European Union (Approval of Treaty Amendment Decision) Bill [Lords]
(11 years, 8 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)
I beg to move, That the Bill be now read a Second time.
As the House will know, the reason for the treaty change that the Bill approves is the crisis in the eurozone. That crisis was predictable and, in fact, predicted by some present in the House. The existence of monetary union without fiscal or economic union has led to severe economic strains in a number of eurozone countries and permitted the build-up of excessive debts by some members to an unsustainable level.
I have always opposed Britain’s membership of the euro, as Opposition Members will no doubt recall, not only because of the single currency’s flawed design, but because of the limitations that it would impose on our national democracy. I think that there is now near-national consensus that we are better off with our own currency; I say “near” because the Leader of the Opposition has said that Britain could join the euro if he were Prime Minister for long enough—a pretty good reason for not allowing him to become Prime Minister at all.
None the less, there are solid majorities in every national Parliament in the eurozone that wish to retain their membership of the single currency and see it restored to stability. They have their reasons for that, and we should respect them. Obviously, it is also crucially in our interests for the eurozone crisis to be resolved. As the—
Mr Hague
It is a little early, even for my hon. Friend. In a few paragraphs, I will of course give way to him—probably more than once, I should imagine.
The Governor of the Bank of England has said that the crisis is casting a black cloud of uncertainty over our economy. Eurozone countries could take a number of measures to bring about a resolution, and the decision about which are the right ones is for them. One measure that has been decided is the European stability mechanism, a permanent financial assistance mechanism established by the eurozone for the eurozone, to help eurozone countries that get into difficulties. The amendment to article 136 of the treaty on the functioning of the European Union confirms the ability of the eurozone countries to do that. The simple purpose of the Bill is to approve that decision.
Mr Cash
I am most grateful to the Foreign Secretary. Why in his own judgment and opinion is he prepared to invoke the exemption arrangements, the effect of which is to say that the matter does not really affect United Kingdom businesses, as was set out in the explanatory notes to the European Union Act 2011? Plainly, the implosion in Europe does affect us, and this failed attempt to put a sticking plaster on an increasingly impossible situation is simply making the position worse.
Mr Hague
Clearly, the economic crisis in the eurozone—“implosion”, as my hon. Friend terms it—affects us enormously, but so do many other things in the world such as the deficit of the United States and the economic policies of China. What we are dealing with is the approval of one change to article 136—a change that concerns eurozone countries and gives certainty to the creation of a treaty purely for those countries. It has an additional benefit for the United Kingdom, to which I shall come in the course of my speech.
I do not pretend for a moment that the ratification of the decision or the establishment of the ESM alone will solve the eurozone crisis. As the present situation shows, many other things are needed for that solution. For the long term, sustainable public finances and globally competitive economies in all the eurozone’s member states are needed. Those tasks are vital not just for eurozone countries to succeed but for the United Kingdom as well, and are at the heart of this Government’s programme.
Kelvin Hopkins (Luton North) (Lab)
I thank the Foreign Secretary for giving way. He has talked about resolving the eurozone crisis, but the measure will just pour good money after bad. Will not the ultimate resolution of the eurozone crisis come only when certain countries are allowed to leave the eurozone, recreate their own currencies and expand their economies again?
Mr Hague
Different solutions can be advocated and the hon. Gentleman is advocating what he thinks would help as a solution. However, the point that he and I have to bear in mind is that those countries—their national Parliaments and democratically elected Governments—wish to stay in the eurozone. That position is different from the one that he and I have always taken on the United Kingdom, but that is their wish. Therefore in practice we are dealing with that situation. We want those countries to succeed in stabilising the eurozone.
Let us take the worst-case scenario—the hon. Gentleman’s assumption that the measure would pour good money after bad. What we are ensuring is that money from the United Kingdom taxpayer is not going after other money, good or bad, giving assistance to eurozone countries. The Bill provides solely for the parliamentary approval of an amendment to article 136 of the treaty on the functioning of the European Union, which makes it clear that the eurozone member states may, by means of a separate intergovernmental agreement, establish a financial assistance mechanism—the European stability mechanism, or ESM—without acting in contravention of their obligations as member states of the EU.
As the House will know, this is not the first time that this treaty amendment has been considered and approved by Parliament. Before the Prime Minister agreed to the treaty amendment decision in March last year, a motion in favour of the draft decision was passed by both Houses under the provisions of the previous legislation—the European Union (Amendment) Act 2008. Before our Act of last year, that was all the parliamentary scrutiny and control required for the Government to agree to a change in the EU treaties under the simplified revision procedure.
In our view, those provisions were grossly inadequate, so at that time my right hon. Friend the Minister for Europe committed us to bringing the decision before the House again under the more stringent parliamentary scrutiny of what was then the European Union Bill. Indeed, we introduced an amendment to that Bill, now section 5(6), to enable the treaty change to be subject to the Bill’s provisions once it entered into force. That Bill has become the European Union Act 2011 and any use of the simplified revision procedure now requires an Act of Parliament for ratification. That is why this Bill is being presented to the House.
Having gained the approval of Parliament in March last year, the Prime Minister formally agreed to the decision at the following European Council. The decision must now be ratified by all 27 member states before the amendment to article 136 can enter into force. Eighteen member states have now done so. The target date for entry into force, as set out in the European Council decision, is 1 January 2013.
The scrutiny process under the European Union Act 2011 began in October last year, just under two months after its relevant provisions came into force, when I laid a statement before Parliament, to which my hon. Friend the Member for Stone (Mr Cash) has referred, under the provisions of section 5 of the 2011 Act. I set out in that statement why the decision does not trigger the requirements for a referendum set down in the European Union Act 2011.
The proposed amendment to article 136 applies only to member states whose currency is the euro. Consequently, it does not transfer further competence or power to the EU from the UK. The opinion set out in the statement was open to judicial review, but in the intervening 11 months no one has sought to challenge it in the courts. To ensure timely ratification of the decision, which is strongly in our country’s interests for reasons that I will now come to, the Bill was introduced in the Lords, where it was passed without amendment. Should the Commons now grant its approval, the Government intend to ratify the treaty amendment by the end of this year.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
Is this really such a big change in the scrutiny of how these things are done? Since we joined the European Union, has there ever been an amendment to the European treaty that did not require an Act of Parliament?
Mark Reckless (Rochester and Strood) (Con)
Surely my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) was saying that throughout the history of the European Union every treaty amendment has required an Act of this House, so what we are doing today is no different from what has been done in the past.
Mr Hague
Yes, but in the past we did not always have the simplified revision procedure and the provisions of the Lisbon treaty that most Government Members—or rather most of us in the Conservative part of the coalition—opposed when the legislation was passing through this House. Even without this change in scrutiny, there would now be far greater scope for treaty changes without the passage of an Act of Parliament.
Mr MacShane
The Foreign Secretary’s two colleagues have made important points. This treaty requires ratification by the Parliaments of the eurozone and it is going through that parliamentary ratification. The notion that it could simply have been nodded through as a statutory instrument is silly. It is quite an important treaty, and this Parliament is right to be adopting it tonight; other Parliaments are doing likewise.
Mr Hague
Yes, other Parliaments are doing that in their own various ways. My point is that the reason this requires the full examination and passing of a Bill is the passage through this House of the European Union Act 2011, which the right hon. Gentleman probably opposed if he voted on it. A much briefer procedure was required under the European Union (Amendment) Act 2008, which he supported. Parliamentary scrutiny has been enhanced by the recent change, and I am merely establishing that point. [Interruption.] Labour Members are reminding me that they did not vote against the EU Act 2011—although they were probably unable to vote for it. Having taken so many positions on the holding of a referendum, they decided not to have a position at all.
As the House will remember, the background to the ESM is that in response to the first Greek crisis, the previous Government, in their very last days, agreed to the establishment of two emergency instruments to respond to financial crises. The first is the European financial stability facility, an emergency facility established intergovernmentally by euro area member states. It has been used to provide loans to euro area member states in financial difficulty. The UK is not a member of that facility and has no exposure to financial assistance provided by it. The EFSF will operate alongside the ESM up until its wind-down by the end of June next year. The second is the European financial stabilisation mechanism, or EFSM. This allows the Council to agree by qualified majority a Commission proposal to provide assistance using money raised on the financial markets, backed by the EU budget. It has been used for assistance to Portugal and the Republic of Ireland, for which we also contributed a bilateral loan.
In the new Government, we have never thought that that was a satisfactory state of affairs. It was a questionable use of article 122 of the treaty on the functioning of the European Union. An inability to access the markets because of the unsustainability of public finances is not a natural disaster, and it is hard to argue that it is an exceptional occurrence beyond a country’s control, and those were meant to be the criteria for the use of article 122. When qualified majority voting was introduced into the provision under the Nice treaty, we warned the then Government of the risk, and that warning was dismissed. The amendment to article 136 gave us the opportunity to deal with the problem, and we took that opportunity. Britain is not in the euro, we are not going to join the euro, and we should have no liability for bailing out eurozone countries.
On coming to office, therefore, the Government found established a mechanism which enabled the Council of Ministers to decide by qualified majority voting to allow the European Commission to raise funds on the capital markets guaranteed by the headroom in the EU budget—about €60 billion—for loans to eurozone countries. We must grant that thus far this has not cost the British taxpayer a penny. The money is borrowed from the markets by the European Commission against the headroom in the EU budget. It must be granted that these are only contingent liabilities that would be called on only if Portugal or the Republic of Ireland defaulted on their loan obligations. However, it is still not right that a country outside the euro should be obliged to assume contingent liabilities for matters that are clearly the responsibility of countries that are in the euro. That is why this Government were determined to bring the situation to an end, and we have succeeded in our goal. That is a good example of this Government repairing the damage caused by the last one.
Mr David Nuttall (Bury North) (Con)
I am extremely grateful to my right hon. Friend for giving way, because we have come to the crux of the matter. Will he please confirm that if the Bill goes through and reaches the statute book, this country will have no further liability whatsoever under the European financial stabilisation mechanism and will not be called on to contribute any further?
Mr Hague
That is what has been agreed. I am going to examine, in what my hon. Friend or other hon. Members might find painstaking detail—[Interruption.] Actually, I can see that some of my hon. Friends will not find it painstaking. I will go through this in detail to give full, frank and maximum assurance to my hon. Friend and others.
Not only does the new mechanism, the ESM, which is limited to eurozone countries, supersede the EFSM; crucially, the decision that the Bill approves and which is being ratified by all other EU countries reflects in its recitals, or preamble, an agreement that article 122
“will no longer be needed for such purposes”,
The Heads of State or Government have therefore agreed that it should not be used for such purposes. Therefore, when this decision is ratified, our liability for future euro area financial assistance programmes under the EU budget will be removed. That is a great gain for British taxpayers and, because it fetters the use of article 122, a shift of a power from the European Union to the United Kingdom.
Mr Hague
No, I am going to explain quite a bit of this, and then I will give way to my hon. Friend again.
The House will want to know how our contingent liability under the EFSM is being brought to an end and—this was the question asked by my hon. Friend the Member for Bury North (Mr Nuttall)—how sure a protection we have against any future use. First, when eurozone member states agreed to bring forward the introduction of the ESM at the ECOFIN meeting on 23 January this year, the Chancellor won agreement from his fellow Finance Ministers that the EFSM would not make any new commitment as soon as the ESM comes into force, which we expect to happen this autumn when the German ratification process is complete. That is an important political agreement. Secondly, there is the decision that we are approving in the Bill and which all our European partners have agreed to ratify by the end of this year. The fourth recital to the decision reflects the agreement reached in the European Council to close off the future use of the EFSM or any such mechanism under paragraph (2) of article 122. As I have said, we expect every country to have ratified the decision by the end of this year.
Those present who are cynical about the ways of the European Union—and there are such people here; in many respects I share a lot of their cynicism—may ask what would happen if, notwithstanding the decision, the Commission made a proposal to reactivate the EFSM or something like it. First, that would be a breach of a political agreement unanimously reached in the European Council, recorded in the Council conclusions, and reflected in the preamble to a decision unanimously agreed at the European Council and soon, we expect, to be ratified unanimously by all EU countries under their respective constitutional requirements. If, despite all that—this is an extreme hypothesis—the Commission made such a proposal and somehow received a qualified majority, the British Government would of course challenge any such measure before the European Court of Justice, citing the agreement of all EU member states in the European Council and the fourth recital to the decision in support of the argument that any such measure would be in breach of the clear intention of all EU member states and that article 122 would no longer be needed and should not be used for this purpose. Those would be very strong arguments indeed. That is the protection that we have secured against any future obligation to participate in bail-outs, and it is a good one.
Mark Reckless
Is there not a fundamental inconsistency in the Foreign Secretary’s position? On the one hand, he says that ratifying the European Council decision of 25 March 2011, which amends article 136, will affect only member states in the eurozone and not the UK, and that he therefore does not need a referendum. He then goes on to say, “Ah, look at recital (4) within the decision. That will mean that the mechanism cannot be used to impose costs on the United Kingdom in future.” That is surely a fundamental inconsistency.
Mr Hague
No, it is not. The decision relates to a treaty being created for the eurozone countries. In conjunction with that and at the same time, as is reflected in the fourth recital, the Prime Minister secured agreement at the December 2010 European Council that article 122 would not be used. That is absolutely clear. If my hon. Friend wants to argue that we should have a referendum on our not being liable for eurozone bail-outs any more, he can do so, but I will not agree. That is not the kind of thing that we had in mind when we passed the European Union Act 2011; nor would it do any good to the good name of referendums.
Mr Jenkin
My right hon. Friend is in something of a Catch-22, which he is skilfully trying to obscure from us. If the article basis for the May 2010 mechanism was illegal or questionable, why do we need this legislation to get out of it and why did we not challenge it? If it was not illegal, why is it necessary to amend the treaty to legalise a different mechanism? The very fact that the European Commission and the other member states have agreed to the treaty amendment, which effectively does away with the no bail-out clause that was so central to the passage of the Maastricht treaty, means that they admit implicitly that the original mechanism had an illegal treaty base.
Mr Hague
I can go over that again. It is that article 122 will no longer be used for eurozone bail-outs. It may be my hon. Friend who faces a Catch-22 here, because he just cannot bear the idea that a Bill that says “European something” on it might be good for the country. This Bill is good for the country. Even those of us, like him and me, who are very sceptical about many aspects of the European Union have to admit that securing an agreement that means that we are no longer liable for eurozone bail-outs and that does not harm the country in any other way is, in the words of our noble Friend Lord Flight in the other place, a “no-brainer” to support. That is why I hope that the House will support the Bill.
Mr Hague
No, I will not give way any further. [Interruption.] The right hon. Member for Rotherham (Mr MacShane) will never see me go native on European subjects.
The ESM is being set up under an intergovernmental treaty that was signed on 2 February by the eurozone member states. That treaty is now being ratified by those 17 member states. It will come into force as soon as euro area member states representing 90% of the capital commitments to the fund have ratified the intergovernmental treaty.
The treaty amendment that Parliament is being asked to approve in the Bill does not establish the ESM. Our clear view—this is part of the answer to my hon. Friend the Member for Harwich and North Essex (Mr Jenkin)—is that the treaty amendment is not legally required to set up the ESM. Eurozone member states, in particular Germany, want the legal certainty that the amendment provides, partly because of article 125, which is the no bail-out provision that he talked about. The UK, of course, will not ratify the ESM treaty because it has not signed up to the intergovernmental agreement, is not part of the eurozone and is not going to be part of the eurozone. The intensification of the crisis led eurozone member states to agree to bring forward the introduction of the ESM to this year. Their position has not changed the timing of the ratification.
Members may also be aware that a legal challenge to the validity of the decision amending article 136 is currently being considered by the European Court of Justice. The Irish Supreme Court is seeking a ruling on whether it is valid, whether the ESM treaty is compatible with EU law, and whether eurozone member states can establish the ESM before the article 136 decision enters into force.
We are wholly satisfied that the decision is valid from a legal perspective, but it is absolutely right that the Irish Supreme Court seeks the ruling of the European Court of Justice, particularly because Ireland is a member of the eurozone and a signatory to the ESM treaty. We do not expect the ECJ to find against the decision in any way, but should it find the decision invalid or the ESM incompatible with EU law, there would need to be a new ratification process. A failure to approve the decision would, naturally, have an unfortunate effect on our trading partners in the eurozone by undermining certainty about the legal validity of their firewall, and it would leave unratified the decision, the importance of whose recitals to us I have explained. That would be unfortunate from our point of view.
