Lord Sheikh

My Lords, as a man who conducts business and addresses conferences overseas, many of the arguments on European integration resonate very strongly with me. The European Union was established as a way of preserving peace and stability between its member states. It was what was needed then, and in the same way we must now react to internal and external changes that are happening in Europe and the world.

This is not about the interests of the United Kingdom versus the interests of other member states; it is about achieving large-scale reform to change the relationship between member states and the rest of the world in everyone’s interests. Europe needs to serve its member states better and help them to get the most out of the benefits that such a union provides.

The Prime Minister was very clear that he wants Europe to be a success and as such wants us to be a part of that success, and I share that sentiment. Europe itself is changing and we must push to make sure that it properly adapts. The completion of the single market was one of the key aims to which the Prime Minister referred, and rightfully so. This provides a strong foundational framework on which member states can build their economies.

We must allow the diversity of the different EU economies to flourish to increase competitiveness and achieve growth. Bureaucratic red-tape policies must be returned to the UK so that we can make our own judgments based on what works best for business here at home. I also agree with strengthening the role of national parliaments within the EU, as they are without a doubt the most democratically accountable and legitimate form of governance to their people.

Laws and regulations have been heaped on to British families and businesses from a foreign land, in a Parliament that they did not elect, and with a one-size-fits-all mentality. That is why I support the decision to hold a referendum in the next Parliament. People can then decide for themselves what will be in the best interests of their own country, and the integrity of the resulting decision cannot be questioned.

I also believe that the vast majority of people in this country would like us to remain in a union that helps us when we need it, allowing us to take good things from it but without inflicting unwanted repressive policies on its member states.

It is the job of the Government to get the best deal for their people, and this is exactly what the Prime Minister wants to do in negotiating a new settlement. It also makes sense to wait until the current turbulent waters have calmed before deciding what the future would hold for us in the union. Allowing member states the autonomy and liberty to do what is best for their people and their economies will enable us to contribute that much more and, I believe, form an even stronger bond of shared values and co-operation. I say this as a Conservative and ultimately as a supporter of the future of the European Union.

Lord Sheikh: My Lords, at the outset, I apologise to your Lordships’ House for my late arrival for the commencement of the debate. I should like to thank the noble Lord, Lord Dykes, for arranging this debate, which enables us to look at the various issues relating to our membership of the euro.

The debate about the United Kingdom’s membership of the European single currency has abated in recent months, as we have watched our economy and those across the European continent slide deeper and deeper into recession. There remain a number of devotees who are still pressing that we should belong to the European single currency, and who even see the current economic downturn as a fillip for their cause. I believe that those individuals are misguided.

I have long experience in business and I share the concerns of those who see the current economic climate as deeply troubling. This is the first time, since the creation of the European single currency 10 years ago, that we have witnessed an economic downturn across the eurozone, and it will be interesting to witness how this project confronts the challenges of a recession. My instinct is not altogether positive, and there is nothing that I have seen, as yet, that has led me to want to review my stance. Ten years is not long in the life of a currency, and it is proper that we should watch what happens with interest, although, I repeat, I do not believe that we should seek to participate in the European single currency.

It is a shame that the European Commission is so detached from the views of ordinary people in this country. I was astounded when the President of the European Commission, José Manuel Barroso, claimed in December 2008 that the United Kingdom was “closer than ever before” to entering the single currency, as a consequence of the fallout of the global financial crisis. I could not disagree with him more. His confidence, which rests on the basis of his comments that,

“some British politicians have already told me: ‘if we had the euro, we would have been better off’”

is fundamentally at odds with the official position of Downing Street, which states repeatedly:

“Our position hasn’t changed … we have no plans to join the euro”.

Perhaps unsurprisingly, that view contrasts with that of the noble Lord, Lord Mandelson, who has said that,

“our aim, our goal, should be to enter the single currency”.

