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’”
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.
“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.