Genuine Economic and Monetary Union (EUC Report)

Debate between Lord Kerr of Kinlochard and Lord Davies of Stamford

Wednesday 2nd July 2014 Grand Committee

[Lord Kerr of Kinlochard]

I cannot say that I think of that every morning as I arrive, but I will bear the noble Lord’s words in mind.

I want to make five minor topical, practical points arising from the report. First, in strict logic, the position that the Government take up—that banking union is nothing to do with us but is a matter for eurozone countries—could mean that the Government do not object to the proposal, much discussed in Brussels at the moment, that the heavily overloaded Commission’s single market directorate-general should be split, with banking and financial legislation moving to the financial directorate-general, the primary concern of which is of course for the health of the euro, leaving the single market directorate-general handling the classic single market agenda. That would be disastrous, from a number of points of view, not least from the point of view of UK interests. The British Bankers’ Association states:

“It is of utmost importance to maintain the structure of the relevant Commission services dealing with financial services so that their work is permeated with the priority of preserving the single market focus. We suggest that the UK Government should proactively defend the unity of DG MARKT and oppose any plan to move financial services out of it. It would be a mistake to move the work e.g. to DG ECFIN which has quite different priorities”.

I strongly agree and I hope that the Minister will be able to reassure us that we shall—to the extent that our current influence allows—work to ensure that that does not happen.

In my view, it is highly desirable and important that the current head of the single market directorate-general, the most senior of that very small and dwindling band of British personnel in the Commission, should stay where he is. I strongly agree with what has been said already today about the need to reinforce that. Retaining the unicity of the director-general is much more important than who is the single market commissioner—the issue that dominates the headlines. What matters is that it is the director-general and that he covers all the work that is of interest to the City of London.

My second point is also quite topical. I hope that the Government will, to the extent that their current influence allows, seek to discourage a second suggestion much debated in Brussels now, which is that the next finance commissioner should also be the next president of the Eurogroup, replacing Mr Dijsselbloem, the Dutch Finance Minister, when his term ends next summer. Combining the two jobs would be a prescription for serious schizophrenia, with a real risk that eurozone concerns might override single market integrity. This is not a moot point in the US sense. In our report we use “moot point” in the British sense, which means it is a key issue. In America, a moot point is a point so boring and irrelevant that it is worth discussing only in a moot court—a fine example of the difference between the two languages, as is “tabled”. If we said that our report had been tabled, people in Congress would say, “Oh, bad luck”, because it means shelved in America.

The moot point is that we have seen two recent examples of just what I am worried about—eurozone concerns overriding single market integrity. In the Cyprus crisis, when the eurozone imposed capital controls, that was a fundamental strike—which may have been necessary in the crisis—against a fundamental principle of the single market. It affected non-eurozone citizens. A British citizen with money in Cyprus could not move his money because of capital controls introduced by the eurozone. The result was that the case was quite rightly taken by the British Government to the Court of Justice against the ECB for its attempt to argue that clearing systems trading euro-denominated paper must be within the eurozone. That, too, is a clear breach of the single market and I applaud the Government for contesting it. It would be dangerous to see the two jobs of presidency of the Eurogroup and finance commissioner in the Commission combined. That may be difficult to prevent, given diminished influence, but I urge the Government to have a go.

[Lord Davies of Stamford (Lab)]

Does the noble Lord agree that in a crisis—this is true whether supervision and regulation are done on a national basis or on the basis of the Union as a whole—the need to prevent the crisis and deal with it must override market rules? That has always been the case in this country and in the United States. It has always been the case in any country run by good governance rules.

[Lord Kerr of Kinlochard]

I hasten to add that I do not know the detail of what happened over that weekend when the capital controls were introduced. The noble Lord may be quite right. I merely say that there is a risk here: we see it in the case we are bringing in the court and saw it over the Cyprus capital controls.

The third point, about the European Parliament, is very topical. The committee was lucky enough to take evidence from Sharon Bowles, who chaired the relevant committee in the European Parliament. She did so extremely well and has now retired from the Parliament. There were two other senior British Members of the European Parliament on the committee. I do not know who will be on the reformed committee, but it is crucial in relation to financial legislation. The new chairman of the committee is a highly effective, intelligent Italian, but I do not know whether there will be British members. Presumably, we cannot look to UKIP to do any work and, given the sad fact that the Conservatives are not in the EPP family, I do not know whether there will be a Conservative on this committee. There were two Labour members on the outgoing committee—they were both extremely good but have retired. I hope that the parties will get together and, in the national interest and the interest of the City, will ensure that there are some people on that key committee who are aware of the importance of the City and the importance for the City’s health of good European legislation.