Geoffrey Clifton-Brown (The Cotswolds) (Con)
Will my right hon. Friend the Foreign Secretary give way?
Mr Hague
No, I am concluding my speech.
The UK will no longer be exposed to any future programmes of financial assistance for the eurozone through the EU budget. The Bill will help our friends and neighbours in the eurozone, whom we wish to see prosper, in their search for financial stability in their currency area. This House has already agreed, under previous provisions, to the Prime Minister signing the treaty amendment. I hope that its merits mean that it will be approved again under the new and vastly more rigorous provisions that we have put in place. I commend the Second Reading of the Bill to the House.
Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)
As the Foreign Secretary has set out, the context for this debate is the continuing crisis in the eurozone: the troika has yet to decide whether Greece has met its bail-out commitments; Spain appears to be on the brink of making a formal request for assistance; forecasters predict that the Netherlands, Slovakia, Slovenia and Belgium will all miss the European Union deficit target next year; and there are serious doubts about whether Ireland and Portugal will be able to comply fully, with certainty, with the existing terms of their EU bail-out programmes. The need for decisive action by the eurozone is beyond doubt, and we believe that it is overwhelmingly in the British national interest that such action is taken.
Today’s debate, as we have already heard, relates specifically to the content of the European Union (Approval of Treaty Amendment Decision) Bill. As the Foreign Secretary has set out, member states agreed, following a meeting of the European Council in March 2011, to the amendment of article 136 of the treaty on the functioning of the European Union, specifically to enable the creation of a permanent eurozone-only bail-out fund, the European stability mechanism.
We should recognise this as a major institutional development for the EU. It sets up an International Monetary Fund-type body for the eurozone on a permanent basis, replacing the separate intergovernmental European financial stability facility, which was agreed when the Greek emergency first broke. As this is a treaty within the EU-27 framework, any amendments or changes must be approved by the established procedures for treaty ratification in each and every member state, even though the ESM will apply only to those member states that are members of the euro. It is, therefore, unlike the fiscal compact, which, despite the Prime Minister’s so-called veto last December, Britain was unable to block, and over which this Parliament has had no say.
Indeed, the fiscal compact negotiated outside the EU framework by 25 members of the EU, without Britain or the Czech Republic in the room, establishes a completely new principle in European treaty ratification. It will enter into force when it is ratified by 12 of the 17 eurozone member states—a principle that, in our view, could work to Britain’s disadvantage in other contexts, and which is a direct consequence of not being in the room when such decisions are reached. The Bill, however, will lead to enabling legislation giving parliamentary approval to the European Council decision to establish a permanent eurozone-only bail-out fund.
Let me make clear the Labour party’s position on the Bill. We are legislating today not on the substance of the ESM, but only on the enabling treaty change to allow it to be set up. Labour recognises the need for that enabling measure, so we will support the Bill. A more stable eurozone is important for the UK’s long-term growth and prosperity. Indeed, as the eurozone accounts for more than 40% of our external trade, prospects for business investment and export growth depend on it.
Mr Cash
On the claimed virtues of the single market, does the shadow Foreign Secretary accept that we have in fact run up the most monumental deficit with the other 26 member states of the EU, to an extent that it is now damaging our economy and thereby preventing this country from achieving growth?
Mr Alexander
I can assure the hon. Gentleman that if I were to draw up a list of what is damaging the economy of the United Kingdom at the moment, many items would stand above a recognition that the single market has provided British businesses with European markets constituting 500 million consumers. It would be perverse logic to suggest, at a time when we are struggling to secure growth in the British economy, that it would be to the advantage of British exporters or British businesses more generally to shrink the UK’s home single market from 500 million consumers to just 60 million.
A mechanism with sufficient firepower to restructure and recapitalise weak banks, and to bail out Governments who can temporarily no longer access the bond markets to finance their borrowing and debt, is a necessary part of bringing stability back to the eurozone, and a permanent bail-out fund is one key part of making that happen. However, the burden of responsibility for delivering that growth and prosperity must be taken by eurozone members themselves. In the establishment of the ESM, the European Council is making it clear that ultimate responsibility for ensuring the overall stability of the euro area rests with eurozone members. It will be a fund by the eurozone for the eurozone. That is clearly in the UK’s national interest, and we will not vote against a Bill that will allow the ESM to be established.
Mr Alexander
The hon. Gentleman is right to recognise the timing of that in the final days of our time in office, but the other significant event that was happening then was the real prospect of the eurozone collapsing completely. He might welcome that, but the Opposition certainly would not. That was why the Chancellor of the Exchequer of the outgoing Government made genuine efforts to consult the potential incoming Finance Minister, who is now the Chancellor of the Exchequer. That matter is discussed in the explanatory memorandum on European Union legislation dated 15 July, in which the then Economic Secretary to the Treasury, now the Transport Secretary, stated:
“The Government regrets that the Scrutiny Committees did not have time to consider this document before it was agreed at Council. It should be noted that whilst agreement on behalf of the UK was given by the previous administration, cross-party consensus had been gained.”
If the hon. Gentleman is concerned that the outgoing Chancellor reached the wrong decision, he might like to put that point directly to the current Chancellor.
Let me be absolutely clear that our support for the Bill does not equate to unqualified confidence in the ESM or in the current package of eurozone policies of which it forms but one part. We have concerns about both the restrictive terms of the fiscal compact that eurozone members have negotiated to establish the ESM and the manner in which it is currently envisaged that the ESM will be operationalised. The Opposition are certainly under no illusion that the ESM in itself will resolve the eurozone crisis. Much more will be required to do so than is included in this two-clause enabling Bill. The establishment of the ESM represents but one part of a broader package of measures and reforms that members of the euro must adopt to deliver stability successfully and bring greater prosperity to the eurozone in future.
Mr MacShane
I am following my right hon. Friend’s speech with considerable interest and agreement, but should we not change the tone slightly? We hear, “The eurozone must adopt this”, “They’re at fault”, “The pound zone is perfect.” I am going to Poland tomorrow for a big eastern European economic conference, and there is not the same patronising indifference to the eurozone there. There is not a view that the zloty zone is perfect. We are all in this together, and the trouble with the Government’s approach is that it sells the public the lie that there is a thing called the eurozone out there, but it is a far-away economic region of which we know not very much and in which we are not very interested.
Mr Alexander
I hope I can give my right hon. Friend the assurances that he seeks. The Opposition are far from indifferent about the future of the eurozone, not least for the reason that I have already explained—many British jobs and exports rely on the eurozone coming through the current crisis. His point highlights one of the delusions that is apparent among at least a few Members, which is that if Britain were to leave the European Union, the concerns that currently afflict the eurozone would somehow become remote from the interests of British jobs and workers. The eurozone will continue to be of absolutely fundamental interest to British manufacturers, exporters and jobs. The Prime Minister arrived at a recent summit lecturing the Germans and left being shouted at by the French, and that certainly does not seem to me to be how to secure the type of agreement that I sense lies behind my right hon. Friend’s question, which we want to see in the best interests of stability in the eurozone.
Kelvin Hopkins
Is it not the case that countries such as Poland and Britain have the great advantage that they can choose a parity for their currency that is appropriate to their own economies, rather than being forced to adopt a wholly inappropriate parity through the eurozone like Greece, Ireland and a number of other countries? Does my right hon. Friend agree that if Britain had joined the euro with the parity that existed at that time, we would now have a wrecked economy?
Mr Alexander
It is hardly a revelation that I strongly supported the five economic tests back in the years immediately following 1997, whether in relation to the convergence criteria or more broadly. In that sense, the Opposition’s position has not changed. It was an intriguing interpretation of history by the Foreign Secretary to attribute to his own conduct out of office so much credit for what the Labour Government did in office in keeping Britain outside the euro. However, he is right to recognise that there is broad consensus, which extends even to the hon. Member for Cheltenham (Martin Horwood), that there is no immediate prospect of British entry to the euro, for some of the reasons that my hon. Friend describes.
Let me be clear about some of the Opposition’s specific concerns, in a spirit of genuine concern about and mutual interest in the eurozone. First, we believe that the eurozone firewall needs to be bigger in scale and more flexible in operation than the ESM alone currently allows. Although the ESM is a key part of that broader firewall, an effective European Central Bank should also be used to enhance, and contribute to the establishment of, an effective firewall. Since the House last debated the matter, the ECB has announced its intention to begin buying bonds if member states comply with the relevant conditions regarding the management of their fiscal budgets. That is a welcome development, and we look forward to the ECB president Mario Draghi’s announcement this Thursday of how that new programme will work. The ECB must now deliver on its promise if it is to function properly as a lender of last resort and provide the necessary firepower to support the eurozone economies effectively under bond market pressure.
Mr Alexander
I am keen to make a little progress, but I will endeavour to give way to the hon. Gentleman in due course.
Secondly, stability in the banking system is vital, and where that requires action it should take place swiftly and with urgency. That is why we welcome the recent announcements about the ESM, which represent steps towards recapitalising weak eurozone banks. If responsibility for recapitalising national banks rests with national Governments, the problems of countries such as Spain risk getting worse, because state support for the banks will further worsen those countries’ fiscal outlook. We therefore agree that within the eurozone it makes sense for the ESM to be able to play a leading role in bank restructuring and recapitalisation. Although there is agreement in principle about that, it is vital that the eurozone begins taking action on it more urgently than it has to date. We cannot afford to wait for full agreement on a banking union before the process of recapitalising Europe’s banks begins. It needs to take place over the coming months.
The failure of eurozone members to accept fully the logic of a single currency must be addressed, and alongside a banking union some form of debt mutualisation may have to be considered. Simply put, creditor countries must be willing to shore up debtor countries in the short term if they are to guarantee their own stability in the long run. That may be a bitter pill for countries such as Germany to swallow, but it is the only cure for the eurozone as a whole.
Mr Alexander
I would not wish to intrude on the constitutional differences between the Chancellor of Germany and the governor of the Bundesbank. President Draghi bears a heavy burden of responsibility on Thursday to add detail to the terms of the guarantees that he was judged to have offered on the basis of his rhetoric at the previous press conference in the summer.
There is clearly a divide between those who, despite the economic facts, remain wedded throughout Europe to an austerity-only approach and those who recognise the need for a growth-led recovery alongside genuine efforts at medium-term deficit reduction. It is regrettable that our Government appear to be firmly on the wrong side of the divide. However, I welcome the fact that, at the last EU summit, a useful but modest growth package was agreed, although I regret that the Prime Minister of the United Kingdom remained bound to the last to the old Merkozy-style approach.
As part of the new focus on growth across Europe, we support a significant increase in the capital of the European Investment Bank and the concept of infrastructure bonds to finance major capital investment projects. The European Union must also learn to use existing resources better without spending more. A genuine plan for growth must start with reform of the EU’s 2014-20 budget, which, at more than €1 trillion, has the potential to make a real impact on the European economy’s recovery by spending less on agriculture, more on infrastructure, small business growth and research and development, and better using the money currently spent through existing EU structural funds.
Alongside those targeted measures to stimulate growth, the Government should call for the completion of the single market and the digital and energy markets. Completely removing existing obstacles could translate into a 7% increase in incomes per head in the UK, according to the Department for Business, Innovation and Skills. Further integration could therefore provide a genuine and much-needed boost to growth.
Mark Reckless
The shadow Foreign Secretary is giving us a tour of the European horizon, but may I pull him back to the Council’s decision, which we are asked to ratify tonight? Does he consider that decision to include the recitals?
Mr Alexander
As a former Minister for Europe—and the current Minister for Europe is sitting on the Front Bench opposite—I can say that there is a Council legal service, which can advise about the standing and authority of the recitals. If I recollect correctly, recitals have been judged in previous legal cases to have persuasive effect, and would certainly inform any subsequent legal judgment about Ministers’ intentions in the Council meeting at the time. I therefore think that it was appropriate for the Foreign Secretary to rehearse in some detail the terms of the recital to inform the House about the basis on which the Council reached the decision at the meeting. Perhaps I would add to the Foreign Secretary’s earlier comments that the other great strength of the proposal is the explicit nature of the understanding that the problem is for the eurozone and must be addressed by eurozone members. I have been candid in recognising that, in the teeth of the crisis, in the final days of the Labour Government, decisions were made that reflected the urgency of the moment. One reason why it is in Britain’s interest to support the amendment to the treaty is the facilitation of the eurozone countries’ assumption of the responsibility that we have long argued that they should accept for the currency’s continuing structural problems.
Let me turn to an issue that the Foreign Secretary raised only briefly, in passing. I anticipate that other colleagues will also raise it. It is fair to recognise that the eurozone crisis is now having an impact on the British economy. However, it is wholly wrong to claim, as the Government are trying to do in several different forums, that the current double-dip recession in the UK is the result of the ongoing eurozone crisis. That is an excuse, not an explanation.
First, for most of early 2012 and 2011, exports, including to the eurozone, were keeping the UK out of recession. Secondly, the UK recovery stopped in late 2010, well before the eurozone crisis had fully taken hold. Thirdly, of all the G20 countries, only Italy is in recession as well as the UK, and although the eurozone as a whole is now contracting, it is has not seen three successive quarters of negative growth as, alas, we have witnessed in the UK under the current Government. Although the crisis in the eurozone poses serious risks to the UK economy, the Government’s failed economic strategy has rendered our economy more vulnerable and more exposed to these risks than we needed to be.
The establishment of the ESM is therefore a necessary, if partial, response to the problems afflicting the eurozone. The risks still confronting the eurozone are real and immediate. Ratifying the treaty amendment that allows for the ESM’s establishment must not be seen as an excuse for inaction on the other vital areas where the eurozone is still required to act, or, indeed, on the change of course that is now needed here in the UK.
Amendment of the treaty is not only in the eurozone’s interest, but in that of the UK. For that reason, we support the Bill.
Mr William Cash (Stone) (Con)
The Bill is living proof of the Alice in Wonderland Euro-fantasy that permeates every nook and cranny of the failed European project.
Decisions, which were taken as long ago as 25 March 2011, when we last debated the issue—shortly afterwards, several of us voted against the proposals on a deferred Division—cannot and do not work. It is as simple as that. There is simply not the money to go round, as I said when I had the opportunity of cross-examining the Prime Minister at the Liaison Committee well over a year ago.
It may be very fine to provide a quack remedy to make the Euro-integrationists feel that something is being done, but the proposal, which Mr Van Rompuy and the European Council described as
“ensuring the stability of the euro area”
is as effective as taking a dose of snake oil to hold off the consequences of an economic earthquake.
A Harris opinion poll this week on whether the measures will deal with the debt crisis in the eurozone showed that only 15% in the United Kingdom were confident that they would have any effect. That applied to only 25% in France, 33% in Italy, 20% in Spain and 24% in Germany. That is the most recent opinion poll on the effect of the proposals in the eyes of the voters, not the Governments, élite or establishment in each of those countries, let alone many others.
Of course, we all know that Germany holds the key to the eurozone. As I said in interventions on the Foreign Secretary and the shadow Foreign Secretary, Jens Weidmann, the increasingly realistic and sceptical president of the Bundesbank, stated only a few days ago that, as I have often said, intervening in the bond market is effectively breaking the no bail-out rule, which was set up under Maastricht—I foretold that it would not work—and prohibits the ECB from financing Governments and states. He said that if the Governments of the eurozone become dependent on the power of the ECB, they will never do anything for themselves, that it would be like pouring money into a black hole and that it
“can become addictive like a drug”.
The use of article 122, which the Foreign Secretary attempted to argue around—somewhat disingenuously, I say with respect—breaks the law. The European Scrutiny Committee said that, to all intents and purposes, its use was illegal—not that it was not needed, but that it was illegal. It is there for dealing with natural disasters and earthquakes, not economic problems.
Martin Horwood (Cheltenham) (LD)
The hon. Gentleman is making his usual case that the use of article 122 was illegal. That may be his view, but it was clearly being used for the European financial stabilisation mechanism and therefore posed a liability for this country. Surely he must welcome a Bill mechanism that allows a treaty that reduces our liability. The new ESM will not include Britain, and we will not have that same liability. As a good Europhobe, he should support the Bill.
