EU Reform

John Redwood Excerpts

Tuesday 18th November 2014 Westminster Hall

[Mr John Redwood (Wokingham) (Con)]

Does my hon. Friend agree that the Germans’ problem now is that to make a success of their single currency, they need a political union with massive transfers of money from the rich parts to the poor parts of the union, as we have in the sterling currency union or as exists in the dollar currency union, but that is exactly the kind of system that the United Kingdom would never accept, and that is why, at the crossroads, we need a different relationship?

[Sir William Cash]

That is completely right. We need a different relationship with the EU as a whole that also includes the eurozone, because the eurozone, which is causing so much of the dislocation in Europe, is dominated by Germany, and the German financial and fiscal policies, which I have described already, have that enormous impact in destabilising the eurozone.

This is where I really part company with statements made by some members—senior members—of our Government. I am referring to the consequences of the eurozone. We were told at the time when it was evolving, with the banking union and all the rest of it, that it was, in effect, a natural course of events that we could not prevent. Actually, it has created the very instability that is most likely to lead to the destruction of the European Union itself. That is the problem. It is not just a negative view that I am trying to put across; it is the fact that it is destabilising Europe. It is creating problems of a kind that can get completely out of control, with catastrophic consequences not only for this country but for Europe as a whole. That is why the argument that I am seeking to advance is that actually this is a real problem for Europe as a whole. It is not anti-European to be pro-democracy.

--- Later in debate ---

[Mr John Redwood (Wokingham) (Con)]

I rise to talk about two large European powers that are both, in their own ways, reluctant Europeans. It is well known that the United Kingdom made an historic and important decision, under the previous Labour Government, not to join the euro. Many of us campaigned actively for that decision. We strongly believed that if the United Kingdom joined the euro it could probably bring the currency down. It would be extremely damaging to our own economy and financial system. How glad I am that we prevailed on that Government. If the United Kingdom had been in the euro at the time of the great banking crash of 2007-08, we would have brought the euro down. The House may remember that it was the United Kingdom that brought down the euro’s progenitor, the exchange rate mechanism, which a previous Government mistakenly went into. Just as the forces of the Great British trading economy—an international economy with a strong dollar base—brought down the ERM, so I think we would have brought down the euro.

Now that we have made that historic decision, I see no intention on the part of any serious force in the United Kingdom to reverse it. I am pleased at that. I confidently predict that no party with any serious chance of winning a single seat in the Westminster Parliament in 2015 will campaign on the UK joining the euro between 2015 and 2020. I confidently predict that the same will be true if we have a general election in 2020. I do not see the mood changing. We have learned our lesson. We have understood that it will not work as an economic project.

We understood also that it does not work from the point of view of our democracy. As soon as a country begins to share a currency with other member states of the EU it must share many other things. Those countries are on a long journey towards a united states of Europe. They are discovering that they will need to share their policy on tax and public spending. It is no longer possible for people in Spain, Italy or Greece to think that they have a democratic right to choose their level of public spending, public borrowing or taxation. They are under increasingly tough controls from the centre. Germany is right about that: strong financial discipline is needed in a currency union if it is to work.

That is exactly the kind of control that the United Kingdom would never accept. I do not see parties of the left accepting that Europe should tell us to spend less; and I do not see parties of the right accepting that Europe should expect us to tax more. Indeed, some of us on the right would not want to be told to spend less in certain areas; and some on the left would not want to be told to tax more, in certain ways. We as a democracy say that the fount of our democracy is the elected Members of this Parliament; and that controlling taxation and our budget are central to our great national story. Our mother of Parliaments emerged to control the finances of the King and to say to the King or Queen, “You shall not tax more—or not without redress of grievance, or without our having a say over how the money is spent.” That is why the United Kingdom will rightly remain a reluctant European. We cannot accept the continuing pressure from the logic of the euro, that we should give away those fundamental birthrights—the democratic right to elect people to tax and spend, and change them if they tax and spend too little or too much, or in the wrong way.

I remember, as part of the anti-euro campaign, hitting on the phrase that joining a single currency would be like sharing a bank account with the neighbours. I used to say that I get on well with my neighbours. We have Christmas drinks and the odd summer party, and enjoy each others’ company. However, I do not know about other hon. Members, but I am not ready to share a bank account with my neighbours. I just have this feeling that if I were the prudent one, when I wanted to draw out some of my money to spend, the neighbours would have spent it. They might have wanted a fancier house, and taken out a big mortgage; then when I wanted a mortgage I would discover that our mortgage capacity had already been used up. That is exactly what being in a single currency is like. My opponents in those debates used to look for what was wrong with my analogy. I thought it was broadly right, but even I thought it might be a little bit of a try-on. Now that we have seen the euro scheme I realise that it was completely apt. That is exactly the position of countries such as Greece, Italy and Spain, in relation to Germany. Germany says “We do not want you using the collective mortgage, because we know you will borrow more, and we have got to do the saving.”

