Struan Stevenson
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Struan Stevenson, MEP: A New Vision for Europe
SPEECH TO CUNNINGHAME SOUTH CONSERVATIVE ASSOCIATION, THURSDAY 25th. NOVEMBER 1999 - SPEECH TO AYR CONSTITUENCY CONSERVATIVE PATRONS CLUB 3rd. DECEMBER 1999.
Seriously though, I want to spend a little time this evening talking about the new Europe and the new Conservative vision for Europe. As a central part of this new vision, let me say something about our attitude to the Single Currency.
After our success at the European elections last June, the 36 UK Conservative MEPs are the second largest political delegation in the whole parliament. Only the Christian Democrats from Germany have a larger group. All of the centre right parties from across the EU have joined together to form the EPP/ED coalition which is now the ruling group in the Parliament.
For the first time in twenty years we have ousted the socialists, winning 233 seats to their 180. So we have a new Conservative President of the Parliament, Nicole Fontaine, from France, a new EPP Group Chairman - Hans Gert-Poeterring - from our sister party the CDU in Germany, and a plethora of new committee chairmen and group office bearers.
I’ve been given the role of UK Fisheries Spokesman and Deputy UK Agriculture Spokesman and, as you can imagine with the beef war still raging, these roles have kept me busy. The Single Currency
It is worth remembering that we are the only party to be against rapid entry into EMU. For those who advocate clear blue water between us and the other parties, here is the clearest blue water you could wish for. This will be one of the key issues for the next General Election. Labour, the Lib/Dems and the SNP believe that the single currency will provide a cure-all for our economic ills.
From the SNP perspective this is particularly grotesque. They dislike intensely having Eddie George set Scottish interest rates in London, so they would rather hand over control to a bunch of unelected and unaccountable bankers in Frankfurt! Their policy gives a new meaning to the term ‘REMOTE CONTROL.’ And as for the Lib/Dems, well they will prostitute themselves to any party which gives them a seat at the Cabinet Table. They will buy into any set of manifesto proposals which gives Jim Wallace and the appalling Ross Finnie a red box. Well these are not the kind of principles which attracted me or any other Conservatives into politics.
When the German Chancellor, Herr Schroeder, said that a single currency was an essential prerequisite to political union, he let the cat out of the bag. Even more so than his predecessor Helmut Kohl, Schroeder is determined to create a federalist Europe. He has found a new and willing ally in Romano Prodi, the President of the European Commission. Well I for one will campaign vigorously against the federalist vision. I want to be in Europe, but not run by Europe. I want to be a member of a common market, not a citizen of a United States of Europe.
For years the socialists in the European Parliament mounted a determined campaign to harmonise taxes throughout the EU, as a major step towards a centralised federalist superstate. Despite losing the election in June across the whole of Europe, the socialists have found a willing ally in Prodi and, of course, in the Council of Ministers, which represents the fifteen Member States, thirteen of whom are currently controlled by Socialist Governments.
Prodi would like to see not only taxes, but judicial and legal systems harmonised across the EU and he wants a European Army. Tony Blair has even welcomed such a move saying that he would pledge support to an EU force with up to 30,000 troops. Now, Joshcka Fischer, the German Foreign Minister, has called for the EU to become a recognised international entity, with its own constitution, as a first step towards the formation of a United States of Europe.
That is why I regard the single currency as the thin end of the wedge; as a concession too far. It’s not simply that by joining the Euro we would no longer be able to ‘spend a penny.’ In fact, we would all have to ‘Euronate.’
Seriously though, let us look at the myths which surround the single currency:
There will be a big saving in transaction costs
One of the main arguments you always hear is the one about saving transaction costs. Many business people argue that by eliminating the costs of exchanging currencies we can offer major savings for business and travel. Well let me tell you what the European Commission’s own findings on this issue are. They recently published a report which indicated that the actual savings will amount to only 0,04% of EU national income. In other words a gain of 40p in £100 through ‘the elimination of transaction costs.
In addition, they say that such benefits will largely be concentrated in the smaller, poorer countries of the EU like Belgium, Ireland and Portugal, so the benefits to the UK will be much smaller. Indeed the estimated savings for the UK is put at 0.15% of GDP which wouldn’t even be enough to pay the interest on the huge cost of the changeover to the Euro, estimated by IBM as $150 Billion for the whole of Europe.
But even the figure of estimated savings needs to be treated with great care. Where are these savings coming from? They are coming from the fact that transactions no longer need to be conducted by banks and bureaux de changes and other organisations engaged in the processing of money exchange. In other words, the savings only accrue through rendering such people unemployed. So the cost of transaction savings will be job losses. In any case, in this electronic age of e-commerce, transaction costs are low and falling, so there is no substance in this argument whatsoever.