Mr Cash
As a Euro-realist, I am glad we will no longer be liable under the European financial stabilisation mechanism, but that does not exonerate the arrangements that were made by the then Labour Chancellor of the Exchequer, and by the current Chancellor, not to mention the Business, Innovation and Skills Secretary. In May 2010, as the former Chancellor makes clear in his book, they were all involved in endorsing the decision on the transitional arrangements between the outgoing Government and the current one. The illegality is shared by all members of the previous and current Governments.
Mark Reckless
My hon. Friend ascribes responsibility to a number of politicians, but what about the role of Sir Jon Cunliffe, our permanent representative in Brussels at that time? He had a key role in the matter, and since that time has been promoted.
Mr Cash
My hon. Friend and others have pursued that relentlessly and still have no real answers. The truth of the matter is that a number of things were done at or around that time that many people now rather regret—let us put it that way. The fact that the EFSM is now described as “not needed” is disingenuous because people know perfectly well that it was illegal. That is not just my opinion—I make this comment to the hon. Member for Cheltenham (Martin Horwood)—but the one reached by members of the European Scrutiny Committee as a whole in the light of what we heard.
The Minister for Europe (Mr David Lidington)
May I make a plea to my hon. Friend and to my hon. Friend the Member for Rochester and Strood (Mark Reckless)? It is one thing to criticise Ministers or Government policy on the European Union, but will they please not direct criticism directly at named officials, who serve Labour, Conservative and Liberal Democrat Ministers loyally and to the best of their ability in the impartial tradition of the British civil service?
Mr Cash
I am delighted that my right hon. Friend makes that point and I endorse it as a general principle, but instances occur periodically that require a certain amount of investigation and analysis. I did not entirely endorse the remarks made by my hon. Friend the Member for Rochester and Strood (Mark Reckless) in as many words, but I agree with him—and with others—that, at the time in question, decisions were taken that people now regret. I am glad that we have moved on from article 122 to the present European stability mechanism.
Mr Alexander
First, may I identify myself with both the spirit and substance of the remarks offered by the Minister for Europe? Secondly, before the hon. Gentleman proceeds with his speech, does he accept that, notwithstanding his demand for continued investigations, one of his colleagues has perhaps fallen into error in suggesting that the named individual was the permanent representative in Brussels at that time? I think, in fact, that his predecessor was in post at the time when the decisions that are being discussed were reached.
Mr Cash
I cannot possibly comment, as they say, on that particular point because I am not aware of all the circumstances. Although mistakes were made, the point regarding the ESM is far more important. I accept that the EFSM is now in the past, but it was an unfortunate incident and all parties involved were culpable of allowing it to be endorsed as a proposal—it remained effective for far too long, with obligations on the United Kingdom and its taxpayers.
Mark Reckless
The individual concerned was a senior official in the Treasury at the time—I was referring to his current position. The Europe Minister and the shadow Foreign Secretary have supported what their senior officials in a number of positions say, but if the House had had the chance to scrutinise the individual concerned, and if either the European Scrutiny Committee or the Foreign Affairs Committee had been able to determine his appointment, we might be in a different position.
Mr Cash
We have probably gone through that in as much detail as is required or necessary on this occasion. My point is that it is not the case, as the Foreign Secretary and the papers to which he is religiously sticking state, that article 122 arrangements for the EFSM are no longer needed. That is not only disingenuous, but verging on something much worse. It is not just a question of them not being needed, but I will leave it at that for the time being.
The real question is on the problems that will emerge in practice from the continuous stream of payments and bailouts, putting heads in the sand and the complete abnegation of reality. It is clear—the most recent edition of The Economist indicates as much—that the euro will turn into a soft currency with high inflation. The general secretary of the CSU, the Bavarian party that makes up part of the coalition in Germany, accuses the European Central Bank—this is a far worse accusation than any regarding the EFSM—of becoming
“the currency forger of Europe”.
There are profound reasons for that accusation, which is made by one of the most senior members of the German coalition. I could spend a fair amount of time going through technical and legal points on the European Act 2011, the exemption conditions and the opinion of the Foreign Secretary, but the issue is much more serious than treading through the maze of legalities created by the Act. This is about the substance of the manner in which the European Union functions and fails.
I shall come to the attitudes of German voters later, but it is important that people throughout Europe recall, as Germans do, what happened in the 1930s and subsequently. The economy’s implosion and high inflation—evidence that the economy was completely out of kilter with reality—ultimately led to disaster and the emergence of Hitler from the Weimar republic. Those things are brought to mind by the CSU general secretary’s accusation that the ECB is becoming
“the currency forger of Europe”
to provide the scale of bailouts contemplated under the Bill and the treaty. Massively high inflation is caused by printing money when a country does not have it on the basis of how it runs its economy. No wonder only 24% of more than 1,000 German voters polled had confidence in the short-termism that such measures represent.
Angela Merkel is certainly bidding for a new European treaty—it has not been received with enthusiasm, but the treaty issue has not gone away. In December, there is a fair chance that she will come back for a new treaty that will effectively create yet another step towards political union. We know perfectly well—it is no longer taboo, although I have been saying it for the best part of 25 years and it is now reality—that Germany is now moving further and further towards political union, which it will largely dominate, although more and more Germans are against the bail-outs, even to the point at which, as The Economist suggested last week, Mr Weidmann is now seen increasingly as Angela Merkel’s Thomas à Becket, having been one of her most loyal supporters. This is a very serious matter, but the shadow Foreign Secretary simply does not see it. I asked him whether he agrees with Angela Merkel or with Mr Weidmann because that is what is at the heart of this Bill.
The worst of it is that in fact it is not going to work anyway. Mrs Angela Merkel knows that Mr Weidmann is right on economics, but she has her own agenda of political union as the centrepiece for the destiny of Germany, as she has repeatedly argued. It is not just Germany. Spain is rapidly following Greece over the euro cliff, with Italy not far behind, not to mention the continuing problems in Portugal, Ireland, Cyprus and a stack of other countries. It is even now becoming a problem in respect of the individual provinces in Spain—Catalonia, Valencia, Murcia and other regions are lining up while Spain dives into a double-dip recession. There simply is not the money to pay for the catastrophe that the European economic system has created.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
Does the hon. Gentleman not think it odd that we should lecture the eurozone about double-dip recessions when we are in one ourselves, created by the Government whom he purports to support?
Mr Cash
That is a very nice little intervention, because the reason we are in a double-dip recession—in so far as we are—is, first, the massive deficit that the hon. Gentleman’s Government left us with. Secondly, for reasons that I will explain, it is because of the massive deficit—as I said to both the Foreign Secretary and the shadow Foreign Secretary—that the European Union has with us. We are in such incredible deficit with the other 26 member states that it will be impossible for us to gain out of the 50% of our trade with them the growth that is needed to enable us to come out of recession and grow our economy.
I was disappointed, to say the least, that the problems with the eurozone were not even touched on in the exchanges between the Chancellor of the Exchequer and Andrew Marr yesterday, when everybody knows that the failure of the UK economy is partly because of the deficit we inherited, but also because we cannot grow with a bankrupt European Union, with the exception of Germany. Indeed, half of our deficit with the other 26 member states is our deficit with Germany alone. So we have to be conscious that this is a real problem that needs to be resolved, and this Bill will do almost nothing except damage our economy.
Greece is currently in the throes of an EU-IMF economic investigation. One can almost hear the words of endorsement from the EU and the IMF before they have reported. I will be very surprised if they do not try to find some way to muddle through. As with the Bill and, I am afraid to say, the Government’s policy on Europe, real EU reform is off the agenda, as is a referendum.
Martin Horwood
The hon. Gentleman is very free in his criticism of the IMF—
Mr Deputy Speaker (Mr Nigel Evans)
Order. The hon. Gentleman is not only in danger of crossing the Floor, but is turning his back to the House. Please will he address the House?
Martin Horwood
I beg your pardon, Mr Deputy Speaker. I will try to do better.
The hon. Gentleman is free with his criticism of the IMF and the EU and everyone else, but may I ask him a basic economic question? If not this, what? Does he advocate the chaotic disintegration of the eurozone? Does he ask the Germans not to seek guarantees for the finance they are providing for other European economies? Does he suggest that there should be no legal framework behind the necessary steps to tackle structural deficits in the eurozone countries? I can think of nothing that would more surely damn the whole European economy, including ours, than a chaotic disintegration of the eurozone.
Mr Cash
Again, I am grateful for the intervention because back in the 1990s during the passage of the Maastricht treaty—and I say this without any sense of self-satisfaction—I predicted that this is where we would end up. Massively high unemployment, riots in the streets, the rise of the far right and the implosion of the European economic system were all predicted in the Maastricht treaty debates. It is there in black and white. It is no good now saying that because those of us who took that position and made those predictions then were right that, somehow or other, we should say, “Well, that is just the past. Let us not worry about the present.” We are looking towards the future and we need to have an association of nation states based on the principle of consent by the voters, who have already expressed their views in repeated opinion polls and are denied referendums.
Mr James Clappison (Hertsmere) (Con)
Does my hon. Friend recall that almost exactly the same lines of argument and descriptions were applied back in 1990 to the same prophecies about the UK exit from the exchange rate mechanism?
Mr Cash
Indeed, although it is known by others as Black Wednesday. However it is described, it saved our economy then.
To come back to the unemployment that has been inflicted by treaties that are not meant to be changed—the single currency is regarded as irrevocable—the youth unemployment level in Spain has moved beyond 52%, as it has in Greece. Other countries are moving in the same direction and the quack remedy contained in these bail-out provisions does not have enough snake oil in the bottle to make it even half realistic.
There are those, such as the coalition Government, who claim that under the arcane procedures of section 4(4) of the European Union Act 2011, we should vote for this arrangement because it will solve the euro crisis and—miracle of miracles—will not affect us. That is but a harrowing indication of the pain of hopelessness in the face of proven experience. There have been at least 20 economic summits in the past 24 months and not one has come up with a rational solution. All they ever do is promise more and more money that they do not have, with the implicit assumption that if they do not have it they will print it, and break the rule of law—the law laid down through the European Union that we implement under the European Communities Act 1972. Although we are not members of the eurozone, it certainly affects us, and it certainly affects the other European countries.
The explanatory memorandum to the 2011 Act, which I and many other colleagues here voted against, put down amendments to and did everything in our power to prevent from passing, because it simply was not going to work, stated that
“an Article 48(6) decision does not apply to the UK merely”—
I repeat “merely”—
“because it may have consequences for individuals or organisations within the UK, such as UK businesses.”
Believe it or not, that is given as a reason why a referendum is not required—because it would “merely” have an effect on UK businesses. That is on the astonishing grounds that although it has consequences for the daily lives of our voters and their small and medium-sized businesses, it is a mere detail that under the 2011 Act the Government can swat away with reference to “the opinion of the Foreign Secretary”. And that opinion cannot be properly challenged. Anyone who knows anything about administrative law knows that where an Act of Parliament states, “In the opinion of”, it effectively bars challenge in judicial review. I would be extremely surprised, therefore, if it was possible to set up a judicial review—I noted that the Foreign Secretary said that none had been forthcoming. People might well assume that because those words are in the Bill—it has not been enacted yet—there is no point in seeking to upset it because it will only have effect when it becomes an Act of Parliament.
The legislation goes further. Clause 1(3) explicitly states that the decision taken by the European Council on 25 March 2011 does not warrant a referendum, on the spurious grounds that it is the view of the Foreign Secretary, whose opinion once given cannot be effectively challenged, irrespective of the consequences for voters and UK businesses. I certainly concede that we are not part of the eurozone or directly contributing to the bail-out, but what is happening is having a devastating impact on our growth.
As I said in reply to an intervention a few moments ago and as I clearly demonstrated in an article I wrote for The Daily Telegraph on 14 August, I simply do not subscribe to the view that changes in planning law and ever-more Keynesian attempts to boost public spending will do anything if we do not sort out the problems with the single market. We are trading a monumental deficit with the EU, and it is doing immense damage to our economy. Trading with the EU is now like trading with a bankrupt company. The Bill will allow the drug of continual bail-outs, so heavily criticised by the President of the Bundesbank, with the involvement of the ECB, to drag Europe into an ever-deeper maelstrom. To then pretend that it does not affect us, when 50% of our trade is with the EU, is economic and political nonsense on stilts, which is why I voted against the proposals in 2011. Since then the situation has got worse and worse.
Jacob Rees-Mogg (North East Somerset) (Con)
I am grateful to my hon. Friend, with whom I nearly always agree, for giving way. However, if Europe is determined to follow an economic policy for the eurozone that is completely idiotic, there is no referendum in this country that could stop it. So I do not see what a referendum on this subject would do.
Mr Cash
I am merely arguing that, given the consequences of the mistakes being made and the damage they are causing to our economy, in the light of the 50% trading, we need to renegotiate the economic governance of Europe. The consequences of our not doing so would take us into the same kind of deep black hole that it is already in. I did not say, at this juncture of my speech, that I thought that a referendum on this issue would necessarily produce all the answers to that question. I am committed to the idea of a referendum on more general terms—with respect to the EU as a whole—but I take my hon. Friend’s point on that particular issue. I insist, however, that the European project needs to be renegotiated into an association of nation states, not unlike the European Free Trade Association in the EU, based on the principle of consent. That issue should be the subject of a referendum on the broader landscape of the direction in which the EU is taking us.
The explanatory notes to the Bill state that the exemption condition is met if the Bill, as enacted, states that the decision is not within section 4 of the 2011 Act. In other words, under the Bill, everything is fine, whatever the consequences, if Parliament is foolish enough to state in the Bill that what is patently absurd can possibly benefit the voters of the UK. I have pressed the Foreign Secretary, the Prime Minister and the Minister for Europe for about 18 months on the proposals in the Bill. It is impossible for me to understand why a referendum on the broader landscape of the EU is not provided for, and I cannot understand why the Prime Minister continually reaffirms his commitment to this failing, unreformed EU project. I know that many other Members agree with me.
By the same token, as the UK appeases the EU and Germany, so Germany pushes up the ante of a radical vision of deep fiscal and political union for the EU as a whole, while the ESM evolves into a full European monetary fund. That is why I argued in my article that we must refocus our trading relationship. The shadow Foreign Secretary referred to the single market as the answer to our questions, although I admit that he qualified that by saying that other things needed to be done, but, among those things, as I said in a pamphlet I wrote last year called, “It’s the EU, Stupid”, we have to refocus our trading relationship with the rest of the world, given the massive deficit that exists between us and the member states, half of which is with Germany itself. We have real options for trading with the Commonwealth and the Americas. Indeed, last year alone we ran a surplus of £36 billion with the Americas, yet the Bill re-endorses the nonsensical view of Europe adopted by the Euro-elite, and our acquiescence in the Bill is part of our failure.
Only recently, 41% of German voters indicated to YouGov that they wanted to return to the deutschmark, and similar indications are growing in other countries, but with them are also growing dangerous moves towards the far right, which I constantly warned would be the consequence of breaking the rule of law in Europe and of creating the kind of situation we now face. Europe is in the throes of a massive schizophrenia, and at stake is not only the stability of democracy in Europe but of the stability of our democracy. In Germany and Ireland, the ESM is being taken to the courts—to the German constitutional court at Karlsruhe and to the European Court of Justice in respect of Ireland. I have to say, however, that past references of this kind give us little confidence that the legal route will solve the problem.
The rule of law, on which this whole edifice is based, is constantly being broken, not only on the article 122-EFSM basis but in respect of the stability and growth pact, which was broken by Germany and France in 2003. This is a challenge not only to the interests of the UK and other member states but to the rule of law in Europe as a whole. I most strongly urge the Government not to proceed with this Bill, and as it proceeds I will strongly urge all Members of Parliament to vote against it.
The treaty should have been vetoed, just as the Prime Minister rightly vetoed the fiscal compact. The figure of €500 billion or so that is being proposed has simply been plucked out of the air. Most serious commentators believe that the current crisis in Spain, Italy, Greece and elsewhere would need at least €2 trillion, and probably much more, yet it is simply not there. Given the evidence of the continually evolving euro crisis in those countries, €500 billion-plus—some suggest that the figure could be €700 billion—is peanuts compared with the billions that are wasted and is inadequate to deal with the problem that this failed European economic governance has created. It is about time that we put our foot down in this Parliament, because the issue affects those whom we represent in their daily lives and we increasingly gain so little from our deficit with the single market. In pursuit of their failed ideology, the euro integrationists call for more and more Europe, however much the problem lurches from one disaster to another. That is not remorseless logic; it is a remorseless path to disaster.
