EU: Recent Developments

Lord Brittan of Spennithorne Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Brittan of Spennithorne]

My Lords, the dramatic unfolding of the eurozone crisis, in particular the inevitable focus on the handling of the Greek situation, risks obscuring the more fundamental underlying debate about the eurozone that, in my view, has to take place. That debate is over the extent to which, for a monetary union to work, it needs to be accompanied by a fiscal union, and what the nature of such a fiscal union has to be. I am quite sure that the fiscal agreement reached by 25 of the 27 members of the EU is only a staging post in that debate.

The Government are absolutely right to say that not only is it in our interests that the problems of the eurozone should be resolved, but more specifically, as my noble friend Lord Sassoon said in this House last week,

“this intergovernmental agreement, which goes to the heart of strengthening the fiscal arrangements within the eurozone, is a necessary but not sufficient part of what we hope to see”.—[Official Report, 7/2/12; col. 124.]

I am also glad to note that the Government have backed away from what they appeared to be tempted to do—trying to block the use of EU institutions in the application of the new intergovernmental agreement—and have merely expressed what one might call generalised potential anxiety, saying that we will watch very carefully how that develops and reserve our position. This view was reflected in what my noble friend Lord Howell said in opening this debate.

With regard to the agreement that was reached, no one has been able to explain convincingly—to me, in any event—what that agreement, if we had signed up to it, would have forced us to do that we do not want to do or what it would have prevented us from doing that we do want to do. Leaving that broader question aside, at least we have backed away from trying to torpedo the agreement by preventing the use of the European Union institutions in its application. That not only would have caused us huge ill will but would have risked damaging the very interests that we have been trying to protect. The financial services industry is but one example. Now, why is that so? It is because for decades, under existing treaties, European legislation on, for example, financial services, can be passed by qualified majority voting. Not agreeing to the latest agreement has not changed that by one jot or tittle.

However, there has been an almost universal recognition of the very special importance for us of this sector and we have not been outvoted on any matters of great importance for us in the financial area. On the other hand, I vividly recall when I was in Brussels seeing Mr Tietmeyer absolutely fuming on one occasion when Germany was outvoted on such an issue. If we had sought to torpedo the new intergovernmental agreement, could we guarantee that the restraint by our partners would have continued to be exercised in the future? I very much doubt it.

Leaving aside our particular concerns, where should we stand on the debate on the extent to which monetary union can only work if accompanied by fiscal union? No one could disagree with the broad proposition that on the fiscal side the policy that is needed is budgetary austerity to reduce public debt, combined with structural reforms to boost competitiveness. However, to what extent does all that need to be enshrined in European legislation? The creation of the European stability mechanism does not answer that question, as that is a bailout mechanism to deal with a crisis, not a constitutional mechanism to create the degree of fiscal union needed to prevent a crisis arising.

Of course, the term fiscal union can mean many different things. Assuming agreement on the broad lines of the fiscal policy that is needed, fiscal union can range from organised peer group surveillance to broad rules on the permissible extent of budget deficits to the highly intrusive imposition of limits on national spending and taxation. If the authoritative article in last week’s Financial Times is to be believed, the German position is that national taxes should be co-ordinated or even harmonised with national budgets supervised by the European Commission, with the EU able to insist on certain spending priorities designed to ensure that the competitiveness of growth targets are met. In addition, it has been proposed that a commitment to balance budgets should be required in national constitutions. If all those were agreed, it is suggested that Germany might then be prepared to agree to the issue of Eurobonds. Of course, it is possible that all that is a deliberately tough negotiating position floated to the Financial Times.

Whether that is so or not, I want to take this opportunity to say that I do not think that it is necessary for fiscal union to go anything like as far as that to make monetary union succeed. I have seen no evidence to support the contrary view. As long as there is an effective commitment to the fiscal policy that I have described and a mechanism of a general kind to enforce that, I see no need or reason to be more prescriptive than that. I believe that the intergovernmental agreement agreed by the 25 member states should and can provide that. I only wish that the United Kingdom had felt able to agree to join it.

If the mechanism can be established to make that agreement stick, I believe that the fiscal component required to make monetary union work would have been adequately provided. That will be necessary, but also sufficient, for the eurozone and the EU as a whole and in the interests of the UK. However, I cannot see why any further harmonisation or co-ordination would be necessary. Of course, we would be in a much stronger position to oppose such further harmonisation if we had been prepared to participate in the much more limited agreement that has the support of 25 out of our 26 partners. I restate that I regret that we were not able to do so.