There is therefore an unhealthy tension, which is why I must talk about two reluctant Europeans. The other big power in Europe that is proving to be reluctant about the scheme of full European integration, providing the political backing to the single currency, is none other than Germany itself. At the very time when some Germans presume to lecture the United Kingdom on being a reluctant European—a very counterproductive thing to do, because it encourages Euroscepticism no end when Germans lecture us in that way—we find that Germany is busily trying to restrain the others from the impelling political logic of the euro, which must be to complete the political union to provide the backing to the currency.

If we exchange banknotes in the United Kingdom, we see on the banknote a symbol of our country. We see the monarch’s portrait. It is there partly because we like our monarch, but also as a symbol that the whole taxable capacity, the whole parliamentary and political weight, and the whole authority of the United Kingdom Parliament stands behind that banknote. People trust it, trade it and use it because they know that that is true. In time of crisis Parliament stands behind the Bank of England; the Bank of England stands behind the banknote; and the taxable capacity of the country is there for whatever crisis might arise. The problem with the euro is that there is as yet no symbol or political union to stand behind the banknote. That is why it has been subject to crisis after crisis. Pictures of bridges had to be used on the notes, and they could not be like any actual bridge to be found anywhere in Europe, because that might offend people. An Italian bridge might mean the Spaniards would be jealous; or perhaps they would be grateful that their bridge was not being pledged on the banknote—I do not know. There would have been tension or difficulties even over choosing the symbols for the banknote, so they had to choose something more anodyne.

There is a much bigger and more important political reality behind that; we are discovering that the full taxable capacity of the German state does not yet stand fully behind the euro, and that the rich and successful countries do not want to pool their riches and success with the poorer countries in the Union. Until they do, the currency will be crisis-stricken. The development of a second euro has already happened. The second euro was the Cypriot euro. Unbelievably in a first-world currency, people who had been foolish enough to deposit euros in a Cyprus bank could not take them out. When it was allowed, they were not worth €1; they were devalued before people could have their money back. That had to happen because the German taxable capacity would not stand behind the Cypriot bank. There is no way that, if a city or part of the United Kingdom—it would be invidious to give names—got into balance of payments or financial difficulties, people’s pounds, deposited in a bank in a part of the United Kingdom, would be first frozen and then devalued before they could be taken out. Everyone would rightly be scandalised and think it absurd. Yet that happened in the eurozone, because our reluctant European, Germany, would not stand behind the euro.

My prediction is that Germany is on a slow but inevitable march to standing behind the euro. In a way, I hope it is, because I wish the euro well and it needs to be a grown-up currency with proper transfers behind it; but the more Germany is on that movement towards being the paymaster, founder and discipline-provider of the euro area, the less possible it is for Britain to belong to that system. That is why I welcome the magnificent contribution that my hon. Friend the Member for Stone (Sir William Cash), has once again made to our national debate, and why I hope people are listening outside the Chamber, in addition to those who have kindly come to listen. Today’s debate is about the mighty subject of our generation. We wish our continent and the euro area well, but the United Kingdom must now find a new relationship. Just as surely as Germany needs to become the centrepiece of the political union to make a proper reality of the euro, so the United Kingdom, unwilling and unable to join it, will need a new, looser and different relationship with that emerging superpower—which will be not an armed superpower but an economic one, with, at last, the taxable capacity of Germany standing behind the rest.

It is important for that to happen quickly. I do not want to live in a Europe where there is practically no growth year after year and where there are sometimes rather bad crashes. I do not want to live in a Europe where the banking system is still riven by difficulty and disaster because there is not full support from the euro-area in the way we would expect from an integrated economic zone. I want to live in a Europe that is more vibrant, more exciting and more interesting.

I am very pleased that my country has stayed out of the euro; I am very pleased that, with our own financial and monetary policies, we now have a growth rate of which we can be proud and that gives our people hope; and I am very pleased that unemployment is coming down. It would make things so much easier for us if Europe had a growth rate of which we could be proud, if its unemployment rate was coming down and if it could offer hope to its young people. Europe cannot do that unless it either completes its currency union properly or breaks it up as soon as possible. We cannot join Europe in the former, and we do not wish to lecture it on the latter, so can we please get on with negotiating a relationship that works for Britain? Can we privately, not publicly, remind Germany that if she wishes this mighty project to work, she has to commit herself to it as fully as we have to disengaging?