It is said that under the European Union Act 2011 a referendum is not required unless it involves a new power or competence affecting the UK. What does it take to hold a referendum when a Bill actively encourages the European Union to implode, with dreadful consequences not only for Europe, but for the United Kingdom?
Mr Denis MacShane (Rotherham) (Lab)
It is always a pleasure to follow the hon. Member for Stone (Mr Cash). He is the Private Frazer of our European debates. For nearly 20 years I have been listening to him saying, “We’re doomed! We’re doomed!”, “There’s no hope at all”, “Europe is schizophrenic”, “Europe is extreme”, or, “Europe is locked in riots and difficulties.”
That is a good description, frankly, of our country. It is only 12 or 13 months ago that London was set ablaze for three days. The state completely lost control of the streets, and the rioting, looting and burning spread to other cities. We are now the recession queen of Europe. It seems that we are in a triple-dip recession. While the hon. Gentleman complains about the threat of inflation and the printing of money, we are the great printers of bank notes—it is known as quantitative easing—and we are printing them as fast as we can, just as the United States is. By comparison, the European Union is relatively restrained. It has been our banks—some nationalised still, some still in private hands—that have been going to the European Central Bank to avail themselves of cheap-cost euros, to the tune of several billion. My point remains, as always, that we are all in this together.
I am not sure whether the hon. Member for Stone is quoted in Bundestag speeches as Eurosceptics there look for a friendly British voice to pray in aid, just as he assiduously reads The Economist and the Financial Times. Indeed, in the many friendly debates that I have had with him, both in this House and outside, he always has a quotation to sustain his case. However, as somebody who reads the German press a little bit, let me gently say to him that there are quotations and opinions like that bubbling up every day, just as there are in this country. The broad thrust of German economic policy is for stability and open markets. The notion that Europe’s currencies and Europe’s trade should be balkanised is of no advantage to the German economy at all. Far from creating an über-Germanised Europe, Mrs Merkel and the Social Democratic party—I was with some of its leaders at the weekend at a congress in South Africa—are very conscious of the fact that they carry a heavy responsibility. Part of the reason is that they took some tough decisions at the beginning of this century—to hold down wages, recapitalise industry, and transfer a lot of technology offshore to Poland and integrate the new EU member states into the broader German economic zone—while we, sadly, were over-fetishising banks. Now Britain is associated with LIBOR, the collapse of other banks and the great problem of illegal trading in offshore money in Mexico.
We really ought occasionally to put a mirror in front of our noses before we patronise and condescend to other countries. We have always lent money to countries in need. We poured money into Greece in the 1940s after the war and in the 1950s to stabilise it. We did so again at the beginning of the 1960s, when there was a great deal of turbulence in connection with the end of British rule in Cyprus. That has always been a British tradition. Quite intelligently, we prefer to use our treasure rather than shed our blood when things break down in Europe.
We are out of the current arrangement—this kitty of €500 billion. As the Foreign Secretary said—I could not find much to disagree with in his speech, and I am sure that the Bill will receive its Second Reading—we are not directly concerned. However, he went to such great pains to point that out that I thought he was over-striving for effect. Indeed, the hon. Member for Stone is absolutely right on one point: the so-called euro referendum Act, which the Foreign Secretary prayed in aid, is a piece of completely phoney jiggery-pokery. It gives the Secretary of State the sole, exclusive right to say whether there has been a significant transfer of competences or sovereignty to the wider Europe Union. If he alone decides that, he triggers a referendum; if he does not, as with this Bill, there will be no referendum. This is not about a referendum lock or allowing the British people or Parliament to have greater scrutiny or a greater say over European affairs; it is a completely cynical piece of legislation, which frankly is irrelevant to the broader European debate.
Mr Jenkin
Does the right hon. Gentleman not think that there is an inconsistency in saying that we do not want a referendum on this issue, yet vetoing the fiscal union treaty in December? We are effectively consenting to the process of fiscal union by allowing the treaty amendment to go through almost on the nod, effectively abolishing the no bail-out clause, which will be the foundation of fiscal union.
Mr MacShane
The hon. Gentleman makes a fair point. The Prime Minister found himself, through no fault of his own—inexperience, 2.30 in the morning, exhaustion—thinking that he was speaking for half of Europe, but at the end only the Hungarians were left. We created a British-Hungarian empire overnight, and even they peeled off in the end. It was deeply embarrassing. I do not think the Prime Minister actually understood how European decision making works or how to present our case effectively. That is part of the price that the Government pay for opting out of any political engagement with European partners. Working in the European context is a learning curve. It is about building relationships, networking, trading, and give and take. At times, certainly, it is about stamping our foot and not allowing something to go through. Indeed, I was a witness to all sorts of European countries and leaders doing that when I was Minister for Europe. However, in this case the Prime Minister found himself not so much naked in the conference chamber as utterly alone, without anybody else in the slightest bit interested in anything the United Kingdom had to say.
As a result, we will now move forward to a new treaty—the hon. Member for Stone is absolutely right about that. The German Government are quite determined. I was talking to a senior associate of François Hollande over the weekend, and the French now accept that quite soon we will be moving to a serious banking union—a serious treaty—that will do for banking what the Coal and Steel Community did in 1950 and what subsequent treaties did, in placing under broad supranational supervision a good and important chunk of the European economy. There is a huge debate about how far that process should go. Should it, for example, include the small regional banks and savings banks—the cajas, as they are called in Spain? Should banks be closed down, as happens quite regularly in the United States? When banks there are no longer able to stand on their own two feet, they are not bailed out—they are closed down.
Some supranational authority is now being created, however, and the British banking and financial system will not be able to operate wholly independently of that authority, because banking systems are permanently intertwined. Anyone walking through the streets of Madrid, Munich or Geneva will see British high street names such as Lloyds and Barclays operating there. Those banks will come under the control of any banking union. The more we pretend to ourselves that we can stay out of that arrangement, the less influence and say we will have over the new rules as they come into being. That is what really worries me. The notion that expelling Greece from the eurozone and re-drachmatising, if that is the right word, the Greek economy—I always prefer to use a Greek term, so I prefer “grexodus” to “grexit”—will somehow save the British bacon is just foolish.
The hon. Member for Stone is fond of citing YouGov polling in Germany. I did not know that YouGov—“Anything you want, guv”—was now a polling company in Germany as well. If we look at the Irish vote on the referendum to accept quite onerous conditions, we can see that they voted by 60% to 40% to stay in the euro, and any Greek polling will show a massive majority—up to 80%—in favour of staying in the eurozone. Those countries are mature enough to realise that it is their internal policies, not the existence of a currency, that lie at the heart of their economic difficulties. For example, there was no housing boom in the Netherlands, which had low-interest euros to play with, just as the Spanish and the Irish did. Why not? Because people in the Netherlands have to put between 5% and 10% down before they can buy a house or a flat there. In other words, economic, administrative and political decisions could be, and are being, taken in all the countries concerned.
However, it is quite right to criticise those countries, and especially the accounting in Greece, where the shipping industry and the Greek Orthodox Church—the country’s biggest land and property owner—pay no tax. Greece spends twice the share of its gross domestic product as we or the Turks do on defence, rather than ensuring a clean taxation system. This moment of truth is, very painfully, forcing those countries to take new directions and new decisions, yet paradoxically, if for some reason the euro were to dissolve into drachmas, pesetas and lira, that would take all the pressure off the political and administrative classes in those countries to take new decisions.
Yes, there will be enhanced supervision of those countries’ economies and budgets, but that also happened after the war as a result of the Marshall plan. Along with the credit from the United States came the Marshall planners—technocrats who sat in ministries to ensure that, in accordance with the broad remit of the plan, there was no improper abuse of the credit lines that the United States was providing.
My plea is rather more philosophical. I feel sorry for the Foreign Secretary—who is not in his place— because he has consistently championed out-and-out Euroscepticism. He has encouraged all the false hopes. Let us remember his famous statement before the 2001 election, when he warned the British people that if they voted Labour, Britain would become a foreign land. That was about as sensible as the earlier remark made by the right hon. Member for Wokingham (Mr Redwood) that signing the treaty of Amsterdam would mean the abolition of Britain. We have constantly been told by leaders of the Conservative party that being in Europe was bad for us. The hon. Member for Stone presents the most brutalist version of Conservative party thinking, but he is swimming in the same sea as many members of the Cabinet. He is simply rather more honest in describing the endgame that he wants to see.
I am fundamentally opposed to that aim; I do not want to see the eurozone break up. The entire western liberal market-economic world is going through a great crisis, as evidenced by problems in America and China, but there is a wider crisis, as evidenced by the difficulties in India, Russia, China and even Brazil, whose economy is now slowing down. How we get out of that is a huge challenge for all of us, but it is naive in the extreme to suggest that dissolving the eurozone would present a magic solution that would instantly liberate productivity, growth and employment and ensure the disappearance of extremist parties so that all the nation states could enter into a happy-clappy relationship.
This debate signals the firing of the first serious shot in what will be a much greater debate in our nation. The €500 billion in the kitty to bail out distressed countries sounds like a lot of money, but it is actually very small beer. We are going to have to take much bigger decisions about the future of Europe.
Over the summer, I was concerned to see a lot articles in the European press saying that Britain was about to withdraw from Europe. The language of repatriation and referendums was being used and, for the first time, a British Prime Minister said that he had no problem with linking the word “referendum” with Europe. He might not have any such problem, but neither Lady Thatcher nor any other British Prime Minister has used that language since Britain joined the EEC in 1973. Those headlines were appearing all over Europe, however, and the Minister for Europe, the right hon. Member for Aylesbury (Mr Lidington) had to be rushed out to comment on them. I was leafing through my copy of Le Monde one day and I was surprised to see his by-line in it; I thought I had an exclusive franchise to write in that newspaper. He said that Britain was not going to leave Europe, and that we were very committed to the EU. I have not brought the article with me, so I cannot read it out. Dagens Nyheter in Sweden said the same thing.
The Government went into total panic mode as they realised that a lot of people in Europe thought that the hon. Member for Stone spoke for the Conservative party, and that we were on our way out—[Interruption.] I hear cheers and “Hear, hear” from the Government Back Benches. I am delighted that we now seem to have buried the proposals for boundary changes, so that all those right hon. and hon. Gentlemen can perhaps be returned to the House at the next election. They will then have to make big decisions, however, on whether Britain should remain part of this thing or not. We are approaching a fundamental turning point in our nation’s life. I remain firmly committed to our staying a partner of the other countries in Europe, although I agree that there are huge problems to be resolved, and I agree with a lot of the reform agenda that is advanced by right hon. and hon. Members on both sides of the House.
The Bill gives the first flavour of the much greater debate that is about to come, but the Conservative party seems wholly ill-prepared for the seriousness of some of the decisions that we are going to have to take in the next two or three years. I am confident that, with greater study and work, our eminent shadow Europe Minister and the Labour party will become fully prepared to take part in that debate, but I fear that the possibility not just of a “grexodus” but of a British exit is now seriously on the table. We would be foolish if we did not accept that Britain could now be on the point of taking a fundamental decision that would significantly alter the nature of our lives and our nation.
George Eustice (Camborne and Redruth) (Con)
I should start by saying that I agree with much of the analysis of my hon. Friend the Member for Stone (Mr Cash) about what is wrong with the euro and how we got to this situation. However, I disagree strongly with his conclusions about this Bill, because I think it is relatively uncontroversial. As the Foreign Secretary pointed out earlier, the new European stability mechanism is certainly an improvement on the European financial stabilisation mechanism that went before it. Under that previous arrangement, Britain was liable for some 15% of the liability, which could have been a bill of up to £9 billion, whereas the new ESM means that Britain will not be taking on any future liabilities. So, first and foremost, this is a step forward.
Secondly, we must bear in mind that the Bill is not about the establishment of the ESM itself; it is simply about the amendment to article 136. This is just about clarifying the legal basis on which the ESM is set up, and discussion is taking place about whether that even needs to happen, as my hon. Friend the Member for Stone pointed out. This has already been happening under article 122, and it is apparent that it is mainly a concern of the German constitutional court that has prompted this change. The one thing I would say is that if other European countries or all 27 member states are going to acknowledge the concerns of one member state—Germany—by amending the article to reflect its needs, I look forward to the day when that will be reciprocated. I look forward to those moments when Britain is in a minority of one in having concerns about some things European and that, too, is respected by the other member states.
Mr Jenkin
I cannot quite believe what I am hearing, because a criticism that my hon. Friend and I have regularly made of the European Union is that what we are categorically assured will not happen then happens, and when we amend the treaty just to tidy up the wording, that makes it more explicit that it was always intended to happen in the first place. May I just read to him what the no-bail-out article actually says? It says:
“A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State”.
That is what the treaty says now and he is supporting, by a sort of sleight of hand, that being negated and set aside simply because it has already happened illegally. Is that not the grandmother’s footsteps of European integration that he and I have always railed against?
George Eustice
I would simply say to my hon. Friend that Britain is not bound by the ESM; it is very clear that only eurozone member states will be affected. Is it proportionate for us to stand in the way of those countries that are wrestling with and trying to decide what is going to happen with the euro? Is it proportionate for us to block that particular tweak to that treaty? I just do not feel that it is. I agree with him in that I want renegotiation and I want it, at some future point, to be put to a referendum. However, we need to pick our battles and pick our moments, and I think it is wrong to nit-pick over what I would regard as a small change.
Mr Cash
My hon. Friend was kind enough to say that he agreed with my general analysis of the problems that have led, through the treaties, to the difficulties that the European Union as a whole now represents. That explains why giving more money to this particular fund and doing it in this manner is likely to exacerbate the deep black hole that has already been created. It affects us because we trade so much with the European Union.
George Eustice
My hon. Friend makes a point that I was going to deal with. I simply return to what my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) said, as I do not think that by blocking this Bill we are going to stop the ESM. Other countries will continue, because they have decided that they need to do so to try to save the euro.
We also need to give the Government and the Prime Minister credit when they achieve things and make progress. My hon. Friend the Member for Stone and I would like to see faster progress made and a renegotiation sooner rather than later, but we should give the Government credit where they safeguard British interests and improve on the situation we inherited. We should not blame our own Government for the mistakes the previous Labour Government made. They engaged in sloppy negotiation, and, as a result, we ended up with the former arrangements in the EFSM. The situation has now been improved with the ESM and we should support that.
Mr Jenkin
Where is the consistency in the Prime Minister’s vetoing fiscal union at 27 in December last year and now implicitly consenting to it by scrapping the no bail-out article? Should we not be extracting a real concession? Should we not be getting the concessions we really want? Should we not be using this opportunity as a fulcrum for renegotiation? Is this not the moment—when these countries want fiscal union to support monetary union—to say, “This is what we want to pull back in return”? Instead, we are just giving this away, and for what?
George Eustice
I think that there is a big difference between the fiscal compact that we vetoed last December and this particular one. Again, this comes back to the point about what is proportionate. By vetoing that fiscal compact, Britain was sending a clear signal that we were not going to be part of a wider decision at an EU level for those types of fiscal integration, because we were not affected. That approach was absolutely right on a number of levels. First, it showed that Britain was serious and that, on these issues, when we said we were going to do something, we meant it and we were ready to use a veto. That will help us when it comes to budget negotiations.
Secondly, by vetoing that particular treaty at an EU level, the Government managed to limit its scope, because it was, thus, necessarily just about the eurozone members and it cannot affect the UK. Had we signed up to that particular treaty, we would have faced all sorts of threats and demands, and people trying to put other agendas on the table. We would have had months and months of wrestling over things we did not want, before we would probably finally have had to veto it in any case, so I think that we did the right thing. However, I am just not convinced that such an approach is right in this instance, for the reasons I have set out. As I say, I think it would be disproportionate, as the ESM is not going to affect the UK; there is nothing that will expose us to future liabilities. Would it be right for us to stand in the way of countries that think that it is the right thing to do? There is a question of whether it is the right thing, but would it be right for us to stand in their way?
