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1995 - Mr Major’s Commons Statement on the 1995 European Council at Madrid

Below is Mr Major's statement on the European Council held at Madrid from the 18th December 1995.


PRIME MINISTER:

The Prime Minister (Mr. John Major): With permission, Madam Speaker, I shall make a statement on the meeting of the European Council at Madrid, which I attended with my right hon. and learned Friends the Foreign Secretary and the Chancellor of the Exchequer. I have placed the conclusions of the Council in the Library.

I shall deal first with economic and monetary union and then with enlargement - the two most important matters discussed over the weekend.

The decisions that the European Union must take on those two issues over the next few years could be the most crucial steps for Europe since the European Community was founded. They will have a profound effect on the political and economic stability of our continent over the next generation.

On economic and monetary union, the Madrid Council decided on a name for the single European currency. "Euro" was not a name that attracted universal enthusiasm around the Council table; it will not ease the task of those seeking to market the idea of a single currency, but one or more of the member states had rooted objections to each of the other names suggested.

A more fundamental decision was to study the implications of seeking to introduce a single currency in 1999. As the House knows, I have for a long time argued that the introduction of a single currency by a small minority of states would raise very serious questions about its economic consequences and about the way in which Europe functions. At the informal meeting in Majorca in September, there was general agreement that those questions needed to be examined carefully. At Madrid, a study was formally commissioned.

The Maastricht treaty lays down strict criteria for entry to a single currency. It is now certain that, on a proper interpretation of the criteria, only a small number of member states will meet them if a single currency is introduced in January 1999. Before taking such a step, the European Union needs to consider what it would mean in practice. It must consider its effect on the states outside the single currency area, as well as those inside it. It must consider how decisions would be taken. It must ask whether the result would be divergence rather than convergence of European economies. It must consider the potential effects on employment and the demand for resource transfers. The risk of monetary instability is one of the questions to be examined.

Some have argued for rigid linkages between those inside and those outside a single currency, by reverting to an old-style exchange rate mechanism. That is a course that has been tried and has failed. I have made it clear to our partners that I would not recommend that sterling should return to such a system.

Europe needs coherent answers to those and other questions, and I am glad that the Madrid Council decided to examine them. The opt-out that I negotiated at Maastricht protects the United Kingdom from being forced into an unworkable system, but it is vital to our interests and to the interests of Europe as a whole that a single currency does not begin and then fail, thus causing economic turmoil right across the European continent.

I now refer to enlargement. Ahead even of prosperity, the European Union exists to provide security and stability for the peoples of Europe. For that reason, I believe that enlargement is the most important task facing the European Union. Having demolished the iron curtain, we must never again have a dividing line running through the middle of Europe.

Ten or more countries are hoping to negotiate entry to the European Union in the coming years. This is an historic opportunity to entrench stability through a union of democracies right across the continent, and one that I passionately believe we must take. The Madrid Council gave further impetus to enlargement. The European Commission has been asked to produce opinions on all eastern and central European applicants as soon as possible after the end of the intergovernmental conference. That is a necessary step towards full accession negotiations, which are likely to begin with at least the most advanced of the new applicants, as well as with Malta and Cyprus, in about two years' time.

The Madrid Council considered reports from the Commission on the implications of enlargement for the European Union's policies, and those are profound. To be affordable and to be consistent with the EU's obligations under the general agreement on tariffs and trade, the common agricultural policy will have to be reformed when the Union enlarges, and so will the structural and the cohesion funds. At my insistence, it was agreed that future meetings of the Council would examine the implications. The Madrid Council has therefore taken an important step towards combining policy reform with enlargement, both of which are essential to the European Union's future.

I shall deal briefly with some of the other subjects that were discussed at Madrid. It was agreed that the intergovernmental conference would start at Turin on 29 March. The conference will be conducted by meetings of Foreign Ministers supported by a working party made up of a representative of each Minister and of the President of the European Commission. No decisions were taken at Madrid on the substance of the intergovernmental conference. Work on the agenda will be carried out under the Italian presidency by Foreign Ministers.

The drive to promote subsidiarity was again strongly in evidence at Madrid and was vigorously supported in informal discussion. The Commission has been instructed to examine the continued need for existing Community legislation and for proposals that are now on the table. It is now widely recognised that the United Kingdom was right to reverse the trend towards greater intrusiveness by the Commission. There was also support for our approach to job creation, flexible pay relating to performance, the curtailing of non-wage labour costs and the reform of social protection systems. Increasing emphasis is being given to small and medium-sized enterprises and to the need to cut the burden of red tape and over-regulation.

The campaign against fraud and for better financial management, which I launched at the Essen Council a year ago, gained further weight at Madrid. The House will welcome the higher priority that is being given to intergovernmental co-operation against drug trafficking. At Madrid I presented, with President Chirac, an initiative to help Caribbean states to crack down on the trans-shipment to Europe and elsewhere of huge quantities of drugs that are produced in Latin America. That initiative was agreed by the Council and is now part of the European Union's policy. On external affairs, the Council underlined the importance of successful implementation of the Bosnian peace agreement and gave support to Mr. Carl Bildt, who will be there leading the international civilian effort. It also discussed the European Union's relations with Russia, Ukraine and Turkey and welcomed the agreement at the recent European Union/United States summit to strengthen the relationship with the United States.

