The Rt Hon. Oliver Letwin MP
Professor Patrick Minford CBE
Oliver Letwin, MP
The draft EU Constitution and Criminal Justice
I had to read this first of all in French because I couldn't get it in English - I have now read it in English and I have become more and more interested in it and it is probably the case that everyone in this room can recite it and already understands everything about what I am to say and if so please feel free at any stage to leave I don't want to bore you but I am still fascinated by what I have discovered so I thought I would share it with those of you who haven't already done so.
What is more interesting is that it is quite apparent that assuming them to be quite honest that I do that Mr Hain and the Prime Minister have not yet read these sections or have read them in some other language which they don't read or at any rate can't retain it because Mr Hain has told us that it is a tidying up exercise and nothing much is happening as you will all judge in a moment that is clearly not the case so they are under a misapprehension. I think it is quite important that the public should know that there is a misapprehension here.
Having explained the nature of that misapprehension I want to go on and ask a question it has only recently occurred to me to ask which I think is interesting which is why what is here is here which I think is of significance.
Let me come first of all to what is there. It is really rather useful for those and I suspect that there are many in this room who have followed the evolution of these various treaties over many years. It has always been a matter of some intellectual pleasure to see the way in which the dynamic works the way in which small treaty hooks are created apparently innocuously and great fish huge sounds are gradually hung on these hooks.
I remember a charming colleague of Norman's in the House of Lords a very eminent lady who was called upon to be a junior minister in the previous Government who heard about the idea of a Christmas tree Bill which you hung things and she gave a speech about the excellence of Christmas tree bills well this is a Christmas tree constitution that we have here and in order to understand it one needs to know that because there is some sense or other in which it says within the precise meaning of the term absolutely nothing at all but there is another sense in which is says an enormous amount and I want to try and tease that out.
In Chapter IV Section I of the general provisions Article 3153 we have the following text in the English language "The Union will take measures to prevent and combat crime, racism and xenophobia". I take it that we are all in favour of preventing and combating crime, racism and, depending on the definition, xenophobia. And measures for coordination and cooperation between police and judicial authorities sounds like a good thing to be doing coordinating and cooperating police and judicial authorities on a voluntary an uncoordinated and uncooperative basis and other competent authorities. I have to say I have spent some time on the phrase other competent authorities and I am not quite sure what an other competent authorities is which isn't police and judicial in this sphere would be but lets leave that aside for the moment. As well as whether the mutual recognition of judgements in criminal matters a very pregnant phrase the mutual recognition of judgements in criminal matters but this is the bit that really matters and the approximation of criminal laws - the approximation of criminal laws that is the statement in the general conditions which interests me. For those who aren't I suspect there are none which fit this category in this room and for those who are not familiar with the way in which the judgements of the ECJ over a long period have used preambles it should be pointed out that statements of a general character in preambles or general provisions in treaties have persistently been used by the Court to enlarge the sphere of competence of the Union.
Then we come however to Chapter IV Section IV and this is where it begins to be much more interesting. We are told and I quote "judicial cooperation in criminal matters in the Union should be based on the principle of mutual recognition of judgements and judicial decisions and covers the preamble and shall include shall include the approximation of the laws and regulations of the Member States so we have the approximation of criminal laws in the preamble and now we are told that judicial cooperation that fine sounding innocuous item turns out to involve the approximation of the laws and regulations of the Member States reading the one with the other one must assume that it is meant that judicial cooperation should include approximation of criminal laws. It's an odd thing to say because Judges on the whole when they cooperate, cooperate in interpretating laws that already exist you would think that two Judges getting together to cooperate would be able to approximate the criminal laws if the laws pre-existed the Judges and were made by legislatures it would be difficult so presumably it is envisaged here that to the extent that Judges make law and of course to an extent they do judicial cooperation should involve efforts to approximate criminal laws. I think this is in other words a pretty clear steer towards the idea that in making judgements about particular cases in particular Member States Judges should have it in their minds to try to achieve an approximation of criminal laws between those Member States this is in other words a document that begins to put the local judiciaries in the position of working towards the approximation of the criminal laws between the States - I don't think that implication has been spelt out by Mr Hain if indeed he has remotely noticed it.
