Gordon Brown speech to Royal Institute of International Affairs, 17 Jul 1997

http://www.hm-treasury.gov.uk/speech-chex-170797.htm

We need an informed national debate about the economic issues facing Britain in Europe. And today I want to present the case for Britain taking a leading role in Europe and to argue for policies that will enhance Britain's economic interests.

There are three future roles possible for Britain in Europe:

• first, out - Britain leaving the European Union - this is the position of some Eurosceptics, and which I reject.
• second, in but on the sidelines - following European policy instead of forming it- the position of the previous government.
• third, in - and leading Europe

And I believe that the case for being in and playing our full part in Europe reflects our history and the reality of our position in the new world. For as I will suggest, Britain has been and will remain a European power; our distinctive British qualities have much to offer Europe in our national interest and in Europe's interests; and we have a concrete, practical British agenda to do so.

Our support for enlargement, for reform of the common agricultural policy and the structural funds, for a new approach to the environment, for greater openness in Europe and for making European institutions more responsive to the people of Europe, is well known. But I want today to put British proposals for economic reform at the centre of the European agenda. And by economic reform, the Government means: new policies for opening up competition, and completing the single market; a new agenda for employment and employability in an economy of flexible markets new policies for competitiveness; and reforms in the community's use of its finances.

By leading Europe in this direction we move beyond the old choices between a federal versus non federal Europe, and between a social market and a free market Europe, or old style regulation versus crude deregulation. We reject both the federal way forward and the regulatory way ahead. And in promoting this third way of economic reform I believe that we improve all our prospects for growth, jobs and prosperity in the long term.

Global economy

Both Britain and Europe must set aside their old preoccupations and face up to the challenge of the new global economy, the increasingly world-wide competition for goods, services and capital, and the ever faster waves of technological change.

Nations will rise and fall depending on their ability to adapt. And the countries that succeed in the new economy will be those that equip themselves to succeed and are flexible, adaptable and competitive.

Today too few of the new global opportunities are coming to Europe. Too few of Europe's companies are leading in the global market place and too few companies or people are properly equipped to meet the global challenge.

So the new agenda for Britain in Europe is clear: Europe should become more competitive and more productive, and can only do so by economic reform. Britain must now lead Europe in this new direction.

Reassessment of Britain's role in Europe

To lead in Europe, we must put aside the soul-searching that has been so much a part of Britain's post-war history. This soul searching has, in my view, been most pronounced in the 1990s.

For over 250 years Britain has been a leading world power. In the post war years as Empire has evolved into Commonwealth, we have had to find a new role in the world from which to protect and to promote our national interests, and which is in keeping with our traditions. British people looked to the Commonwealth and to our special relationship with America as possible alternatives to our future in Europe. Even when the Empire had gone, we saw ourselves , with America, as partners in fighting the cold war.

When the Berlin wall fell in 1989 and began the collapse of Eastern European communism and ended the cold war, reappraisal became both inevitable and urgent. It is this profound change in our international position, rather than simply the details of the Maastricht Treaty, that has sparked off calls to reassess our whole relationship with Europe. And it is solving the problem of our post-imperial and post-cold war role that is the real challenge for Britain as we look towards the 21st century.

Some now argue that to be pro British we have to be anti European. They now argue against any real involvement in Europe. It starts with claims about our national psyche - that Britain does best when we stand alone. It often continues with assertions about Britain's past - that Britain has done best when we are detached free of long-term continental attachments. And it often ends with a wholesale rewriting of history to suggest that joining Europe was one of many wrong turnings, that Britain's traditional way of life and national identity are in danger of being submerged, and that Britain s future lies apart from Europe.

Of course, Britain's relationship with Europe has neither been exclusive nor unchanging. But any study of the history of Britain in Europe shows we have always taken a pragmatic rather than dogmatic view of the best relationship with Europe.

From the dynastic struggles of the late mediaeval and Tudor era, to the 20th century, we have not only played a central role in Europe, but we have sought a stable balance of power in Europe to counteract any one nation's ascendancy.

When a new world role came in seventeenth and eighteenth century - as maritime power became imperial power - this did not replace our European role, but was added to it. The Dominions then Commonwealth Office was added to the Foreign Office; indeed in the mid nineteenth Century Palmerston was preoccupied, not with India but with Europe.