[Dr Julian Lewis (New Forest East) (Con)]

In 1997 it was an act of rebellion for a Conservative candidate in the general election to campaign against the UK joining the single currency. Indeed, I had to resign my post at Conservative central office in order to do so. In the lifetime of this Parliament it was also an act of rebellion for a Conservative Member to vote for an in/out referendum. Both those rebellions are now seen as core Conservative commitments, and even the Labour party and many others, as my right hon. Friend the Member for Wokingham (Mr Redwood) said in his outstanding speech, would not dream of going to the electorate pledging themselves to trying to join the single European currency. That shows that, over time, progress can be made in opening people’s eyes to what is at stake with Britain’s troubled relationship with the European Union.

On two grounds in particular, no one could be better qualified to introduce such a debate than my hon. Friend the Member for Stone (Sir William Cash). First, as we have heard, his father won the military cross but also lost his life fighting to liberate France from German occupation in 1944. Secondly, although of course I knew that he is Chair of the European Scrutiny Committee, I did not learn until today that he has served on that Committee scrutinising Euro-legislation for the last 30 years, which is an exercise in self-flagellation bordering on the heroic.

There seem to be two strands to the idea of Germany in Europe, and the first strand appears to have something in common with what used to be said in the early years of NATO, which, as we all know, was once described as being designed

“to keep the Russians out, the Americans in, and the Germans down”.

In other words the idea was that, because Germany had twice brought world war to the European continent, the best way of preventing it happening again was to tie Germany into multinational alliances and institutions. That is one point of view; the other point of view is that it is not only about trying to prevent war in Europe. The question is whether it is an alternative way for Germany to exercise the sort of power and control in Europe that she failed to get by other means in those two terrible conflicts. I do not know which of those two strands is the primary motivation among German democratic politicians. Some of them may indeed be afraid of their country’s past being repeated; others may actually covet ways of gaining, through peaceful methods involving the slow absorption of other countries that are gradually drawn into the EU net, the sort of influence that they failed to gain in the past.

In the 1970s I studied the theory of international relations under the great Professor Sir Michael Howard, as he now is. One of the topics I studied was integration theory. The idea was that countries could be made to merge with each other not by telling them directly what the end product would be, but by drawing them through imperceptible degrees and through the exercise and creation of new common functions into an ever-closer relationship, so that they did not realise where they were going until they had already arrived at their destination.

I must admit that I was sceptical. I thought that countries might start on that path but that at some point they would wake up, realise the destination, decide that they did not want it and turn back. I admit that I have had to qualify my scepticism over the subsequent decades because, time and again, I have seen our country being drawn down that route. I wish I had £5 for every time somebody involved with the European project has said, “The high point”—or the high-water mark, or something else of that sort—“of European integration has now been reached.” Funnily enough, there is always one high-water mark after another. Frankly, I am getting fed up with it.

[Mr Redwood]

Has my hon. Friend also noticed that each successive federalising treaty has been explained to us as representing no serious transfer of power of any kind? How is it that we have so little power left?

[Dr Lewis]

Indeed. The process has become such a habit that the mask slips very rarely; but there was one notable occasion when the mask did slip. On new year’s eve just over a decade ago, when the European single currency was about to come into force, I saw the then President of the European Commission, Romano Prodi, being interviewed at midnight, and he was asked the following question: “This is a political project, isn’t it?” For once he let the mask slip, and he smiled beatifically and said, “It is an entirely political project.”

--- Later in debate ---

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Robertson. I congratulate my near neighbour in the west midlands, the hon. Member for Stone (Sir William Cash), on securing the debate. I also greet the Minister for Europe, the right hon. Member for Aylesbury (Mr Lidington), with whom this is my first proper exchange since I took up this post a few weeks ago, and I thank all the right hon. and hon. Members who have contributed to the debate.

I have found the debate extremely interesting and revealing. It has been revealing to me because it has illustrated the plight of the Minister and the Prime Minister, for which I have some sympathy. As I have listened to the hon. Member for Stone, the right hon. Member for Wokingham (Mr Redwood) and the other hon. Members who have spoken, I have found myself asking what kind of renegotiation by the Prime Minister could possibly satisfy them, other than one leading to Britain’s withdrawal from the European Union. I would be grateful if the Minister addressed himself to that question in summing up. I have sympathy for the Prime Minister in the task that he has set himself, given the yardsticks set for him in this debate by his hon. and dear Friends.

As the hon. Member for Stone said, we had some interesting exchanges yesterday with the Bundestag’s Committee on the Affairs of the European Union, whose members have been visiting the UK this week. This debate is timely in a sense, because both of our countries are major members of the European Union but we look at the European Union through different eyes.

