Hague Speech

SPEECH BY THE RT HON WILLIAM HAGUE MP
TO THE SECOND CONGRESS FOR DEMOCRACY, 9 JULY 1999

"I am delighted to be here today and to take part in your second Congress for Democracy. The success of the first Congress and the impressive turn-out for this Congress is a testament to the hard work and commitment of the Congress. They deserve our admiration and our thanks.

"For this unique event brings together many different people from many different organisations and even from different parties. We may not agree on everything, and we may profoundly disagree on some things. But all of us share a passionate commitment to the democratic freedoms of our country and all of us fear that joining a single currency could undermine those freedoms.

"Events have moved on since your first Congress at the end of last year. The euro has now been introduced in much of Europe, and we can see whether or not it is the strong and stable currency which its supporters claimed it would be. The position of the British Government has changed too. Tony Blair and Gordon Brown have gone from being committed in principle to abolishing the pound to actually spending tens of millions of pounds of taxpayer's money on a National Handover Plan and urging businesses to do the same. But perhaps the most significant change has been the European elections.

Thanks to the Conservative Party, the British people have also had their first chance to express their opinion at the ballot box. I say 'thanks to the Conservative Party' because if Labour and Liberal politicians had had their way then the European Elections would have had nothing to do with European issues or the single currency.

"Labour's tactic was to pretend the European elections were not actually taking place, but the only person they managed to fool was their own campaign co-ordinator, Margaret Beckett, who directed operations from her battle-caravan in France. The Liberals tried another tactic and talked about anything and everything that had nothing to do with Europe. They were so successful that they lost in every single one of their English Westminster seats.

"We made sure that the European Elections were about Europe. And the British people made sure that they sent a clear and unmistakable message to the Government that they want to be in Europe not run by Europe and that they want to keep the pound.

"After such a crushing defeat - Labour's lowest share of the vote since 1983 and the greatest swing to an Opposition since 1918 - one would have thought that the Prime Minister would have the humility to listen to the British people. Not a bit of it!

"The Government has arrogantly refused to drop its commitment to abolish the pound in principle; arrogantly refused to ditch its dogmatic timetable of holding a referendum early in the next Parliament; and arrogantly refused to abandon the multi-million pound National Handover Plan even though they clearly have no democratic mandate for it.

"The only thing that has changed since the European Elections is that Tony Blair is now too scared to argue the case for the euro himself.

"Take his decision to support the Britain in Europe campaign. They are quite explicit that: 'Britain in Europe is the campaign for Britain to join the single currency'. The people taking part are committed to the early abolition of the pound. I believe this campaign is out-of-step with the wishes of the British people, but at least they get up and say what they believe.

"Everyone that is except Tony Blair. He does not like to talk about his plans to join the euro. He pretends that his decision to support Britain in Europe has got nothing to do with Euro. How absurd.

"The Britain in Europe campaign has travelled a long distance and waited a long time for the Prime Minister to join them. They hope the Wizard of Oz will give them courage and heart and brain. But on arrival they pull back the curtain to find a dithering little man with a big media machine.

"However, whether the Prime Minister likes it or not, the battle for the pound has begun in earnest.

"The battle for the pound is a battle for the economic prosperity of the British people and a battle for the independence of the British nation. Although there are many shades of opinion on the single currency, in the end the country faces a clear choice between two broad positions.

"First, there are those politicians who want to abolish the pound, either straight away or as soon as they believe they can persuade the British people. This is the position of Britain in Europe and the position of the Government. As Gordon Brown said at the CBI Annual Dinner in May: 'we are committed in principle to economic and monetary union … and we have committed our country to full preparations that will allow us to make a decision early in the next Parliament'.

"In case there was any doubt, the Prime Minister confirmed nothing has changed when he said to me at Prime Minister's Questions two weeks ago: 'yes it does remain Government policy - absolutely'. So that is one simple broad position: abolish the pound.

