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
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,
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
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
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
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
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
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
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
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
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
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
thought to be too distant, or made by people who are not democratically
accountable at all. The sort of political decisions about which
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
to be seen 'as the last step in a process of integration that began
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
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
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
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.
there is no monetary union, then there cannot be political union, and
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
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
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
if they are powerless to change policy? Electors will feel resentful
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
Ilk can be despatched at the polls. Once large numbers of people cease
to have faith in the system, extremism can take hold, including
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
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
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
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
speech is on Part 3