The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, this may be a convenient moment to repeat the Statement that was made in another place by my right honourable friend the Prime Minister a few moments ago on the European Council. The Statement is as follows.
“I am sure that the whole House will join me in sending our deepest sympathies to President Obama and the American people, following the desperately tragic shootings in Connecticut on Friday. Our hearts go out to the families and friends of all those involved.
Last week’s European Council discussed further economic and monetary integration for the eurozone. It endorsed new safeguards that will protect the interests of those countries outside the eurozone. It also reached new conclusions on our response to the crisis in Syria, and there were discussions on growth and defence. This was the seventh European Council of the year. It was in no way a landmark Council, so let me address these points briefly.
First, on the eurozone, the problems of the eurozone are driving heated discussions between its members and leading to potentially significant changes inside the European Union. There are calls from some for greater solidarity and burden-sharing, and from others insistence on tough rules for fiscal discipline. These arguments raise far-reaching questions of national sovereignty, and it is yet to be determined how far or fast the changes will go, but it seems likely that we will see a process of some further integration for members of the eurozone.
Britain will not join the single currency; nor will we join the deeper integration now being contemplated. But these changes driven by the eurozone will alter the European Union for all of us, so they need to be done in the right way. That should mean flexibility over how Europe develops to accommodate the interests of all member states: those inside the euro, those which might one day join and those, like Britain, which are outside and have no intention of joining.
It also means that as eurozone members make the changes they need, so we in the UK will have the ability to argue for the changes that we need in our relationship with a changing European Union to get the best possible deal for the British people. The banking union, elements of which were agreed last week, is a good example of this. A single currency needs a single system for supervising banks, so Britain supported the first steps that were agreed towards a banking union. But in return, we—and others—demanded proper safeguards for countries that stay outside the new arrangements. So the Council agreed a new voting system, which means that the eurozone cannot impose rules on the countries outside the euro area, like Britain, without our agreement. There is also an explicit clause that says that no action by the European Central Bank should directly or indirectly discriminate against those countries outside a banking union. This is vital for our financial services industry, which must continue to be able to provide financial products in any currency. The Bank of England and the ECB will have a statutory memorandum of understanding that will ensure that they work co-operatively and openly to supervise cross-border banks. These safeguards set an important new precedent in terms of giving rights to countries that choose to stay outside the euro.
In winning this argument we have demonstrated how a change necessary for the eurozone can lead to a change for countries outside the eurozone, which can help us to safeguard the things that matter to us in Britain, in particular the integrity of the single market. As the eurozone makes further changes, I will seek every opportunity to get the best deal for Britain and for the single market as a whole.
On growth and competitiveness, this year we have already secured a proper plan with dates and actions for completing the single market in services, energy and digital; a commitment to exempt small businesses from new regulation; the establishment of a European patent court with key offices in London, which will save businesses millions of pounds; a new free trade agreement with Singapore; and the launch of negotiations on a free trade agreement with Japan that could increase EU GDP by €43 billion a year. The conclusions from this Council have the additional benefit of referring to Commission plans to “scrap” some of its own,
“regulations that are no longer of use”.
On defence, we are clear that NATO is the cornerstone of our defence, and EU co-operation should avoid costly new bureaucracy and institution-building. We will never support a European army. The focus of the Council conclusions is entirely consistent with this, referring to practical co-operation to tackle conflict and instability in places such as Kosovo and the Horn of Africa. In addition, the conclusions welcome proposals to open up closed defence markets in Europe, which will be to Britain’s benefit.
I turn finally to Syria. As a result of Assad’s brutality, a humanitarian crisis is unfolding in Syria on our watch, with more than 40,000 dead and millions in need of urgent assistance as a hard winter approaches. There is a moral imperative to act, and Britain is doing so as the second largest donor in terms of humanitarian aid. But there is also a strategic imperative. Syria is attracting and empowering a new cohort of al-Qaeda-linked extremists. There is a growing risk of instability spreading to Syria’s neighbours and a risk of drawing regional powers into direct conflict, so we cannot go on as we are. The Council was clear, as Britain has been for many months, that Assad’s regime is illegitimate. It committed to work for a future for Syria that is democratic and inclusive, with full support for human rights and minorities. We will continue to encourage political transition from the top and to support the opposition, who are attempting to force a transition from below. This will include looking at the arms embargo. The conclusions make it clear that we must now explore all options to help the opposition and to enable greater support for the protection of civilians.
So, progress on Syria, our objective on banking union secured, and the principle established that changes in the eurozone require safeguards for those outside. I commend this Statement to the House”.