"Alternatively there is the broad position held by the people here today, the position held by the Conservative Party and held by the great majority of the British people. That position is simple too: we want to keep the pound.

"I freely admit that we come at that position from different angles. Some are already prepared to rule out the single currency forever. Others see monetary union as solely a practical issue, and rule out joining until they have seen the euro work in good times and bad. Yet all of us believe, and my Party believes, that there are great economic and constitutional risks attached to the euro, and at the next election we will say clearly that we do not wish to join the euro. All of us hold this simple position together: we want to keep the pound.

"If we want to keep the pound, then we are going to have to fight for it. We cannot rely on sentiment and the good wishes of the British people. For our political opponents are urging us all to change our cash registers, change our computers and change our accounting systems so that in the end the people of this country are fooled into believing that it is only a small step to change the currency and that they have no choice.

"We must not let them succeed. We must show that Britain does have a choice. We must show that we do not have to join the euro. We must show that the fifth largest economy in the world can make a success of its own currency if it wishes to do so.

"Of course, that means setting out clearly the economic and constitutional risks of joining the single currency. I have done that on numerous occasions, at the CBI, in France, in Hungary, and throughout the recent European Election campaign. And I know that many here today have devoted enormous amounts of time and energy to developing the argument against British membership of the euro.

"Thanks to your efforts, the argument is now reasonably familiar. To summarise: we are on a different economic cycle to the continent; even if we managed to converge, sustained convergence seems unlikely because of structural differences in the British economy; joining the euro could make us more vulnerable when there are unforeseen economic shocks like another oil crisis and vulnerable too to the explosion of the timebomb of unfunded pension liabilities in other European countries. Finally, handing over control of our currency could lead to us handing over control of our taxes and spending, which would be a wholly unacceptable loss of democratic accountability and national independence.

"As you can see, the case against joining the euro is pretty strong and no one has yet answered it.

"But I believe that setting out the case against the euro is not by itself enough. We also have to put the case for the pound. They are not just two sides of the same coin. The reasons why the euro may not be right for Britain are not necessarily the same as the reasons why it could be a great advantage for Britain to keep its own currency in the age of the euro.

"The argument for the pound is remarkably undeveloped. That is why I have established a Commission of leading businessmen and economists under Sir John Nott to "consider the positive case for the United Kingdom retaining its own independent currency in the new political and economic environment created by the launch of the euro". I know that the Nott Commission hopes to produce its Report in the autumn.

"I do not want in any way to pre-empt or second-guess that Report, but I do think the time has come to start sketching out the various constitutional and economic components that together form the case for keeping the pound.

"One, and perhaps most obviously, keeping the pound means we can run the British economy in the interests of British businesses and British jobs.

"Monetary sovereignty, like any other kind of sovereignty, is not the ability to do whatever you want; but it is the ability to make your own choices. With our own currency, interest rates can be set specifically for our economic conditions, to reflect the supply and demand for credit in this country. That is a huge advantage for any country, but particularly in Britain where the large number of home owners with mortgages makes our economy particularly sensitive to changes in interest rates.

"Having the freedom to adjust Britain's interest rates relative to the rest of the world can help us offset temporary economic imbalances in a reasonably benign way. Depriving ourselves of that policy tool would force us to rely on drastic and destabilising adjustments to budgetary policy. The alternatives are inflation or unemployment.

"Two, keeping the pound means enjoying all the advantages of exchange rate flexibility not just against the dollar and the yen, but also against the euro itself.

"Flexible exchange rates are, of course, the flip side of being able to set one's own interest rates. They go together in helping to smooth out the peaks and the troughs of the economic cycle.

"The Treasury itself concedes in its study about the euro that "the loss of domestic monetary policy and lack of exchange rate freedom could make the UK cycle more volatile".

"By keeping the pound and allowing it to float against other currencies, the British economy would retain an important safety valve. A fall in the value of sterling can help recovery in times of slow growth. Equally, a rise in the value of sterling - painful though it is to exporters - can play a part in preventing overheating and inflation.