It will be easier to compare prices across Europe
Another benefit claimed is the so-called transparency of pricing which the Euro will bring. This seems to me highiy dubious. The argument goes that if we all have prices in a single currency it will make it easier for consumers to compare the price of goods across the entire EU, allowing them to shop around for the best buy and forcing prices down through more open competitive markets. The example usually given is the price of cars, which, we are assured, can be purchased far more cheaply on the continent than in the UK.
To take this argument seriously, we are asked to believe that it is specifically the existence of different currencies which allows retailers in Britain to rip us off mercilessly. I just don’t accept that.
It is far more likely that car dealers are involved in restrictive practices, or that British car buyers are unaware of the widespread availability of right-hand-drive models on the continent. In any case, you can find examples of hefty price differentials for new cars even within Britain. All of this indicates that whatever the cause of price differences between Britain and the rest of Europe, it is nothing to do with having a separate currency.
The Euro will challenge the might of the dollar
We often hear that joining EMU will help Europe challenge the might of the dollar, although I’ve never been too clear what this really means. Are we talking about international prestige and if so, is there any real benefit to be had from this? Or are we hoping that the Euro will replace the dollar as the currency for pricing internationally traded goods such as oil? I cannot really see what national advantage the US gains from this practice, as everyone has to pay the same amount of money whatever currency the prices are quoted in. In any case, the accumulation of dollars abroad could be regarded by the American authorities as economically disadvantageous, as there is a danger they could lose control of their own money supply.
A one-size-fits-all interest rate
It has often been argued that by joining the single currency, Britain would instantly enjoy lower interest rates. This is an interesting point and indeed may well be true, but it is a serious mistake to count on this as a benefit of the Euro. As we know, the Bank of England’s Monetary Policy Committee currently has the job of setting interest rates, having taken a range of key economic factors into account. One must assume, whether or not you agree with them, that the current level of interest rates are where they think they should be, for the ultimate benefit of the UK economy. So, if we were to join Euroland tomorrow and watch our interest rates plunge to 4.0%, one must equally assume that this would be bad for the UK economy. If this wasn’t the case, Eddie George would have lowered interest rates to 4.0% already.
So while I have every sympathy with those who look covetously at lower mortgages and a reduction in the cost of borrowing and those business people who claim to be trading at a competitive disadvantage with their competitors on the continent, are they really suggesting that we should sanction something that would be damaging to the UK economy to provide them with some short-term advantage? Such mis-management of the economy would have long-term costs for everyone.
The truth is that once we hand over control of interest rates to the European Central Bank in Frankfurt, we effectively surrender control over our own core economic policy. Eddie George said that job losses in the North of Britain are a price worth paying to keep inflation under control in the South.
Imagine how much worse we would fare if instead of Eddie George and his Bank of England colleagues, interest rates were set by unelected and unaccountable bankers in Frankfurt. Would widespread unemployment in the UK be seen as a price worth paying for economic growth in Spain and Portugal?
Where rates are too high, there will be recession, bankruptcy, unemployment. Where they are too low, there will be runaway inflation followed by a crash. Countries in EMU, unable to manage their own interest rates, will face massive demand-cycle volatility - boom and bust. We already can see a situation where Germany, facing recession, needs lower rates, while Ireland, Spain and Italy have rates that are far too low. Ireland in particular is risking severe inflation.
I think everyone agrees that there are both costs and benefits to a single currency and I don’t think that anyone would deny that a case could be made for a small group of countries sharing a currency where the benefits would outweigh the costs. This could, for example, be the case if Germany and the Netherlands joined together in monetary union. However, it is most unlikely that those benefits could extend to all 15 member states, far less the ten new states from Central and Eastern Europe who are hoping to join the EU. How could a single interest rate set in Frankfurt, embrace the economic diversity of Scotland and Slovenia or England and Estonia. It just wont work.
UK and EU have separate economic cycles
There are further key economic objections which convince me that signing up to the single currency would be wrong at the present time. The first is the “separate cycles” argument which points out that the UK economy is almost always out of sync with the French, German and other EU economies. After all, our pattern of trade is far more externalised than for most Euroland countries. We produce oil. They don’t. We are the world’s second largest global investor after the US. We are much less dependent on manufacturing and we have a much greater dependence on short-term interest rates for mortgages and corporate debt.
So, when an interest rate cut would be good for the UK, it is often the case that an interest rate rise would be good for Germany and France and some other members of Euroland, or vice versa. There is also the more worrying contention that an ‘asymmetric shock’ may have a disproportionate impact on one of the individual countries participating in EMU, leaving the affected country powerless to take corrective economic action.