At the Council, the key decisions for the future were identified rather than taken. The programme of work for the next five years, the "Political Agenda for Europe", is set out in the Madrid conclusions. It is a formidable programme. In that period Europe must review the treaty at the intergovernmental conference; review the Union's policies, including the common agricultural policy and the structural funds; take decisions on a single currency; carry out enlargement negotiations; determine the Community's future financing; contribute to new European security arrangements; and develop its relations with neighbouring countries, especially Russia, Ukraine, Turkey and other Mediterranean countries. The decisions that we take in that period will determine the shape of Europe well into the next century. They will vitally affect the United Kingdom's interests and our future security and prosperity. That is why, at successive meetings of Heads of Government, I have argued for cautious and careful consideration before decisions are finalised.

The European Union must carefully weigh the practical consequences of all those issues. Its decisions must be securely grounded in reality. We need, above all, a Europe that works. In that respect, important steps were taken at Madrid, as they were at Majorca a few months ago. They would not have been taken if we had not been prepared to raise the difficult questions and to demand practical answers to real problems. In the interests of the United Kingdom, it is essential to continue taking a hard-headed approach at the centre of European policy making, and I intend to go on doing so.

Mr. Tony Blair (Sedgefield) May I thank the Prime Minister for his statement? There are several areas with which we can obviously agree.

On enlargement, I warmly welcome the European Council's commitment to begin negotiations at an early date. Will the Prime Minister clarify whether those negotiations will indeed begin at the same time as negotiations with Cyprus and Malta? Will he also tell us how the European Union intends to differentiate between countries that will enter more rapidly, such as Hungary, the Czech Republic and Poland, and the others that will take more time? I agree totally with what he says on the common agricultural policy, but instead of using the need to reform the CAP as an excuse to delay the entry of those countries into the European Union, should not we rather be using enlargement as the lever for changing the CAP?

I welcome the agreement at the Council to open the intergovernmental conference in March next year. I also welcome the agreement on the importance of the European Union tackling unemployment as "its principal social, economic and political objective"," as well as the strongly expressed support in the President's conclusions for social partnership and job creation measures. However, how is such support for job creation measures and for help for the unemployed consistent with the savage cuts in the training in work programmes for the unemployed in this country today?

I accept and agree with the Council's decision to take more effective action on racism - the Ministers all committed themselves to taking further action on that issue. Will the Prime Minister perhaps tell us what further action he believes we should take here? I also welcome the progress towards implementing the principle of subsidiarity in European law making at the Council, but how can he agree so much with the principle of subsidiarity in Europe and deny it so completely here at home in the United Kingdom?

May I come to the heart of the matter, which is monetary union? Can we be clear on that which has now been agreed unanimously by the European Council: that the Maastricht timetable stands, that the third and final stage of monetary union should begin on 1 January 1999, that all the criteria for convergence, for the setting up of the European central bank and for the fixing of currency conversion rates have been reaffirmed; and that the Prime Minister has agreed to it all in Madrid, despite his objections?

Why then has the Prime Minister been so utterly powerless in this situation? Whatever happened to those great new alliances that we kept reading he built with the French, his triumphal visit to Italy, and his constant claims that the rest of Europe was coming round to his way of thinking? Why was he driven to concealing his impotence with the fig leaf of some study into the effect of the single currency, which was so threadbare as to be an embarrassment to behold? May I tell him why? It is because no one knows what his position on monetary union is. [HON. MEMBERS: "Oh!"] Conservative Members criticise us for our position - [Interruption.] They cannot have it both ways. They spend half the time criticising us for having a position on the single currency and the other half criticising us for not having one.

Can the Prime Minister tell us whether he still believes in monetary union, as he used to say he did? Does he want to delay it or does he in fact want to abandon it? Are his hesitations about a single currency those of economic practicality or are they those of constitutional principles?

We do not know what the Government's position is. We do not know because one half of his party believes, as we do, that it depends on Britain's national interests - [HON. MEMBERS: "What about the Labour party?"] I am saying what our position is. Our position is, like that of some members of the Prime Minister's party, such as the Chancellor, that it depends on national economic interests. The other part of his party, however, believes that there is an insuperable constitutional objection to monetary union. But what is the Prime Minister's position? We have made our position clear: what is his position?

Is not it the case that the divisions between those Conservative Members who believe one thing and those who believe another are so deep that they consign the Prime Minister perpetually to weakness and indecision on the very issue that matters? Is the Chancellor right, for example, in saying that it is  likely that there will be currency union? Does he agree with that or not? Is the Chancellor right in saying that we may have to decide by March 1998 whether we shall aim at joining?

Is the Prime Minister seriously going to go into an election not telling us where he stands on the issue of constitutional principle? Is he going to tell us or not? Is he going to be driven to a referendum despite his earlier rejection of it and despite the fact that his Chancellor described it as madness - not as a way of letting the British people decide, but as a way of letting the Conservatives avoid deciding the issue of principle? If that is what he is going for, as the papers have been briefed, is it credible that the Cabinet - with one half siding with the Chancellor and the other half with the Defence Secretary - could ever put a united proposition on joining the single currency to the British people? [Interruption.] Some Conservative Members are shouting out that we are the poodles of Europe, and others are saying that we have not made up our minds. The fact is that we have a position set out and the Prime Minister does not. Until he is prepared to say personally what his position is, they cannot resolve the impasse.