I doubt whether even the Secretary of State for Business, Enterprise and Regulatory Reform would advocate that now is the right time for us to enter the single currency. I hope that the Minister will use the opportunity of this debate to clear up this mess and state categorically the position of the Government on the single currency—people have a right to know. The position of our party is clear: there are no circumstances in which the next Conservative Government will propose joining the euro.

We have witnessed a fall in the value of sterling that has enhanced the calls of those who would willingly see us ditch our currency and rush into the single currency. However, these souls are generally the same individuals who were advocating that we should join it some 18 months ago, when the value of the pound was around 30 per cent higher than it is now. It is a fair question to ask what the consequence of taking their advice at that time would have been. One thing is certain: we would not have been protected by the exchange rate, and economic pressure would have found an alternative outlet for its expression—probably in a further reduction in jobs, or lost output. It is possible that instead of a 30 per cent reduction in the value of our currency, we would have witnessed a similar fall in other factors, which could have exacerbated the pain suffered across the whole economy. I am glad that we do not have to endure that indignity at this time.

That point was endorsed in another place when a Labour Member of Parliament asserted:

“Had we been in the euro, we would have been pinioned to an over-valuation that would have been catastrophic for our economy. The depreciation will at least deflect some demand to our home economy, and help us to recover”.—[Official Report, Commons, 9/12/08; col. 426.]

I might agree with the sentiments of that particular politician, but it is not apparent that that is the settled view of the Government, most particularly in their interactions with senior figures in the European institutions.

It is an awkward reality for the countries that comprise the eurozone that they can use only fiscal adjustments, as the freedom to use monetary policy is sacrificed as a condition of entry into the single currency. That point was made clear in a report by a Select Committee of your Lordships’ House in the last Session, which stated:

“In the long run this would imply that the country loses competitiveness; it is no longer able to correct this by a devaluation of its exchange rate and can only adjust through restrained fiscal policies that will bear down on domestic cost pressures and employment”.

It is not even as though a Government within the eurozone could use complete fiscal autonomy in facing these challenges. There are tight requirements as a consequence of membership, such as the size of a member state’s budget deficit.

Our experience of the exchange rate mechanism should have demonstrated more clearly than anything that there is no permanently correct exchange rate. Were we members of the eurozone, the difficulty that we would encounter would be identical to the one that we experienced at that time: maintaining the value of our currency in relation to those across the European Union. The only difference would be that we would now be unable to take our own corrective measures, and the likely pain would be enhanced.

The noble Lord, in proposing this debate, has elected to refer to “the prospects for the UK’s membership of the euro”. He has a long association with a particular view of the European Union, which is one that I do not share. In my opinion, we should be debating not the prospects for our potential membership but whether there are circumstances in which we would want to join the European single currency. My firm view is that sacrificing the independent control of our monetary policy would be far too high a price to pay. I strongly urge the Minister to clarify the confusion that we have witnessed from the Government in recent weeks and to state that we will not be seeking to join any time soon, if ever.

My Lords, in congratulating the noble Lord, Lord Roper, and the members of the European Union Committee on their excellent work in the production of this report, I feel bound to observe that this is a clear case of how events can move on so very quickly in the field of international relations.

When the committee’s report was published in May, no one could have predicted that events would change so rapidly. Even in the Recess, not many would have expected that the intervening months would bring such a dramatic change in the nature of relations with Russia. The changes that we witnessed over the summer have not only fundamentally altered the nature of relations with Moscow but put the strength of a European Union foreign policy most dramatically to the test, and Europe has been found wanting. Accordingly, this is a most timely debate, and the question of future interaction with Russia is vital to the security of the whole world.

I do not intend to focus my remarks totally on the recent, and ongoing, conflict in Georgia, but plainly it is relevant as the dispute has ramifications that affect our relationship. The intricacies of who is to blame for the conflict can be considered on a future occasion, but it is important to state that I am uneasy with Russia’s focus on becoming more assertive towards its neighbours—a policy that appears to have superseded the economic liberalisation that offered so much hope.