... a pretty clear steer towards the idea that in making judgements about particular cases in particular Member States Judges should have it in their minds to try to achieve an approximation of criminal laws between those Member States
I move on.
A European I quote again. A European Law or Framework Law this is the item we previously knew as a directive oh I should mention at this stage for those who haven't followed it closely which is to be passed by qualified majority voting no veto. Shall establish measures to and I choose some prevent and settle conflicts of jurisdictions between Member States a very interesting idea. In Britain there is a law that you drive on the left, in France there is a law that you drive on the right is this a conflict of jurisdiction between the Member States - I don't know, you don't know, no one will know until some Judge begins to interpret it but I can guess that the ECJ faced with such cases will take conflicts of jurisdiction to include differences, why, because they will look at the preamble and see that the approximation of criminal laws is one of the purposes of the Constitution and the purposes guide the reading of the innards of the text.
A European Law or Framework Law... passed by qualified majority voting no veto. Shall establish measures to and I choose some prevent and settle conflicts of jurisdictions between Member States a very interesting idea
Next a European Law or Framework Law is and I quote "to facilitate cooperation in criminal matters between judicial and equivalent authorities in relation to proceedings and the enforcement of decisions" so now we are to have cooperation not just in the effort to approximate the criminal laws but also in relation to proceedings that's to say to the process and in the enforcement of decisions that's to say in policing and it goes on a European Framework Law may establish minimum rules concerning admissibility of evidence, definition of the rights of individuals in criminal procedure, rights to victims and just in case anything has been left out any other specific aspects of criminal procedure which the Council has identified. So the new qualified majority voting laws are to come into effect in such a way that they achieve not just the approximation of the criminal laws in the sense of the substance but also in the sense of court procedures in the criminal courts we are to have an approximation of criminal law in respect of the rules of evidence, in respect of the definition of rights of individuals, in respect of the rights of the victims of crime and in any other aspects of the criminal law chosen by the Council.
A European Framework Law may establish minimum rules concerning admissibility of evidence, definition of the rights of individuals in criminal procedure, rights to victims and just in case anything has been left out any other specific aspects of criminal procedure which the Council has identified
And then is goes on:
A European Framework Law may establish minimum rules, incidentally I ask you to pause for a second on the concept of minimum rules it may sound like a minimal rule a small rule, an unimportant rule, it means of course a binding rule, a rule which is a minimum in the sense that you can't get out of it at least you have to do that much it is in otherwise a harmonisation principle - your law in your member state has at a minimum to conform to this framework. They establish minimum rules concerning the definition of criminal offences so we have the full court procedures now we have the definition of criminal offences and sanctions so we add to the definitions of the crimes without it. In the areas of particularly serious crime and now we sigh with relief with cross-border dimensions resulting from the a cross border offence, all after all is well is it not because in fact all that is going on here we are told or are asked to believe at this stage is that the Framework Law can settle what is a crime and what is the punishment for the crime in a cross-border offence. Alas this is in illusively protection because we are next told that the offence can be regarded as serious and as having a cross-border dimension and I quote "from a special need to combat them on a common basis so long as the Council determines that there is a special need (though not defined) to combat whatever it is that is the crime" remember that they are defining the crime but on a common basis then the crime ipso facto becomes a crime with cross-border dimension so the qualification that all of this is only to apply to crimes with a cross-border dimension is nullified within a line and a half of the time at which it is established.