For too long, is not it the case that Government policy has proceeded on the fantasy that the rest of Europe was not actually going to proceed with monetary union? Of course it may still not happen, but we can no longer assume that it is not going to happen. Indeed, after Madrid, we should surely assume the opposite. I put it to the Prime Minister that it is simply no longer tolerable that, because of the divisions in the Conservative party, a proper national debate on the single currency is postponed, the Cabinet muzzled and the Chancellor sworn to silence on an issue that profoundly affects the future of this country.

Is not it time for a serious and well-informed national debate to begin? The Government's European policy after Madrid is still in tatters and uncertain. Rebuilding that policy is essential for Britain's credibility. To rebuild it, we must have the debate on this issue that has been suppressed for too long, and time is running out.

The Prime Minister I shall first touch on the points on which I am in agreement with the right hon. Gentleman. I, too, as he acknowledged, am in favour of enlargement. On the timing of enlargement, as I said in the statement, a small number of states - and in answer to his particular question, that will depend on the Commission's opinion, which will largely be based on economic criteria, so it is an unknown number - will begin negotiations at the same time as Cyprus and Malta. The matter of which ones they are will depend on the detailed examination of their economies, which will take place immediately.

On the common agricultural policy, I am of course doing precisely what the right hon. Gentleman asked me to do over using enlargement as a lever for change - which we have long argued is necessary - and reform, to which a number of Labour Members are late converts.

Of course unemployment is important. Much of the debate on unemployment was concerned with the need for deregulatory moves and for cutting down the costs that have led to so much unemployment across Europe. What was signally missing from the right hon. Gentleman's tirade was an acknowledgment that it is here, in this country, that unemployment is falling, and that it is in the socialist countries of Europe that unemployment is in some cases well over 20 per cent., and in other cases 12 or 13 per cent., where non-socialist Governments have inherited the effect of socialist Governments.

There was no substantive discussion among Heads of Government on racism. There had been discussion at an earlier stage. There is general agreement that where there are loopholes in legislation across Europe, individual countries will seek to deal with them. The loophole that arises with the United Kingdom is over the fact that it is possible to print racist material here. It cannot be distributed here, but it could conceivably be printed here for distribution abroad. Clearly, that is a loophole that we would wish to block and I have indicated that we will certainly block that. There are some minor technical issues still being worked out, but I do not envisage that they will cause any great difficulties. They will be examined.

The points about subsidiarity are familiar. We have debated them on many occasions in the past. We are a single nation state. The point about subsidiarity is taking authority from nation states to a central body, not the distribution of authority within a nation state.

On economic and monetary union, the right hon. Gentleman is certainly correct to say that we reiterated the treaty timetable. The treaty timetable was originally in the Maastricht treaty. For those who are able to meet it - that is an unknown and probably small number - it has again been reiterated.

The right hon. Gentleman had something to say about divisions. He was not of course as clear as he might have been about his own position. Does he agree with the deputy leader of the Labour party, who again was in Europe making mischief on other matters over the weekend? Does he agree with the right hon. Member for Kingston upon Hull, East (Mr. Prescott), who said of a single currency, "Yes we are against a single currency"?" Or does he agree with the right hon. Member for Copeland (Dr. Cunningham), who said that he was"Personally…in favour of a single currency"?" Does he agree with his Members of the European Parliament, who are in favour of a single currency within the time limits and timetable, or with the hon. Member for Livingston (Mr. Cook), who said some time ago that setting such a timetable would be "irresponsible"?

It is good to see that there is such clear-cut agreement and leadership in the Labour party on that vital issue. If the right hon. Gentleman had observed the faces behind him, I do not think that he would have said much about agreement in the Labour party. I seem to recall reading recently that one third of the Labour party is in favour of a single currency, one third is against, and one third of them have not yet made up their minds or do not know. That is the right hon. Gentleman's idea of agreement on that extremely difficult and complex position.

I have made it perfectly clear on a number of occasions that there are questions about a single currency that are vital to this country's interests, which are not yet known. It is the answers to those questions that I have demanded are examined in the European Union. If the right hon. Gentleman wants to make up his mind on the most important single economic issue that we have faced this century without the facts, let him take that position in this great national debate - although if he is entering into a great national debate, he might make up his own mind what his own position is before he tries to debate with anybody else. Those are issues of immense importance. We will demand that they are properly discussed so that a proper decision can be taken in the interests of this country, when the facts are known and not before.

The right hon. Gentleman contradicted himself. He said that I had said that a single currency could not proceed, and that it would not happen. Then he said that, of course, it may not - in successive sentences. What I have said consistently is that the small minority may proceed. It is dangerous if a small minority proceeds and is not ready, and it is potentially damaging if a small minority proceeds without knowing the implications for the majority of countries that do not proceed.

Even on the most favourable interpretation and the most optimistic scenario, fewer than half the citizens in the European Union would be part of a single currency union at the outset. That is quite apart from the position of the 10 or more countries that may enter the European Union over the next few years, but which will not be remotely ready for European currency union for very many years in most cases.

For as far ahead as we can see, whether a minority goes ahead - there is certainly a chance that a minority will - it is undeniable that a majority will not be in a single currency in 1999, and a majority will not be in a single currency for very many years.