"We saw the dangers of not having a free-floating currency when we were members of the ERM. Interest rates remained too high for too long, and millions of people in this country paid the price through lost jobs, repossessed homes and bankrupt businesses. Fixed exchange rates can mean bigger booms and deeper busts.

"Three, keeping the pound can actually lead to greater exchange rate stability.

"The irony is that by imposing a false stability with one group of countries, fixed exchange rates can undermine natural stability with other countries. Flexibility is the friend of natural stability.

"One of the arguments used most frequently by those who want to abolish the pound is that the euro would eliminate the exposure of companies to changes in the exchange rate.

"But look at the evidence of recent years: from 1993 to 1999 the pound's value against the German mark was considerably more volatile than its value against the dollar, and the same is true if you look at the pound against the euro and the dollar over the last six months.

"Tying our currency to the eurozone economies might make our relationship with the dollar and other world currencies much more unstable - which would be bad news for the British economy since 57 per cent of all our exports are not in euros. So keeping the pound could give British exporters in the future the security of much greater stability.

"Four, keeping the pound could mean lower taxes and more jobs for Britain.

"There is no doubt that being outside the eurozone would give us greater ability to resist European tax harmonisation and the import of high continental social costs and expensive labour market regulations, provided we have the political will.

"The President of the Bundesbank, Hans Tietmeyer, says that the euro 'will lead to member nations transferring their sovereignty over financial and wage policy as well as in monetary affairs. It is an illusion to think that states can hold on to their autonomy over taxation policies'.

"If what Tietmeyer and most European politicians say is true, then the consequences for taxes and employment in Britain from joining the euro could be very serious indeed. Tim Congdon's recent study shows that our taxes could rise by as much as a third over the next 15 years or so, with all that would mean for people's freedom, prosperity and jobs. The last thing Britain needs is convergence with the Continental model of high taxation and high unemployment.

"By keeping the pound, however, we would have the power to set our own tax levels. That is, of course, no guarantee of low taxes - as anyone who is suffering under this Government's stealth tax increases can tell you. But it does give you the freedom to choose the low tax and high employment path.

"Five, this means that keeping the pound could also allow us to remain an attractive place for overseas investment in the future.

"Again, this sits oddly with the scare stories that foreign firms would leave Britain if we do not join the single currency.

"Yet despite all that Labour is already doing to undermine our competitiveness, for the moment Britain, keeping the pound, still retains huge advantages. Figures released by the European Commission last week shows that Britain is already receiving more investment from outside Europe than all the eurozone countries put together. In 1998 that investment totalled £32 billion.

"These figures do not surprise me. I know from my own experience of negotiating huge multi-million pound foreign investment deals as Welsh Secretary in the last Government that American, Korean and Japanese companies come to Britain because we are members of the European Union, but also because at the same time we have lower taxes and more flexible employment laws. By keeping the pound we have the freedom to maintain those advantages and to go on attracting the lion's share of inward investment into Europe

"Six, keeping the pound could give the City of London a significant advantage over rival financial centres in Europe like Frankfurt. The City is already thriving outside the eurozone. There are more banks now located in London than in any other city in the world and more corporate headquarters are here than in anywhere else in Europe.

"What is more, we have shown that you do not have to be in the euro to trade in the euro. The overnight euro-market here in London regularly clears 40 billion euros. Four fifths of all euro short term interest rate contracts are traded right here on LIFFE. Forty per cent of London Stock Exchange business is in the stocks of businesses in the euro-area.

"Until now, the debate has centred on whether or not London would lose out to Frankfurt if we stay out of the euro. The new debate emerging is whether the City might actually gain from keeping our own currency and how we can build on the huge advantages we already have.

"By keeping the pound, the City would continue to be open to overseas business, continue to attract highly skilled people and continue to avoid being subjected to a wider regulatory regime that is in conflict with the City's interests or for which the City is not a high priority. "In other words, by keeping the pound the City would continue to enjoy the advantages which has made it the pre-eminent financial centre in Europe.

