Maastricht: Smith calls for EC action to cut interest rates: Hurd defends 'period of pause' on treaty Bill as former prime minister takes her campaign to the Upper House

JOHN SMITH, the shadow Chancellor, last night urged EC finance ministers to develop a co-ordinated strategy to lower interest rates and possibly realign currency values.

Winding up for Labour in a debate on Britain's presidency of the European Community, Mr Smith said the Government ought to promote EC-wide measures to stimulate investment, enhance training and increase employment opportunities.

'It is worth considering whether the highly unusual circumstances of German unification and the impact which the restrictive monetary policy persued by Germany has on the prospects of growth for the whole Community do not justify a concerted strategy to achieve lower interest rates which could include some realignment of currencies.' The mark could be revalued upwards and there was also a case for the Germans dealing with the problems of unification through higher taxes rather than a tight monetary policy, Mr Smith suggested.

Earlier, his front-bench colleague Gerald Kaufman, Labour's foreign affairs spokesman, accused the Prime Minister of chanting the 'litany of subsidiarity' without having any idea of what it meant, as the device by which the Government has tried to sell the Maastricht treaty came under attack from both sides of the Commons.

Opening the debate, Douglas Hurd, the Foreign Secretary, underlined John Major's belief that nothing would allay the fears of those questioning the Community more than the successful application of the concept of subsidiarity or 'minimum interference' to both future Brussels proposals and existing legislation.

The Maastricht treaty had helped clarify the boundaries of EC competence and checked its growth, he said. Because of the Danish referendum, there was now 'a period of pause' and the Government would not be able to judge until the autumn when it would be right to ask the Commons to proceed with the European Communities (Amendment) Bill needed to ratify the treaty.

But, as Baroness Thatcher of Kesteven was making her maiden speech in the House of Lords, Mr Hurd repeated his and Mr Major's continued support for the Treaty he said they had negotiated 'in good faith'.

He said: 'I am clear myself that our efforts to achieve the Community we want need to build on ratification of the treaty rather than on its destruction.'

Mr Hurd said that even before the treaty was ratified the principle of subsidiarity could be put into practice. 'If it works as we intend, the effect of this principle will be felt, not in . . . not in academic or legal argument, but in its practical application by the EC institutions day by day as decisions are proposed and taken.'

Intervening, Sir Peter Tapsell, Conservative MP for East Lindsey, said the move by EC finance ministers for a minimum 15 per cent VAT rate was 'driving a coach and horses through the principle of subsidiarity'.

Mr Kaufman said Monday's decision of finance ministers to accept the Community as 'arbiter' of VAT levels was an interesting example of the Government's view of subsidiarity. Norman Lamont could have vetoed the move, he said, provoking a response from the Chancellor that no decision had been made and he had opposed the proposition.

'We are actually under . . . the Treaty of Rome committed to the harmonisation of indirect taxes in so far as it is necessary for the internal market. That is something to which Mr Kaufman's party and mine are committed, whether he knows it or not, as I suspect he does not,' Mr Lamont added.

Sir Teddy Taylor, leader of the Conservative European Reform Group, maintained that during discussion on the Single European Act (SEA), MPs were told this was an issue of 'no importance whatsoever because Britain took the view that harmonisation was unnecessary for the completion of the single market'.

Elaborating later as he wound up the debate, Mr Lamont said he remained highly sceptical whether a minimum rate of VAT was necessary for the single market but he had to take account of what other countries thought. He had accepted a compromise proposal for a binding 15 per cent minimum rate lasting four years. 'Other member states, particularly those with large land boundaries, have a real concern about the danger to their revenues of cross-border shopping . . . They fear indirect tax rates will be forced down across Europe, jeopardising their fiscal positions and forcing up taxes.'

Mr Kaufman, in what he told MPs would be his last Commons speech as Labour's foreign affairs spokesman, said uncertainty over the treaty in the wake of the Danish referendum was 'an insurmountable obstacle' to the British presidency, yet the referendum has not been mentioned in the Lisbon communique or Mr Major's report on the summit. 'The European summit and the UK prime minister might regard the Danish referendum as something nasty on the pavement that it is best to walk round in a gingerly fashion, but walk round it as they may, there it still lies.'

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