Mr. Douglas Hurd (Witney) Will my right hon. Friend, in contrast to the Leader of the Opposition today, keep his mind open to the idea of a referendum on a single currency, should the Government at any stage decide that it is in Britain's interests to join?

The Prime Minister I recall discussing that matter with my right hon. Friend as long as two years ago. I know that he has thought long and hard about the implications for Europe and for this country of a single currency. I agree with him that we need to be clear about the circumstances and the conditions. The study that we commissioned in Madrid will help in that.

I can certainly reassure my right hon. Friend that, for a decision of such magnitude, we shall keep in mind the possibility of a referendum, if the Cabinet were to recommend British entry. That has been in my mind, as my right hon. Friend knows, for a long time and it remains there. I think that it is right to keep that before us for consideration.

Mr. Paddy Ashdown (Yeovil) Watch that space. Is not it the case that what the Prime Minister has today described as a formidable programme is what he told us a year ago had about as much relevance as a rain dance? Some rain dance.

Does the Prime Minister understand that the whole nation has now spotted and understands his formula for ducking difficult decisions on Europe? It consists of obstructionism abroad, and appeasement at home; of playing the Euro-realist in the conference chamber, and the Euro-sceptic in the columns of The Daily Telegraph. Does the Prime Minister believe that that is the kind of leadership this country needs on an issue of such importance, and that we should be asked to hide from our future to cover the divisions in the Conservative party?

Does not the Prime Minister understand that trying to face both ways at once in Europe means that he cannot see what is right in front of him? What is now in front of us in Europe is rising nationalism within our borders, deepening chaos outside, and  -  I regret  -  the strong probability of isolationism growing in the United States of America. Chancellor Kohl can see that; President Chirac can see that; and every other leader in Europe can see that. But the Prime Minister is so mesmerised by the divisions in his party that he is blind to it.

The Chancellor said only two days ago that he believed that there was a 60:40 chance of monetary union occurring before the end of the century, and that the economies that would join it would be the strong ones. Does the Prime Minister agree?

The Prime Minister The right hon. Gentleman started off by completely misquoting what I wrote in The Economist two years ago. The answer to his first question, therefore, is no. He was talking complete unadulterated rubbish, and continued to do so for some time. What I actually wrote in The Daily Telegraph was what I said in the conference chamber to my fellow Heads of Government. The right hon. Gentleman can therefore be in no doubt that the message I deliver here in this Chamber is–

Mr. Ashdown indicated dissent.

The Prime Minister Oh, the right hon. Gentleman shakes his head. He was there, was he? It was he who brought in the tea, coffee and the biscuits. What I said in that conference chamber is what I said here, what I wrote down and what I will take to the country.

The fact is that the right hon. Gentleman does not understand the issue. He has a slogan. He believes that whatever happens in Europe, he and his colleagues should rattle along behind it whether it is right or wrong, whether it is considered or not and whether it is in this country's interests or not. He does not know enough about the subject to consider the implications.

What the right hon. Gentleman said was copper-plated nonsense. He does not know, for example, what would be the effect of a partial EMU among some countries on Community decision taking. Can he tell me the answer to that question? Of course, he cannot. He does not even understand the question, let alone the answer. I shall spare the House the long list of the other questions that he does not understand.

Sir Terence Higgins (Worthing) Is not it high time that we stopped talking about a single currency, as what is now envisaged is clearly a core currency? That is the expression that we should use. Is not it equally apparent that it is inconceivable that the members of an enlarged Community would be able to move towards a single currency in the foreseeable future?

On a referendum, is not this a highly complex issue? My right hon. Friend has rightly pointed out that the leader of the Liberal party does not understand it. The public do not even know the difference between a single and a common currency. Will my right hon. Friend therefore bear the complexity of the issues in mind?

The Prime Minister My right hon. Friend is entirely right to draw the distinction between a single and a core currency, because, as I said to the House a moment ago, at the outset only a minority would be members. In the couple of decades ahead, with the growth of the European Union, there is no prospect that there would be one single currency right across the enlarged European Union. Of course, it may cover some countries - that has certainly always been possible - but it will not cover them all. My right hon. Friend is right about that. On the complexities of a referendum, I understand entirely my right hon. Friend's point, and that is why we are considering the matter carefully.

Mr. Peter Shore (Bethnal Green and Stepney) The Prime Minister is clearly moving in the right direction - [Interruption.] Will he confirm what he has previously said: that the United Kingdom will not join, or rejoin the exchange rate mechanism during this Parliament? If that is so, as I believe it is, will he confirm that the United Kingdom will not join a single currency on 1 January 1999 for the simple reason that whatever may be the wishes of the Chancellor of the Exchequer, we shall not conform with the necessary qualifying rule of rejoining the ERM two years before the actual decision about the single currency is made in March 1998?

Finally, will the right hon. Gentleman confirm that when he said that he would not recommend that Britain should join or rejoin the ERM after some countries have gone ahead and joined the single currency, that means in effect that we shall never join the single currency because one cannot join it unless one first rejoins the ERM?

The Prime Minister Let me try to clarify matters for the right hon. Gentleman. I was interested when he said that I was moving in the right direction, because the look of pain upon the faces of those on the Opposition Front Bench was a joy to behold. That was one of those occasions when I am so pleased that we have television in the Chamber.