Now I used to wonder just how-realistic such fears were. Surely we are all medium-sized industrial nations trying to pursue much the same goals. But now we have a real live example of just such an asymmetric shock.
Germany has been hit much harder by the collapse of the Russian economy than any other EU country, because a significant slice of Germany’s trade is directed towards Russia and eastern Europe. It is possible that Germany will lose up to 20% of that trade and if Russia degenerates further into the kind of civil war and anarchy we’ve seen recently in Chechnya, the impact on the German economy will be umpteen times greater than that on any other Member State.
However, as a member of EMU, the Germans cannot take unilateral corrective action. The Bundesbank is powerless to alter interest rates and the Central European Bank will be reluctant to take action which will impact on all EMU members simply to solve the problems of one. And don’t tell me that such shocks will not affect individual members of EMU again. It would be hopelessly optimistic to believe that.
It is also worth noting that because of our separate economic cydes, interest rates are currently higher in the UK at the present, than they are in Euroland. But that is not to say they will remain so. Because the Euroland Member States are grossly indebted - Belgium and Italy had national debts more than double the Maastricht limit of 60% of GDP. This fact was conveniently fudged to enable them to join the first wave.
As if that wasn’t bad enough, many members of Euroland have unfunded state pension liabilities in some cases worth another 120% of GDP.
This means that in the long term their taxes, borrowings and interest rates will rise steeply and will be higher than for countries outside Euroland. If we join the single currency, we will suffer from these levels of high taxes and high interest rates and we will indirectly pay for the profligate pension policies of our partners.
The Euro will give us stability
To those who argue that the single currency will bring stability I say nonsense.” It lost almost 15% of its value against the US $ in its first ten months of trading - some stability. It is a weak and unstable currency. More than half our exports and three-quarters of our international investments are outside Euroland, so the $ rate matters.
We are too small to prosper outside Euroland
When people say that we are too small to prosper outside EuroLand I say “try telling that to Canada, Switzerland or Singapore” - all much smaller economies than the UK. W are a very large economy indeed - there are only three significantly larger national economies in the world - US, Germany and Japan. We re the world’s second largest global investor. We have the world’s largest foreign exchange market. Indeed, the gloom merchants who predicted the City would suffer following the launch of Euroland have been confounded. London is now the world’s leading centre for trading in Euros.
We are members of the G7, the OEECD, the World Bank and the IMF. The idea that we are too small to have an independent currency is absurd.
We will lose inward investment if we stay out
The argument that we will lose inward investment to the UK if we remain outside the single currency is perhaps the biggest lie of all. Research amongst inward investors shows they come here for our low costs, low taxes, flexible labour markets and light regulation - all of which would be put at risk by further EU integration and by membership of EMU. Investors also come for the English language. Even with our decision to opt-out of the single currency well known for some years past, still our level of inward investment has increased. If the Euro had been a key factor, these investors would have gone to Germany or France.
Bad economics equals bad politics
So, I firmly believe that the mad headlong rush into European Monetary Union is a bridge too far. It could be laying the foundations of an enormous economic disaster. Bad economics equals bad politics and bad politics lays down the foundation for future conflict. In due course, when future generations find themselves trapped in a European Federal Superstate which discriminates economically against their country, secessionist movements and breakaway groups will be formed, demanding independence from Europe. The legacy we may leave to future generations may be a legacy of conflict, rather than of peace and stability. That’s why I believe in William Hague’s policy to reject early membership. I think the eleven rather ill-assorted countries who make up Euroland, have embarked on one of the riskiest and most appallingly complex political experiments of all time.
There has never been a successful single currency in the entire history of the world that was not managed by a single state. European leaders, from ex-Chancellor Kohl on, are quite clear on this issue. Monetary union and political union go hand in hand. When we last used a foreign currency in these islands, it was the Roman currency and Britain was a Roman Province. If we join the Euro we will become a mere Province in the European Empire.
The ability to raise and spend taxes and to control monetary policy, is practically the defining feature of the nation state. A state which has given up these competencies and is negotiating, as Tony Blair is at present, to give up control of foreign affairs and defence, of home affairs and justice, is clearly no longer independent.
Europe as a trading community
But just because I oppose the single currency does not in any way imply that I am anti-European. Indeed I am a great believer in the Common Market as a vast trading area in which Britain can buy and sell goods free from bureaucratic regulations and controls. The great principles of European unity, which have provided the nations of Europe with a bulwark against war and made the EU into one of the world’s most formidable trading blocs, are the cornerstones of our modem peace and prosperity.
Global issues such as world trade, agriculture, environmental protection, transport and energy networks, are properly dealt with on an EU-wide basis. The movement of people and goods, the international fight against crime and terrorism, these are matters which are most appropriately handled at the top of the EU pyramid in Brussels.
