Response to the Government Statement on the Euro
Michael Howard, 09/06/2003
Category: Euro, The
Mr Speaker, 'the time of indecision is over'.
That was what the Chancellor said about the euro six years ago.
It's time, he said, to `establish clear national purpose', to show `economic leadership', to `make. hard choices'.
'Divisions', he said, led to 'indecision', and policy that was `inconsistent and unclear'.
So how refreshing it must have been for the British people, after hearing those words, to see the Chancellor and his colleagues produce such decisiveness.
Such clarity. Such leadership. But to be fair, Mr Speaker, today ministers are speaking with one voice.
They are united in common purpose. With one objective only in mind -
To paper over the cracks which have riven them apart over the last few weeks.
Is it not clear Mr Speaker, from any objective reading of the evidence, including the 18 volumes we were given today, that joining the euro would damage our prosperity, destroy jobs and lead to an irreversible loss of control over our economic policy?
That is certainly our view. And it is the view of the clear majority of the people of this country.
Today's statement is not the result of any real assessment of Britain's national economic interest.
It's a result of the frantic efforts by the Chancellor and the Prime Minister to cover up their differences.
After all, that's why the five tests were thought up in the first place.
We all know they were written on the back of an envelope, in the back of a taxi - to fix the damage done by the Chancellor's spin doctor in the back of the Red Lion pub.
It was a four pint briefing that led to a five point plan that's just given us a six year run-around. And what a run-around it's been.
Ministers couldn't even agree on what question they had to answer!
The Leader of the House, that rogue element in the Cabinet, said that the five tests were to determine when we join the euro.
The Foreign Secretary, three days later, said the five tests were to determine `if' Britain should join the euro.
And the Scottish Secretary said there should be a sixth test.
The Chancellor said the economic assessment would be 'decisive'.
The Prime Minister's spokesman says: `An assessment is not a decision'.
Indeed, the Prime Minister was so determined that the Treasury view wouldn't be decisive that he thought the unthinkable.
He suddenly saw the merits of Cabinet decision-making.
Mr Speaker, there's a first time for everything.
This Prime Minister will pay any price to do down his Chancellor.
Blair and Brown
There they sit. United in rivalry. Each determined to frustrate the other.
Each determined to scheme against the other.
Each determined to do the other down.
So there's no clarity in policy.
There's no consistency of purpose.
And each of them is the loser.
The Chancellor is losing.
The Prime Minister is losing.
And much more importantly, the British people are losing.
The Government's ability to deliver has broken down.
On health, on education, and now on the euro: Blair goes one way, Brown goes the other way, and bang goes the Third Way. Lost in conflict, compromise and confusion. No wonder so little under this Government ever gets done.
That's the price we are all paying for the fault line at the heart of this Government.
What a humiliation for the Chancellor.
Wasn't it the Chancellor of the Exchequer who briefed there was no reason for another assessment this Parliament?
He told us again today, as he did in 1997, that the results of the tests would have to be `clear and unambiguous' before we could join.
Yet the Permanent Secretary to the Treasury has told us that economics can never be clear an unambiguous.
And the incoming Governor of the Bank of England has said `you need 200 or 300 years of data' to find out whether business cycles have converged.
What if the 1,738 pages of data we've been given today had shown that the tests have been passed?
How on earth are we to know whether a similar assessment in two or five or ten years' time would reach a similar conclusion?
If the data changes in one direction how can anyone know it won't change back again?
If, at any particular moment in time, our growth rate or inflation rate or interest rates are at similar levels to those in the Eurozone, how do we know whether that convergence is permanent?
Might it not be because our economies were like ships passing in the night, coming together for a moment before moving off in different directions?
The Chancellor predicted that trade with the EU could grow by as much as 50 per cent over 30 years.
Will he confirm that his own department's reports conclude that improved levels of trade are totally dependent on sustained convergence that has not yet been achieved?
Will he confirm that other economists have challenged these conclusions in the academic studies published today by the Treasury?
Will he confirm that the author of one report that supports his assertion has pointed out that "any extrapolation of my results to EMU may be inappropriate since most currency union observations are for countries unlike those inside euroland"?
Will he confirm that his assumptions are based on studies of currency unions involving Angola and Mozambique, Burkina Faso and Chad, The Vatican City and San Marino and Tuvalu and Tonga?
In 1997 the Chancellor said the most critical test was convergence. Today he was forced to admit it's been failed.
One of the Chancellor's documents is succinctly entitled: `Analysis of European and UK business cycles and shocks'. Its conclusion in paragraph 9.2 is clear. The UK cycle is more strongly correlated with that in the US than with those in Europe. Indeed, not a single UK region is strongly associated with the European cycle.