I certainly reiterate to the right hon. Gentleman that I made it perfectly clear that we would not go back into the ERM in this Parliament. As I said in my statement, I do not propose that I would take sterling back into a changed ERM in the next Parliament either. The right hon. Gentleman concluded from that that we shall not meet the Maastricht criteria, but that is no longer the case, because the ERM that existed at the time of our membership no longer exists. If one were to apply those strict criteria, the reality would be that nobody would be able to enter a single currency. The other Maastricht criteria, of course, fully apply, while the ERM criteria for all of Europe disappear because, the right hon. Gentleman may recall, they were effectively to be a part of the inner band of the ERM, which no longer exists.

Mr. Tristan Garel-Jones (Watford) As the number of difficult and technical issues connected with the move to a single currency mount, does not the wisdom of my right hon. Friend in negotiating a double option for Britain become more and more apparent? Will he give the country an assurance that he does not intend to throw away either of those options in the near future?

Secondly, will my right hon. Friend comment on the fact that the Leader of the Opposition, while criticising the opt-out that my right hon. Friend negotiated, clutches it to his own bosom? As the Leader of the Opposition says that there are no constitutional issues attached to a move to a single currency, is not the logic of his position that, if Britain were to be convergent, we would automatically enter a single currency?

The Prime Minister That is certainly the logic of the Leader of the Opposition's position, and we look forward to his early confirmation of that, so that no one can be in any doubt when he begins the great national debate that he has called for. With regard to my right hon. Friend's earlier remarks, both the opt-outs are the envy of many of our European partners, which wish that they had negotiated them. I intend to exercise to the full the opportunities given to this country by that negotiation.

Mr. Giles Radice (North Durham) May I congratulate the Prime Minister and the Chancellor of the Exchequer on publicly resisting the demand of the right hon. Member for Wokingham (Mr. Redwood) and other Euro-sceptics that the Government rule out the option of Britain joining a single currency within the next Parliament?

The Prime Minister I indicated, first in my reply to the Leader of the Opposition 10 days ago and again over the weekend, that I was not prepared to rule out the option of joining a single currency in the next Parliament. Nobody should draw any conclusions either way about that, and I will reiterate to the hon. Gentleman why that is the case.

It is very important that this country's voice - raising questions that would not have been examined but for this country - is heard in the negotiations right up to the time when a decision is taken as to who should join and who should not. Whether we exercise the right to opt in or to opt out, this country - and every other country in the European Union - will, in one form or another, be affected by the decision to proceed to a single currency, even if only a minority of countries proceed. Upon that basis, I do not believe that this country's voice - one of the most powerful in Europe - should be excluded from that debate.

Mr. William Cash (Stafford) I very much hope that my right hon. Friend succeeds in his opposition to federalism in Europe, but does he accept that monetary union is tied up with political union? Does my right hon. Friend agree that we sold the pass at Madrid, because we did not disagree with the determination of the other member states - buttressed by the determination of Germany and by a capitulating France - to go ahead with political union? Does he agree that we must ensure soon - in a White Paper or by some other means - that we no longer go down the route of political union? Should we not utterly repudiate the use of British taxpayers' money on a propaganda exercise by the European Commission to promote the very political union that my right hon. Friend has expressed himself to be so against?

The Prime Minister I do not believe that the pass was sold in our discussions in Madrid. We agreed to discuss questions which must be discussed but which have not yet been discussed. It would be folly to proceed without having detailed and proper answers to those questions. Many aspects of political union will come up in different parts of the intergovernmental conference. We are considering carefully our precise response to all the important points that will come up there.

On the expenditure on publicity, I am bound to say that the Commission's public relations campaign was not, as reported, put to Heads of Government at Madrid and received no specific endorsement from Heads of Government at Madrid. The reason is that the Commission has authority to determine the proportion of its budget to be spent on information work and has chosen to exercise it in that fashion. It was emphatically not a matter that was put to Heads of Government at Madrid and endorsed by them.

Mr. James Molyneaux (Lagan Valley) The Prime Minister will have noted that on page 8 of the communiqué, there appear the words: "kept on a sound track"." Assuming that those words refer not to some method of amplification but to sound money within Europe, and in view of the fact that the Prime Minister has rightly said that the decision is one of the most important this country has taken for, perhaps, 200 years, will he consider the establishment of a super, high-powered Select Committee, with representatives of all parties in the House thereon, to examine and come up with hard facts as opposed to opinions? Such a Committee would have the extra benefit of enabling certain parties to concentrate their own minds.

The Prime Minister I can certainly confirm to the right hon. Gentleman that the words "sound track" relate to sound money and sound economic policies. The guiding lights of those were first put in the Maastricht treaty, at British insistence. They remain there for any move forward to EMU and have the strong support of a number of other nation states. I shall reflect on what the right hon. Gentleman said. Within Government, we shall conduct our own examination of whether those matters are being followed, quite apart from an examination of the outcome of the Maastricht criteria.

Mr. David Howell (Guildford) Does my right hon. Friend accept that his excellent questions at Madrid about the ill-named "Euro", its huge potential cost for the European budget, its divisive potential and its threat to employment in Europe were penetrating and timely? It is a great pity that we have not heard similar intelligent questions from Opposition Front-Bench Members.