Mark Reckless
My hon. Friend refers to our having vetoed the fiscal compact, but is it not going ahead? Are we not acquiescing in the use of the European institutions to enforce it, just as proposed? How does that increase our credibility in budget negotiations?
George Eustice
I would hope that my hon. Friend agrees that it was right to use the veto. We need a bit of a culture change in the Foreign Office, as has been alluded to. Historically, there has been too much of a sense that we need to have a seat at the table at all costs. That has been a mistake, it has been the wrong approach and using the veto in that instance was right. I return to what I said about a veto not being proportionate in this case. As I said, my conclusion is probably and, given the subject, extraordinarily, closer to that of the hon. Member for Cheltenham (Martin Horwood)—this is a step forward from the position that we inherited from Labour and we should recognise that.
It is encouraging that the European Union Act 2011 has had an effect for the first time, as the proposal we are dealing with requires an Act of Parliament. My hon. Friend the Member for Stone made some comments about that legislation, but again we need to give credit where credit is due. It is a major step forward, as it puts the UK on a similar footing to countries such as Ireland and Denmark, in that it will trigger a referendum automatically where there are any transfers of power. None of the Maastricht, Nice and Amsterdam treaties would have been able to go through without triggering a referendum. Perhaps Conservative Members are sometimes guilty of underestimating the significance of that, because it is a major step forward and likely to force what my hon. Friend and I want, which is, at some point, a proper renegotiation of Britain’s relationship with Europe and a new settlement. I say that for the simple reason that other countries are pulling in a direction that we will not follow and the British public’s chance for the first time to say, “We will not follow” will force a new settlement and the sorts of negotiations that we want but that have eluded us for far too long.
Mr Cash
I might have agreed with my hon. Friend that the general sense of direction would lead to the conclusions he has drawn, but is he not conscious of the fact that Angela Merkel is now proposing a new union treaty—full political union and all the panoply that goes with that—which is likely to come forward in December?
George Eustice
It may come forward, but there will be better opportunities than this Bill to pick the moment to have that negotiation. This is not the Bill or the issue on which to say to other European countries, “Unless you give us a full-scale renegotiation, we are going to veto the proposal.” It is disproportionate to take that approach in this instance.
So much for the areas on which we disagree. I want to come on to some of the areas on which we are probably in agreement and to echo some of the points made. There is a big question about whether the ESM will be a solution to the crisis, or even part of one, and there is also doubt about whether there is any solution to the crisis gripping the eurozone. Although, as the Foreign Secretary said earlier, the polls in all the countries in the euro consistently show their wanting to stay in the currency, in reality they do not want to take the decisions or accept what the euro inevitably entails. That is where the real problem lies.
Let us consider Germany, for example. It is undoubtedly benefiting at the moment, almost freeloading on the other member states and enjoying a lower exchange rate than it would have if it had its own independent currency. The Germans have kidded themselves into believing that it is all down to German ingenuity and marvellous engineering, and granted they have made some improvements in their labour market and sorted out some of the structural problems in their economy in the past decade, but German industry is undoubtedly benefiting significantly from having a lower exchange rate than it would otherwise have. Meanwhile, countries such as Greece and Spain do not want to do what the euro entails in terms of fiscal discipline and so on. They have spent, borrowed a fortune and shown a complete lack of prudence over the past 10 years. Although such countries say that they want the euro, they do not want what the euro means, which is a real problem.
We should not stop member states trying to save the euro. If they want to save it and want to make that attempt, let us let them do it. I think the most likely scenario, however, is that the euro will be partially broken up and some member states will be allowed to leave it. Although I can understand that the Government would not want to entertain any such talk or to spook the markets by commenting on that idea—I do not expect the Minister will do so when he wraps up the debate—I hope that they are developing some serious contingency plans for handling a break-up of the euro, whether it is orderly or disorderly. Despite all the rhetoric when the euro was introduced about its ending volatility and being all about stability and stable growth, we might find that the conditions for stability and stable growth are best created by floating exchange rates, which can help countries adapt to shocks to their economies and changes in the world economy as well as to transition when things go wrong.
I was in the anti-euro no campaign and worked for it for four years, and I remember that a decade ago, when that debate was going on, many people who are now on the Opposition Benches—the right hon. Member for Rotherham (Mr MacShane), who is no longer in his seat, was one of them—accused us Eurosceptics of putting our heads in the sand and of saying, “Stop the world, I want to get off.” Who are the people who have their heads in the sand today? Who is in denial about the realities, particularly the financial realities, of the world in which we live? The fact is that the euro was an incredibly stupid idea. It was introduced only through a triumph of political belligerence on the part of people such as Chancellor Kohl and François Mitterrand over economic reasoning.
Economists at the time pointed out all of the problems that have come home to roost. They warned that there was a lack of convergence and that that was not just about the cyclical convergence of one’s economy and the levels of growth but, more fundamentally, about structural convergence, the make-up of one’s industries and the differences between economies. They were ignored. They warned that we would get asymmetric shocks to the world economy that would hit some countries worse than others, which would cause tensions in the euro, but they were ignored. They warned that to work properly the euro would require fiscal union and fiscal integration, that it would require very painful long-term adjustments in the absence of an exchange rate that could help people through those adjustments, that countries on the periphery would face prolonged periods of high unemployment and would be forced to cut wages, and that we would have to accept large migrations of people within the European Union from deprived areas to areas that were succeeding under the euro. Those warnings have all come true, but they were all dismissed at the time.
The final thing that everybody pointed out when the euro was debated was that we needed political union to make the euro a success, so that there was clarity in decision making. That has been proved right, too, because despite the warning from those on the pro-euro side that we would not have a seat at the table, all we have at the moment is 17 member states around a table squabbling and unable to reach a clear and coherent decision. That is one reason the euro continues to limp forward.
We need to learn the lessons. Why were all those economists ignored? Why was there so much mindless, blind faith in the idea that the euro was somehow historically inevitable? We still see that from some Members on the pro-euro side. The lesson we must learn is that nothing is inevitable. It is not inevitable that the euro will survive, but nor is it inevitable that it will collapse. The idea of ever closer union is certainly not inevitable any more and it is not inevitable that Britain will always be alone as the only country on the outside talking sense. I think it is quite likely that we will gain allies and that our ideas will start to gain traction.
There was a failure under the previous Labour Government and the truth about new Labour is that an unquestioning pro-Europeanism was almost an article of faith. Anti-Europeanism was blamed for the fact that they were not elected during the 1980s and that association was targeted at people such as my hon. Friend the Member for Luton North (Kelvin Hopkins), with whom I have campaigned on this issue many times. That perspective on Europe was very unquestioning and unprincipled. It was simply a political line to take, with no intellectual rigour, and it led to Tony Blair and the previous Labour Government simply going with the flow on whatever emerged on the European agenda.
This Government have made a very good start. The European Union Act 2011 was much more significant than many people on the Government Benches give it credit for, but we need to develop it and to build on what has been achieved to forge a new doctrine for the future of the European Union. That doctrine must end the dogma of ever closer union and encourage the idea of a multi-tier Europe—a pick-and-choose Europe where countries are able to adopt the policies they want and withdraw from those that they do not like and do not work for them. Too often in the past, we faced the problem of people saying that we would not have enough allies to make a point because there were not enough countries to support us. We need to leave such attitudes behind, because unless we begin the debate now we will never end up in the right place. We should be articulating a proactive vision of an alternative European Union, which does not require deeper integration in one direction.
Mark Reckless
My hon. Friend says that unless we begin the debate now, we will not end up in the right place. Has not the debate been going on for more than 20 years? Is not a decision needed to give the British people a vote on whether or not we stay part of it?
George Eustice
My hon. Friend knows that my position on a referendum is that there should be one, but that it should be after a renegotiation, not before. I do not agree that we should have an in-or-out referendum on the European Union at this point. I think that we should negotiate new terms with Europe and then put them to the country in a referendum, because that is what the majority of people in this country would support and want. In having a referendum, we must not deny the majority of people in this country the choices they would make.
I agree with my hon. Friend that many of us have been having such a debate, but that position was not adopted by the previous Labour Government, for the reasons I have just explained. Their policy was to go with the flow and they simply took a line that meant accepting all things European as a political doctrine rather than holding any kind of coherent, rigorous view about what the European Union should become. We must get over the weakness and insecurity of the obsession with having a seat around the table and instead start to articulate some clear ideas about what we want the European Union to look like in the future. We should be clear that it is our European Union, too, and that we do not care whether we are in a minority initially in making some of those arguments.
Kelvin Hopkins (Luton North) (Lab)
It is a pleasure to follow the hon. Member for Camborne and Redruth (George Eustice). I agreed with much of his speech, particularly his emphasis on the desirability and common sense of flexible exchange rates—not necessarily floating exchange rates, but flexible exchange rates, at the very least, so that countries can choose and negotiate currency arrangements that suit their economies. If all countries can do that, they are free to reflate their economies and to drive growth, so everybody benefits. That is the great advantage. Co-ordinated reflation was a slogan that many of us on the Keynesian left called for back in the 1980s. Indeed, co-ordinated reflation would be desirable now, but we have co-ordinated deflation—savage deflation whereby people wonder why the economies of the world are getting into difficulty. It is because Government after Government are cutting deficits, driving cuts and deflating their economies. There is quite a lot that we in the debate have in common.
I should make two points before proceeding. One is to emphasise my support for the strong view put by the Minister for Europe—and indeed by my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander), the shadow Foreign Secretary—that civil servants should remain non-political. It should be Ministers who are accountable and Ministers who are political. Ministers, as well as Members of the House and politicians, should make political statements, not civil servants. The great tradition of non-political civil servants for whom Ministers are responsible should be preserved and given strong support. We should not accept the contagion of the officials in the European Commission, who are politicians in the guise of officials who drive policies themselves. Our civil servants are not like Commission officials, and we should not let them drift in that direction due to the contagion they experience in Brussels.
I shall not speak for long, but I want to emphasise that we are in serious difficulty—not just in Britain, but across the European Union. It is my view that the euro will ultimately not prevail and will not last simply because it cannot work. Countries cannot constantly deflate their way to success. There will come a point at which Greek people will realise that it is the euro that is their problem. Some on the left think that now, but many others will come to that view.
When Greece is able to escape from the euro, re-create the drachma and devalue substantially, people will find imports too expensive and what they spend will be directed to the domestic economy, which will help their domestic economy to grow. Greece’s exports include tourism and holidays, and when Greek holidays drop to half the price they are now, many more people will have holidays there.
Mr MacShane
I am following the argument, but will my hon. Friend explain why the British pound experiencing a severe devaluation of up to 25%, or perhaps nearly 30%, of its value in the past four years has led to a worsening balance of trade and an increased recession? If devaluation of a currency is the magic recipe, why has it not worked for us?
Kelvin Hopkins
There is a case that we still have not depreciated our currency enough, but demand for our exports is falling because there is deflation elsewhere, particularly elsewhere in the EU. We should consider the history of devaluations; the proper ones have invariably been very beneficial. After the escape from the exchange rate mechanism in 1992, the economy bounced back strongly and many Conservative Members would agree that, had they managed to stay in office for three or four more years, people might have realised that that big devaluation was driving economic growth and falling unemployment. We reaped the benefit of the collapse and what happened in the ERM, particularly in my constituency, which was the epicentre of housing repossessions and negative equity, which led to my having one of the largest swings to Labour in the country, simply because of the ERM.
I was one of the few people who wrote about economics in 1990 who were saying that the ERM would be a disaster. I predicted—I surprised myself, indeed—the precise course of that experience and said what would happen in the end: interest rates would go through the roof and eventually we would come out of the ERM and devalue, which we did. However, that is not the point that I am making tonight.
I agree with the hon. Member for Stone (Mr Cash) on many things, but I do not agree with him on economic policy. I doubt that many Conservative Members read the New Statesman, but in the last week or two it has featured a series of economists who initially signed a letter of support for the Government, but are now recanting, saying that they made a mistake and should not have called for deflation and cuts. They are implying that that situation ought to be reversed. I agree with them, and I was one of the few in the House who absolutely and profoundly disagreed with the Government from the beginning, quoting Paul Krugman and others, who said that they were going in precisely the wrong direction, towards the savage deflation that led to the 1930s’ depression.
We are in danger of going in that direction now. Countries have to find a way to expand their economies, and they will not do that when they are stuck in stupid arrangements such as the euro. We must have a deconstruction of the euro. There is much talk of an uncontrolled crash, but currency zones can be deconstructed rationally. When the Soviet Union collapsed, all the countries of the ex-Soviet Union created their own currencies. That was done fairly straightforwardly. When Slovakia and the Czech Republic separated as Czechoslovakia broke up, they created their own separate currencies. That worked. It can be done in a controlled and not-too-difficult way. I shall not say that it will be that easy, but it is not impossible and there are examples of such a thing happening. I suggest that, initially, Greece, and perhaps one or two other countries, ought to quit the euro and recreate their own currencies. That might mean freezing banks for a few days and so on.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
I am following the argument closely, but can my hon. Friend explain himself? He is talking about countries that came from an impoverished state, so the only way was up. Surely the problem with the eurozone is that we are talking about countries that have experienced high standards of living. Ultimately, any break up would mean that those would go down.
Kelvin Hopkins
Standards of living ultimately depend on productivity. If a country produces wealth it can consume wealth. If those countries get into a position whereby they can start to rebuild their economies and expand growth—have more people going on holiday to Greece, for example—they will bounce back and become better off again. I have said many times, in writing and in the House, that strong currencies derive from strong economies, not the other way round. If a strong currency is imposed on a weak economy, it will drive that economy down.
Finding a way to get that economy to grow, which might initially mean a devaluation, means that the currency will ultimately strengthen. Indeed, the 1944 Bretton Woods conference made arrangements that allowed for countries to depreciate or devalue their currencies as necessary. Indeed, if Keynes had had his way, he would have had countries required to appreciate their currencies. I suggest that Germany ought to be appreciating its currency and not be allowed to get away with what it has done for decades, which is to undervalue its currency. That has meant that it has had a competitive advantage against every other nation in the EU, and indeed in Europe.
If the euro were to be deconstructed, a major consequence would be the new deutschmark appreciating quite substantially. There are now worries even in countries such as Denmark and Finland. Finland, which is in the euro, would be forced upwards to a currency valuation that it found uncomfortable. The Danes have chosen to peg their currency to the euro. They might think again about devaluing, but Germany has, effectively, an undervalued currency relative to all the other countries of Europe, which is a fundamental component of its economic success. That is an unfair way to operate and we ought to address it.
I am pessimistic about the future of the eurozone. At the moment, there is a kind of “quietism”. People in the EU are trying not to talk about all the terrible things that are going on, but as I understand it from my friends on the continent, what is effectively a giant building society in France was last week on the verge of having a run—going bankrupt and people taking their money out. The French Government effectively nationalised it and pushed €90 billion into it to save it. That has just happened to President Hollande, but people do not want to talk about it too much because they know that there are many other problems of that kind. There is a Franco-Belgian bank into which €50 billion has been pumped to keep it alive. Indeed, even German banks have lots of supposed assets that are not really assets; they are IOUs that will never be repaid. If I claimed that people owed me £100,000, but I knew that they were all poor people and would never be able to pay me, that would not be an asset of £100,000, but a worthless IOU. A lot of banks are stuffed full of worthless IOUs; that is the reality. It is only when countries start to manage their economies effectively on a national basis, with an appropriate currency value and appropriate interest rates, that they will start to recover. Many of the poorer countries will never be able to compete within the euro, and ought to get out fairly soon and re-establish their own currency.
Take the case of Ireland; I have many Irish constituents. The reality is that Ireland is part of the British economy more than anything else. It should be part of the sterling area, but it is overvalued relative to sterling. If it recreated the punt, devalued and came into line with sterling, Ireland would benefit enormously, because we are its major trading partner. I hope that will happen, because it will benefit many of my Irish constituents and their relatives in Ireland. I look forward to common sense ultimately prevailing, but I have a feeling that we will go through an awful lot of pain before that happens.