"That might not be the case if we join the eurozone and link our economy to economies with higher taxes, less labour market flexibility and more government interference. Just ask any City personnel manager coming to terms with the impact of the Working Time Directive. The withholding tax could be the shape of things to come if we join the euro.

"The City is a success because it has set its own rules and managed its markets in it own way in order to respond to the needs of the market. By keeping our own currency, the City would remain free to serve its clients, rather than facing the danger of serving merely the ambitions of bureaucrats and politicians.

"As David Lascelles of the Centre for Financial Innovation, a think-tank sponsored by 40 of the world's top financial institutions, put it recently: 'the City has a glittering future outside EMU because it would be free to build on the same foundations that have made it so uniquely successful up to now'.

"Seven, keeping the pound could mean that Britain is actually more influential in the world than if we join the single currency.

"As Sir John Coles, former Head of the Diplomatic Service said a fortnight ago 'Real influence in the world comes from the quality of your assets, the political will to use them and the skills you bring to bear. We can produce all these and go on using them while still retaining sterling'.
"The mistake of enthusiasts for the single currency is to believe that power and size are the same thing. They are not the same thing.

"The power of example does not depend on size. Britain owes much of its influence in Europe and the world to the power of its example as a low tax, free enterprise economy. Those who want Britain to sign up to a single currency always say that it will increase our influence. But if it undermines our free economy it will undermine our biggest source of influence, the power of example.

"And the power of will does not depend on size either. The will to defend democracy and freedom all over the world depends to a great extent on the tradition and culture of a nation. It can disappear altogether if the nation disappears.

"Those who believe that power equals size do not appear to understand the laws of international arithmetic. There is no point adding forces if you subtract from the will to use them when necessary. There is no point multiplying size if you divide nations.

"If one believes that the future of the world is all about large regional currencies, great power blocs and centralised monetary systems then I suppose joining the euro makes sense.

"If instead one believes, as I do, that the future lies much more in a global network of financial and cultural and linguistic connections, with London as one of its hubs and the United Kingdom as an outstanding contributor, then it makes every sense to keep your own currency.

"For we are in the age of the small unit, the individual on the internet, the company doing business by e-commerce, the small and flexible nation state seizing world-wide opportunities.

"This is the age for policies that encourage greater tax competition not less tax competition, more flexibility and risk taking by business in the American mould rather than the high taxes and regulation of the Rhineland model, more confidence and innovation in international affairs, a truly inter-national rather than supra-national approach to global issues and a stronger not weaker assertion of national identity. In short, this is the age where it could make a lot of sense to keep your own currency.

"Eight and finally, keeping the pound could mean giving the people of this country a say over their own future. This event is called the Congress for Democracy for a good reason.

"There is a real risk that by handing over control of our currency we are handing over control of our taxes and spending. A real risk that we would be handing over control over powers that lie at the very heart of what it means to be a democracy, as the American Founding Fathers understood.

"Some people argue that national political institutions do not matter any more; that we are more affected by what happens on the trading floors of Goldman Sachs or the company boardroom of Shell than they are by what happens in the House of Commons or around the Cabinet table. They argue that in the age of globalisation you have to create ever bigger power blocs.

"I profoundly disagree. Political institutions matter; national identity matters; and democratic accountability matters. Indeed, these are ways in which in a bewildering world individual citizens can have a say in the decisions that affect them and keep control of their lives.

"In this speech I have talked about the battle for the pound that lies ahead and I have sketched out for the first time the case for keeping the pound. I have spoken of the advantages of keeping control of monetary policy, of flexible exchange rates and the stability they lead too, of how keeping the pound could attract inward investment and strengthen the position of the City, and of how having our own currency could increase our influence in the world rather than diminish it.

"These things are all important to our prosperity and well-being as a country. But in the end, for me, the most important argument of all is that keeping the pound could be essential to keeping our national democratic accountability, and the battle for the pound, a battle for democracy itself."