My Lords, that concludes the Statement.
Baroness Royall of Blaisdon
My Lords, I join the Leader of the House and the Prime Minister in sending deepest condolences to President Obama and the people of the United States. The Connecticut shooting was an appalling tragedy, and all the families affected are in our thoughts as they cope with their loss and grief.
I am grateful to the Leader of the House for repeating the Statement on the European Council given to the other place by the Prime Minister. I shall touch upon three main areas: Syria, banking union and the wider context of treaty change.
Let me associate these Benches with the concern expressed in the Statement about the ongoing loss of life in Syria. The international community must continue to work together to end these atrocities immediately and speak with one voice in favour of a transition to a new Government. The noble Lord mentioned the arms embargo while also noting that Syria is attracting,
“a new cohort of Al Qaeda-linked extremists”.
In that context, are the Government urging the EU to end its arms embargo or merely to amend its terms? Do the Government recognise the dangers inherent in this?
We welcome the agreement on the next steps on banking union. It is right for the European Central Bank to have a supervisory role in the eurozone. However, does the Leader agree that the most important issue is not who supervises which banks, but who takes responsibility for bailing out failing banks in the euro area? That is what will deliver the firewall that we need between bank and sovereign risk. Did the Government make the case for urgency on this matter at the Council?
It is good that progress was made to protect the integrity of the single market. Was there discussion at the Council of how the new system will cope in the event of changing circumstances; for example, if more countries join the banking union and, in particular, if EU members currently outside the eurozone join the banking union and the “out” group shrinks to three or four member states?
Beyond questions of banking, is not the real issue for Europe the failure to deliver a plan for growth? The Minister mentioned a list of disparate steps, but on a real comprehensive plan for growth, we saw no progress, just as we saw no progress on wider eurozone political and economic integration. All the Council did was set a timetable—June 2013—to set a timetable.
For some considerable time we have been promised a long-awaited speech on Europe by the Prime Minister. We are now told it is being delayed again—that is three times. First it was set for the Conservative Party’s autumn conference, but we understand the FCO intervened. Then it was set for before the EU budget negotiations and now we hear that he has delayed it again, this time until the new year. In the absence of the Prime Minister’s speech, will the Leader of the House answer three simple questions?
First, the Foreign Secretary has said about an in/out referendum,
“this proposition is the wrong question at the wrong time … It would create additional economic uncertainty in this country at a difficult economic time”.
We agree with the Foreign Secretary. Does the Conservative Party? Secondly, the Prime Minister said last week:
“I don’t want Britain to leave the European Union”.
We agree with the Prime Minister, but why does he let member after member of his Cabinet brief that they are open to leaving the EU, including most recently the Education Secretary? Thirdly, British business is deeply concerned that the drift in the noble Lord's party and the direction of its policy mean that we are sleepwalking towards exit. We share that deep concern. Do the Government? The repeated postponement of the Prime Minister’s speech catches the point about the Government—at least the Conservative part of the coalition—on Europe. They are caught between the national interest for staying in and the Conservative Party, so many of whom want out. Britain deserves better.
Lord Strathclyde
My Lords, I thank the noble Baroness for what she said at the start of her speech, joining us—as I am sure the whole House does—in sending our deepest condolences after the horrors and tragedy that occurred in America. Our hearts must go out to these families and to the nation as a whole. As for the questions that the noble Baroness raised about Syria, particularly the arms embargo, I am glad to say that we think it is right to look at the arms embargo and seek to amend its terms. It is right to keep the embargo against the regime. We will see how matters unfold over the next few weeks and months, and join our colleagues and partners in the EU and beyond in making sure that we come to the right decisions on this question.
The key to the noble Baroness’s speech was what happened at the European Council, particularly on banking union and the future relationship between this Government and the EU. The most important aspect of the banking union is that there has been a big breakthrough: non-eurozone members will have a say on eurozone rules that could affect them. Before this council, many people said that we would not achieve that. As for the important question about changing circumstances, we have agreed that there should be a review of the decision rules when the number of non-participating members reaches four. That could be some time away. Subsequently we have ensured that this review will report to the European Council, where the decision about what to do next will be taken by consensus.
The noble Baroness asked what we were doing about growth. It will not be news to this House that all countries in Europe have immense fiscal challenges and we must focus on what can help best. We believe that some of the changes that we have effected over the past two and a half years, on international trade deals, deregulation and completing the single market are not designed just to help us here in Britain, but also the rest of Europe. There is good news on some of this; at least in the United Kingdom. There are more people working in the private sector than ever before and the number of those claiming the main out-of-work benefits has fallen by almost 200,000. That is all a step in the right direction.