The concept of minimum rules it may sound like a minimal rule a small rule, an unimportant rule, it means of course a binding rule, a rule which is a minimum in the sense that you can't get out of it at least you have to do that much it is in otherwise a harmonisation principle
The authors of the draft are not content with that level of provision they go on and I quote: "these areas of crime are terrorism, trafficking in human beings and sexual exploitation of women and children, elicit drug trafficking, elicit arms trafficking, money laundering, corruption, counterfeiting of means of payment, computer crime and organised crime. Now I don't know of any serious crime I think other than murder and rape which don't fit into those categories. Almost every serious financial crime is in someway or another a computer crime, almost every serious non financial crime that isn't a murder or a rape and many that are is a form of organised crime. Criminals you see are pretty organised beings. But, the authors of the draft don't regard that as a basis either because they go on to tell us that the Council can add and I quote "to the list". So what do we have here, we have here a draft which establishes a general principle the approximation of criminal laws. We have a draft which specifically entitles and commends the Judges in the various Member States to achieve that effect without the legislations. We have a draft which allows the central legislature in Brussels by a qualified majority voting and indeed compels the central legislature by qualified majority voting to pass new laws which achieve the general principle of approximating the criminal law by setting the procedures, defining the crimes, defining the sentences, defining the witnesses rights and the victims rights and it specifically extends that to every serious crime and in case there should be a doubt allows the list to be extended to any that haven't been mentioned. This is a perfectly clear Charter for the transfer of control over the criminal law of this and other Member States from our and their Parliaments to the Council and the European Parliament as part of the new Union under the new Constitution. This is not a tidying up exercise.
But I want, as I mentioned, to go on and ask the question that I think really isn't yet being asked. Why? Why? I have always taken lastly more charitable view of almost everything than Patrick does and he would of course say the same except that he would say that I have always been vastly more naïve than he. I have to say he has on the whole proved right. I have always assumed that in much of the development of the EU's Constitution over the period I've been concerned with which is now twenty years. At least part of the motive was genuinely the completion of the single market, I think Patrick has always regarded that as a mildly ludicrous proposition but I have always assumed it to be true. One thing we can be sure of that motivation even to the extent it existed in other respects cannot account for an effort to transfer power over the criminal laws of particular Member States to the central authorities in Brussels. I don't know anyone, not even anyone as clever as Patrick but of opposite views who could possibly argue that the single Market or Free Trade Area in someway demand that there be identical criminal laws or even similar criminal laws in the various countries. Of course if one were arguing for a Common Market in corruption, for a common market in computer crime one would wish for such approximation but I don't think it can be part of the motive of the authors of this draft to encourage a common market in those phenomena indeed it is quite clear that they quite rightly intend on the contrary to prevent such events from happening. So it isn't the motive to create a Common Market. Is there a practical deficiency are people wandering around Britain dissatisfied with our system of law and order - Yes abundantly - most people in Britain are almost completely dissatisfied with the system of law and order in this country. 72% of people in this country told the BBC recently that they couldn't remember when they last saw a Police Officer. There are many deficiencies of our law and order system as there are in many other European Member States but I have yet to meet somebody but I maybe just don't meet the right people but I have yet to meet somebody who tells me that the source of that dissatisfaction with the system of criminal justice and law and order enforcement in this country is that it is different from that in France or Belgium or The Netherlands. In fact I venture the suggestion that there are relatively few people who if we all went out into the street this evening and collected opinions would be able to tell us what the criminal systems are in any other European Member State. There is no great desire on the part of the peoples of Europe to see their criminal laws approximated one to the other so this hasn't got a single market motive and it hasn't got a democratic motive, it isn't answering a democratic desire on the part of the peoples of Europe. Has it a huge advantage in efficiency, will their be some economy of scope or scale which can be gained by the approximation of criminal laws.