The fourth point is not quite so topical. I urge the Government to think very carefully about the implications of the change in Council voting weights which happens in four months’ time. The UK’s voting weight goes up from about 8% to about 12% but comparable increases for other large member states, such as Germany, France and Italy, mean that the eurozone will, for the first time, have a clear qualified majority. That is in the Council but also in the ESMA—the European Securities and Markets Authority—although not in the EBA because of the dual-majority system. That is rather fragile but, for as long as it lasts, this will not apply there.

The voting weight change in the Council reduces the viability of a purely defensive strategy of the kind that the United Kingdom has adopted on the banking union dossier. We have argued, as the Minister has, that our aim is to protect the interests of non-eurozone single market members, in particular the interests of the UK financial community. We have been doing that by objecting to various things and looking for support. We have often been able to obtain that support, but it will be more difficult in future. We will need to change our tone and our posture: we will need to be a little more proactive and a little more constructive. In particular, we should be trying to field City experts to advise our partners, in a non-polemical way, on how they can best, in their interests, keep their transactions capital—London—healthy and ensure that the EU remains in the big league, playing host to one of the big three global markets. The saga of our handling of the ludicrous financial transactions tax proposal shows that we are not very good at that. Recent events show us deliberately distancing ourselves and not being very good at adding up votes. That will prove even more unwise when the eurozone caucus has a qualified majority, as it will have from 1 November.

My last point is a more difficult one to put in the hard-edged way that I have tried to put the previous one. Networks of regulators and supervisors matter: informal contacts and knowing the guy at the other end of the telephone. In some ways, that matters a lot more than the formal. Informal contacts used to develop organically and naturally, but that is harder to do now. The Governor of the Bank of England naturally cannot be on a close terms with his fellow central bankers on the continent as were Gordon Richardson, Robin Leigh-Pemberton or Eddie George, who met them in meetings all the time, with so much of the central bank’s work being done on a eurozone basis. For example, the meeting this coming weekend sounds a very important one—but there will be no Brit in the room.

I agree with what the noble Lord, Lord Flight, said about the relationship between the Bank of England and the ECB being very good. I believe that it is, and that it is very important to go on ensuring that it is very good. As we staff new supervisory and regulatory structures in this country and they work out their modus operandi, we and they really should be aware, too, of the cardinal importance of informal co-operation and advice from and to concerned colleagues. Intelligent and well informed advice, privately conveyed but not in a hectoring tone or as if we knew better, will be well received. London’s expertise is still well recognised among the experts and such practical links will become even more important, the more we slide into self-isolation at the political level.

European Union Bill

Debate between Lord Kerr of Kinlochard and Lord Davies of Stamford

Monday 13th June 2011 Lords Chamber

[Lord Davies of Stamford]

My Lords, the second point to which I wanted to draw attention is a theme that has come through in all these debates. All I shall say in a few sentences is to try to make explicit in Hansard what should be implicit for anyone who reads our proceedings with any degree of attention. A clear difference is emerging between those of us who are in favour of the Bill and those of us who are against it as regards the role of Parliament and our view of Parliament’s constitutional importance, functioning, efficacy and efficiency. It is clear that the coalition Government and those who support them in this Bill do not really believe in Parliament in the same way that those of us on the other side of the argument do. That is a sobering thought, because until now, for hundreds of years, there has been no distinction between the parties about Parliament and the fact that it is the best way of taking complex decisions on behalf of the country. That is why most of us came into politics and public life in the first place. It was because we wanted to be part of that process and to influence it in one way or another. All parties in this country and all of us who have stood for public elected office have always believed that Parliament was the best possible mechanism for achieving good governance and for making sure that complex arguments had been viewed from their different perspectives and debated, and that we came to a mature and considered conclusion on difficult issues. I am very proud of being here in the mother of Parliaments.