EU Enlargement
The big debate in Brussels just now is about enlargement - the process W which another ten countries will join the existing fifteen Member States within the next decade, many of them becoming full members in only five years’ time. The countries lining up to join are Poland, Czech Republic, Slovakia, Estonia, Latvia, Lithuania, Hungary, Slovenia, Romania and Bulgaria. Already, half a billion Euros of our tax is being paid each year to these countries, to help them make the necessary adjustments to prepare for full EU membership.
Many people in the UK complain that these Central and East European countries will absorb all of the grants and subsidies which we currently enjoy and in return, will flood us with cheaply produced goods, undercutting our markets and destroying jobs. They are well off the mark! Although it is inevitable that much of the structural funding and farm subsidies which we have benefited from in the past will drift from the west to the east, it remains the case that out of the ten countries waiting to join the EU, only Hungary and Romania are net exporters of food. All the rest are net importers. So, as their standard of living rises to match the rest of us, so will demand for more and more consumer products from the west. This is a huge opportunity for us to identify and sell Scottish products to a vast new marketplace.
While the beef war with France and Germany looks set to continue into the foreseeable future, we should grasp this opportunity to open up new markets for quality Scotch beef and lamb in these Central and Eastern European countries. As well as a wide range of foodstuffs, there will be a growing demand for agricultural equipment, intellectual property, consultancy services and a host of other commercial opportunities.
I hope the NFU, CBI, Chambers of Commerce and others are on top of this. They must get over to these countries now and make the contacts which will open up this huge trading opportunity for Scotland. The Germans are already beavering away, signing up ten year contracts to supply Poland with a variety of agricultural produce. So let’s stop moaning about enlargement and ensure we make it work to Scotland’s advantage.
It is now ten years since the fall of the Berlin Wall and high time that enlargement is allowed to take place. But I am not happy with Commission President Romano Prodi’s vision of the new enlarged EU. He is obsessed with integration and harmonisation which, if we are not careful, would create a new Iron Curtain of protectionism around the whole of Europe, isolating the EU from the global market and all the potential benefits that brings. Costly harmonisation and regulation of taxes, legal systems, working practices and even European defence, would lead to an increasingly inward-looking and uncompetitive Europe. We don’t want a United States of Europe. We want to be members of a ‘Common Market’, a vast trading community which brings jobs and prosperity to each Member State.
We must demand that the new, enlarged EU embraces the concept of flexibility. While I recognise that every Member State must accept the rights and responsibilities of the single market and core elements of an open, free trading and competitive Europe, nevertheless, outside that core there should be a new treaty provision to allow countries not to participate in new legislative actions at EU level, where they prefer to handle these at national level. This would mean that countries could avoid having legislation imposed upon them by other countries against their will. This is surely the only way in which a new, enlarged EU with twenty five Member States will be able to work effectively and the only way in which we will feel safe enough to give up our right of Veto in exchange for majority voting.
Talking about the French and German beef ban makes my blood boil. How pathetic that UK Agriculture Minister Nick Brown allowed himself to be duped by the French. It was obvious from the start that the French Government would not abide by the ruling of the Scientific Steering Committee, even although it was unanimous. Now we must start the tedious process of taking legal action against both France and Germany through the European Courts. This could take years and in the meantime, the damage to our world-wide reputation as beef producers continues. It is outrageous that these two countries can claim to be at the heart of Europe when they treat the European Commission and the UK with such contempt. Let us make sure that we calculate a massive compensation package based not only on our lost beef trade to France, but on losses world-wide. Hitting the French and Germans in their pockets may be the only way to bring them to their senses.
A clear alternative
So Britain and Scotland faces a clear choice. We can opt for ever-closer integration in a Europe which is over-governed, over-regulated, overtaxed and over-borrowed - a Europe which is protectionist, inward looking, corporatist, statist, dirigiste and, let’s face it, federalist and socialist. A Europe which is a continental social model that destroys jobs and the capacity for wealth-creation and that drives businesses out of the EU altogether.
Or, we can play to our strengths as a global trading nation. Of course we want to develop trade and prosperity in Europe. Of course we want to cooperate with our European partners. But we also want to nurture our traditional links with the USA, Asia and the Commonwealth. We want to preserve our distinctive Anglo-Saxon model with its key competitive advantages. We want to be a focus for enterprise and investment. We want productivity, growth, wealth-creation, high employment. We may never convince our continental partners by debate, but we may convince them by example. We want to be an off-shore power-house, a beacon for free trade, democracy and liberal economics.
STRUAN STEVENSON, MEP