Let's take corruption. Corruption is a fairly live issue as the Presidents of at least two current Member States are interested in the subject and I suppose that it could be argued that the Member States have not been efficient in pursuing corruption or that the degree of efficiency in the pursuit of corruption is uneven as between the Member States or that the degree of efficiency with which corruption would be pursued would be greater if the Member States were to act collaboratively than if they were to act singly. But I have to say that I find the argument difficult not only to believe but to believe that someone is seriously putting. Now because the pursuit of corruption in Teesside or in London is not going to be better pursued from Brussels than from London nor indeed is it assumed that there will be pursuit of corruption in Teesside or in London from Brussels. It is merely said that the laws which govern what it is to be corrupt in London should be the same as in Brussels in Rome or Frankfurt and that the process for dealing with witnesses and sentencing and so forth should be the same in one place as in the other. But if the Police Forces and the Prosecutors and the Lawyers who are dealing with corruption in the one place and the other are different ____________ but I can't ________ the fact that they would operate the same system in the other place if they were there which they aren't would make them more efficient in doing what they are doing in the place that they are doing it in and indeed to the extent that the approximation of the laws involved in changing the laws it can be anticipated that for a period at least they will be less efficient as it is more difficult to administer a law that you aren't familiar with than one that you are familiar with. So I find it so implausible as to be impossible to believe that the motive even, and we have to distinguish of course what we agree with and what we can attribute as plausible but even in the question of plausibility I find it difficult to believe that the authors of this draft had it in mind as their motive to make the system of justice more efficient. Now if they had not go it as their motive to complete the single market, if they had not got it as their motive to answer to answer to a democratic desire, if they had not got is as their motive to make the system more efficient we are running out fast of motives and I would be bereft of an explanation of the draft other than that Mr Hain was doodling in the train to Brussels and that he wrote the wrong thing by mistake and that he hasn't noticed that it is his draft that is here and that he didn't mean anything by it. Now I have to say that this is not a wholly implausible suggestion but I'll tell you why, I don't specialise in being unkind to my fiscal friends, but Mr Hain was the person whom I discovered at an early stage of my Parliamentary career had transferred by mistake control of the Brompton Cemetery in London to the Welsh Assembly. So you see that was another thing he decided was a tidying up exercise but he hadn't read the laws that he was bringing under the Welsh Assembly and transferring away from the British Government. So it is possible though I can't say anything but it is unlikely that this is a draft which he actually invented as a sort of dream he was sitting in that comfortable surrounding of the Eurostar - I think we must assume rather that this was drafted in a rather orthodox fashion by groups of southern committees so with intent. So if the three plausible motives don't exist but we assume that the group of people drafting this had a motive we would be bereft of an understanding were it not that there is a clear motive here which we can plausibly attribute. If you or I, I suspect that there will not be many people in this room in this category, were to set about trying to make of the EU a State, we would wish to attribute to it the powers which are fundamental to a State. We would want to make sure that it ran a foreign policy, we would to make sure that it ran its defence forces, we would to make sure that it ran its economy and finally of course, and perhaps most importantly of all, because it's perhaps the defining characteristic of the State we would want to make sure, would we not, that it controlled criminal justice within its own area. You cannot have a State if you have not the control which the control of the criminal justice system gives you, namely the control of the relationship that propriety of the relationship between one citizen and another, that is the defining system of the modern State. It is set-up primarily to protect one person against others - right back to Doomsday Book and beyond in Township and Borough when Maitland told us that the freedom of the British people relies on the intestacies of the Law, when Henry III set about the creation of the Common Law, when the Barons brought King John to Runnymede to force him to act in his Court and not arbitrary. Right back to the foundations of the modern State which grew in this country not elsewhere in this country what our ancestors have understood is that the foundation of statehood is the ability properly and with due process to protect one citizen against others. Everything after that is to be built on for that is the status of statehood and what this draft is doing and the only plausible motive for the people who have drafted this draft is that it should do is to lay one of the principle foundations of statehood by building into the Constitution the basis upon which progressively and not over a very great period the combined forces of the Council of the ECJ, the Legislatures and the Judiciaries of the Member States will transfer power of the criminal law from the Member States to the Central Authorities and thereby create those Central Authorities as the Primary State.
If you or I were to set about trying to make of the EU a State most importantly of all because it's perhaps the defining characteristic of the State we would want to make sure, would we not, that it controlled criminal justice within its own area. You cannot have a State if you have not the control which the control of the criminal justice system gives you, namely the control of the relationship that propriety of the relationship between one citizen and another, that is the defining system of the modern State
I'll tell you what is going on here. It is not a tidying-up exercise it's the most fundamental thing that could happen to this country and it is unspeakable that it should be alleged by a Prime Minister of this country that it is not necessary to vote about it.
Prof Patrick Minford
The economic consequences of EU membership and the EU Constitution
I want to talk about economics. Why? Because I think it is fair to say that the politics of European Union have never been particularly popular in this country, I use deliberate understatement. In fact, I think it has been a complete negative for the whole debate and that is why the European Union has always been sold in this country as an economic proposition as we saw in the recent debate. The only way you can sell this to the British people is to try and persuade them that if they don't join it they will be somehow left out and damaged economically. In fact, I think the most persuasive thing been used is the 'economic dangers of being left out' argument. I.e. there are benefits economically to going in and there are costs to staying out and therefore even though you don't like this politically very much I assure you Mr General Public, I am speaking as a major British politician, I assure you that there won't be serious political implications. 'These continentals do rather rabbit on about politics and superstates but we don't taken it very seriously. What really matters is the economics. So it is for that reason that I am going to focus purely on the economics.
