European Union (Approval of Treaty Amendment Decision) Bill [HL]

Baroness Falkner of Margravine Excerpts

Wednesday 23rd May 2012 Lords Chamber

[Baroness Falkner of Margravine]

My Lords, it is a pleasure in this Second Reading debate to follow the noble Lord, Lord Radice, whose expertise and passion about the European Union remains undiminished. I agree with a lot of what he said; I particularly agree with his comments regarding Germany’s need to incorporate and use its fiscal levers to bring about a greater boost to growth within Germany. I am glad to see in that context that the noble Lord, Lord Sassoon, is in his place, and I hope that he will recall that I exhorted him to do precisely that last Thursday. Of course, in the intervening period the Prime Minister has come out saying many of those things himself, so it is a very good move. We are not preaching to the Germans; we are exhorting them to do what I think has considerable support in Germany itself, as the noble Lord, Lord Radice, mentioned, in terms of the Finance Minister.

I shall keep my remarks on the Bill very brief. With the informal European Union summit ahead of us tonight and the eurozone crisis continuing to unfold, there is little to be said about the Bill before us. It rightly allows for the eurozone countries to move forward to establish a permanent facility for those states that are in the eurozone. One could almost say that it has little to do with the UK, but also that it has everything to do with the UK. It is clearly and essentially in the United Kingdom’s national interest to have the European stability mechanism established as soon as possible, to enable the eurozone sovereign debt crisis to be dealt with through the creation of a permanent mechanism. We may quibble about whether the extent of capitalisation is sufficient—at 5% of eurozone GDP it would appear not, but it is certainly a step in the right direction. It also creates the possibility that should further capitalisation be required, other methods of raising finance, such as Eurobonds if politically acceptable to those countries—it is only about those countries in the eurozone—could be an option.

Let me come to the politics of the Bill here. Anyone who believes that there is some easy fix to the eurozone crisis through letting Greece default is mistaken. While our banking sector may not be significantly exposed to Greek banks which might fail, it is undoubtedly exposed to French, Spanish, and Italian banks which might be affected by their own exposures to Greek debt and the contagion effect thereon. We have, in effect, a banking sector that is still extremely fragile some four years after the financial crisis of 2008. However, it is not only the banking sector that would be affected. Half our trade is with the eurozone and a further 10% within the European Union as a whole. The eurozone’s GDP is projected to be in deficit in 2012—marginally so, to the tune of 0.1%, but nevertheless, the drag caused by fiscal consolidation or austerity measures is very palpable.

Unemployment is predicted to rise to 11% but it is significantly higher especially among the young—all factors that impact on domestic consumption within those countries. It is British business which will take a hit as the southern countries slide deeper into recession; it is young British workers who will face stiffer competition from well educated European nationals who will come here to seek work in the northern countries; and it is the British consumers who will face a drop in confidence as those in countries around them are deeply affected by the crisis. As a trading nation dependent on a large service industry, we cannot insulate ourselves from our neighbours in the European Union.

The Bill is a first step to stabilising the crisis, but the European stability mechanism must be accompanied by a pro-growth strategy through faster adjustment. If this results in greater fiscal and political integration, we should accept that that is the right way forward for those countries that have chosen to be in the eurozone. Thankfully, we are not in that position, but that does not mean that we do not have to engage with the developments as they inevitably happen. It will be a rocky path to get to a resolution of the crisis, but for now we on these Benches welcome this enabling measure.