Looking ahead, does my right hon. Friend accept that if we get to the transitional period, when a hard "Euro" will circulate along with the national currencies, the system will have some resemblance to his own plan for the hard ecu, which he put forward five years ago? Will my right hon. Friend suggest a more intelligent and modified version, if we get to the transitional period, to make it a permanent period on the ground that nothing lasts like the provisional?

The Prime Minister My right hon. Friend is correct to say that in the proposed transitional period of 1999–2002, the new currency will effectively co-exist as a parallel currency with national currencies rather than as a core currency, to use the words of my right hon. Friend the Member for Worthing (Sir T. Higgins). That is similar to the hard ecu proposal which I first put forward in 1990, except that it would not proceed, as the hard ecu would have proceeded under my proposal, by a market-driven route to become a single currency, but would move, under the present proposals, arbitrarily on a fixed state to become a single currency.

It may be that as we approach that period, the prospect of reviving the sound economics of the hard ecu proposal will return. At the moment, enthusiasm for proceeding under the Maastricht treaty route remains and I am not optimistic about the hard ecu reappearing. In economic terms, I do not believe by any stretch of the imagination that I am the only Head of Government sitting round the table who now regrets that we did not take that route.

Madam Speaker Mr. Andrew Faulds.

Hon. Members Oh.

Mr. Andrew Faulds (Warley, East) Thank you, Madam Speaker. Was there any discussion in Madrid that because of the plasticity of European purpose, or perhaps lack of policy, America had to step in to sort out the Bosnian imbroglio and bring just the possibility of peace?

The Prime Minister There was some discussion of future policy in Bosnia. There was no look back on how the present position came about. There was considerable discussion about the peace implementation force and about the activities of Carl Bildt in ensuring that the civilian aspects of the Bosnian peace are carried forward. We spent some time discussing that and no one is in any doubt about the huge matters that still have to be dealt with.

Mr. Nicholas Budgen (Wolverhampton, South-West) Does my right hon. Friend agree that any core currency is bound to contain both France and Germany? France's attitude towards the core currency will be vitally influenced by whether Britain is there as a balancing power against Germany. Are we not going to create great resentment if we do not tell France and Germany as soon as possible what our attitude in principle is?

The Prime Minister Our attitude is one of practice. We shall make our decision when we know precisely what the circumstances may be that would impact upon our country. Whatever interest we may have in helping France or other countries to make up their mind, and I appreciate that they may welcome a view of where Britain might be at some stage, the first obligation that we have is to make the right decision for this country. I do not believe that we can make the right decision for this country until we know the answer to questions as yet unanswered and know the economic circumstances that have not, as yet, unfolded.

Dr. Jeremy Bray (Motherwell, South) Does the Prime Minister exclude UK participation in any exchange rate arrangements if EMU does go ahead?

The Prime Minister I certainly do not exclude UK agreement to matters such as inflation targets in order to ensure a market-driven route towards largely convergent economic policies and secure exchange rates. I do not believe that going back into the artificiality of an exchange rate mechanism, which, on this occasion, would be outside the core currencies, is a negotiable proposition among the Heads of Government and it is not one that I would wish sterling to join, as I said earlier.

Sir Giles Shaw (Pudsey) May I congratulate my right hon. Friend on the way in which he is handling these issues? I remind him that a policy which is both careful and cautious is a policy of prudence and that, bearing in mind the complexity and the scale of the ultimate decisions on the matter, he is absolutely right to occupy the crease and bat for Britain as long as it takes?

The Prime Minister I am grateful to my hon. Friend, who has a long and distinguished interest in European matters. I assure him that I shall continue to do that. When I indicated to the House earlier that the decisions taken upon monetary matters and enlargement were crucial not just to the future of this country but to the future of all Europe, I did not regard that as a casual throwaway line, but I meant it to be taken absolutely as I stated it. It is fundamentally true. For that reason, I believe that we have an obligation to be cautious. The burden of proof must rest upon those who wish us to make the change rather than those who wish us not to do so. I think that we are right to be cautious and I will remain cautious.

Mr. Dennis Skinner (Bolsover) Is not the truth of the matter that the Madrid decisions, with which the Prime Minister acquiesced, represent another two or three small steps towards economic and monetary union? Why did not the Prime Minister vote against some of the issues that were presented to him? Why did not the Government decide to oppose that barmy name "Euro" for the currency? Is not the fact of the matter that the Prime Minister has come here today to represent a lot of camouflage about the Madrid summit to try to appease his Back Benchers, when the truth is that he sold out at Madrid and that the people out there will understand that?

The Prime Minister If camouflage was needed, I would have thought that it was between the Labour Front Bench and below the Gangway on that side of the House. If there is going to be a debate, I suggest that it starts on Labour Benches, and Labour Members can try and work out precisely what their position is. We now see just how split, despite all they have said, they really are on European matters, and have been right from the start. [HON MEMBERS: "Answer the question."] The answer to the hon. Gentleman's question, in every respect, is no.

Mrs. Edwina Currie (South Derbyshire) While it is correct, as my right hon. Friend has said, that if the wrong decisions are taken on monetary union, the result will be turmoil and chaos, could I possibly dig out of him an admission, however tentative, that if the right decisions are taken, to create a currency union among 150 million of the world's richest citizens could be highly beneficial to all the nations concerned?