Mark Reckless (Rochester and Strood) (Con)
Today we are agreeing to treaty change, yet we are getting nothing in return. In December, the Prime Minister, at an EU summit, told us that he was vetoing the EU treaty because, while this country supported the eurozone putting in place what it needed to in order to make the eurozone work, to the extent that that is conceivable, this country required something in return for our agreement to that EU treaty change: protection for our key national interest—the City of London. In particular, we wanted all future financial regulation to require unanimity, rather than a majority vote. We have not received that protection for the City of London, yet today we are agreeing to treaty change—without getting what we said we required if we were to support that treaty change.
It is not as if, through that agreement, we got out of using the European financial stabilisation mechanism for Ireland, to which we gave a bilateral loan, and for Portugal, to which we did not, and where the use of the EFSM was simply nodded through. It is the position of many in the House and, as far as I can discern, of Her Majesty’s Government that the use of article 122 and the setting up of the EFSM was not a proper and legal action under the treaties, yet it inflicted on this country a liability of €26.5 billion in respect of Portugal, to be shared through the EU budget, with our share being about 13%. That liability will still, under this arrangement, accrue to this country.
Article 122(2), the “natural disasters” clause, which was used to justify making the EU budget and this country liable for supporting member states that have the euro—a currency that we chose not to join—is still in the treaties. Unlike article 136, it is not amended through use of article 48(6) provisions. It could be used once more. I fear that the chance of it being used in future has been heightened by the way we have dealt with the issue. We agreed to its use at the summit in May 2010. I say “we”, but I cannot go much beyond that, because the Government refuse to release the details of what happened, within the Treasury and beyond, in the period when the coalition Government were being formed and there was a caretaker outgoing Labour Government.
The previous Chancellor has said that he decided that we could not stop use of the provision, and therefore had to agree to it. He states that the current Chancellor raised the radical prospect of us abstaining, but we none the less supported that use, which I believe we hold to be unlawful. My hon. Friend the Member for Camborne and Redruth (George Eustice) referred to shoddy negotiation, but who was conducting that negotiation? In this case, as there was a transitional caretaker Government while a coalition Government was being formed, and a lack of clarity among the political participants on who said and did what when, it is perfectly proper that those very senior civil servants who were conducting the negotiations, preparing the Government line, and advising on whether such action was a lawful or proper use of the treaty, should be held to account, ideally through the Government releasing the relevant documents, which will show who was responsible, and whether the action was agreed by us or the previous Chancellor, or whether it was something that largely happened through officials and their interfacing with officials in other EU countries.
The hon. Member for Luton North (Kelvin Hopkins) is absolutely correct to draw attention to the worrying trend of officials in this country taking a position that is properly that of politicians, and of being infected by practices in some EU countries and in the EU institutions. We must put a stop to that. If officials trespass beyond the role that they have traditionally had in this country, they should not be surprised if they are criticised in this House and elsewhere in political discourse. If the Government were so strongly against what was agreed and how we became part of the EFSM, why did they promote the official who was at least a key cog in conducting those negotiations, and make him our permanent representative in Brussels, and why does the House not have a say in our foreign policy when it comes to what is perhaps the single most important diplomatic appointment, particularly in terms of the ramifications from the EU for our domestic law? Why was that appointment not put before a Committee of this Parliament for it to decide on?
Not only have we promoted the individual to whom I have referred, but we have not challenged the decision to set up the EFSM under article 122. My fear is that while that treaty article remains in force, it could be used again, and we have gained nothing in return for making this treaty change. We heard from the Prime Minister in December at the summit that we supported the eurozone taking the action that it needed to; in return we were not to have the major, full-scale renegotiation to which my hon. Friend the Member for Camborne and Redruth referred—we were simply to have one demand met: the City’s financial regulation should henceforth be decided on by unanimity, not majority. We did not get that, yet we have given way in a craven fashion, and are pushing this treaty change through the House.
Let us look at the decision, which is headed “European Council Decision of 25 March 2011 amending Article 136”. Paragraph (4) says:
“At its meeting of 16 and 17 December 2010, the European Council agreed that, as this mechanism is designed to safeguard the financial stability of the euro area as whole, Article 122(2) of the TFEU will no longer be needed for such purposes. The Heads of State or Government therefore agreed that it should not be used for such purposes.”
Surely what the decision says about the EFSM applies equally to the European financial stability facility, which was set up, albeit on a temporary basis, with an ostensible capacity of €440 million. That was designed for the eurozone and fits all the criteria, yet the EFSM was still set up. I am afraid to say that after that date, we saw use of the EFSM nodded through, by Ministers responsible to the House, with regard to Portugal. In the case of Ireland and the €22.5 billion use of the EFSM, we chose to have a bilateral loan; the arguments there may have been somewhat different. In the case of Portugal, we made no bilateral loan. We do not have the same close economic ties as we do with Ireland, yet we allowed the EFSM to be used for €26.5 billion in the case of Portugal.
We put a stop to the use of the EFSM not because of the European Council decision, but because of the actions of this House, following a debate that I secured from the Backbench Business Committee on a “stop the bail-outs” motion after the Portuguese bail-out was nodded through. Following that, I am pleased to say, the Government found some rigour, stood up for this country, and made it absolutely clear to our European partners that there could be no further use of the EFSM, for example in respect of the further Greek bail-outs. Thankfully, we still have, within that mechanism, €11.5 billion that has not been used, perhaps €2 billion of which could accrue to this country. I thank and praise the Government for their work in that area, at least, and for listening to the House and to the debate that we had. But the problem that the Government have—I raised this with the Foreign Secretary and tried to prise an answer out of the shadow Foreign Secretary on it as well—is what does the decision do in respect of article 122 and the EFSM? It seems that the Government position is, “Oh, we’re getting this great deal in return for our agreeing to the setting up of the permanent stability mechanism. The other side of the coin is that we are released from further obligation under the EFSM and there is an agreement that the EFSM will be used no further.” The Foreign Secretary told us that the decision reflects that agreement in its recitals.
The problem is that if that is the case, under the terms of the European Union Act it is not lawful to approve this in the way that we are seeking to do through legislation. The Foreign Secretary issued his statement under section 5 of the European Union Act 2011—or it may have been the Minister for Europe who did so; the version that I have is unsigned—and it states:
“Section 4(4)(b) of the Act”—
that is, the European Union Act 2011—
“provides that where an Article 48(6) decision relates to the making of a provision that applies only to Member States other than the UK, it is deemed to fall outside section 4.”
That is accepted. The statement continues:
“The Treaty change provision contained in the Article 48(6) Decision does not apply . . . to the UK.”
So what? The legislation does not refer to the treaty change provision contained in the article 48(6) decision. It refers, as the previous sentence correctly states, to section 4(4)(b) of the Act and an article 48(6) decision. If one refers to that article 48(6) decision, it has a heading relating to the stability mechanism. The Foreign Secretary told us that the decision is reflected in its recitals, and I would be interested to hear whether the Government consider that a decision includes its recitals or not.
The burden of the Foreign Secretary’s speech was the great gain for this country and the fact that the decision that we are implementing tonight would somehow get us out of the EU-wide bail-out and prevent the EFSM from being used. If that is the case, it applies to this country.
Jacob Rees-Mogg
I am fascinated by my hon. Friend’s argument, which is put with great coherence but I think has one flaw—that is, if something affects the United Kingdom to the extent of zero pounds, it is essentially sophistry to say that it is affecting the United Kingdom. I think that is what my hon. Friend is saying.
Mark Reckless
My position and my analysis of the situation is that article 122(2) of the treaty has not been changed. There is nothing to stop another EFSM being set up. The Government’s position, as I understand it, is that the decision that we are ratifying tonight not only sets up the permanent stability mechanism, but releases this country from further potential liability under article 122. To the extent that that proposition is correct, it does affect this country, and what the Foreign Secretary states with reference to section 4 does not apply.
Jacob Rees-Mogg
To the extent that it affects this country, surely it is a negative effect—the UK will not in future be liable, rather than any liability or obligation being created for the United Kingdom. I accept that we are arguing about angels on a pin-head, but I do not think that on the understanding of the 2011 Act, that can be deemed as affecting the United Kingdom.
Mark Reckless
What the Foreign Secretary has chosen to do in making his statement under section 5 of the EU Act is to rely on section 4(4)(b). That is the basis on which he came to the House, and clause 1(3) states that the section 4 provisions mean that we do not need a referendum. However, the statement—officially put by the Foreign Secretary or the Minister for Europe—refers to section 4(4)(b) of the Act and an article 48(6) decision. That is then elided, with the next sentence continuing that the treaty change provision contains this article 48(6) decision. That seems to imply that while the article 48(6) decision would allow this not to apply to the UK, actually, if one looks at the 48(6) decision, according to the Government and according to the recital, it prevents article 122 from being used in the future as it has been in the past.
Therefore the reliance on section 4(4)(b) would not be valid, so either, as I say, we are getting nothing in return for agreeing to the treaty change, or article 122(2) will no longer be able to be used to make the UK liable for bail-outs, in which case the Government’s statement as to why we are not having a referendum and why section 4 does not apply is incorrect, and we are acting unlawfully.
Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)
Hon. Members on both sides of the House will be delighted to know that I do not intend to quote any legislation, which the hon. Member for Rochester and Strood (Mark Reckless) has just gone into in some detail. I support the Bill and I believe the European stability mechanism is necessary.
I agree with my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander) that the need for action is beyond doubt, but I certainly do not delude myself that the two clauses in the Bill will paper over the massive crack or the massive problem that we have in Europe. If I may misquote Groucho Marx, there is no sanity clause, which is sorely needed. Yes, we need stability for Europe’s banks. We need to correct the balance between austerity and growth, and we need a bigger firewall to protect Europe from the economic problems that it faces.
One aspect that has not been touched on, or has been touched on but not in the way that I would put it, is the north-south European disconnect. For part of my previous life, I was a trade union official and negotiated with colleagues in various parts of the European Union. There was always a disconnect between those in the north and those in the south. The hon. Member for Camborne and Redruth (George Eustice) put that in a different way, but there was always a necessity for members attending meetings from the north to get to a solution, agree a way forward, and move on that solution and that way forward, whereas the tendency for our southern neighbours in Europe was always to try and put off the day for a decision to be made, circumnavigating the need to make a decision. It may have taken several meetings to get there, but we eventually reached a conclusion. That north-south disconnect in Europe has not been properly addressed by leaders across Europe. It is something that we have to look at very carefully.
I also think that Germany needs to step up to the plate in a significant way. We have heard from more than one Member this evening that Germany gets all the benefits of the euro, with regard to how its currency is valued, but does not seem to want to make its contribution to the solution, so that debate must be resolved, first in Germany and then at the eurozone level.
Another element that must be looked at carefully is the balance between austerity and growth. When I intervened earlier on the hon. Member for Stone (Mr Cash) he replied—surprise, surprise—by putting his hand in his back pocket and pulling out, “Well, it’s all your fault because the Opposition gave us this massive deficit.” I do not want to go into all that again, other than to say that I am sure that he was not suggesting that when the previous Government bailed out the banks, which prevented us moving from a recession into a depression, the hon. Members now on the Government side of the Chamber did not support that necessary action. If I may paraphrase a gentleman I heard speak last week, the former Governor of Florida, the Republican Jeb Bush: “Don’t blame us for mistakes made on your watch.” That was a Republican talking to the Democrats in America. The coalition Government must recognise that since they took over our borrowing has increased by over £150 billion and that, therefore, there is at least an arguable case that their balance between austerity and growth might be wrong and might need to be recalibrated.
The hon. Member for Cheltenham (Martin Horwood) asked the hon. Member for Stone and the Eurosceptics how we will solve this problem if not in this way, but answer came there none. I do not agree with the analysis of the hon. Member for Stone of how Germany got into its problems in the 1930s because my recollection, as a former student of history, is that it was the reparations imposed at the treaty of Versailles that created Germany’s inflationary problems and that they were not connected in a wider way to Europe, aside from the fact that it was the allies, of course, who forced the treaty on a defeated Germany after the first world war.
I will put the question again: what do those who do not support this proposal think will happen if the eurozone is unceremoniously collapsed? People have predicted—I feel that it is a proper prediction—chaos, carnage and colossal damage on our streets. What would the streets of Europe look like? Much more has to be done in the euro area to resolve the crisis. There will be no painless solution but, just as the bank bailout prevented our country moving from recession into depression, the support of the ESM can and must be a starting point for a more permanent solution to the problems of the euro area.
Neil Carmichael (Stroud) (Con)
It is a great pleasure to speak in this debate, although I have been thinking about déjà vu situations, not least because we have discussed this subject in some detail in the past, and then I started wondering where the holidays had gone—I am still wondering about that. However, it is an important debate and it is well worth giving the matter further consideration. The Government are absolutely right that we have had a motion but should now also have a belt and braces approach and a Bill to ensure that this is properly embedded in the parliamentary system and that we understand what is being done by passing this legislation.
I want to remind Members, as I have often done, about certain visits I make to meet businesses in my constituency. Many of them trade with the European Union, but they never really mention the problems because they are really quite pleased to have a free market and take it as read that that is a good thing. They are grateful for any improvements we can make to the single market, and I would like to see improvements such as the expansion of the single market to services and energy, for example. The firms I visit are good examples of why we should be concerned about the future of the euro and keen to ensure that the single market and our trade with the European Union continue unabated.
One of the firms is Delphi, which makes injector systems for diesel engines. It imports parts, assembles them and then exports them. They go from Europe to Britain and then back to Europe. It is that kind of relationship that is important and necessary in a world of increasingly complex supply chains and relationships between businesses. It is really important to recognise that that is the bread and butter of what the single market is all about. I heard earlier the worries about the single market and the need to think of it as unimportant, but I completely disagree. Not only is it very important, but it is our responsibility as supporters of the coalition Government to ensure that we press ahead with its expansion, deepening and enhancement.
The euro itself is also an important issue for us. We have to recognise that we are neighbours of 17 EU member states that are in the euro. An unmanaged collapse, or indeed any collapse, would be absolutely catastrophic. It is in our interests as a country to make sure that the euro thrives. We may not like the euro or want to join it, but it is in our interest to ensure that it does not break up. That is at the core of some of the issues raised today; I shall come to them in a minute.
Something else has cropped up in this debate—the good old referendum. I see why people want referendums and why they think that this Chamber should not make all the decisions, but also cast them out to the people. However, the people ask us to make decisions; that is what Parliament is for. I buy the argument that too many referendums are more likely than anything to reduce our influence, as decision makers and members of Governments, in this Chamber. We must be really careful about when we think we should have referendums and when we do not.
There is really no need at all for a referendum on what we are discussing tonight. The last Europe Act that we passed suggested that we should have referendums on the passage of power to the European Union, but which power will we pass to the European Union through this legislation? We will not pass any; actually, we are grabbing some power back.
Jacob Rees-Mogg
We are obviously giving the European Union the power to set up a fund. That must be a power, even if it is not worthy of a referendum.
Neil Carmichael
I am grateful for that intervention, which goes to the heart of the question. If we are worrying about powers that concern us, the answer to my question is still no. That is the point: the answer is still no, because no powers are being transferred through this legislation from us to the European Union. If anyone can describe a power that is being transferred, I want to know about it, but unless they can the answer is that no powers are being transferred. That point is really important.
I shall go further. The real issue about the legislation is that it effectively removes qualified majority voting from the issues of what we were deciding before. That is why we need not worry; we are saying that there is now a power of veto on the process—so, ironically, there is a further strengthening of the British approach to dealing with the European Union. I question the need for regular referendums because that would reduce the influence of the House and I certainly say that there is no need for a referendum on this item, because at the end of the day there is no evidence of any transfer of power.
That is not the end of the matter. The issue that has been bubbling around this debate is that we do not like the euro so we have to pull out or do something to undermine it. My point is that we are not going to join the euro, but we want to make sure that our interests as a country are properly protected so that we can continue trading with the countries that are in the euro.
Let us face it—those countries are significant traders. As a whole, the European Union still effectively controls a quarter of the world’s gross domestic product. Seventeen members of the eurozone are part of that and they are the bigger part of the EU. In sheer figures, we are talking about a large portion of the world’s gross domestic product. That suggests that we have to be sensible about how the euro is treated. Sensible American policy makers agree; they want Britain to be part of the European Union, exercising appropriate influence in a way that promotes the trade activities that we see in Europe and beyond. That is not true of all Americans; one or two in Tampa during the Republican convention would raise eyebrows. However, American government, in the broadest sense, recognises that having Britain in the European Union is a good thing because it has a good influence on how the EU shapes up. It is important for us to recognise that as politicians, policy makers and administrators.