Now half our Members in this House this afternoon—perhaps more than half; I do not know, but we will see what happens in the vote—are sceptical about Parliament. They pay lip service to it and, no doubt, see some role for it, but they are clearly very sceptical indeed about Parliament. They do not think that Parliament is mature enough or sufficient for the purpose of deciding complex questions in the future. They want to go back to this Napoleonic concept of the plebiscite or referendum as a mechanism that is superior to that of parliamentary government. That is a sobering thought. I will not go further into the constitutional implications or the historical significance of that because it would take me well outside the amendment we are debating. However, it has been a theme which, unambiguously, has emerged from the debates we have been having on this Bill. It is something that we should all reflect on carefully because the long-term consequences of such a split in what has always been a constitutional consensus in this country are to my mind very sobering indeed.

[Lord Kerr of Kinlochard]

I support the final point made the noble Lord, Lord Davies, and the final point made by the noble Lord, Lord Goodhart. My point is a Burke point. I hope that the noble Lord, Lord Waddington, is listening: I am addressing it to the rising hope of the stern, unbending Tories. It seems to me really important that we should try not to undercut Parliament. As the noble Lord, Lord Goodhart, said at Second Reading, as he has said again today, what we are doing with these referenda, the ones talked about in this clause and in this Bill, is asking the simple question: do you wish to overrule Parliament; do you wish to disallow an Act of Parliament? In every case, the Act will be on the statute book and the question for the electorate will be: do you want overrule Parliament? What, I ask the noble Lord, Lord Waddington, would Burke have said?

European Union Bill

Debate between Lord Kerr of Kinlochard and Lord Davies of Stamford

Tuesday 5th April 2011 Lords Chamber

[Lord Kerr of Kinlochard]

Roderigo in “Othello”, Flavius in “Julius Caesar” and Bernardo in “Hamlet”—the House will instantly recognise what these three guys have in common. They get to start the play, they are completely unimportant characters and they have no influence whatever on how the plot subsequently develops. Afterwards will come the captain and the kings—I see that the names of five former Cabinet Ministers are attached to some of the more than 60 amendments that we are to debate—and of the 37 speakers at Second Reading on 22 March, more than 80 per cent were fiercely critical of the Bill. However, Shakespeare knew that, as the house shuffles its feet and settles down, first up should be a very minor character. The Bill has caused considerable concern on all sides of the House and the soliloquies from the stars will be worth waiting for. I hope that the play will not prove a tragedy, but I am merely playing Bernardo.

I will not repeat what I said at Second Reading about why I thought that the scale of the referendum requirements in the Bill was absurd in conception and damaging in effect, given that the requirements are for binding, mandatory referenda with no threshold on issues, many of them very minor and on all of which by definition the Government and Parliament have agreed. Nor will I say anything today about why I fear the chilling effect on our negotiators and on the perceptions of us in other EU member states or about the risk that, if we enact this Bill in this form, we will be repeating the Messina mistake and isolating ourselves from the future development of the European Union—I think that that is a risk, but I will not dwell on it now. Nor will I explain again why I believe that this is a bad Bill, which would damage both parliamentary sovereignty at home and our national influence and standing abroad.

[Lord Davies of Stamford]

The noble Lord said that he would not say anything about the potentially damaging effect on our negotiating position or negotiating leverage if this Bill is passed into law. I was disappointed to hear him say that, because there are few people in the world who have greater experience of negotiation in Brussels than he has. Does he agree that, when you are negotiating in any context in life, you have a certain leverage if at the end of the day, when you are persuaded and you have done a deal, you can actually deliver? However, if it is known in advance that you cannot deliver because you need a referendum to deliver—the Government are obviously not going to have a referendum on some subject of tertiary importance—does he agree that you will not really have any negotiating leverage at all, because no one will make concessions to you in the expectation of getting agreement if you cannot give agreement in the first place?

[Lord Kerr of Kinlochard]

The noble Lord exaggerates my experience, but I think that he is quite right in his point. It is the case, I believe, that this Bill, if enacted, would oblige British Governments to oppose in Brussels reforms that were acknowledged to be in the UK interest, because they would not wish to have to face a referendum on the issue in this country. We are talking here not about big issues but about relatively minor reforms that most people in this House would find useful.