I think that we in the Bruges Group have always won on politics but where we need to win as well, as the euro debate has shown, is on the economics. Because if we can show that the economics of the European Union is not what it is cracked up to be then you are bound to win on the whole issue. And maybe we will get a sane debate, as we did on the euro. Which although is still running on and on is basically one that we have actually won. The economics of going into the euro are very negative and I think we have got that point across. Of course, given that the euro was launched on the continent as a political project designed to boost the prospects of a superstate. We had already won on that and so I think the key is, boring and tedious as it often is, to focus on the economics and that's what I am going to do anyway.
What I want to argue is that the economics particularly in the light of the Convention. Now this Constitution simply embodies tendencies that have long been quite apparent to those of us that watch the EU and particularly the judgements of the European Court which have been very centralising and the general progress of the social dimension. So I think one could summarise the Constitution as epitomising socialisation and centralisation in the European Union - a project for essentially a socialist superstate.
The Constitution epitomises socialisation and centralisation in the European Union - a project for essentially a socialist superstate
I think the Constitution really summarises that, but I don't think it is anything new. It was already emerging through the actions of the European Union's various bodies. So what I want to do is go through six ways in which it is a very costly organisation for us.
First of all, it is well known that the cost of agricultural protectionism in the form of the Common Agricultural Policy. Now that is very well known and there is an estimate of it, a pretty rough estimate, I would say to the cost of the British people as 1.5% of national income. Now every time I say 1% of national income think £10 billion. So 1.5% of national income is £15 billion a year. So just to get this in perspective the NHS costs us £70 billion per year, and I am going to suggest to you that the EU costs us, if one is imaginative and takes a fairly broad view of the risks involved, costs us roughly that, in a moderately worse case scenario.
The cost [of the CAP] as 1.5% of national income ... 1.5% of national income is £15 billion a year.
The first point, is agriculture and this I think is a completely non-controversial estimate. Obviously one could add these percentages of GDP could be about by 0.5% either way, they are quite broad-brush estimates, it could be as much as 2%. It is certainly not less than 1.25% of national income. Of course it does vary with the state of the world market in agricultural products.
The way in which the Common Agricultural Policy works is that it boosts the prices paid to farmers by consumers from across Europe by about 50% above world prices and therefore since we are big nett importers of food in this country, we input far more than we export. That means that our consumers are basically paying a lot more for their imports than they need and therefore generally for their food. You would not mind too much if our consumers were paying it to our farmers. Obviously that is not the case. They are fundamentally paying it to part-time French and German farmers and quite a lot of Spanish farmers as well. That is the first one, and is pretty well know.
Our consumers are basically paying a lot more for their imports than they need and therefore generally for their food... They are fundamentally paying it to part-time French and German farmers and quite a lot of Spanish farmers as well.
The second one that is not so well known is the protectionism of manufacturing. Now again we were told that it is very important for us to be in the European Union because it would be good for our manufacturing industry. The truth of the matter is again we import more manufactures from the European Union, in particular Germany, than we export and therefore what is happening in manufacturing is very much like what is happening in food.
Manufacturing is a declining industry in the West, it's uncompetitive for obvious reasons, because we have emerging markets like China and its going. What is left is in specialised areas, high-tech areas, niche areas. And as a result because our economy is much more liberal than the continental economies we have let market forces take effect and we are now in quite good shape. As a result we have let manufacturing go where it was essentially uneconomic. That has not happened on the continent. As a result what is happening is the European Union is a devise - a customs union - for raising tariffs externally on manufactured imports, so that prices are kept up inside the European Union for manufactures. Why is this so? Because the dying manufactures on the continent demand protection. Companies like Philips. I always think of what epitomises continental manufacturing, I think Philips. Pretty lousy firm. With a lot of very old products that knows the only way to keep going is to keep on banging on the door in Brussels. With great success.