To underline my point, when Russia sent its troops into Georgia in August, we watched President Sarkozy, leading on behalf of the European Union, broker a deal designed to lead to peace. Sadly, the deal that was agreed left President Saakashvili of Georgia little or no room for manoeuvre and has legitimised the presence of Russian peacekeeping troops in the disputed area.

However, my short remarks about Georgia serve rather more as a lesson to those ambitious for a European Union foreign policy than as a lesson about the situation in that troubled region. The reality is that the European Union has proved most enthusiastic at generating words and lengthy statements, but the practical effects on the ground are most disappointing, and even negligible. From a European Union perspective, we need to maintain good relations with Russia; it is a large and very powerful country, and our dependence on it for energy is critical. If a common foreign policy is to work, providing a stable basis for a satisfactory relationship with Russia must be a key starting point. Yet despite the importance of Russia, I fear that we are not doing enough to understand the nature and importance of other countries, which could have serious consequences for all of Europe.

It is evident that there is a clear lack of consensus among European Union member states about how best to approach the Russian Government. We need to be more effective at engaging with the Administration in Moscow, and should not be afraid of asserting our differences. The approach that we have witnessed from President Medvedev and Prime Minister Putin does not accord with the experience of the wider European democratic structures. We need to be prepared to engage in the argument and to defend our principles. The European Union has proved far too timid in addressing this challenge.

I confess that I do not know a great deal about the practical interactions between President Medvedev and Prime Minister Putin. I observe, however, that it appears that President Medvedev’s power base is very much in accord with those of Prime Minister Putin, and it appears that his authority depends very much on the strength of his Prime Minister. In the final months of Mr Putin’s reign as President of Russia, it became clear that an increasingly hard line was developing in Russia’s foreign affairs. This is a country that is not afraid of isolation and confrontation. Some argue that Russia is hungry to rewrite the final chapter of the Cold War, which still has a strong resonance in that country.

I believe that the objective of the Russian Government is not confrontation but that they have no compunction in using the means to achieve their ends. Russia is keen to maintain strong and positive relations with countries that comprise the European Union, on both a bilateral and a European basis. We should not be afraid of asserting our beliefs in the rule of law, but in expressing those concerns we should be careful not to give added weight to the political power of hard-line nationalists within the Russian political class.

I reject the argument that in Russia we have witnessed the growth of a new authoritarian capitalism; rather, I believe that Russia lacks a clear ideological philosophy beyond populist nationalism. What has been most depressing in the engagement between the European Union and Russia, however, is the failure to establish and defend a consistent line. I am inclined to speculate about how the position would be affected by, say, a common energy policy. I am not in favour of an energy policy devised by officials in Brussels and presented as a fait accompli; however, should member states’ Governments speak with a clear and consistent voice on energy matters, we would probably see a very different relationship with Russia.

The absence of a common line can only weaken our position in dealing with Russia, and when that situation is matched by grand, verbose statements emanating from Brussels, our standing is diminished yet further. This is a problem for Europe that needs urgently to be addressed.

I wish now to reflect on the common challenges that we face alongside the Russians. Russia shares a border with China and Iran, and its relations with those countries are complex and most interesting. Russia appears to have witnessed the economic growth of China with some concern, and I am not convinced that the relationship with the regime in Iran is sustainable. Levels of trade with Russia and Iran are positive, but I detect elements of defensive strategy in the relationship there. We need to bear this in mind in dealing with Russia’s neighbours. Military action against Russia would move the Russians further towards the Iranian Government and create an alliance that would not serve our interests.

In conclusion, we need to find a formula that enables the European Union to speak with one voice and to pull together firmly, as that will be the most effective way to engage with Russia. We must be pragmatic and deal with the situation that we face collectively. Observers of foreign policy matters will not be impressed by the way the European Union has conducted its relationship with Russia. The report provides a constructive appraisal of the state of our collective relationship. Whether or not the European Union is capable of delivering what is needed remains to be seen.