However, I do not want to be drawn any further down that track for the moment. What Bernardo actually says at the beginning of the play are words to the effect, “Midnight has struck; fly home to your bed”. We were after midnight when we finished Second Reading and I was rebuked fiercely from the government Front Bench for contributing to the length of our debate. Therefore, rather than going back over ground that I touched on then, I will concentrate on the amendment that stands in my name.

The amendment would delete the first reference in the Bill to Article 48(6), which concerns treaty revision procedures. I am sure that I do not need to refresh your Lordships’ memory of Article 48(6), which we could probably all recite—and perhaps should have recited before we began considering this amendment—but let me just recap for a second. We are dealing with two treaties: the Treaty on European Union and the Treaty on the Functioning of the European Union. The first, the TEU, is about principles, values and institutions; the second, the TFEU, is about the competences and, in its Part 3, the policies of the European Union, how those are to be determined and how they are to be implemented.

There are also two amending procedures. The first, the traditional procedure, involves an intergovernmental conference, which is now to be preceded by a convention of the kind on which the noble Lords, Lord Tomlinson and Lord Maclennan of Rogart, and the noble and learned Baroness, Lady Scotland of Asthal, served in 2002-03. That is the principal means of reforming the treaty. The second procedure is a simplified means—this is what we are talking about in Article 48(6)—which allows the European Council, or heads of Government, to decide without a prior convention or intergovernmental conference. Both means of course require absolute unanimity among the heads of Government of the member states and both means require ratification by member states by whatever means they choose. Since the treaty is a treaty and does not purport to lay down how we handle our domestic affairs, it says nothing about how we or anyone else goes about ratification.

So why are there two methods? The difference between the two methods is that the simplified procedure cannot be used to amend the Treaty on European Union—the treaty about principles—nor can it be used to amend the part of the Treaty on the Functioning of the European Union that is about the competences of the Union. It follows that Article 48(6), reference to which is what my amendment suggests be removed from Clause 1, cannot be used to effect any transfer of competences or powers from the member states to the Union. Adding belt to braces, it actually says that. Article 48(6), after referring to the previous steps in the process, says in its last sentence that the decision referred to in the previous paragraph,

“shall not increase the competences conferred on the Union in the Treaties”.

This article is not about the famous or infamous passerelle; that is something completely different, dealt with in Clause 7. We are talking about Article 48(6), which is covered in Clause 3. The question for me is: why is it there? This is the question that my amendment is designed to probe.

I may have misunderstood something, as the Bill is extremely densely drafted and hard to construe, but I listened carefully to what the noble Lord, Lord Howell of Guildford, said in his elegant and thoughtful speech at Second Reading and I confess that I am still puzzled. I am also now a little worried. In introducing the Bill, the noble Lord, Lord Howell, described its primary purpose. He said that,

“where a treaty change is deemed to transfer competence or power from the UK to the EU, it will in principle require the approval of the British people in a referendum”.

After explaining very helpfully how Clauses 2 and 3 are concerned with the ordinary treaty revision procedure and the simplified revision procedure, the noble Lord went on to say:

“Both clauses also provide that, where a treaty change of either type would also transfer power or competence from the United Kingdom to the EU, such a change should also be approved by the British people in a referendum”.—[Official Report, 22/03/11; cols. 600-02.]

That is, indeed, an accurate description of the Bill, but it seems to me to reflect a misreading of the treaty. Article 48(6) cannot be used in a way that would transfer any competence or power from the UK to the EU. Therefore, it seems to me that the references to Article 48(6) and simplified revision procedure in the Bill are otiose. The only other explanation for them could be that the Government envisage referenda on EU issues where no transfer of powers or sovereignty is envisaged.

What did the Minister mean by a treaty amendment “of either type”? A treaty amendment is a treaty amendment is a treaty amendment. You amend the treaty whatever the process that leads you to the amendment, so what are we talking about? Why are we distinguishing a subset of treaty amendments? There are lots of other things with which I disagree in the Bill, but on this minor technical point I see no reason for any specific provisions in relation to Article 48(6) other than, possibly, the parliamentary ratification procedures. However, that is not what the noble Lord, Lord Howell, was talking about.

It follows that I see no need for Clause 3 or for the specific reference in Clause 1, which is the subject of the amendment standing in my name. In moving the amendment, I seek enlightenment. I apologise for troubling the House with these arcana; they are arcana, but the arcana are in the Bill and that is very troubling. Exit stage left.