The strategy was that to benefit most from Empire we needed to ensure a proper balance of power in Europe. So Britain was European for correct pragmatic reasons. We sought a balance of power that brought stability. In the 19th century this was formalised as a balance of power thesis. Hence Palmerston said we had no eternal allies, no perpetual enemies. Our aim was always to moderate extremes in the interests of stability.

As the experience of the first half of this century showed - in 2 world wars - Britain did not and would not relinquish our role in Europe or abdicate responsibility for the progress of the continent. Europe, by virtue of history as well as geography, is where we are.

And, while in the 19th century our national interest was best served by a policy of imperial expansion free of entanglements in Europe, in the century to come Britain will do best if it takes leadership in Europe. So we should give short shrift to the view that being British means we must be anti-European.

Some say we should now return to being merely part of a free trade area. The idea that Europe's future lay in no more than a free trade area was the British illusion of the 1950s. When other European countries saw the future of Europe as a customs union, we argued that it lay in a free trade area and were found to be wrong. And when they moved from customs union to a broader common market and then to European Union we argued it would not work.

Now even, when the single market is giving us new advantages - not just free trade, but across the board free movement of capital and labour, and a common competition policy - some argue again for a free trade area.

It was Mrs Thatcher who signed the Single European Act, so our economy could benefit by moving far beyond the free trade area. She accepted the biggest extension of qualified majority voting ever seen to make it possible.

This put us under pressure to be more competitive. Now, ten years later, leaving the single market would remove the very pressures that help us create more jobs and benefit our industry. That is why I believe the vast majority of British companies and financial leaders would agree that continued EU membership is essential if we are to open Europe's markets.

So we cannot and should not give up the benefits of the single market and we should not resist the institutional arrangements that are necessary to make it work, and the policies for cohesion that make it acceptable.

In addition to internal free trade, a common external trade policy helps us argue with clout in world trade negotiations. A common competition policy is designed to make sure all member states compete on an equal basis. The free movement of goods and services across borders boosts prosperity. And the free movement of capital allows funds for investment to flow to best effect.

Back in the early 1980s. Then it was suggested by the CBI that a policy of disengagement put 2.5 million jobs at risk. That was when 44 per cent of our exports went to EU members. Now it is 58 per cent of our trade, and, by the same logic, nearer 3.5 million jobs depend on the single market.

The alternative approach - being the Hong Kong of Europe - puts all this at risk. Disadvantaged in a trading system which is not perfectly multilateral, we risk being locked in protracted negotiations about trade barriers and standards with our main competitors. We risk being on the wrong side of protectionism and we lose the influence to argue for competition and employment-friendly standards of regulation within the trade area where you have most trade. It is the empty chair policy taken to its worst extreme.

The idea that we could become a Hong Kong of Europe as a trading post or as a tax haven servicing major trading blocs - the idea of the UK as a greater Guernsey - only needs a minute's consideration to be rejected. Our future does not lie in being a satellite economy, in services as well as in manufacturing, Britain's future cannot lie in low wage competition with Malaysia, Thailand and China.

So leaving, or to be outside Europe's mainstream, would alter Britain's standing in the world significantly. It would horrify the business community who would fear it would lead to job losses, and a shrinkage of inward investment. Britain, which has been a European first rank power for several centuries, often holding the balance of power within Europe, would become a spectator in Europe's future development.

Of course the nation state is and will remain the focus of our British identity and our loyalty. It is entirely right that the test of whether we want to be part of any future European venture is whether it is good for Britain's national interest. The nation state will continue to represent our national interest. That is why we reject federalism. But I believe that it is through a close constructive relationship with our European partners that Britain will not only enjoy greater prosperity but continue to have influence and continue to make a positive contribution on the world stage. As I have suggested, history, geography and economic reality make Europe our natural base. Indeed we derive more influence on the world stage by being part of the EU. The more influence we have in Paris and Bonn, the more influence we have in Washington and Tokyo. Equally the less influence we have in the European capitals the less influence we have around the world.

British interests are best served by being strong in Europe, but of course Europe needs to change. We need to break down barriers to free-trade, we need to reform the common agricultural policy, we need to strengthen the European competition policy, we need to make the policy changes necessary for enlargement. And most of all we need to tackle the underlying weaknesses of our economies by a programme of economic reform.