It is not just tariffs by which the European Union protects manufacturing. It is through quotas in certain areas' like textiles, but mainly through anti-dumping.
This is an interesting strategy because what you do with anti-dumping is say to an importer, 'your products are awfully cheap, you are probably selling them below cost, you are dumping them on us.' And the importer says, 'no, no, no it's not true.' 'Well' says the EU, 'prove it by raising your prices.' So the innocent importer reacts to this threat of anti-dumping. It is just as effective as imposing an anti0-dumping duty. Because they react to the threat by raising prices and so achieving the protectionist impact through the back door. This is just as protectionist as actually levying these tariffs and anti-dumping duties.
Now we are nett importers. The sort of estimate for how much this costs us, the whole Common Manufacturing Policy, costs us 0.5% of national income. And so we are up to 2% of national income as a result of the protectionism of the two areas where we are major importers.
The whole Common Manufacturing Policy costs us 0.5% of national income
Now, are their benefits to us from the market in services? Now if you listen to someone like Lord Marshall who is a very articulate supporter of European Union. He will say 'well look I know it's true we get a bad deal in agriculture and are getting a bad deal in manufacturing but what Britain is, is a service producing country. Think of my Avis or my British Airways'. He will say, 'give me access as a service provider to the single market in services across the European Union.'
Now because British service producers, we are talking; insurance companies, banking, airlines, transportation, communication, electricity production, we are talking about a lot of service industries where it is well known and there is a lot of data on this which shows that British producers are a lot more efficient than continental producers. The services environment in Europe is one of national protection.
The level of service protection in the EU in different sector is:
10% in construction
182% in transport, storage and communication
27% business and finance
24% social and personal services
In the US you have much lower figures. There is still protection in the United States but roughly you can say between half of the level of protection in the EU maybe a little less sometimes 75%. Sometimes social and personal, rather bizarrely it is slightly more. These are just guestimates but you can see here there is a very high level of protection of services and most of this protection is done nationally. So each country has its own regulations that give it an advantage in service production to its nationals. The obvious example is the Law. Where it is pretty hard for all sorts of people to practice Law if you are a foreigner in a country, but there's loads of other examples, or the airline restrictions which have been designed to favour national carriers. So you can see the sort of picture in all the immensely complex world of services, there is a lot of protection.
And what Colin Marshall would say is, 'well if we can only get the single market in services to work. Britain, which is relatively liberal, largely due to the privatisations we carried out. These were big deregulation activities which tended to mean that our service industry is highly competitive and the consumer got a good deal.
The UK is slightly lower in areas of protection than the United States. And so the argument has been in respect of Europe 'well we could do very well in services.' Now the trouble is that this argument is almost certainly wrong. And the reason is quite simple. Suppose the single market were to work in services, which it shows no signs of doing by the way, there is no real competition in the single market. For services it is just as regulated as it ever was, suppose for a moment that the single market for services works it unleashes huge competition in services across Europe. What would happen?
The answer would be that all the other European countries would have very competitive service markets just like ours. So what would happen to the Colin Marshalls of this world? He would find absolutely no profit in services from a single market. Because you can see it at once. The way you make profit as a Colin Marshall is if the other countries de-regulate but somehow maintain higher prices compared to the rest of the world and then go in as a very efficient producer and undercut them and take a lot of the market away, but still have a very profitable market. A market with fat in it. Prices above world prices.
But of course if the single market in services happens it would drive prices to competitive levels across Europe. Just as you found in the United States relative to Europe or you found in the UK and of course that makes sense doesn't it. Because if you're the European Commission you are saying 'well should we have a customs union in services which keeps up prices of services around Europe but allows Britain preferential access to those nice expensive services markets' you would say, 'no way, no way.' All that would happen then is the consumers of the European Union wouldn't benefit at all because prices would still be high and British producers of services would massively benefit.
So all we would be doing is not really doing much to the competition in Europe itself but giving an enormous hand out to British producers of services. No, that would be a crazy thing for them to do, it would be nice for us. But they are not likely to do it.