Poland was mentioned earlier, and I understand why. It is a very interesting country to think about because it is the only one that has not had a problem with growth ever since this crisis started. That is partly because it has always had a relatively sensible approach to borrowing money and deficit management. It has also recognised its close proximity to Germany, which is of course part of the eurozone. It is not surprising that the Polish Government are now wondering exactly what they are going to do about signalling their intentions on joining the euro—a decision that Donald Tusk needs to start to formulate as the months and years go by. Poland is not necessarily going to reject the option of joining the euro, and that is in complete contrast to the usual story about countries leaving the euro. We need to bear that in mind as we deliberate on the future of the euro as a whole.
We do not want to join the euro ourselves; we think that would be a mistake. We are not planning to make any decision that would lead us towards having to do so, but the British Government and the British industrial state need to think very carefully about how the euro situation unfolds. Our relationships with the big players are therefore very important.
Martin Horwood
I congratulate the hon. Gentleman on his speech, not least on his points about the importance of European trade to business in Gloucestershire, where both he and I obviously have an interest. He is doing a good job of flying a more positive and realistic flag for the Conservatives’ approach to Europe, and I congratulate him on that as well. Would he go as far as me in saying that until the eurozone returns to economic health it will become increasingly difficult for this country to return to full economic health, and that therefore any small thing that we can do to enable that to happen must be a positive? I am not suggesting that this Bill guarantees that that will happen, but it is perhaps one small step in helping to enable European, particularly eurozone, countries to rebuild their economies.
Neil Carmichael
I thank the hon. Gentleman for his intervention; I am very grateful for the level of support. Plenty of Conservatives share my views; he should not think that we are some sort of sect. He is absolutely right to point out that Britain’s best interests are connected with helping the overall economy in Europe, which obviously includes the eurozone.
Several hon. Members have referred to the situation in Germany, which is pivotal. One has to ask what Angela Merkel is really thinking and why she takes the attitude that she does about how the bail-out operations are decided and managed. That goes to heart of something else that has cropped up in this debate—devaluing currencies. The Germans like a robust currency because they believe that it is good for their economy. They have had one for an awfully long time, and in broad terms their economy has benefited from it. They know that the relative strength of the deutschmark before, and the euro now, has been a good thing for economic policy management. They also know that if they dish out bail-outs too prematurely they will not extract the necessary promises from the other nation states to put right the issues that are not so good in those countries.
At the end of the day, it is important that bail-outs lead to a result, namely improved productivity, better debt management and better management of public expenditure. That is what needs to happen in nation states that are in difficulty, which is why the issue of eurobonds is so interesting and is taking such a long time to crystallise into real results. Those countries that understand the need for robust currencies and, effectively, inflation-proof strategies will win a long-term gain, which proves that that is the right way to improve productivity and ensure that economies grow according to robust economic indicators.
It is necessary for the British Government to continue to work with the German Government in that regard, so that it remains possible for us to develop the right kind of relationship with the rest of the eurozone. We have to ensure, first, that we influence the single market to expand into services and energy; secondly, that we get proper discipline over public finances; and thirdly, that we recognise the value of strong currencies.
It is not true that devaluing willy-nilly achieves results—we have seen that so often in our own history and in that of other countries. Remember 1967, when devaluation was argued over ruthlessly by Harold Wilson, Jim Callaghan and others, but what did it actually produce? It did not produce additional productivity or the kind of growth that was anticipated and so desperately needed. Devaluation is not a panacea in complex economic situations in which a lot of trading takes place between complex economies. That is an important marker for our own economic prospects.
In conclusion, I firmly believe that this country needs to deal with its deficit and I recognise the importance of reforming the real economy. I apply the same logic to both of those things in the European Union. Britain should be a positive influence. It should not necessarily be involved in the euro, but it should be able and willing to ensure that the world’s largest single area of economic activity remains a credible force for the future.
Jacob Rees-Mogg (North East Somerset) (Con)
What a pleasure it is, after aestivating for six weeks, to have returned to this House to discuss, of all things, the European Union. It puts a veritable spring in one’s step, even as we advance into autumn. It is a real pleasure to be able to support the Government on this occasion—a rare treat, one might say, when it comes to matters European. I will probably even find myself in the same Division Lobby as my hon. Friend the Member for Cheltenham (Martin Horwood).
The Government deserve praise to come on them from all sides for, first, the European Union Act 2011, which has led to today’s debate on this Bill. Without it, there would have been a two-hour debate in the House of Commons or the House of Lords and, bingo, a European treaty would have been changed. We would not have been arguing the finer points, as I have done with my hon. Friend the Member for Rochester and Strood (Mark Reckless), about whether the matter deserves a referendum. It would have gone through on a quiet Wednesday evening, on a deferred Division, with nobody here and nobody thinking or concerned about it. Thanks to Her Majesty’s Government, that has been put right. We have a proper process and a full-scale Bill, and I believe we will have the Committee stage on the Floor of the House as it is a constitutional Bill. It is all being done in a way that makes a parliamentarian’s heart glow with pride, if hearts glow with pride. It is a great achievement of the Government to have got us here.
The Government deserve a good deal of credit for what they have succeeded in negotiating. I want to be reasonably generous, but not excessively so. They have got us out of article 122, on the European financial stabilisation mechanism, which required us to put money into a European pot to bail out, so far, Portugal and Ireland. One may say that bailing out Portugal and Ireland is not too bad a thing to have done. Portugal is our oldest ally, and I am sure your mind often turns to the treaty of Windsor in 1386, Mr Deputy Speaker, which is why we have a fellow feeling with the Portuguese. Ireland is our close neighbour and friend and is important to us. It is worth noting that that €48 billion liability still remains, and the Foreign Secretary was careful to say that the Bill would exclude us from new liabilities. The old ones are still there, so we are signed up to our share of €48 billion of liabilities, which may come back to haunt us. However, we are exempted from further liabilities.
The European treaties say that there should be no bail-out from us, although my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) complained that often European treaties say one thing and the European councils do another, which is perfectly true. It is a regular state of affairs that the construct of the European Union is basically dishonest. A point that I shall make at every opportunity is that we know that the judges of the European Court of Justice are so corrupt that they judged in their own favour to give themselves a pay increase. We therefore know that the institutions of Europe are rotten, failed and corrupt. None the less, we are living with them, and they have decided that they will have a bail-out mechanism. It is better that we should be out of it. We should say to them, “This is your euro project. You go ahead, you pay for it. Thank you very much.” It should be outside our bailiwick, to the eurozone members’ charge, not the British and the other non-eurozone countries. The Government have achieved something in ensuring that, although I have questions about what the black letter of the law actually says.
We know full well that recitals are not the law, and that article 122 remains. We know that the regulation allowing €60 billion to be spent on propping up the euro remains intact, and it is conceivable, if unlikely, that that part of the European treaty could be used in future, because it is a qualified majority matter rather than a unanimity one. That has not been excluded from the treaty, but there is a strong political promise that it will not be used. Although I have my doubts about strong EU political promises—in the past they have not necessarily been adhered to—it is still an achievement to have got the bulk of the future cost away from Her Majesty’s Government and the British people. The Government deserve to be commended for that.
We have talked much in this debate about what the best solution for the eurozone is, and about whether we, as a country looking on, should help it prop up the euro or obstruct it in its desire to do so. That raises a fascinating moral question about the duty that one owes to one’s neighbour who is determined to follow a course of folly and error. If someone sees a man who is about to run under a bus, it is their moral duty to make some effort to grab him back. They may even risk their own safety in attempting that endeavour. It is an important requirement of neighbourliness and a duty of humanity. The question is, are the members of the eurozone throwing themselves under a bus, or are they committing some lesser folly which means that, because we know our intervention could not succeed, our duty to intervene and stop them does not exist? I think that the second category is the answer. If the Europeans had any sense, they would have an orderly dissolution of the euro.
Consider what the euro is doing to Greece, Portugal, Ireland, Spain and Italy: impoverishing their people, putting them out of jobs, making them unable to afford some of the basic needs of life. That is done for a political project driven by bureaucrats with no democratic accountability. They fire Governments that they do not like and they have put their despots into Greece and Italy. The panjandrums of Brussels are sent in to rule, overturning democracy as we have historically known it. They have done all that to prop up the euro, which strangles economic growth.
Although one does not want a constant series of devaluations and a Zimbabwean-style economic policy, we have found in the past that devaluation can be the answer to otherwise incessant deflation. We found that ourselves, not just in 1992, when we left the exchange rate mechanism but also—perhaps the more appropriate comparison—in 1931, when we came off the gold standard.
When we look back at countries leaving the gold standard in the 1930s, we see that the later the country left, the worse its economic performance. The greater the deflation, the longer countries pressed down on their peoples with falsely inflated currency values. Europe is doing exactly the same again. It learnt the wrong lesson from Weimar Germany. It was not the inflation, but the deflation that led to Hitler. The fear of inflation is so great that Europe would rather crush the people of Greece under a deflation than risk the printing of currency, which the Greeks could do for themselves if they reintroduced the drachma.
That is the crisis that we are allowing our European neighbours to take upon themselves, and the Government are doing nothing about it, but letting them—if the analogy is right—throw themselves under the bus.
I have some sympathy with the Government, and I am sorry that the Foreign Secretary is not here because he would approve of the quotation that I shall use from one of his most distinguished predecessors, George Canning, who said:
“But of all plagues, good Heaven, thy wrath can send,
Save me, oh, save me, from the candid friend.”
If Her Majesty’s Government were to take up the role of candid friend—it is fine for Back Benchers to do it, and “friend” may not be quite the right word for the European Union—what would happen? What response would we find from the courts of Europe? They would say, “The British never liked the euro in the first place. You set out with your bankers, whom we’re now going to regulate, to undermine it, and it is your fault that the euro is collapsing.” Not the fault of those who have spent too much in Greece and those who have worked too little in some other European countries, arguably including Greece, but that of the Anglo Saxons and their evil bankers. I therefore understand why the Government are not being as robust as those of us who do not bear the responsibilities of office find it very easy to be in such debates.
Here we are, back after the summer. The cricket season comes to an end—
Jacob Rees-Mogg
I agree with my hon. Friend—it is a great shame. The cricket season comes to an end but the euro crisis continues. It has gone on holiday for the summer, like most of the Eurocrats, and we find that Britain is allowing them to carry on with it because she has no choice. We are therefore right to let them go in that direction and not to obstruct them. Of course, we should use any future treaties to bring powers back to the United Kingdom, but on this occasion, we got something back. Honour was satisfied by what we got back, and, most importantly, Parliament and, therefore, the British people are being properly served by the proposal coming to us as a Bill rather than being pushed through as a mere piece of minutiae, in the same way as we may decide whether to charge for tours of Big Ben.
Emma Reynolds (Wolverhampton North East) (Lab)
It is a great pleasure to be back from holiday, although I do not lament the end of the cricket season in quite the same way as the hon. Member for North East Somerset (Jacob Rees-Mogg). We have had a wide-ranging debate, some of which concerned the short Bill before us. It is an enabling measure that will amend article 136 of the treaty on the functioning of the European Union, and allow member states to set up a permanent bail-out fund—the European stability mechanism.
We have heard speeches from many right hon. and hon. Members. My right hon. Friend the Member for Rotherham (Mr MacShane) reminded us of the great dangers of what he called a “Grexodus”—an exit by Greece from the eurozone—and of the fact that the vast majority of Greeks want to stay within the eurozone. My hon. Friend the Member for East Kilbride, Strathaven and Lesmahagow (Mr McCann) warned of the great dangers of a wider euro collapse, and we heard also from my hon. Friend the Member for Luton North (Kelvin Hopkins), who takes a somewhat different position, as was reflected in his original opposition to the euro.
From the Government Benches we heard a characteristically detailed and lengthy critique of both the euro and the EU by the hon. Member for Stone (Mr Cash), and the hon. Member for Camborne and Redruth (George Eustice) reminded us that the UK is not bound by the ESM. We heard an uncharacteristic speech—it was almost gushing and positive—about the Government from the hon. Member for North East Somerset, and a somewhat more critical speech from the hon. Member for Rochester and Strood (Mark Reckless). The hon. Member for Stroud (Neil Carmichael) reminded us that it is in the national interest that the euro survives and does not collapse.
As the shadow Foreign Secretary, my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander), set out at the start of the debate, the Opposition are in favour of the Bill and the European stability mechanism not because the ESM is a silver bullet to solve all the eurozone’s problems, but because it is part of the solution. We are, however, concerned about the delay in its introduction, and about the insufficient scale of the firewall. Since the start of the crisis, political inaction has produced uncertainty in the markets, which in turn has deepened the eurozone crisis. Markets need to know that European leaders have the political will to tackle the crisis. Therefore, alongside the establishment of the ESM, further measures are urgently needed to restore stability to the eurozone, and to provide a greater role for the European Central Bank, a recapitalisation of European banks, and a greater emphasis on growth rather than austerity alone.
The British Government and other European Governments have imposed collective austerity. That has provoked a simultaneous shrinkage of our economies and produced a downward spiral with a devastating recession in Greece and an unemployment crisis afflicting many European countries.
The International Monetary Fund and several ratings agencies have been clear in their criticism of austerity-alone economics. Last April, the IMF stated:
“Austerity alone cannot treat the economic malaise in the major advanced economies.”,
and Standard and Poor’s has stated that
“austerity alone risks becoming self-defeating.”
Thankfully, a number of changes of Government in the rest of the EU have led to a recent shift from severe austerity towards a focus on growth, and we welcome the growth package agreed by European leaders in June. The UK Government, however, have little authority in promoting growth in Europe, given that they have produced a double-dip recession at home.
Growth and stability in the eurozone are manifestly in the UK’s national interest—40% of our exports go to the 17 members of the eurozone, and the wider EU is our biggest trading partner. The Government like to lay the blame for their economic mistakes at the doors of others, and Ministers have blamed everybody but themselves—the banks, the royal wedding, bank holidays, the rain and, of course, the snow. The eurozone is the latest smokescreen for the Government’s economic mistakes, but the uncomfortable truth is that, had it not been for our exports, our economy would have gone back into recession a year ago.
Several hon. Members have called for the break-up of the eurozone, but that is neither in the British national interest, nor an easy, cost-free way out of the crisis, just as “I told you so” is not an economic policy. Several hon. Members have suggested that Greece leave the eurozone. However, the consequences would be disastrous both for the Greek people and the rest of the EU. A new Greek currency would be likely to plummet in value. Imports, on which Greece relies heavily for both food and medical supplies, would become prohibitively expensive and, without a huge injection of capital, the Greek banking sector could collapse, wiping out ordinary people’s savings. Further severe spending cuts would be needed to enable the Greek Government to finance its deficit and pay public sector salaries and pensions.
More widely, the contagion effect of a Greek exit could be disastrous for Europe. The eurozone’s largest banks, not to mention the European Central Bank, have huge exposure to Greek debt, and British banks would also be affected. Moreover, by setting a precedent for eurozone exit, a Greek exit would seriously damage depositor confidence. At best, this would introduce greater uncertainty to the eurozone, and at worst it would precipitate a run on Europe’s biggest banks. Finally, a credit event, which might follow a Greek exit, would cause turmoil on financial markets. Far from stabilising the eurozone, a Greek exit might serve only to deepen the crisis, and there is no possibility that Britain would be completely insulated from that.
As ever, today’s debate has highlighted yet again the deep divisions in the Conservative party over Europe. Clearly, the wounds of the last 20 years have not healed. We have the usual suspects making speeches that sound oddly reminiscent and the party leadership is having trouble managing some of its Back Benchers. I might not agree all of the time with the hon. Member for Stone, but at least he is consistent. The same cannot be said for the Government, who try to placate their Back Benchers while at the same time trying to rebuild bridges with our European partners.
I welcome the Europe Minister’s new found linguistic skills which he has used to pen articles in several European newspapers—Le Monde, entre autres—in which he extols the virtues of the UK’s membership of the EU and reassures the reader that the Government are wholly committed to the UK remaining in the EU. Perhaps he could clarify when he is going to write a similar article for the British press.