The noble Baroness went on to ask three simple questions—she might have thought that they were simple, but they raise important issues for the future. On the question of an in/out referendum and what the Foreign Secretary has said, I do not think that any of that creates a great deal of uncertainty. It is an issue that is live in the country today. People are asking about it. I very much believe that neither option—in or out—is the right question to ask. Europe is in a state of flux. Enormous changes are going on as a result of the eurozone that will give us and people who think like us an opportunity to look ahead and gently to forge a Europe that will serve all the people of Europe in future.
The noble Baroness also most unfairly criticised the Prime Minister and the Government for not doing what British business wanted us to do. She felt that we are drifting towards the EU exit and that British business was uncomfortable with that. I do not accept either premise. We are not drifting to an exit from the EU; therefore, British business is not concerned about that. British business is concerned about increased regulation, centralisation and bureaucracy. Those are all things that we can agree on. The noble Baroness shakes her head, but when you talk to British businesses, those are the things that they are concerned about. They do not believe for one moment that we are about to leave the EU; and nor are we.
Baroness Falkner of Margravine
My Lords, can my noble friend tell us about the discussions on Syria and, in particular, whether the United Kingdom has changed its position on lifting the arms embargo and is thinking of starting to get involved in arming either side of the conflict, not least the new coalition?
Apropos the European Council conclusions, the Leader of the House told us that the Bank of England and the European Central Bank are to have a statutory memorandum of understanding detailing their relationship. Can he tell the House a little more about what that will contain in terms of its legal underpinnings and when that might come about?
Lord Strathclyde
My Lords, those are two useful questions. First, on Syria, we are all deeply concerned by the escalation of violence and its increasing impact on the wider region. We very much welcome the increased support for the national coalition following the Friends of Syria meeting in Marrakech on 12 December 2012, and we are working with others in the international community, including within the EU, to seek an end to the violence and a political solution to the crisis. On sanctions, we have led the way in introducing EU measures against the Syrian regime. The latest round, the 19th, was adopted on 15 October, and we successfully negotiated a three-month rollover of the EU sanctions measures, including the arms embargo, last month. However, there is a fast-changing situation in Syria, and we need to keep it constantly under review.
My noble friend asked a second question about the banking union, the role of the relationship between the Bank of England and the ECB and, in particular, the role of the memorandum of understanding. I confirm to my noble friend that there is a statutory requirement in ECB regulations to have an MoU between the ECB and the Bank of England that secures co-ordination of supervision of cross-border banks and activities. There is no deadline for the MoU to be signed, but ideally it should be in place before the single supervisory mechanism kicks in, which should be by June 2014.
Lord Harrison
My Lords, through the Leader of the House, I thank the Financial Secretary, Mr Clark, for keeping my committee, which concerns itself with EU economic and financial affairs, alert to what was going on last week, both on the publication of our report of the emerging conclusions—published early to help the Government—and in the aftermath, when he reported back through me to Sub-Committee A of the Select Committee chaired by the noble Lord, Lord Boswell.
However, there are residual questions which we will test in the early months of next year, including with the Financial Secretary. With regard to the MoU, I would like the Leader of the House to take back to his colleagues a better and more profound scrutiny of the position the United Kingdom finds itself in, as countries begin to enter the European banking union, so that the protection of those who are the current “outs”—although many want to join the European banking union in a way that the United Kingdom does not—is not compromised by endorsing the supervisory board which reports to the governing body of the European Central Bank. That may imply, ultimately, treaty change. Would he be alert to that?
I have another question. The single market is the butt of what we are attempting to do in this country to protect the UK’s interest. Will he listen to the voices outside, and from British business, who say that financial services in particular, but the single market as a whole, are imperilled by our standing outside this close integration?
Lord Strathclyde
My Lords, I have yet to meet many businesspeople who think that it was wrong for us not to join the euro when it was created. Many businesses—in fact, all—that I meet are very keen on the single market and on how it operates. The Council has safeguarded the interest of British business and the City in particular. We believe that those safeguards are extremely important. The noble Lord, Lord Harrison, mentioned the distinguished report from the committee that he chairs. It is a valuable and important report. There is a lot of it; it will require digesting by the Government. However, there are some useful pointers here. On the parts of his questions to do with treaty change, which I will not answer in detail now, these are exactly the kinds of issue we will need to consider before coming up with conclusions.