The whole point about the single market in services, if it were ever to happen, is that it gives a great benefit to consumers by dragging down prices of services across Europe and the implication of that is that are gains likely in services for Britain? No. No. Because it would be good for European consumers if the single market in services ever takes-off. But it won't benefit British consumers because we have already got a highly competitive market in services and it won't benefit British producers of services because they won't get better profits in Europe than they can get any where else in the world. Therefore, there is no benefit.
The single market in services, if it were ever to happen... won't benefit British consumers because we have already got a highly competitive market in services and it won't benefit British producers of services
The whole service argument, and if I may say it took me a long time to understand this, it's very complicated the services market because as you see there are so many different services and high levels of protection and there is so much general blarney in their literature on this. What you can say is there would be great gains for European consumers generally if there were a single market in services but there are no gains as such for a British consumer or producer.
So what we have so far in the economics of European Union is that we have a big cost because we are nett importers of agriculture and manufacturing and in the area where we are big nett exporters, mainly services, we have no prospective benefit.
Now I can quickly run over the last three areas, which are really quite alarming for us. We have just has the big debate on the euro which is the fourth area I wanted to talk about it. I think at the heart of the euro debate is the euro versus the dollar. Before 1999 it's the Deutchmark versus the dollar. The dollar has more than doubled in value against the Deutchmark or the euro between 1980 and 1985. Double. Over the following three or four years the US authorities got nervous about how high the dollar was, and they had a new Secretary of State for the Treasury in America who said to President Reagan, 'this is much too high we are getting protectionism, its effecting unemployment etc etc.' And they started to bring the dollar down. A lot of these fluctuations in the dollar versus the euro are the result of US policy, and the powerful most powerful country in the world particularly in economic terms, and so when they want the dollar up, or they don't mind it going up, - up it goes - and when they want the dollar down - down it comes. It came down 50% went up 100% and came down 50%. People get confused by those percentages. But it came back to where it started and then it wobbled around for a bit in the following 10 years and then as the euro was launched, and in the run up to the euro, the euro depreciated again. This time it only went up 40% and is now in the process of coming down again as the Americans once again get freighted by a high dollar.
So what has sterling done meanwhile? The lesson at the heart of the whole euro debate, and not much emphasised, perhaps until the last few years, is the enormous volatility of the euro against the dollar. Now what do we do trade with as a country? We trade roughly 50-50 with the dollar area and the euro area. So when we were floating, and most of the time we were, we managed to stay in the middle of the seesaw. We have managed to sit in the middle and keep relatively stable. This is the real exchange, its our competitiveness level, and it's pretty stable.
So what we have succeeded in doing by keeping in the middle of the seesaw is keeping an average reasonably competitive against the whole world. Obviously it meant that when the dollar was up we were very, very competitive against the dollar but reasonably stable against the euro and vice-versa when the thing goes into reverse. But that was really the main thing about floating. Of course when people say 'its great to join the euro because you get exchange rate stability' what they forget to tell you is that we are joining one end of the seesaw. So you may be very stable against one end of the seesaw but it completely destabilises you against the other end. And we did some calculations that showed you are worse off because you are very stable, totally stable, against the euro but are totally unstable against the dollar and if you average these two things out it makes us slightly more unstable overall. I think that in a way that is the heart of the argument because if we join the euro not only are we thoroughly destabilised against the dollar but are also of course vulnerable to the shocks of the dollar exchange rates may around hitting the eurozone damaging us because we are such big dollar exporters.
So I think that Mr Brown finally got that right. Unfortunately Mr Blair seemed to have confused him somewhat. But the big euro debate was basically won on economics because the treasury is totally against joining the euro for economic reasons, doesn't mind about the politics clearly not against it, and this is at the heart of it I believe and its at the heart of the fact that we have our own interest rate outside the eurozone and therefore can do this averaging out. So no more about the euro.
What we have succeeded in doing... is keeping an average reasonably competitive against the whole world... If we join the euro not only are we thoroughly destabilised against the dollar but are also of course vulnerable to the shocks of the dollar exchange rates may around hitting the eurozone damaging us because we are such big dollar exporters.