That was not in the gloss he was obliged to put on the studies today.
But his solution is the solution you always get from this Government when the evidence doesn't suit their case. Change it. Fiddle it. Distort it.
If the mortgage market in this country differs from that in the Eurozone, change it - whether or not that's in the interests of British homebuyers.
If the inflation index in this country differs from that in the Eurozone, change it - whether or not it's what British monetary policy needs. What independent advice has he taken about the abandonment of the RPI?
And how would either of these changes affect the conclusions of the Treasury's assessment of `Housing, consumption and EMU', which says at paragraph 8.10 on page 86 that `deviations in UK interest rates from their appropriate level could lead to particularly large swings in the housing market... and hence in the wider economy in the UK'?
Now, it is true that the document on Fiscal Stabilisation suggests at paragraphs 6.89 and 6.92 that fluctuations in the housing market might be dampened by increasing stamp duty and charging capital gains tax on residential property. Is that what the Chancellor has in mind?
Is the Chancellor suggesting that the choice in the euro would be either even higher taxes or even more boom and bust?
Indeed, his own assessment of the flexibility test says that inflation volatility is very likely to increase inside the euro.
The Chancellor has been forced to admit that the flexibility test has been failed too. Is that why he is going to such lengths to make our economy less flexible?
But what grounds does the Chancellor have for thinking this test is any more likely to be met next year?
What of investment?
Only last week Ernst and Young said that Britain's share of inward investment projects into the EU rose last year.
They described euro membership as a 'bit of a damp squib as far as inward investors into Europe are concerned'?
So the Chancellor has been forced to admit that this test too has been failed. That's hardly surprising.
But what grounds does the Chancellor have for thinking this test is any more likely to be met next year?
What of financial services and the City?
Far from the City having been hit by Britain keeping the pound, the Bank of England says: `The evidence indicates that, since the launch of the euro, the City has maintained its market share'. Why? As the Bank of England says: `The City is a global financial centre, and not just a European centre'.
That conclusion is reinforced by paragraph 7.8 of the Treasury study entitled: `The Location of Financial activity and the Euro'.
So why, in the face of all the evidence, does the Chancellor insist that this test has been passed?
And will he be reassessing it next time, or are the test results only allowed to change in one direction?
Jobs and Growth
It is no surprise that the final test - on jobs - has been failed.
At the moment, we can choose to have the same interest rates as the eurozone when that suits our needs. But why on earth should we be forced to do so when it doesn't suit our needs?
Why on earth should we accept the straightjacket of a one-size-fits-all interest rate when it's not the right rate for our economy?
Competitiveness would be lost.
Growth would be hampered.
Jobs would be put at risk.
And that will be just as true at the time of next years' Budget and in a years' time as it is now.
Germany and the Eurozone
Other countries have discovered these truths the hard way.
As a former Director of the Bundesbank said yesterday: `The present Eurozone structure is devastating for Germany. And I am convinced the UK would be crazy to join - you should stay out for as long as I can foresee'.
Isn't that what we found with membership of the ERM?
This Party has learnt its lesson from the experience of fixed exchange rates. But the Government has not - despite the fact that the present Chancellor was calling for `early entry' to the ERM nearly a year before we joined.
Today the national economic interest took a back seat. As the Government dithers uncertainty is maximised.
What does the Chancellor say to business leaders.
Like the Director General of the CBI, who said: 'The last thing we want is an annual reassessment.
Like David Frost, Director General of the British Chambers of Commerce, who said: `once the Euro verdict is announced, business would expect a period of stability on this matter for at least three years'.
Like Ruth Lea of the IoD, who said: `We need to know where we stand'.
This is the Prime Minister who promised in opposition not to be `de-railed by. internal bickering' on Europe.
This is the Government whose election manifesto in 1997 pledged that Labour would make a hard-headed assessment of Britain's economic interests, rather than be `riven by faction'.
This is the Government which promised to `prepare and decide'.
But now it's not prepare and decide.
It's not even 'wait and see'.
It's just 'hope and pray'.
Today they haven't put off a referendum because they're against joining the euro.
Or because they think it will damage the national economic interest.
They haven't put off a referendum out of conviction.
The only reason we are not having a referendum now is that they know they can't win it.
Today's statement comes from a divided Government. A Government on the run.
This whole exercise has been an exercise in deceit.
The deceit that they had the national economic interest at heart.
The deceit that they wanted an objective assessment of what this country needs.
The deceit that they were united.
It is time, Mr Speaker, for an end to the deceit.
It is time for an end to the duplicity.
This is not the end of the beginning for this Government.
It is the beginning of the end.
And the sooner it ends the better it will be for the national economic interest and for the British people."