It is sometimes said that for Britain, EU membership is purely transactional. I hesitate to endorse that verdict. I think it is a mistake to ignore the commitment to democracy, equality, human rights and the peaceful resolution of problems that comes with membership. It is an achievement of no small significance that today it is almost inconceivable that two member states of the European Union could go to war with one another. Given what is happening on the fringes of the European Union, it would be wrong for us to dismiss that achievement.

Britain and Germany have different histories, and we look at the issue through different eyes, but there is an aspect of common values to it, as well as a purely transactional one. On a day-to-day basis, as I am sure the Minister will confirm, Britain and Germany have much in common in our approach to the European Union. In ordinary working meetings of the Council of Ministers, British and German Ministers often agree.

Of course, as this debate has rightly outlined, we do not always face the same issues. Germany is a member of the eurozone; indeed, it is the lead guarantor. The UK is not, and is highly unlikely to join the euro, meaning that Germany faces issues, such as banking union and fiscal compacts with other member states, that we in the UK sometimes do not, and we are not part of some of those agreements. We sometimes have a distinct approach to economic and financial issues. Given our rule and the size of the financial sector in the UK, and its global reach relative to the rest of our economy, it is absolutely right that we should reserve the right to take a distinctive approach on some of those issues.

[Mr Redwood]

Does that not mean that we need a new relationship? Does the right hon. Gentleman not see that, according to his logic, we cannot be in the room when a lot of financial matters are discussed because we are not part of the compacts relating to the euro?

[Mr McFadden]

The euro has been in place for some time. During that period, London’s financial strength has if anything grown, not diminished. I would not agree with the right hon. Gentleman if he suggested that being outside the euro somehow meant that we could not play a constructive role within the EU.

[Mr Redwood]

Will the right hon. Gentleman give way?

[Mr McFadden]

I will press on, if the right hon. Gentleman does not mind.

Another issue that has arisen in this debate is the free movement of people, which has been at the heart of discussion in the UK in recent months about our relationship with the EU. I have looked up the figures. Eurostat, for example, calculates that net migration from elsewhere in the EU in 2012 was 230,000 for Germany and 82,000 for the UK. It is important to give some context to the view that everyone from everywhere else in the EU is always migrating to the UK. That is not the case. There are significant migration flows into both Germany and Britain, and it is important to have a debate in both countries about the rules under which EU migration should operate.

The Government have made certain announcements about restricting access to benefits for some EU migrants, and my own party agrees that access to benefits should be conditional. Most EU migrants come to work and not to claim—the recent report by University college London showed that overall, they are net contributors—but of course it is not just an issue of accounting. It is important that we have rules that are seen to be fair, and that operate in fairness to our own citizens as well as to those who come here. Today, in my party, the shadow Home Secretary announced that we believe that an EU migration fund should be established to help local areas that find themselves under particular pressure due to freedom of movement. If freedom of movement is to remain a core principle, it is reasonable for member states to ask for some help from the EU budget to help communities adjust where there are consequences for local areas.

I believe that on this question, Britain and Germany have much in common. I do not believe that Germany wants the rules for access to benefits to be abused; a case came to the European Court of Justice the other day. The Prime Minister has taken us into new territory. He is now talking not just about conditionality for benefits under freedom of movement but about changing the principle of free movement itself. That approach appears to have been rebuffed by Chancellor Merkel, with the Der Spiegel report that she sees it as a red line that she would not cross, and that at that point she would stop her efforts to keep Britain in the European Union. It would be one thing if I thought that the Prime Minister’s shift in strategy had been carefully thought out, but he appears to have crossed the line with little thought for what it will mean for his renegotiation. Can the Minister tell us how many member states have told him that they support reform of the principle of free movement since the Prime Minister made his announcement?

Of course some Back Benchers, and perhaps some Conservative Members in this room, will be pleased by the shift because they may not want the Prime Minister’s renegotiation to succeed. Perhaps glory for them is defined not by a successful renegotiation but by one that fails, leading to UK withdrawal from the EU. I am afraid that there I must part company with the hon. Member for Strangford (Jim Shannon), who said that we might all be united in our view today. It is not a consensus shared by me or my party.

There are major British interests, in terms of jobs, employment rights and investment, in getting it right and in remaining part of the EU. What we are seeing is a governmental strategy, if one can call it that, which is led more by party management and trying to keep happy the party members who agree with the hon. Member for Stone than by our national interests. The danger for the Minister and the Government is that if he and his colleagues keep standing at the edge of the cliff and making demands in order that they will not jump, eventually other member states will stop their efforts to stop them from jumping and say, “Go ahead, and be our guest.”