In order to shape an agenda that is right for Britain and Europe we need to be in and leading in Europe.

So the first option-leaving or opting out - is not in Britains interests. Nor is the second option, in but on the sidelines. We would simply have to accept decisions initiated elsewhere without being able to influence them.

Britain has the qualities to lead in Europe

Being in and shaping Europe allows us to contribute what is uniquely British to the development of the European Union. I believe that British values have much to offer Europe as it develops. Our British qualities that will help Europe are our commitments to openness to trade and our outward looking and internationalist instincts and connections which stretch across the world. British qualities include also, our creativity as a nation and our adaptability; our insistence on the importance of public service and openness in the running of institutions. And other qualities we share with others in Europe are the importance we attach to hard work, self improvement through education, and fair play and opportunity for all.

These are all British qualities - qualities we call the British genius - qualities we share with other countries, qualities that I want to bring to British engagement in Europe. These are the very qualities that can help the nations of Europe go forward together into a more prosperous 21st century. So to those who say that the future means Britain submerged in Europe, I say making these British qualities count will benefit both Britain and Europe.

Britain has an agenda for Europe

Being in and leading - the right way to express British identity and interest in the modern world - means a serious agenda for reform.

We want to make Europe more open, more competitive, more flexible and adaptable, to set its sights on higher productivity, employment and growth, and to do so by moving beyond the sterile debate between regulation and deregulation with a new emphasis on skills productivity and employment opportunity.

in Britain, as in Europe, we need to look to the long-term challenges of achieving high levels of sustainable growth and more jobs in the new, competitive global markets in which we operate.

Five building blocks for long-term success

I believe there are five fundamental building blocks upon which any economic policy for the long-term must be based:

• a foundation of economic stability;
• high levels of investment;
• a strong industrial and business sector supported by strong, competitive services - including financial services;
• fair and flexible markets

All these help to create the right conditions for the fifth building block:

• more jobs and an inclusive society.

It is only through creating more jobs and tackling exclusion that economic prosperity can be enjoyed by more people.

Stability and investment

High levels of long-term investment hold the key to our future prosperity in Britain and in the rest of Europe.

But in a global marketplace, investors will always choose to invest for the long-term in a stable environment rather than an unstable one.

That is why all European countries pursue policies for low inflation and sound public finances, as the essential building block for investment, growth and jobs and why the Maastricht criteria are important.

But as well as delivering a foundation of economic stability, governments can do more to encourage investors: through supply-side measures to encourage inventiveness, and dynamism, and by ensuring that their tax systems encourage long-term investment.

Europe must tackle supply-side obstacles to investment by encouraging competition and completing the single market.

The British single market task force under David Simon will promote our positive agenda to complete the single market and create more adaptable labour markets across Europe.

The first major step forward has already been taken with presentation at the Amsterdam council of an action plan on the single market.

Britain will encourage a more imaginative approach to investment projects in Europe by taking our public/private partnership initiative to the continent.

And we will build on the recommendations of the Amsterdam Council, which urged the EIB to look at financing high-tech projects by small and medium sized enterprises, to step up and deepen its ongoing investment in large infrastructure networks and to examine extending the sectors eligible for loans to health and education.

An imaginative approach to partnerships in investment is one way forward - to encourage higher investment in areas that need it.

Business sector and financial services

Successful modern economies need strong and competitive industrial and business sectors served by an efficient, modern financial services sector.

Effective, efficient and secure financial markets are essential for achieving high levels of investment and sustained growth. They ensure the best, most competitive companies can get the funds they need to invest - to the long-term advantage of us all.

The City of London is the most international centre in the world, and many City institutions are owned and staffed by continental Europeans - 29 per cent of LIFFE members are companies from the rest of the EU.

The key is combining effective supervision with vigorous and open competition. The reforms I have announced for the British regulatory system start from that simple premise.

Britain needs to ensure that European standards for the single market are right for today's fast-moving financial markets, keeping European firms competitive while ensuring that depositors and investors are properly protected.

We need to work both to address the remaining restrictions that prevent an open market in financial services, and to improve the enforcement of existing single market rules. These were key components of the action plan agreed at Amsterdam.

