ANTI-MAASTRICHT MAN

Tribune, 6 December 1991

Labour's leading Euro-maverick is the veteran Peter Shore. Paul Anderson asks him what makes him tick

No one could accuse Peter Shore of inconsistency on the European Community. He was one of the most prominent Labour opponents of British entry into the Common Market in the early seventies and one of the most senior cabinet figures to call for a "No" vote in the 1975 referendum on EC membership.

He has stuck to his guns ever since, consistently railing against what he sees as the absurdities of the Common Agricultural Policy, the wastefulness of the Brussels bureaucracy and, most crucially, the threat to British sovereignty from creeping European union.

In recent months, he has been by far the most outspoken Labour critic of the direction the EC has taken in the run-up to next week's Maastricht summit, which – John Major willing – will result in agreement among the EC's 12 member states on economic and monetary union (EMU) and Euro­pean political union (EPU).

Shore's willingness to ally with right-wing nationalist Tory anti-federalists has earned him fierce criticism from his colleagues on the Labour benches. But, although he shares many of the dissident Tories' worries, the focus of his concern is different. Shore is an old-fashioned expansionist

Keynesian who sees the nation-state as the main instrument of economic policy. Far from singing the praises of "sound money", he wants to devalue the pound.

"What is proposed in the eco­nomic and monetary union side of the treaty is the renunciation of the remaining strategic controls over the national economy without establishing any alternative con­trols at the European level," he says. "The danger to the next Labour government is acute. The disastrous decision to join the ex­change rate mechanism of the Eu­ropean monetary system makes us a prisoner of the Deutschmark. We're in the middle of a great re­cession and we know that one of the most urgent steps needed is a radical cut in the interest rate. But we can't do it because it will break us out of the ERM bands.

"I see no possible way that the British economy can converge with the strong German economy without changes in the present burden­some interest rate and without an adaptation of the exchange rate."

So why not go for a one-off de­valuation, followed by renegotia­tion of sterling's ERM band before accepting EMU, the policy advo­cated by Ken Livingstone and oth­er pro-European devaluationists?

"That would be quite unrealis­tic," says Shore. "It would be possi­ble to stay within the ERM if it were possible to move the currency in a way that restored competitive­ness. There's nothing wrong with a system of 'fixed but changeable' ex­change rates. But you must be able to change when a fixed rate be­comes no longer sustainable. The real danger is that we shall not be able to move the exchange rate at all because we're already in the first stage of economic and mone­tary union. The aim of virtually ev­eryone in it is to go straight to­wards absolutely rigid exchange rates followed by a single currency and a central bank."

The official Labour position, of course, is that devaluation is not on the agenda. The Shadow Chan­cellor, John Smith, and his team have concentrated on the need to make the European central bank politically accountable, suggesting that the Council of Economic and Finance Ministers, Ecofin, should be given an enhanced role in over­seeing its workings.

Shore is scathing about this po­sition: "There's no way that a Eu­ropean central bank could be made accountable to European finance Ministers collectively," he says. The Dutch draft of the Maastricht treaty, the basis for the current ne­gotiations, "contains provisions specifically designed to maintain the inviolability of the bank from political interests".

"This is what it says about inde­pendence in Article 107: 'Neither the European central bank nor the national central banks shall seek or take instructions from Commu­nity institutions or bodies from any Government of a member state or other body.' The rest of the clause is very significant: 'The Community institutions' – that includes Ecofin – 'and bodies and the governments of the member states undertake not to seek to in­fluence the members of the deci­sion-making bodies of the Euro­pean central bank and the nation­al central banks.'

"Tough stuff, and to make dou­bly sure, the president of the Euro­pean central bank is appointed for one term only of eight years. If that doesn't secure his indepen­dence, nothing else will."

Worse, he says, the draft treaty virtually guarantees the imposi­tion of tight fiscal policies, dashing the hopes of those who would like Europe to adopt expansionary poli­cies.

"Article 105 reads: ‘The primary objective of the European system of the central bank will be to main­tain price stability.' Nothing is spelt out in the treaty about furthering other economic priorities apart from one single clause say­ing 'We shall go for growth, em­ployment and all these other good things.' It's a purely declamatory article. All the detailed clauses are about the independence of the bank and the relationship between the bank and the Council of Minis­ters or Ecofin.

