Economic and Monetary Union (EUC Report)

Lord De Mauley Excerpts

Wednesday 9th November 2016 Grand Committee

[Lord De Mauley (Con)]

My Lords, like the noble Lord, Lord Giddens, I was not a member of the sub-committee at the time this investigation was carried out—though I have joined it subsequently—so I will keep my contribution brief. This was an important piece of work, so I am extremely grateful to the noble Baroness, Lady Falkner, and the then members of the committee.

The five presidents’ report proposes routes to achieving not only sustainable economic and financial union but fiscal union—whichever definition you may choose—by as soon as 2025. Despite the fact that this weighty report from the five presidents was not exactly gripping reading for the layman, and did not, so far as I recall, form a major part of the argument in the pre-referendum debate, I have a feeling that, had the British public focused on it, it would have been unlikely to have changed the result. Not that most, if they stopped to think about it, would have objected to putting in place the very necessary reforms to reduce the risk of further financial and sovereign debt crises, and to increase democratic accountability. Indeed, many would have applauded such reforms, especially to achieve the latter aim. In fact, I suspect that many of those who voted to leave did so precisely because of the perceived absence of democratic accountability from much of the EU paraphernalia of government. So they should welcome the sub-committee’s strong urging that the issues raised in the report, particularly those relating to democratic accountability, be addressed—something that the noble Baroness, Lady Falkner, emphasised. They should also welcome the fact that, in issuing their report, the five presidents at least recognise that more needs to be done to ensure the long-term sustainability of the eurozone.

As the sub-committee’s report says, no one should underestimate the complexity facing eurozone national Governments, which will have to deal, among many other things, with tensions between what is appropriate for the eurozone as a whole and what is appropriate for the individual member state. It is indeed axiomatic that the effectiveness of this attempt at co-ordination will ultimately depend on political will at member state level, as will, for example, the operation of the European Fiscal Board. The sub-committee is unconvinced of the existence of enough such political will. Indeed, cynics will be unsurprised by the fact that the sub-committee’s report is littered with doubts about the ability or willingness of member states to make all this work. For example, it observes that member states’ adherence to the rules is patchy and liable to be influenced by domestic political pressures, and that they have an undesirable tendency to procyclicality in the exercise of fiscal policy.

In the context of strengthening the macroeconomic imbalances procedure and fostering long-term structural reforms at the member state level, the sub-committee points to a tension between ensuring member state ownership and creating an effective enforcement mechanism at the EU level. It expresses scepticism that financial sanctions under the MIP are any more likely to be used in the future than hitherto and opines that macroeconomic imbalances in the euro area are likely to continue to be a source of instability.

The sub-committee refers to several things which need to be put in place on the route to fiscal union: a stabilisation function, procedures for the transfer of funds and an unemployment reinsurance scheme. There are challenges, too, to the perhaps less-ambitious objective of financial integration, including a potentially ambitious risk-reduction agenda before risk-sharing through the European deposit insurance scheme takes place, and uncertainty surrounding the long-term common backstop to the single resolution mechanism.

The sub-committee quite rightly warns that plans for strengthening the eurogroup, although speculative, mean that our Government must keep a weather eye on the impact a formalised eurogroup might have on our position and do all they can to ensure that the UK is protected. It also sounds a warning note for citizens of eurogroup countries about the effects on them of the pooling of sovereignty and the potential results for democratic accountability.

The proposal for representation externally has been included by the five presidents among their plans for strengthening democratic accountability but, ironically, the sub-committee points to the very real conflict between democratic accountability and unified representation of eurozone interests at the international level, for example, at the IMF.

The sub-committee points out that it is foreseen that the terms which we hope are to be negotiated between the UK in its new settlement with the EU will be incorporated into the treaties at their next revision. The five presidents’ more fundamental proposals also require treaty change. While acknowledging that to achieve the latter by 2025 may be a tall order, this could provide a negotiating opportunity for the Government as they hammer out the UK’s new settlement.

Although the five presidents’ report will still be relevant to us, assuming Brexit proceeds, it will be less so afterwards than it would otherwise have been and, crucially, our ability to influence the drivers it refers to, if we miss this opportunity, will be considerably reduced or removed entirely. So an important message for the Minister is that there is the possibility of a useful negotiating point here which the Government would do well to keep in mind.