EU: Recent Developments

Debate between Lord King of Bridgwater and Lord Davidson of Glen Clova

Thursday 16th February 2012 Lords Chamber

[Lord Davidson of Glen Clova]

My Lords, I thank the Minister for his very clear tour d’horizon of recent EU developments and empathise with his struggling with his brief.

There is growing concern, not only on this side of the House, that the UK's policy and strategy towards the EU are both unclear and risk being misguided. Recent events in the eurozone, particularly the moves towards the so-called fiscal pact and the UK's apparent isolation from the mainstream of EU decisions and discussions, suggest a worrying lack of grip in the Government.

Plainly, given the importance of the UK’s trade with the eurozone and the anxieties expressed in the US, China and elsewhere about the negative consequences for global growth of the euro crisis, there is a real cause for concern. The choice by the UK to retain sterling and not to adopt the euro does not leave us unaffected by what happens to the economies of our EU trading partners. Only the most blinkered Eurosceptic draws anything positive from the current crisis. One is reminded that the enthusiasm shown in certain quarters when the UK left the ERM was short-lived and that the consequences of financial storms are rarely of general benefit. It would obviously be unwise were the Government deliberately to extract themselves from discussions affecting matters of direct interest to the UK.

Where the direction of our fellow EU members’ policy appears to be leading towards unsound outcomes, the Government should of course step in to seek to persuade, warn and advise. The proposed fiscal pact within the EU member states is a good example of where government must make clear the UK’s position. Procyclical fiscal austerity, subjected to legal compulsitors to be applied across the EU—the UK and the Czech Republic excepted—may seem to many in the UK an unbalanced approach to recovering eurozone stability.

Absent some collective responsibility for member state debts buttressed by support from the European Central bank, it is not perhaps obvious how long-term eurozone stability will be achieved. Even the capacity to oblige member states to adhere to the pact may seem doubtful. But what is the UK's position regarding the fiscal pact?

Reports suggest that the UK's position at the December 2011 summit was somehow to win protections for city institutions from EU regulation and transaction taxes. It goes almost without saying that the UK benefits in many ways from being the global financial centre and that states view this pre-eminence with some jealousy. It goes without saying that the Government should strive to protect this status where they can from competitive incursions. It has, however, proved difficult to identify what protections were won for the UK's financial institutions by Her Majesty's Government's approach in December last year. If there were any, it would be useful to hear what they might be and how they are thought to operate.

Is there a government policy to oppose the fiscal pact from a stance that the pact is unwise and unrealistic, or has it been decided to stand on the sidelines? Where the pact is to be enforced, apparently, by resort to EU institutions and in particular the European Court of Justice, do the Government propose to take legal action, as the Prime Minister appeared to suggest, or has the prospect of such action now been abandoned?

It was certainly somewhat puzzling how it was that the Prime Minister envisaged the United Kingdom might enjoin the European Court of Justice from deciding issues relative to euro policy that came before that court. Some clarity would be welcome. The Minister said that the United Kingdom would insist, watch closely and take action regarding the possible use of EU institutions. What form would the proposed action take?

Much attention over the past few months has naturally been directed towards the position of Greece and the associated negotiations. To a degree, the exposure of the UK to Greek difficulties is limited and may not seem immediate to our interests. In another part of the eurozone, however, the UK's interests are direct and substantial. In that context, I am referring to the Irish economy, which the Minister referred to.

Proportionately, for the UK both by virtue of bank lending and trade, Ireland is fairly significant. As is entirely clear, Ireland, the eurozone member state with which we are perhaps most closely linked economically, faces difficult and possibly intractable problems. Will the Minister assure the House that appropriate measures are being taken to monitor the UK's financial institutions’ vulnerability to the Irish economy? Are there contingency plans in the event that the position deteriorates? Is the proposed fiscal pact likely to increase or decrease that vulnerability?

I now turn to a greater long-term question that is emerging from Her Majesty's Government's approach to EU relationships. It concerns the strategy—

[Lord King of Bridgwater]

In these extremely difficult negotiations with Greece, in which people presumably outside Greece are commenting on what the retirement age, the pension age and perhaps the minimum wage should be in Greece, it now becomes apparent that for the fiscal pact to mean anything at all and effect proper budget discipline, it will be considerably more obtrusive, and maybe in certain cases more draconian, than has been appreciated by many of the countries that are presently agreeing to go along with it. Does the noble and learned Lord have any view of how many in the final analysis are likely to sign up to the form of fiscal pact that is becoming increasingly evident as the discussions with Greece continue?

[Lord Davidson of Glen Clova]

The noble Lord raises an interesting point. In this sense, one has a negotiation from which the UK eventually excluded itself. The noble Lord correctly identified the capacity for change in the fiscal pact. Would it not have been better for the UK to have remained within that negotiation, given the somewhat protean nature of this apparent fiscal pact? The question I am putting to the Minister is: what, precisely, is the UK’s position in relation to this? However, I return to the greater long-term question—