"So you have to be a great opti­mist, frankly, to believe that this treaty allows for any development of the kind that's wanted. The plain truth is that only some Gov­ernments in Europe are actually in the expansionist high-employment tradition. Many of them are not. Germany is quite content with a tough deflationary bias."

"There is nothing in the draft treaty which foreshadows interventionism at the European level. At least two or three of the gov­ernments sitting round the table claim to be socialist but they have put forward no such proposal – or if they have done their voices have been so feeble that they have not been reflected in a single draft clause of the treaty."

Shore is also critical of the draft treaty proposals on excessive bud­get deficits. "Article 104b reads: 'Member states shall avoid exces­sive government deficits' – a plain, unequivocal instruction to all governments. And then an ex­cess deficit is defined. The public sector borrowing requirement must not be more than 3 per cent of gross domestic product. And government debt must not be more than 60 per cent of gross domestic product. We're caught badly on the 3 per cent rule. No Labour govern­ment can afford to have its hands tied on public expenditure and the borrowing requirement."

"We abandoned controls over trade when we went into the Euro­pean Community. More recently, we have abandoned control over capital. The Single European Act allows for the totally untrammeled movement of capital, forbids any preferential use of public purchas­ing power to assist our own nascent or troubled industries as we have done in the past, and pro­vides for any takeover bids and mergers to be decided only by the European Commission.

"All those powers of intervention have gone and we're left with just two macro-economic powers: one is to determine interest rates and exchange rates, and that goes completely if you have a single curren­cy; the second is, of course the PSBR. That is what is being hand­ed over. You tell me what a Labour government can do."

"Supposing all the arguments of the front bench are right and all we need to do is converge. How on earth do you converge? The economy is already in a state of mass unemployment, the balance of pay­ments problem is worse than it's ever been. How do you deal with that, frankly, without changing the value of the pound? Supply side measures are excellent, but they take five years before they begin to yield a dividend. And if, in the end, we've trained and educat­ed people to find jobs somewhere on the Rhine, that isn't what the British people want. Is Labour go­ing to live with more than 2 mil­lion unemployed for five years? That would show an extraordinary poverty of ambition and relaxation of the political will."

As for the notion that a Euro­pean federal interventionism might develop in the longer term, "It's wishful thinking. If you say to me 'Right, take a really long view, after 20 years of miseries inflicted on the whole of Europe, after the breakdown of the system that's now being envisaged, is it possible that something might emerge, a federal Europe government, with federal powers of intervention across the whole continent?' Well, nothing is impossible, but it's a long way off."

In any case, he says, he does not find a federal Europe particularly attractive or believe it workable. "I'm not basically wedded to the idea that good government comes on a continental scale. The United States is the only example we have of a modern continental economy but, my god, very special circum­stances enabled it to be created. People were poured into a pre-set institutional mould. There was a common language and a lot of oth­er things which have made for rea­sonably strong federal govern­ment. Try to translate that into European terms."

The British, he says, "have much more confidence in trying to decide their own fate through their own elected institutions rather than putting their faith in a Euro­pean Parliament in which we'd be one-seventh of the total and which would involve, if it were to be workable, huge transfer payments from the wealthy countries to those that are most disadvantaged."

So what should Labour be say­ing about Europe? "There's no question of withdrawal from the European Community," says Shore, nor should the EC simply be left as it is: he agrees with the front bench that the Community should be extended to eastern and northern Europe. But that is about as far as he is prepared to go in praising Labour's official line. He does not even accept that, bad as EMU and EPU might be, the alter­native of staying out would be even worse.

"We've handled it very badly tac­tically as well as strategically," he says. "For reasons that I really don't understand, we've been say­ing that we ought to immerse our­selves ever more deeply in a feder­al Europe.

"The clear message to the British people is that the Labour Party no longer believes that it can seriously solve the problems of the United Kingdom without embark­ing on the wrong and perilous path to a federal union in which all the strategic decisions affecting the welfare of the British people are taken by others and not by people who are directly elected. That is a terrible thing to have to deal with in terms of winning the battle for public opinion.

"I'm not saying that I hope there is hostility towards Europe in British public opinion. That kind of sentiment is no good at all. But there is still a very strong belief in this country that despite all our imperfections we can run our own democracy pretty well. Long may we continue to believe it."