Lord Williamson of Horton
My Lords, the monitoring and supervision of the large banks within the eurozone is coming in the so-called European banking union. It is obviously imperative that the group of 17 eurozone members cannot take over, in effect, the European Banking Authority which sets standards for the 27. In order to avoid that and to protect the EBA from risk, will the noble Lord comment on how watertight is the proposed requirement that there must be a simple majority of states, both in the eurozone and outside it?
Lord Strathclyde
My Lords, the noble Lord, Lord Williamson of Horton, asks a straight question: how watertight is the agreement on the requirement to have a majority? If I may mix my metaphors, the agreement that was struck in this council is absolutely rock hard. I do not think that I can put it more strongly than that.
Lord Davies of Stamford
My Lords, can the noble Lord go a bit further into banking unions? A banking union must contain two things. One is a supervisory regime, and it is clear what has been agreed there; it is perfectly satisfactory. However, it must also contain provisions for bank resolution. Can the noble Lord tell us in greater detail how this will work? In particular, if the ECB has to bail out an institution in the future to prevent a systemic threat, where will the requisite funds come from and what arrangements have already been made to ensure that those funds will be available on the day they are required?
Lord Strathclyde
My Lords, that is a good question but I will not be tempted to get into the details of this, because they have not been finally agreed within the eurozone. Final conclusions on that will need to be come to over the course of the next few months.
Lord Stoddart of Swindon
My Lords, first, I wonder whether the noble Lord has seen a report that the Bundesbank’s lawyers have found that the eurozone banking union lacks a sustainable legal basis and that there is a lack of clarity over the new safeguard powers. Is he able to comment on that? It is a very serious statement. Secondly, on page 4 the Prime Minister says:
“We will never support a European army”,
but we have an Air Force and a Navy as well, so presumably the “army” also includes those two forces. Perhaps the wording ought to be reconsidered in future. Thirdly, on Syria, I find it very worrying that the Government are urging that the arms embargo should be lifted by the European Union. Arms mean more deaths, surely. Will the Government not embark upon a peace process rather than a war process, given the support of some elements in Syria which are nasty, vicious and should not be supported?
Lord Strathclyde
My Lords, on the question of the Bundesbank and its lawyers’ view of the safeguards, the noble Lord has an advantage over me. I have not seen that but perhaps I could ask my officials to look into it and I will send him a letter. As far as I am concerned, when the Prime Minister said that Britain will not join a European army, he meant the European armed forces. Why do I say that with such confidence? Because I know that what he believes in is co-operation between our nations and their armed forces, which we have done very successfully, particularly with the French, and no doubt that will continue. On Syria, I agree with the noble Lord that it would be premature to lift the arms embargo but it is also right to keep it under review, and that is what we are doing.
Baroness Quin
My Lords, in the Statement there was a phrase to the effect that we will never be part of a European army, but was there a serious proposal at the summit to create such a European army? If not, why was it felt that that statement needed to be included?
Lord Strathclyde
No, my Lords, there was not a firm proposal that there should be a European army but there was an early discussion about a series of councils that will take place next year to discuss common defence and security policy. It is important for the Prime Minister to lay out his position as early as possible. After all, if he does not, that is how rumours start—such as the one propagated just now by the noble Lord, Lord Stoddart, who also gave me an opportunity to put the record straight.
Lord Kerr of Kinlochard
My Lords, will the noble Lord revert to the question of the noble Lord, Lord Williamson, and his own exegesis of the sentence in the Council conclusions that says,
“the Council agreed a new voting system which means the Eurozone can not impose rules on the countries outside the Euro area”?
Does he agree that that sentence means that the Council agreed a new voting system for the EBA, not for the Council? Does he agree that that voting system depends on there being four non-members of the European single supervisory mechanism for its survival?
Lord Strathclyde
Yes, my Lords, the noble Lord has made an important clarification. I hope that nothing I have said has given the impression that I did not think that is what it meant—I am glad to have the noble Lord’s confirmation of that. It is absolutely right that those are the two locks. It is the first time that we have been able to get agreement that any changes require the agreement of a majority of those countries that are not in the eurozone.
Lord Anderson of Swansea
My Lords, there were discussions at the Council on a potential free-trade agreement between the European Union and Japan. The noble Lord the Leader of the House will be aware that in parallel there are discussions between the United States and Japan. What, if anything, was said about the third part of the triangle—a free-trade agreement between the European Union and the United States?
Lord Strathclyde
My Lords, there is nothing I can add to what I have already said. However, being a believer in free trade. which I think the noble Lord is too, we should very much welcome the agreement between the EU and Japan. If the United States and Japan can make a similar agreement and commitment to free trade then that is a very good thing, and in the long term we should look to furthering free-trade agreements between the EU and the USA.