Britain will take this reform agenda forward in Europe, and take it beyond Europe. We are committed to improving the openness of world trade in financial services. That is why we are leading supporters of the current world trade organisation negotiations.

Flexibility

The countries that succeed in today's rapidly changing global economy will be those that are flexible, adaptable and competitive.

So Europe needs a stronger competition policy that will tackle monopolies and cartels which hold British industry, and good companies everywhere, back. A competition policy that will check vested interests wherever they exist: for example, in energy, in agriculture, and in telecommunications.

Europe must get rid of unfair state aids which distort competition and lead to inefficient investment decisions which damage the prosperity of us all in the long-term. And Europe needs to continue to open up its markets within the EU and improve its openness to trade outside the EU. So opening up competition will be a key element of the new European agenda.

Employment

To succeed Britain and every other country in Europe also needs a skilled and adaptable workforce. This is the key to dynamism in a modern economy. Yet, across Europe 18 million people are unemployed. Over the last 10 years 6 million jobs have been created in Europe compared to 46 million in America.

Through welfare to work, through our reform of the tax and benefit system and through our efforts to improve schools and provide for life-long learning, this Government has put jobs and employability back at the heart of the economic agenda in Britain.

The "making Europe work" initiative shows our determination to make creating more jobs the first priority in Europe.

We need a new approach to employment policy:

• a more adaptable workforce;
• more skilled and better able to adapt: a flexible worker is not an unskilled worker unable to respond but a skilled worker able to adapt;
• a new employment policy in which the concept of starter jobs, transitional jobs, gains acceptance and therefore allows for greater mobility between jobs;

We need a new welfare state where attention is given to the creation of jobs, making work pay, and the skills ladder.

It is only by Europe creating more employment, extending opportunity and tackling exclusion that ordinary people will begin to appreciate the worth of our union.

In and leading means facing all challenges

Investment, stability, strong financial services, flexibility, and jobs: these are the foundations of long-term success in Europe.

We need to ensure that Europe develops in ways that will promote growth and jobs in Europe and in Britain. That is why Britain must be in Europe and leading.

In Europe and leading requires us to face every challenge head-on. There are many important questions for Europe to resolve, reform of the common agricultural policy and the structural funds; reform in the Community's use of resources; how to complete the single market; and enlargement. Enlargement will be one of the Union's biggest challenges over the next decade. As yesterday's proposals from the Commission show, there is a great deal to be done, both by the candidates themselves and the Union, if enlargement is to go ahead on a successful basis. The British Government will be playing a leading role to make sure this objective is achieved.

But none of the challenges Europe faces will influence the development of Europe so much as a single currency.

Our coming presidency of the EU will give us a key responsibility to oversee the crucial decisions on which countries will join EMU in 1999.

And whether Britain is in or out, EMU will have profound implications for British businesses and the British economy.

That is why the Prime Minister and I believe that the time has come for a serious debate about economic and monetary union. Britain's national interest demands not only an informed national debate about the pros and cons of EMU membership but a government which is willing to play its full part in Europe to promote the dynamic and adaptable Europe upon which prosperity, jobs and the success of EMU depends.

We have never hidden the fact that while nothing has been ruled out, there are formidable obstacles to the UK joining the single currency in the first wave.

But, Britain and British industry is affected in or out.

Britain is now much better placed to influence this debate in Europe, we have already shown that Britain can play a fuller role in Europe through the success of our employability initiative which was widely supported at the Amsterdam summit.

This constructive approach, encouraging an informed debate about where Britain's national interests lie.

A single European currency, with a fully developed single market, could in principle bring benefits:

• it could increase trade and competition through the elimination of exchange rate risk and through more transparent prices;
• it would reduce transaction costs, again increasing trade and investment, and benefiting everyone travelling within Europe;
• a strong single currency zone would mean lower long-term interest rates, again good for investment and so good for growth and jobs.

But the single currency will only bring these benefits in practice if there is genuine convergence among the economies that take part in EMU. So there should be no fudging of the Maastricht treaty conditions, and if there is sufficient flexibility to withstand the shocks and disturbances that are bound to occur in a single currency zone with a single short term interest rate throughout.

Further supply-side action is needed if Europe is to become sufficiently flexible to make a single currency work well.