I am happy to leave the Tories squabbling amongst themselves: we are clear that enabling the setting up of the ESM is in the UK’s national interest, as is a return to growth and stability both in the UK and the rest of the EU. For that reason, we support the Bill.
The Minister for Europe (Mr David Lidington)
I start by thanking all right hon. and hon. Members who have taken part in the debate. To the hon. Member for Wolverhampton North East (Emma Reynolds) I say that I will be happy to send her a copy of an article that I published in The Sun on Sunday earlier this year, which set out in good, plain English the case that I have consistently made for a constructive, critical and engaged approach by the United Kingdom in the European Union.
As several hon. Members have said—especially my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg)—it is important to note that we are debating this initiative to change the European Union treaties in the context of a debate on primary legislation. In an earlier intervention, my hon. Friend the Member for Rochester and Strood (Mark Reckless) questioned whether the European Union Act 2011 had made any difference. He was correct to state that in the case of treaty changes that were agreed before 2008, treaty amendments could be approved here only through primary legislation, but in 2008 the law was changed. At the same time as the Lisbon treaty was being taken through by the then Government, they provided in section 6(1)(a) of the European Union (Amendment) Act 2008 that all that would be needed henceforward to approve the use of the simplified revision procedure would be for each House of Parliament to approve a Government motion without amendment.
As my hon. Friend the Member for North East Somerset pointed out with characteristic acuity, there is a considerable difference between the kind of detailed examination and debate that takes place on the Floor of the House during the various stages of proceedings on primary legislation and the brief 90-minute or two-hour debate on a motion tabled under the provisions of the 2008 legislation. I would hope that my right hon. and hon. Friends, whatever our differences on one or two other matters to do with the EU, would acknowledge that the 2011 Act has made an important and significant difference in restoring the central role of Parliament and, in particular, the Chamber of the House of Commons, as the place where things as important and significant as European treaty amendments can be considered in full. The disgrace is that the 2008 legislation sought to take those powers away from Parliament in the first place.
Before moving to the content of the Bill, I want briefly to respond to some of the points made by hon. Members during the debate. I turn first, of course, to my hon. Friend the Member for Stone (Mr Cash). The hon. Member for Wolverhampton North East said that she had returned from the summer break feeling invigorated and ready for the European fray once again. I have descended from the mountains of Snowdonia full of enthusiasm and relish to debate with my hon. Friend once again. I agreed with a fair measure of his analysis, and I think that most of those who contributed to this debate, from whatever party, agreed that the euro was created without sufficient thought being given to ensuring the stability of the single currency area, given that there was not the degree of fiscal, economic and political integration normally expected in a currency area.
My hon. Friend the Member for Stone warned in stark terms that the current eurozone crisis contained not only profound economic risks but significant—he would probably say dangerous—political challenges, and he has been consistent in arguing those points. I am one of those survivors on the Government Benches who has vivid memories of his contributions at 5 o’clock in the morning during proceedings on the Maastricht legislation in 1992-93. I agree that the crisis facing the euro presents the eurozone countries with important political as well as economic challenges. If it is agreed to centralise or co-ordinate decisions on some of the fundamentals of economic policy, it also has to be decided how those decisions, which are so important to the citizens of the countries concerned, are to be made democratically accountable. There is, then, a political, as well as an economic challenge, for our friends and neighbours in the eurozone.
It would be foolish, however, for British politicians to assume that the leaders and voters in other EU member states will necessarily respond to those political challenges in the same way as the UK electorate might be expected to do. Each European country has its own historical experience and economic and geographical particularities to take into account.
Let me take, for example, the conversations I had with members of the Governments of the three Baltic republics during my visits there. One of the things that they were keen to make clear to me was that although they certainly valued and cherished their hard won independence—the reclamation of their freedom—they also saw the integration of the European Union not as a threat, but as a way to entrench their European and democratic identity, so that never again could they be pulled back towards an eastern alignment or towards Russian influence, which they still feared, for understandable historical reasons.
Let us take Germany, which is a very different case. Where I parted company with my hon. Friend the Member for Stone was when he spoke of Germany. I do not think it was his intention, but some of the phrases he used came across in such a way as to present Germany as somehow having sinister intentions towards the rest of Europe. However, whenever one speaks to German politicians, from whichever political party they come, what one finds striking is that they see support for European integration as a means of providing reassurance to their neighbours that Germany is not going to go off on some nationalist course again; that France, the Netherlands and other countries that were occupied by Germany in the mid-20th century would see Germany’s commitment to European institutions and European methods of governance as a reassurance to them, not a threat.
Mr Cash
If I may make just a short observation about my right hon. Friend’s remarks, it is, fundamentally, that in my judgment Germany is very concerned about government by rule, whereas we in the United Kingdom are much more concerned about government by consent. The fundamental problem is one of democracy, as illustrated by the fact that about 99% of the Bundestag agreed to all the arrangements, yet we know from opinion polls what percentage of the German people take a different view. It is that dichotomy which causes concern, and there are other factors in relation to Angela Merkel’s agenda.
Mr Lidington
I do not want to get drawn into a detailed debate about a comparative political analysis between the British and German approaches. Let me say briefly to my hon. Friend, first, that when Germany looks at her history, she has good reasons for looking to firm rules and strong institutions, such as the constitutional court. Secondly, it is not completely unknown for the House of Commons to vote by a large majority in favour of something that every opinion poll tells it the majority of the British public opposes, so I do not think we should get too hung up on there being some vast difference in democratic interpretation between the two nations.
Dr Julian Lewis (New Forest East) (Con)
Can my right hon. Friend explain to me and the House what exactly senior Ministers mean when they talk about the remorseless logic of fiscal integration? Do they mean that it will lead inevitably to political integration, and if they do, is it no longer the case that we regard the emergence of a single power on the continent of Europe as fundamentally not in the UK’s national interest?
Mr Lidington
What it means is that we accept that, as Conservative politicians have argued since the euro was created, for a single currency zone to operate successfully over a number of different national economies there would need to be a measure of fiscal and economic integration, so that those economic differences can be managed successfully and in a stable fashion in that currency union. It is for the countries of the eurozone to work out exactly which economic and political measures will be right for their particular circumstances.
George Eustice
The Minister makes an important point about the remorseless logic. Does he not agree that one of the big problems with the way in which the European Union has developed is that it tends to introduce half-baked ideas, knowing full well that it will have to come back, several years down the line, with further measures that will mean further integration? Does he agree that we need to break that logic in some way and do what people really want, rather than creating a crisis that fuels more integration, which nobody wants?
Mr Lidington
Ultimately, it has to be for the electorate in each country to decide on the extent to which they want to take part in integration. My experience over the past two years of talking to Government leaders and other politicians in the other 26 countries, as well as following—as far as one can—the movement of opinion among the public in those countries, tells me that there is a greater level of support or toleration for Europe’s political and economic integration than there tends to be in the UK. I am generalising, of course, and there are significant differences among the 26 countries, but the historical experience of the United Kingdom in the 20th century differs from that of much of continental Europe, which helps to explain the difference in political attitudes towards European integration.
Various hon. Friends have raised a number of points during the debate, to which I wish to respond. My hon. Friends the Members for Stone and for Rochester and Strood both asked why the measure that we are debating today should be exempt from the requirement in the European Union Act 2011 for a referendum. The Act requires a referendum to be held when European Union treaties are changed in such a way as to create a transfer of competence or power from the United Kingdom to the European Union. The plain fact is that, as my hon. Friends the Members for Stroud (Neil Carmichael) and for North East Somerset pointed out, this measure does not transfer any such power or competence from this country to the institutions of the European Union. It does not even apply to the United Kingdom.
The amendment that we are debating is an amendment to article 136 of the treaty on the functioning of the European Union, which is the first article under chapter 4 of that treaty. That chapter is entitled “Provisions specific to Member States whose currency is the euro”. So, in that important legal treaty sense, this measure does not apply to the United Kingdom, although our ratification is needed to bring it into effect. Because it does not apply to us and does not transfer power or competence, there is no requirement for a referendum.
Mr Lidington
My two hon. Friends have made other related comments, to which I would like to reply first. If they then wish to intervene on me, I will give way.
My hon. Friend the Member for Stone and the right hon. Member for Rotherham (Mr MacShane) said that the referendum pledge in the 2011 Act was meaningless because my right hon. Friend the Foreign Secretary could, in effect, decide on a whim whether a referendum was needed or not. They made reference to the requirement in the Act for the Secretary of State to make and publish a decision on whether a referendum was required. Those fears are wide of the mark, however. The Secretary of State is not permitted to act on a whim; he has to act in accordance with the law, and it is the 2011 Act that sets out in some detail precisely when a referendum is required. In making the statement to Parliament, the Secretary of State must say whether the referendum is or is not required under the terms of the Act.
My hon. Friend the Member for Rochester and Strood, in asking why no referendum was required in this case, pointed to what he saw as a contradiction in the Government’s approach. I need to divide my response to him into two parts. Paragraph 3 of the recitals or preamble to the decision of 25 March 2011 formally recalls the previous decision by the European Council that article 122(2) would no longer be needed and “should not be used”. The text of the decision comes after paragraph 6 of the recitals and is introduced by the words “has adopted this decision:”. The text of the amendment to the treaties is what is being ratified by this Bill. So the 2011 Act bites on the amendment to the treaties, which is the narrow addition to article 136 of the treaty on the functioning of the European Union. This measure would attract a referendum if it included one or more of the elements listed in sections 4(1) to 4(3) of the 2011 Act. Those subsections, which provide quite a long list, define what we mean by a transfer of competence or powers. This treaty amendment does not include any of those elements that require a referendum, so we do not require a referendum in this case.
Mr Cash
I appreciate that my right hon. Friend is in a labyrinth and that it will take more than the minotaur to get him out of it. The problem is that, as the Bill’s explanatory notes clearly state, the exemption condition, which is what we are talking about,
“is met if the Act”—
the Bill, as enacted—
“providing for the approval of the decision states that the decision does not fall within section 4 of the Act.”
The bottom line is that the Government’s ultimate defence that they have got the process right is that under the Act the very decision that is taken is endorsed by Parliament when it passes the Bill; it is not about whether or not the provisions have been complied with. Clause 1(3) states that the
“decision does not fall within section 4 of the European Union Act 2011”.
In other words, we are being told, “Do not argue with me Back Benchers, because in this Act, when it goes through, that is final.” That is the bottom line of this provision.
Mr Lidington
That part of the Bill is included because it is a requirement of the 2011 Act that we bring this to Parliament to ask it to ratify formally the Government’s judgment as to whether or not a referendum is required. However, that judgment by the Government—that opinion embodied in the statement by my right hon. Friend the Foreign Secretary—followed a very careful analysis of the treaty amendment in the light of the provisions of the 2011 Act. Obviously I regret bitterly that I have clearly been unsuccessful in playing the role of Ariadne to guide my hon. Friend out of a labyrinth, but I somewhat suspect that he is not that keen to extract himself from it. The one thing he has not challenged me on is whether the treaty amendment contains any of the transfers of power or competence to the European Union from the United Kingdom specified in sections 4(1) to 4(3) of the 2011 Act. I am sure that we will have the delightful opportunity of pursuing those points further in Committee.
Mr Lidington
I will give way once more, but I do not want to pre-empt our discussions in Committee.
Mark Reckless
My concern is that in the statement provided to the House under section 5, the ministerial team has relied on section 4(4)(b), which states that a referendum will not happen when a treaty or article 48(6) decision applies only to member states other than the United Kingdom. The whole debate has relied on recitals from within that article 48(6) decision, saying that the provision gets us out of article 122 and that we will not have to contribute to further bail-outs. Surely the Government cannot have it both ways.
Mr Lidington
My hon. Friend is eliding two things. We have before us and are seeking to ratify through this Bill a treaty amendment. It relates to article 136, which applies only to those countries whose currency is the euro. Therefore, by definition, unless the United Kingdom were to join the euro, which would in itself require a referendum under the 2011 Act, it cannot apply to us. Alongside that treaty amendment, my right hon. Friend the Prime Minister successfully, and after a lot of hard work, negotiated agreement from all Heads of State and Government in the European Union that when the ESM comes into force, any future liabilities of the United Kingdom to bail out eurozone countries under the EFSM will be extinguished. That is a very significant gain for the British national interest and I hope that on reflection my hon. Friend the Member for Rochester and Strood will recognise it as such.
As I have said, in return for agreeing this treaty amendment, the Prime Minister secured agreement at the European Council that once the ESM is set up, article 122(2) of the treaty on the functioning of the European Union should no longer be used to safeguard the stability of the euro area as a whole. Our liability for future euro area financial assistance programmes under the EU budget will be removed and that is directly in the UK’s national interest. As my hon. Friend the Member for Camborne and Redruth (George Eustice) said, this gain for our interests should be considered as proportionate to the scope of the treaty change that we are considering, which is narrow and specific in what it seeks to achieve. We should also not ignore the fact that the ESM will provide the euro area with a permanent financial assistance mechanism to assist euro area member states in financial difficulty. We all share the enormous concern over the ongoing crisis in the eurozone and the chilling effect that it is having on our economy.
A stable eurozone is in the interests of the United Kingdom. We rely on those 17 countries for more than 40% of our trade, but that is only part of the picture. Confidence and stability in the eurozone are in our national interests and the resolution of the debt crisis in the eurozone would be the biggest single boost to business confidence that could happen in the British economy. That is precisely why the eurozone countries say that they need the ESM and why it is important to ensure, through all 27 member states ratifying the treaty amendment, that there is no room for doubt about that amendment’s and therefore the ESM’s compatibility with the European Union treaties.
We are not in the euro and the United Kingdom will not take part in the ESM, but it would harm our interests to stand in the way of the eurozone’s efforts to set it up and help sort out this crisis, a point made very strongly by my hon. Friend the Member for Stroud. No one is under any illusion that the European stability mechanism will be some silver bullet that will solve the eurozone’s problems overnight, but it is a step in the right direction.
When the right hon. Member for Paisley and Renfrewshire South (Mr Alexander), the shadow Foreign Secretary, spoke, he treated us to a lecture about the alleged failures of the Government’s economic policy. No Minister would stand at the Dispatch Box and say anything other than that the United Kingdom’s economic problems are deep seated and that they have been aggravated by the crisis in the eurozone, but what surprised me—perhaps I am insufficiently cynical—was the fact that there was not one word of regret from the right hon. Gentleman, let alone a morsel of contrition, for the contribution made by his Government to the economic woes from which the United Kingdom now suffers.
Some European comparisons are really quite interesting in this context. A number of hon. Members commented on the fact that some European Union countries have been more successful in recent years than the United Kingdom or the majority of EU member states have been, but it is telling to consider the contrast. Germany was paying down its debts when the Labour party was piling up the deficit here and maxing out the United Kingdom’s credit card. In the 10 years from 1997, Germany had annual growth in industrial production of 3% or more a year, while average growth in the United Kingdom over that period struggled to get above 0.2% annually. In the first decade of the 21st century, Germany maintained its share of world exports while the United Kingdom’s share almost halved thanks to the disastrous economic stewardship of the right hon. Gentleman and the Labour party.
The European Union, including the United Kingdom, needs a relentless focus on competitiveness and growth through deepening the European single market; building a single market in the digital economy, energy and services; cutting the costs of European regulation on businesses, especially small enterprises; and agreeing more free trade deals with Canada, Singapore, Japan, the United States of America and other regions of the world.
The legislation before us is one step forward, but it is only part of the strategy for renewing economic growth and competitiveness in the United Kingdom and in Europe as a whole. The Government will continue to pursue that strategy with vigour, energy and determination.
Question put and agreed to.
Bill accordingly read a Second time.
European Union (Approval of Treaty Amendment Decision) Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the European Union (Approval of Treaty Amendment Decision) Bill [Lords]:
Committal
1. The Bill shall be committed to a Committee of the whole House.
Proceedings in Committee, on Consideration and Third Reading
2. Proceedings in Committee, any proceedings on Consideration and proceedings on Third Reading shall be taken in two days in accordance with the following provisions of this Order.
3. Proceedings in Committee and any proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the second day.
4. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
Programming committee
5. Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee of the whole House, to any proceedings on consideration or to proceedings on Third Reading.
Other proceedings
6. Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(James Duddridge.)
Question agreed to.