The Prime Minister My hon. Friend puts precisely the question to which an answer needs to be found. We cannot be certain of an answer to that question without answers to the questions that I asked in Madrid, which is precisely why I asked those questions. We need to know the answers before making a judgment, which is the view of a number of people in Europe. Equally passionate views are held in the opposite direction. Until we know the details and answers to those questions, it is not possible to take a rational view of the implications of a single currency. That is what I seek to provide.

Mr. Tam Dalyell (Linlithgow) My question is on a different but increasingly important issue, in view of events in Russia: the Community's relations with the Ukraine. What exactly are we doing to help those people? In his talks with President Kuchma last week, what did the Prime Minister respond to the President, who is also the former technical director of Baikenor, on technical co-operation, not least in relation to the Ukraine's valuable resources in space, which are left over from the Soviet Union, and the skills that could benefit us all?

The Prime Minister I raised a number of matters when I spoke to President Kuchma a week or so ago. As the hon. Gentleman and the House would have expected, we discussed Chernobyl and spent some time discussing the package of support that the international community has now provided for closing Chernobyl at the turn of the century. We also looked at a variety of ways in which we could increase the trading and investment relationship between the United Kingdom and the Ukraine. There is huge scope, particularly in the energy sector, for the mutual benefit of British investment and for British technology to go into the Ukraine, where it would be warmly welcomed by the Ukrainians. I also stressed to President Kuchma that one of the inhibitions to ensuring that that investment can proceed are the present financial and legal restraints in parts of the Ukraine.

That was the substance of our discussion. It was an extremely worthwhile visit, which will be followed up by further ministerial visits to the Ukraine. I hope that some of those will take with them high-powered delegations of business men, so that we can examine the business relationship between the United Kingdom and the Ukraine and build on it, because the Ukraine will be an important part of the European business scene in future.

Mr. Hugh Dykes (Harrow, East) Despite the usual trading of insults between the party leaders today on this momentous matter, which is of great importance to this country, and the regrettable lack of listening to the sensible suggestions made by the leader of the Liberal Democrats, would not it be a good idea for the party leaders to get together? As a large majority of Members of this House are in favour of EMU, they could, on a free-vote basis, present the positive factors in favour of monetary union to the British public.

The Prime Minister I always believe in the politics of rationality. My hon. Friend pitches a question that would demand a high price for the Leader of the Opposition in terms of discussing the reality of what lies immediately ahead. I saw no great sign of it from the leader of the Liberal Democrats this afternoon. If we can determine the answer to the questions that I have put, they will be material to framing the opinions of people in this House and beyond about the desirability or otherwise of the course that was set out some time ago. I reiterate the same point because it is undeniable: without that information, credible decisions cannot be taken. I am trying to provide it. I shall then willingly make it available to the Leader of the Opposition in a tutorial or in any other way that he wishes.

Mrs. Margaret Ewing (Moray) As a decision must ultimately be taken, will a time limit be placed on the study? What will happen once the study becomes available? Will it be widely available and how will we move into decision mechanisms?

The Prime Minister It is not quite clear how long the study will take. I saw it reported that it will take two or three years. That is clearly nonsense - it will take nothing like that. I would expect a report when we get to Florence in the summer, but I am not sure whether it will be the definitive report, and neither is anybody else. Once the report has been produced, I am sure that it will be discussed by ECOFIN and the European Council. It may be placed on the European Council's agenda, but that has not yet been decided.

Sir Teddy Taylor (Southend, East) In view of the substantial misery and unemployment created already by European fixed exchange rates, is the Prime Minister aware that people with all kinds of views of EMU will enthusiastically welcome his statement that, in the event of the "Euro" being established by a small number of countries, there is no way that sterling will have a fixed relationship with it? Am I correct in my interpretation and, if so, does the Prime Minister accept that that will be very widely welcomed, not only in the Conservative party?

The Prime Minister Yes, my hon. Friend sets out the position entirely accurately. It is as he says.

Mr. Tony Banks (Newham, North-West) May I say to the Prime Minister that, personally; I very much welcome the concept of a single currency, although certain safeguards are necessary, including making unemployment levels part of the convergence criteria?

On a more practical matter, was the story in the Sunday newspapers - that the Queen's head is too large for the "Euro" coin - true? If that is so, does the Prime Minister intend to negotiate the size of the coin, or does he have more drastic measures in mind?

The Prime Minister On the hon. Gentleman's first argument about unemployment levels, I simply have to say to him that, if he were to make unemployment levels part of the convergence criteria, there would be no single currency in his political lifetime, however long that is likely to be.

Ms Clare Short (Birmingham, Ladywood) It depends what the banding is.

The Prime Minister The hon. Lady says, "It depends what it is." She probably believes that the 13 per cent. of France is a good convergence level. I am not sure that that is what her hon. Friend had in mind. Perhaps that is another difference between Labour Front and Back-Bench Members; I cannot imagine. We seem to be uncovering so many differences today that it is difficult to determine. Let us hope that we can go on and find some more.

Sir Peter Hordern (Horsham) As very few countries will be able to qualify for the single currency, will my right hon. Friend say what the position of those countries will be when they find that their economies are subject to intense competition from the countries that do not form part of the single currency? Will he give the House an assurance that, in that event, there can be no suggestion of any reprisals being taken by members of the single currency against countries outside it?