That is why the five foundations for growth and jobs in Europe in the long-term I have outlined today - investment, strong financial services, stability and convergence flexibility, and jobs - become even more pressing and even more vital as Europe faces the challenge of a single currency.

Every country in Europe - whether they intend to join in the first wave or not - needs to ensure that EMU goes ahead on a basis and on a timetable that is sustainable and is good for prosperity, jobs and stability in Europe and in their own countries in particular.

Five British tests

But any decision about Britain joining the single currency must be determined by a hard-headed assessment of Britain's economic interests.

Any decision about British membership will be made on the basis of our five British economic tests.

Whenever a decision is considered, we will want to examine:

• first, would joining EMU create better conditions for firms making long-term decisions to invest in Britain?
• second, how would adopting the new currency affect our financial services?
• third, even if there are long-term benefits from EMU, are business cycles and economic structures compatible so that we and others in Europe could live comfortably with euro interest rates on a permanent basis?
• fourth, if problems do emerge, is there sufficient flexibility to deal with them?
• fifth, the bottom line: will joining EMU would help to promote higher growth, stability and a lasting increase in jobs?

In short, the tests represent Britain's national economic interest.

But our concern about the single currency has always been that Britain should only join if the economic conditions are right, not on the basis of a timetable that has been set politically.

When the time comes the decision will be made in the British interests to meet British needs and made the British way after a cool and hard-headed assessment of national economic interest and, if we decide to join, a referendum to consult the British people.

And as our manifesto made clear, there is a triple lock: the British opt-out, a vote of the British Parliament and a vote of the British people.

Opening up the debate

To make the right decision for Britain, we need an open an intelligent debate on the single currency in our country. Until now, the debate on our economic role in Europe, and especially EMU, has been dominated by extreme views on either side. Dogma competing to be heard above prejudice. This is not the way to protect and forward British national interests. We need a hard-headed look at our real long-term priorities.

Whether Britain is in or out, EMU will have profound implications for British business and the British economy.

Guide for business

British business will be affected by the single currency whether Britain joins the first wave or not. So businesses need to prepare for EMU, whether or not the United Kingdom joins. EMU will reshape the business landscape of Europe and require firms to make practical changes.

To help businesses, I shall be publishing next week a guide to the practical implications of EMU. This will look at practical and strategic effects on business of EMU, whether or not the UK decides to join.

I will be making it available to trade associations and the CBI, for distribution to its members, later in the summer. It will also be made available through the network of business links and regional offices run by the DTI in England, and by the Scottish, Welsh and Northern Ireland offices, and through libraries across the United Kingdom. This will complement the excellent coordinating work which the Bank of England will continue to do with the financial sector.

In addition, I shall be setting up an advisory group to bring together business representatives to talk with the Government about the practical implications of the single currency. It will allow a two-way exchange of information - so we can tell businesses what is happening and they can tell us how they would like particular practical issues to be resolved. My overriding aim is to help British businesses make the most of opportunities in Europe, many of which will depend on being ready for the single currency whether or not the UK joins.

Further details of both these initiatives will be announced next week.

The CBI has held a series of road shows to help businesses up and down the country to gain a clear understanding of the practicalities.

The CBI are doing good work on the economics of EMU and implications for business. I welcome the lead they are setting to business and I look forward to the CBI's forthcoming survey of business views.

Earlier this year David Currie produced a very balanced and thorough survey of the economic arguments for and against a single currency.

To help launch a more constructive and informed debate on the single currency, David Currie has produced a summary of his survey which the Treasury is publishing today. I would recommend it to others. It will help promote a better informed and more reasoned debate on EMU.

I hope that, by encouraging debate, this will help to ensure that when it comes to Europe in general, and the single currency in particular, the right issues are discussed and the right measures are taken in Britain and rest of Europe.

This Government will meet business demands for more practical information about the implications of EMU and the effects on Britain, in or out, business has been waiting for 10 years for a Government prepared to do this.

Conclusion

Today the Government is throwing open the EMU debate. We are also showing where economic reform is essential in Europe. We want to hear from all those who share our common agenda of job creation and shared prosperity for Britain and for Europe. The Government has now taken its place at the centre of that debate, both in Britain and in Europe.