My Lords, Britain’s relationship with the European Union has been an issue of political tension since we joined the Common Market, as it was then known, in 1973. The reason for this is simple: that our relationship with the European Union is of immense importance. It is not just the large amounts of money that the European Union spends. It is not just the enormous amount of trade that occurs within the European single market. It is, fundamentally, that we are engaged with our European partners in a unique sharing of sovereignty. It is this question of how to share sovereignty between national Governments and the European Union, and the exercise of power that flows from this, that has led to the furious political debate on Europe over several decades.The latest form of this debate is the consideration of the proposed treaty of Lisbon, also known as the reform treaty. I fully support my party’s proposal for a referendum on the reform treaty. There is a moral obligation for this in that the Conservative Party fought the last general election on a promise of holding a referendum on the EU constitutional treaty. Although the question of how different the EU constitutional treaty and the reform treaty are has generated a great deal of debate, I am confident that the reform treaty is largely the same as the constitutional treaty. I come to this conclusion with the support of the European Scrutiny Committee of the other place, which has described the reform treaty as “substantially” the same as the European Union constitution. Let us not forget that that committee has a Labour majority and not a Conservative one.Beyond the moral obligation of honouring an election pledge, I believe that it is important that the public have a vote on the reform treaty because of the ever growing divide between the British electorate and European politics. One indication of that was the turnout at the European parliamentary elections in 2004, when only 39 per cent of people voted. In other words, six out of a possible 10 voters ignored that election. A public vote on the reform treaty would be a once-in-a-generation chance for our relationship with the European Union to take centre stage in public life, just as occurred in 1975 over whether we would remain part of the then Common Market. It would be a great opportunity for those opposed to surrendering further powers to Europe to make the case against to those who sincerely believe that giving extra powers to the EU institutions is in Britain’s national interest.A number of politicians hold the honourable belief that we live in a parliamentary system and that we should therefore not need to resort to referendums. The problem with this argument is that, since the 1975 referendum, referendums have become part of our political process in regard to constitutional change. There were referendums on Welsh and Scottish devolution in 1979 and 1997. Every local council has the right to call a referendum if it wishes to introduce a directly elected mayor. So while I respect those that make this argument, British constitutional practice has moved beyond it. A debate of this nature could actually be civilised, and a much greater understanding of, and engagement with, the question of Europe by the British public will occur. Of course there will be voices in the debate which prefer to criticise our views, but that is the nature of an open and robust democracy. I have more than enough confidence that voters will see through this and get to the substance of the issue; namely, the balance of power between Westminster and Brussels.The final question that people ask is: what would happen if Britain voted no in a referendum? Many of those in favour of the treaty suggest that there could be a doomsday scenario, where Britain would be forced by all the other countries of the European Union to face a stark choice: either ratify the treaty or leave the Union. The problem with this argument is that it is not supported by the practice of the European Union. When Denmark voted against the Maastricht Treaty in 1992, it did not lead to such a choice. Rather, it led to a further negotiation which produced the Edinburgh agreement, which gave the Danes a number of exceptions. In an irony of history, the Danish Prime Minister has promised that he will ask the Danish people to give up these exceptions in a referendum in the near future.Not only must we trust the British people in a vote on this issue, but we must have the confidence to engage with the electorate and abide by their decision. If they vote against the treaty, the Government and politicians must deal with that and go back to our European neighbours and renegotiate. On the other hand, if the result of the referendum is to support the treaty, those who are opposed to it must acknowledge the will of the people and accept that the treaty in its current form will be ratified and move on.In conclusion, my greatest fear is that, without a referendum, the gap between voters and politicians over Europe will only grow. It will not be good for a semi-detached electorate to have more decisions that affect their lives made in Brussels without the debate of a referendum and the endorsement of a positive vote in favour of the treaty. In the long run, no sensible person wants this disengagement to occur because it will contribute to an even wider political disengagement, undermining the legitimacy not only of the European Union and its institutions but, to some extent, politics in this country.