The Prime Minister My right hon. Friend puts his finger on precisely one of the matters that I have been raising with our colleagues at the European Council. It is precisely for that reason that some of the countries that anticipate that they will be in a single currency have asked for an exchange rate mechanism outside the single currency, to prevent the flexibility with which countries usually deal with economic difficulties. The danger of that, apart from the inherent difficulties that have been demonstrated several times in the past six or seven years, is that it would lead to very high structural levels of unemployment in some of the weaker-performing countries in the southern part of Europe.

That is precisely the matter that the hon. Member for Newham, North-West (Mr. Banks) brought to the forefront of my mind a moment or so ago, when he suggested that unemployment levels should be convergent. If that were the case, many of the southern countries of Europe would never, on that basis, be likely to meet the criteria for gaining admission to a single currency. That might mean that a European Union - although I believe that it will become more variable in the application of its policies to different members, and I believe that that is desirable - would for the first time find a fundamental variation in policy on one of the very basics of the whole basis of the European Union, that is, the currency question.

Those are questions of immense importance. There is, as yet, no credible answer to the question that my right hon. Friend asks. I am asking for one.

Mr. Nigel Spearing (Newham, South) As economic and monetary union surely requires the convergence of the total economies of the member states, why is it that only certain indices in the public sector are included? Why not also include comparable indices in the balancing private sector?

Surely economic and monetary union also requires the establishment of a centralised, absolute monarchy of bankers, who are separate from national Governments and from the institutions of the Community. However, surely one of the principles of European Union is to defend the western view of democracy, which is voting into power assemblies that, in turn, control government? Is not that an anomaly, and will the Prime Minister tell us whether the European Council has explained that anomaly? If it has not, will he do so now?

The Prime Minister I have some sympathy with the hon. Gentleman's earlier comments about convergence, although he is plainly wrong when he refers to convergence as only affecting matters in the public sector. One of the most important convergents is a high degree of price stability. Price stability, which has clear implications for what is happening elsewhere in the economy, not only is a matter for the public sector, but goes right across the economy as a whole. The hon. Gentleman is wrong on that point and I think that his subsequent points were addressed and determined many years ago.

Mr. Bernard Jenkin (Colchester, North) May I congratulate my right hon. Friend on his description of the other member states, which he said were rushing like lemmings over a cliff towards currency union? While 150 million people may be inside the currency union, is it not a fact that 5.5 billion people remain outside it? Is it not a perfectly viable option for this country to choose to opt out of monetary union and model ourselves on the thousands of economies round the world - large and small - which have independent currencies?

The Prime Minister That is certainly an option. From the moment when I negotiated the opt-out at Maastricht, it has always been possible that this country might decide to take the decision, in its own interests, not to be a part of a larger currency union. There is no doubt that we could continue without entering into a currency union. We would have to decide whether the balance of advantage for the Government, the City, the economy and our future trading relationships rested with our being in or being out. That is precisely the substantive point. Of course we could be out and there is no doubt that we could stay out. We shall have to weigh the balance of advantage when the time comes.

My hon. Friend is correct in his earlier point: more citizens of Europe will be outside the single currency at the outset, and for some years afterwards, than inside it.

Mr. Donald Anderson (Swansea, East) Will the Prime Minister confirm that it was the common understanding of our partners at Madrid that no substantive decisions would be made on the IGC until after the conclusion of the election in this country? Does that not mean that, increasingly, this Administration will be seen by our partners as a lame duck Administration, which is bad for Britain?

The Prime Minister The hon. Gentleman builds his question upon a false premise, as there was no such agreement at Majorca or at Madrid. When we begin the intergovernmental conference, which will be launched in Turin on 29 March, I hope that we shall begin to take decisions as we move through the year. Decisions will not all be held to the end of the year. We may complete the intergovernmental conference within a year, or it may take longer. If we complete it within a year, the whole matter may be determined within the lifetime of this Parliament. That is the decision that I have reached and, unless the hon. Gentleman was serving biscuits somewhere, he is in no position to shake his head.

Sir Archibald Hamilton (Epsom and Ewell) Does my right hon. Friend agree that much of the drive in Europe has come from Germany, which has a lot to do with the fact that Chancellor Kohl is ashamed of Germany's past and frightened for its future? Does my right hon. Friend also agree that the democratic institutions in Europe are woefully inadequate? If we drive towards political union without proper democratic representation at the centre, it will lead to the emergence of fascist and ultra-nationalist parties, which will want to withdraw from Europe and break up the European Union. That would deny Chancellor Kohl the goal that he is seeking and, for many hon. Members, would lead to a very unsatisfactory outcome.

The Prime Minister The democratic institutions of Europe are bound to be considered at the intergovernmental conference. That is true of both the present powers and nature of the European Commission and the other institutional questions, which will be considered expressly during the forthcoming intergovernmental conference. We must examine those issues for another reason, apart from those set out by my right hon. Friend. As the European Union enlarges - as I profoundly hope that it will - I believe that it will provide an historic opportunity for this generation of politicians to change the face of Europe in a thoroughly beneficial way. In those circumstances, many of the present institutions of the European Union will prove inadequate to deal with the enlarged number.

Several hon. Members rose -

Madam Speaker Thank you, Prime Minister. We must now move on to the second statement. I regret that so many hon. Members are disappointed, but I have kept the Prime Minister at the Dispatch Box for more than an hour.