Lord Pearson of Rannoch
My Lords, the Statement brings us the surprising news that the Commission has promised to scrap some of its own regulations that are no longer of use. What is the anticipated timescale and volume of this exercise? Are the Government confident that Brussels is acting in good faith when it makes this promise? What legal mechanisms will function at the national level? Will the Government have any input into this process? Above all, will the Government keep noble Lords up to date as these regulations are scrapped?
Lord Strathclyde
My Lords, the noble Lord, Lord Pearson of Rannoch, is entirely right to raise this issue. The best way of keeping both the Government and the European Commission up to the mark is for the noble Lord, as I know he will, to constantly ask questions about how it is going. He asked about timing. I do not think there is a timescale for it. The important change is that in the Council’s conclusions there was an absolute recognition that there are some unnecessary regulations that are no longer needed and need to be scrapped. The noble Lord, Lord Pearson, his friends and many others in the House may start proposing which ones they should be, in which case they should write directly to the Commission.
Baroness Wheatcroft
My Lords, the creation of an EU bank regulator, of which the UK will be independent, is certainly good news. Can my noble friend say something about the position of the UK operations of EU banks? Will there be pressure for them to be subsidiaries, rather than just operating branches, so that the Bank of England can more closely regulate them?
Lord Strathclyde
My Lords, I do not have the immediate answer to that question. It raises all sorts of questions about the relationship between bank branches in the United Kingdom and their parent companies in the EU, most notably those headquartered in eurozone areas. I am not sure if there is a definite answer at this stage, but if there is I will let the noble Baroness know.
Lord McConnell of Glenscorrodale
My Lords, I was disappointed the Prime Minister chose to be so negative and parochial in his Statement today about what is actually quite a positive statement on the common security and defence policy in the conclusions of the European Council meeting. The European Council meeting talked about enhancing and strengthening the common security and defence policy—one that was begun under a Conservative Government in the UK and has been maintained under Governments of all colours since.
I was also a bit disappointed that the conclusions, in talking, rightly, about the comprehensive approach to security, did not mention development alongside the importance of crisis management and stabilisation. I wonder if, in the discussions that will take place over the next 12 months, the UK Government will ensure that the important role of development alongside diplomacy and defence is recognised as we work towards refreshing this CSDP in December 2013.
Lord Strathclyde
My Lords, I do not share the view that the noble Lord has propounded that my right honourable friend the Prime Minister’s Statement was negative on this matter. There are many people in this country who will regard the British Prime Minister saying that we will not join a European army as an extremely good and positive thing. I would have liked to have seen the noble Lord agree with that.
However, on the common security and defence policy, of course we are fully behind proposals to increase our international security. As I said to the noble Lord, Lord Stoddart of Swindon, a few moments ago, our policy is based very much on international co-operation. NATO is the cornerstone of our defence process, but we also have bilateral relationships with individual countries that are to the benefit of us all.
I cannot believe that the noble Lord, with all his experience, knowledge and background in development, particularly development in Africa, would think that this Government would ever shirk from talking about their development record, most notably the record amounts of money that we now spend, and focus extremely effectively, in the parts of the world with greatest need. That is something that the Government are very proud of. I am sure that future Councils will refer to development whenever they get around to discussing it.
Lord Howarth of Newport
My Lords, has it not been a cardinal principle of British foreign policy for hundreds of years to maintain our influence with powers on the Continent of Europe the policies of which are crucial to our interests? The Statement spoke somewhat vaguely about safeguards; the noble Lord has declined to be drawn on details. Will he explain to the House how, as European Council follows European Council, and as those countries that manage to survive as members of the eurozone continue to deepen their fiscal and political integration, the Government’s engagement with those core European powers, which will be concerting their polices to powerful effect, can be increasingly other than tangential?
Lord Strathclyde
My Lords, perhaps there is a philosophical gap between the noble Lord and the Government on this issue. We completely support the idea of a banking union within the eurozone; it is key to the eurozone succeeding in the longer term, and we have long supported it. At the same time, we wanted to have safeguards within the single market—which I know that the noble Lord supports—to ensure that there was non-discrimination. In the communiqué, we have an absolute commitment to non-discrimination within the single market for countries that are outside the eurozone.
I am bound to say, despite the rhetoric that sometimes comes from opponents of this Government’s policy on Europe, that this European Council—the last of seven of this year—has been a resounding success. I very much hope that it will set a good pattern for the course of the next few months.