I just want to say one quick thing about harmonisation. Which is a big feature of the Constitution. Now the Constitution emphasises how everybody is going to have rights. In the Charter of Fundamental Rights, that is incorporated in the Constitution, is the most significant thing from an economic point of view. It basically takes us back to the 1970s in terms of rights of collective bargaining and the Unions. To me this is the most significant thing of all. There is also a whole lot of stuff on workers rights and rights to benefits and so forth. But one of the key things of the Conservative Governments of 1979 onwards did was to destroy union power as a way of holding back development in this country. And all the evidence we have shows that was the most really significant in terms of the effect on our growth and the other thing was to make benefits highly conditional on looking for a job. So you would help people that can't find a job but otherwise be tough on them. And all that is rolled back by the Convention and the Charter of Fundamental Rights.
The Charter of Fundamental Rights is the most significant thing from an economic point of view. It basically takes us back to the 1970s in terms of rights of collective bargaining and the Unions
You can think of it as harmonisation to thoroughly lousy European institutions in this respect. I did a few calculations using our model of the economy and the sort of overall sort of calculation on unemployment if you took the areas of union power, minimum wages - up to continental levels - 50% of male median wages. Union power restored to mid-1980s levels, rising social costs by 20%, these are all quite modest calculations, we estimate that it would raise unemployment by 10% - that is 3 million - and costs us 10% in output. So that's harmonisation. And last of all but not least - pensions.
It would raise unemployment by 10% - that is 3 million - and costs us 10% in output
Things are worse than in 1995 when the OECD did this. The projected deficits as a percentage of GDP, Germany 10% of GDP by 2030, Italy about the same, France a little bit less. Now if you add these deficits as a percentage of GDP, on their state pensions up for these countries, you come to 30% of GDP of an average sized country's GDP. So think of Germany, France and Italy as one country, each a single country, and you add up their 10% each that's 30% of GDP. Now if we were to pay a quarter of that, since we are about the size of them if they managed to get us in there, we will be as big as the other three. So our fair share if they have got a federal tax rate say and asked us to share fully would be about a quarter. A quarter of 30% is on the my calculations 7.5% of GDP which is just the size of the NHS, after Gordon Brown has thrown money at it.
I'm not saying this is necessarily going to happen but federal superstates have a way of burden sharing. And this is a burden we don't want to share. So let me end up by saying that we are being ripped-off something horrible. 2% of GDP up front, huge risks from harmonisation and pensions, and a major risk to the stability of our economy from the euro. All of which are part of a package deal.
What can we do about it? It seems to me there are actually a bunch of options. One is to leave and have unilateral free trade. Which is definitely the cleanest one. There are a couple of others, which have very little credibility in my eyes, but I mention them for completeness. To stay in and be aggressive and defensive of our interests, which is something we are not very good at. Another which has been mentioned in the Sun (11/06/2003) by Trevor Kavanagh - whom I have a great deal of respect for - is that we should stay in and attempt to reform the European Union in our image. Well if you believe that's possible...!
I think we have all got our views about what the feasibility of each of these is, and of course events will tell us more as the years go by. I think the one thing we can say with absolutely certainty now is what we should not do next and that is to drift along, constantly agreeing at the last minute to the latest bit of the Franco-German agenda for a socialist superstate. It's always been apparent to those of us that study the French and German economies and so on, that this is what they were going to do but it has not been made clear to the British people. So what do we do? I think the bottom line is we have to ensure that the Blair agenda is unfeasible. I think that we have to follow the example of the campaign against the euro and build a single issue campaign which we could call roughly speaking 'Campaign for No to a Socialist Superstate and Yes to a reformed EU (or leave, renegotiate, as the price of allowing the EU to progress to its treaty).' That's rather a long title for a campaign, but you get my meaning.
Summary of the Q&A session
Do you agree with Professor Milton Friedmann's prediction of the collapse of the euro in 10 - 15 years?
If a couple of major countries leave then it will.
What is the situation regarding the possibility of the UK being outside of the EU, what effect would tariff barriers and the WTO have?
It does not really matter if we were subject to EU tariffs because we would gain from not being subject to protectionism inside the customs union.
Norway and regulations: Is Britain better off out of the EU, even if we don't have free trade, because we would not be subject to EU regulations?
Yes, we don't need free trade agreements, but free trade is very good. We should not have gone in to the EU.