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European Affairs

I note the hon. Gentleman’s comment from a sedentary position. Nevertheless, the economy has done well in recent years, and we must give credit to the Chancellor for presiding over that success. His greatest success, however, is that he and the Treasury kept us out of the eurozone—a splendid decision that I fully support. In doing so, he has saved the British economy an enormous amount of difficulty—[Interruption.] Well, it is at least possible that he may soon be the Prime Minister, and I hope that he can continue with his splendid views on such matters in that new office. Those who want to join the euro do not appreciate the importance in managing an economy of having control of the value of one’s currency relative to other currencies, and of having control over interest rates. If macro-economic policy cannot be controlled at member state level, inevitably, states will be tied to a policy that is not necessarily in their own interests. We have seen that inside the eurozone already. Some countries joined the euro at a parity that was too high for their economy, and some joined at a low parity, which has been advantageous. Ireland and Spain have benefited tremendously from that as they were forced to reduce their interest rates. According to studies of the appropriate interest rates in countries given the state of their economies, the Spanish and Irish interest rates should be higher and the German interest rates much lower. It is no surprise that demand is constantly depressed in the German economy, as Germany cannot reduce its interest rates to stimulate demand. It does not do too badly in terms of trade but, internally, it is constantly in near recession as it cannot reduce interest rates and therefore raise domestic demand. Fortunately, we have careful control of our interest rates, which we adjust monthly when necessary. We might argue about whether they should go up or down, but at least we can adjust them according to our own economy and our own needs. If we chose to do so, we could also take steps to adjust our exchange rate in relation to the currencies of our trading partners, such as the dollar or the euro. Every major economy ought to be able to do that, and if they cannot they will get into deep trouble at some time or other. The best example of that is Argentina. It tied the peso to the dollar and made it completely exchangeable, and the middle class sold all their pesos and bought dollars, which almost destroyed its internal economy. After 10 years of a nightmare, it broke away from the dollar, devalued and started to rebuild its economy. Fortunately, it produces splendid wine, of which it now sells a lot, which is helping its economy grow again. For 10 years, however, the madness of tying a weak currency to a strong one almost destroyed what used to be the strongest economy in south America. We do not want to go down that route. Any country that chooses to bury its currency in that way would make a big mistake. I would draw a distinction between a stable exchange rate system like the one that we had after the war and a single currency. With a stable exchange rate system, in extremis a country can change the value of its currency relative to others. We have done that a couple of times in our history, and it has had a tremendously beneficial effect on our economy. At present, of course, the euro is suffering greatly from the fact that the dollar is being devalued, and I expect it to have yet more problems because of the inability of individual member states to adjust their own currencies relative to the dollar. It is too rigid; too inflexible.