiction and this document is a great work of economic fiction. Attempting to reduce this Euro-farce to the pathetic level of party political games serves no useful purpose.
We have a real problem. Essentially, in trying to go ahead with monetary union, which is the only way to build the sort of political union that is wanted, the exchange rate is being used as a political instrument. That is distorting the exchange rate and its purposes and damaging consequences will result. If two economies--one extremely powerful and well invested and the other weaker--are put together without the cushioning of the exchange rate between them to insulate the economy and to take the shocks rather than the shocks occurring to wage rates and living standards, the stronger economy rips the weaker economy apart. It is as simple as that. That is the reality.
If there is to be monetary union, there have to be defined characteristics in terms of the strength of the economies. Europe has characteristics that are defined in monetarist terms--inflation rates and debt levels. It is now going on from that initial mistake to fudge the very criteria that it set. The convergence document is a colossal fudge. The picture on the front of the Budget Red Book could be the President of the Commission, Jacques Santer, lying on the floor with a new generation of Britons looking down on him. It seems to be a case of, "Roll up, roll up. Everybody is welcome." It is rather like me, with my generously proportioned figure, trying to fit into a Paul Smith suit--because I desperately want to be new Labour, to be fashionable, to be trendy--to make me appropriate for new Labour. Frankly, I would have to lie down on the floor to pull up the trousers. I would have to struggle to get the zip up or to get the jacket to meet; I would have to wear a corset before I could wear the suit.
Europe is being pushed into the same situation by the convergence criteria, which are artificial. As soon as I breathed in my Paul Smith suit, it would rip apart at the seams. That is exactly what will happen with monetary union. It will have to be a success, because for years the unemployment rate in France has been between 12.6 and 12.8 per cent. One cannot go to the French electorate as a French socialist Government and say, "Helas, on s'est trompe. Sans blague, on s'est trompe." One cannot express one's regrets and say that it was all a mistake. Governments have to persevere, and they will, but because the criteria have been fudged, it will all come apart quicker.
Everything is fudged. In fact, only little Luxembourg fits the criteria perfectly. By any calculation Germany exceeds the 3 per cent. target for its public sector deficit. The Italians have complied only by a one-off Euro tax, which will not be repeated next year. It is not repeatable. These deficits are not sustainable, because with high unemployment public spending will increase.
The inflation figures for Spain have been fudged. If long-term debt has to be 60 per cent. of gross domestic product, what about Belgium, where it is about 128 per cent., or Italy, where it is 125 per cent? It is all very well to say that one has to make progress towards the target. Progress towards the 60 per cent. target seems likely over several decades, but is certainly not possible within any sensible time span. If those countries are to make progress, massive deflation will be imposed on them.
My right hon. Friend the Member for Chesterfield (Mr. Benn) was perfectly correct. We are being fitted into the same criteria, and that is having a disastrous effect on what we as a Labour Government want and need to achieve to serve our people. We want to expand the economy. We want to improve public spending. We want economic growth, yet for some reason we are trying to observe the Maastricht criteria. It is not the responsibility of a Labour Government to run a low deficit and start repaying debt.
Our responsibility is to solve the problems of the people, and that demands an expansion of the economy to generate public spending, not cuts to achieve something that is hypothetical. It is not the purpose of the people to make the Bank of England independent and give it control over interest rates, which have a disastrous effect on the exchange rate and on manufacturing, which is on the front line of intense international competition.
The purpose of the people is about jobs. It is not the purpose of a Labour Government--the people's Government after all--to set an inflation target, that at 2.5 per cent. is far too tight, above any other objectives, whether they be jobs, economic growth or anything that advances the causes of the people. This is monetarist folly. Why are we doing it? The only explanation seems to be a desire to fit into the Maastricht convergence criteria. We clearly will go ahead with monetary union, because people are not going to say, "Sans blague, on s'est trompe; tant pis." Will we observe the stability pact, with all the restrictions on public spending? As my right hon. Friend the Member for Chesterfield said, it has all the freedom of a rate-capped council. That is not the responsibility or the role of a Labour Government, who should be serving the people.
Why is the exchange rate being kept at its current high level? Why do we not intervene to bring it down? Why have we given the Bank of England control of the exchange rate before the Bank of England Bill has been passed, while we could still change the targets or intervene to bring down the exchange rate? Is it all some kind of preparation for monetary union? I honestly do not understand. It is either an amazing coincidence that we are adopting all these policies now, or it is a deliberate attempt to meet the convergence criteria.
We are embarking on this process which is nothing other than self-crucifixion because these policies are undermining and damaging the real economy of manufacturing and jobs. Next year, we shall face severe deflation just when we are going to the country in the May elections. While we are doing this, in Europe there is clearly a deliberate policy to depreciate the deutschmark. The deutschmark is being brought down to make it competitive. To offset the consequences of the deflation necessary to achieve the Maastricht criteria, the Germans are deliberately depreciating the deutschmark to make their exports more competitive on our market. That will lead to a widening of the balance of payments deficit with Germany, which has always been substantial.
If we did that, it would be called competitive devaluation. We would be castigated and hauled up for it. It would be considered monstrous that "les sales Anglais" were behaving in this traditional, perfidious Albion fashion, but because the Germans are doing it, it makes economic sense and is acceptable. That is a signal that the euro, when it comes, is going to be run as a soft currency to maintain expansion, to make it competitive and effective, and to ease the transition. We could cope with a hard currency, but the euro will be run as a soft currency. That will undercut us and worsen our trading position with Germany and, indeed, with the whole of Europe, which is already disastrous enough.
A soft euro is the scenario that I fear. I want to know from the Government what we are going to do when the euro is run as a soft currency. Are we going to maintain sterling at the current level and carry on with this destructive approach to British industry, watching the balance of payments deficit widen? We shall get no benefit at all in that situation. We are already getting very little benefit from the single market. It is interesting that since the single market was introduced, our trade outside it has expanded far more rapidly than our trade inside it.
It is clear that Europe's approach is to fudge and fiddle. The euro may work, I do not know; we certainly have to try to make it work. However, the Government need to tell us whether, faced with a soft euro, a widening deficit, a challenge to jobs and employment, and the threat posed to our industry by the pound's exchange rate, we are going to keep the present exchange rate, or whether we are going to intervene to get it down. We have to do something. We cannot sail on towards the rapids as we are now, blithely saying that we are providing stability, even if stability means an exchange rate depreciation of 30 per cent. over less than two years, which is exactly what has happened.
What are we going to do about sterling and the exchange rate? Are we going to observe the stability pact and maintain the overtight control of public spending when the nation elected us to make things better? We were not elected to maintain the Maastricht criteria or to cut public spending, but to make better everything that had been affected by the anorexia and the cuts of 18 years of Tory government. Can we now embark on that job or are we putting the Maastricht criteria and the stability pact first? What will happen and how will we run the economy in those circumstances?
I do not want our Labour Government, with all our bright hopes and desires for improvement, to march back--as we are doing now--into the old deflationary trap of cuts to justify inflation and to maintain the exchange rate at an over-valued level. Industry is suffering from the decline that results from an over-valued exchange rate and all the sacrifice is imposed not on the fat cats that we could tax, but on the people of this county in pursuit of some European ideal that they do not share.
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