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Speech by the Rt Hon Michael Portillo - 14 Jan 1998

Part 2

The spread of democracy - and of security

The great victory in Europe at the end of the Second World War was the restoration of democracy in Germany and Italy, and the liberation of those countries that had been conquered by the axis powers. Subsequently Spain, Portugal and Greece rejoined the family of democratic nations. My father fought for democracy in Spain and was a refugee from tyranny for twenty years. To see democracy restored there brought my family great Joy. Following the fall of the Iron Curtain, most of Eastern Europe and even Russia have become young democracies, to the joy of millions who had suffered there. Democracy-is precious to everyone, but its value is most appreciated by those who know what it is to be without it.

The European Union, along with NATO and other European institutions. has played an important part in the extension of democracy through Europe. Their member states have provided a shining example of both freedom and material success, and' Western institutions have supplied the template of democratic values to be reproduced by the new democracies if they are to aspire to join them as new members. Europe is more secure from conflict within the continent now than ever before, because there have never been so many democracies as now, and it is inconceivable that democracies would go to war with one another.

Viewed like that, democracy acquires a special value. It is not merely, as Churchill said, the worst system except for all the rest, it is the form of government that best assures peace. If we do not have security, we cannot hope to achieve anything decent in life, because we have seen repeatedly in Europe that without it we risk descending into absolute barbarity. Democracy provides the best guarantee of security. Without democracy, for all its alleged deficiencies, the abyss would yawn before us.

European integration is not the means to achieve the security of our continent. It is the wrong route. Integration is being designed in a way that sharply reduces democratic control. If we shoe horn the nations of Europe into an artificial union, we will not abolish nationalism, indeed we risk stirring it up. The danger is that we make people feel that their national interests will be overlooked, and that they cannot assert them through the ballot. That risks exactly what the architects of the new Europe say that they wish to avoid: destabilising Europe, creating tensions and releasing resentments that damage the present good relations between European nations.

What democracy is

Let us consider what democracy is and how it works. The origins of the word are illuminating: demos meaning the people or commons of an ancient Greek state and hence the populace, and crazy meaning rule or power. The earliest Greek democracy depended on a very small populace, those of a city, those that could be expected to gather together in one place. Their commonality was evident. In the modem world it is more difficult to be precise about what constitutes a people. It is obviously a matter of great controversy and can be subject to change. Most nation states have a common language, but not all. Many nation states have a principal nationality or ethnic group, but not all. Most nation states are geographically homogeneous, but not all. The United States of America would not score very high on any of those criteria, and yet it is undoubtedly a nation state. Its people are explicitly bound together by a clearly articulated sense of national purpose and by a set of shared values, by a vision of t hemselves and by a notion of their place in the world. All of that provides them with the things in common that make them a people. Much the same could be said of most of the nation states of Europe, though admittedly some to a greater and others to a lesser extent.

For democracy to work, people have to have more than just a vote. They need to feel a part of the institutions to which they elect people. They need to feel properly represented in those bodies. They need to believe that their vote can change things.

That can give rise to problems within nation states. It seems that a majority of Scottish people do not now feel confident on those points with regard to the parliament at Westminster. Evidently they do not feel properly represented there, sensing that Scotland has particular interests that may tend to be overlooked in London, experiencing frustration when at general elections the United Kingdom produces a different sort of government from that which Scotland alone would have selected.

Whether that leads in due course to a break-up of the United Kingdom remains to be seen, and that is not within the scope of this lecture. The point is that recent events in Scotland give us an indication of a mood, also to be found well beyond Scotland, about representative government. Such government must be seen to be sensitive and responsive to the way in which people perceive themselves and the sense of commonality which they feel.

The Scottish example is interesting because there is no ethnic or linguistic difference between the Scots and English. England, Scotland and Wales are, taken together, geographically homogeneous and distinct. We three nations share many common values and sense of national identity, and yet the Scots are unhappy about certain things done in their name and decided at Westminster. People in democracies have to feel that the critical decisions that affect their daily lives are taken in a forum within which they see themselves as properly represented. The Basques, Catalonians, Bretons, Bavarians and other groups in Europe feel that too.

The important conclusion for the purposes of this lecture is that we will be storing up the causes of future resentment and unrest if policy which affects people's lives and livelihoods is made by bodies which are thought to be too distant, or made by people who are not democratically accountable at all. The sort of political decisions about which people rightly feel very strongly are those that affect the level of interest rates, taxes and unemployment.

The single currency

That brings us to the single currency. Most of the remainder of this lecture is concerned with the political consequences of introducing a single currency. The economic arguments against the scheme were made brilliantly in the speech that William Hague gave to the CBI, and I concur completely. 1 have a few comments on the economic consequences, but 1 cannot improve on what he said.

The proposal to institute a single currency in Europe involves a bigger step towards centralised decision-making than any that has been taken before. It seems difficult for many people in Britain to grasp that the motivation is political, not economic. As Dr Helmut Hesse, a member of the directorate of the Bundesbank, has said, monetary union is to be seen 'as the last step in a process of integration that began only a few years after the Second World War in order to bring peace and prosperity to Europe'. And Dr Hesse sees it in those clear terms even though as a banker you might expect him rather to highlight the economic significance of the change.

The responsibility for monetary policy will pass from the governments of the member states, or from their central banks, to the European Union central bank. Member states will be compelled also to transfer their foreign reserves from their national central banks to the European central bank. They will be required to limit their borrowing to maintain convergence. The effect of the first is to make it extremely difficult for any member state to run a deficit, and the effect of the second is to provide for sanctions against it should it none the less succeed in doing so. It does not take much imagination to realise that a constraint on the level of borrowing in practice translates into a severe curtailment of the freedom to decide either the level of public spending or the rate of taxation.

The Chancellor of the Exchequer, Gordon Brown, has claimed that there is 'no question of giving up our ability to make decisions on tax and spending.' 1 do not know whether that owes more to naiveti or to dishonesty. 1 have respect for the Chairman of the Bundesbank, Hans Tietmeyer, who hides nothing when he says: 'a European currency will lead to member states 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 policy.'

The consequences have been accurately represented by Chancellor Kohl, when he said plainly: 'We want the political unification of Europe. If there is no monetary union, then there cannot be political union, and vice-versa.

Indeed, there is no currency in the world that is not controlled by a nation state, and no country of significant size that does not control its own currency.

But, in contrast to Chancellor Kohl, other advocates of the single currency often play down the significance of its implications. For example, they argue that there is not much difference between giving responsibility for the level of interest rates to a national central bank or passing it to a European institution. There is a huge difference. A national central bank should be responsible to the national parliament or to the government. Its role and scope are embedded within a democratic constitution. It should be set clear objectives and be held accountable for its performance. Failures can be punished by dismissal of the governor or board. The European central bank will not be responsible to any democratic body, and the single currency itself is claimed to be irreversible.

Decisions about interest rates in effect become decisions about rates of inflation and unemployment; the most sensitive of all policy matters. If people feel that in elections they are unable to give their view of economic management through their vote, or change the people who have made the policy, they will nightly feel that their democracy no longer counts for much. What will be the point of voting for political parties if they are powerless to change policy? Electors will feel resentful and cheated.

When people feel like that, they become vulnerable to extremist influences'. something which we should all wish at all costs to avoid. Where democracy is working, intolerance and political extremism do not attract widespread support amongst the population. Nasty minorities remain merely that, because the majority retains its confidence in the democratic system. The population believes that grievances can be remedied, or at least that those responsible for things that they do not Ilk can be despatched at the polls. Once large numbers of people cease to have faith in the system, extremism can take hold, including extremist nationalism.

The scope for autonomy

Enthusiasts for the currency also contend that arguments against transferring control of the currency are based on an out-of-date view of national sovereignty, since these days the scope for independent action by each country is severely constrained by economic events elsewhere. Of course we are affected by events outside our control, but considerable scope for independent action remains. The Bundesbank evidently feels that it has considerable autonomy despite the impact of global forces. In Britain's case, the point is most easily demonstrated by contrasting our experience inside the ERM (which made it impossible for us to reduce our interest rates below 10 per cent, and indeed on the last day of membership we proposed to raise them to 15 per cent), with our experience subsequently. when we were able to cut them to about five per cent. There are degrees of freedom, and the fact that we are not totally independent of outside influences is no argument for throwing away the considerable amount of scope for action that we still possess. More importantly, our right to make choices for ourselves should not be given up on such spurious grounds.

Following the ignominy of Britain's exit from the ERM, the British people were free to vote against the Conservatives who had taken them into it, causing the loss of many homes, businesses and jobs. If we were members of a single currency and the key decisions were taken by the European central bank, voters would no longer be able to vote out the people who made harmful economic decisions. What is more, at least in the case of the ERM it was possible, however painfully, for Britain to leave and thus to reverse policy. There is, we are told, no exit from the single currency.

For the synopsis and the first part of this speech, please see Synopsis and Part 1. The remainder of this speech is on Part 3

Last update: 25 March 1999

© Copyright Anthony Cowgill and Andrew Cowgill, 1999

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