EUC Report: MiFID II

Lord Liddle Excerpts

Tuesday 26th March 2013 Grand Committee

[Lord Liddle]

My Lords, before I begin I should say that the think tank that I chair, Policy Network, has received funding from the City of London Corporation.

I will make three points in introducing what I have to say. First, I agree with the final point of the noble Lord, Lord Kerr, and with his tribute to my noble friend Lord Harrison and his fellow committee members—that should go on the record—for the excellent work that they do in bringing informed debate to the House.

Secondly, I will avoid the considerable temptation offered by the speech of the noble Lord, Lord Hamilton, to engage in the debate about the euro that he has so richly offered. I will just say—this is not meant to be a cruel point—that he has been making the same speech ever since I was privileged to join the House in 2010, and the euro has not collapsed yet. Even in what I agree was the mismanaged Cyprus crisis, the Cypriot Government decided that they would prefer to take the pain and stay in the euro rather than leave it.

[Lord Hamilton of Epsom]

Does the noble Lord accept that the pain has not even started in Cyprus yet?

[Lord Liddle]

They knew perfectly well what they were doing by signing up to the deal that they did. Perhaps I may make another aside. The idea that taxpayers should always pick up the bill for the irresponsibility of bankers is offensive. A lot of people in Cyprus have enjoyed the benefits of relatively high interest rates, which pensioners in Britain have not enjoyed over the past few years. The idea that they made these investments in a noble way that should be protected by the European taxpayer is, I think, offensive.

Thirdly, I agree with the noble Viscount, Lord Brookeborough, that the issues raised in this report are very complicated. I am certainly not in a position to talk about the details. Instead, I want to focus on the Government’s political strategy for handling these financial services questions. This is not a party point; it seems to me that as a nation we have a real difficulty here. A number of propositions form the approach on this side of the Room. The first is that we need a healthy financial services sector; I agree strongly with the noble Lord, Lord Hamilton, and the noble Viscount, Lord Brookeborough, on this. Yes, we need to rebalance our economy. My noble friend Lord Mandelson was right to say that we have had too much financial engineering and not enough real engineering, but the financial services sector is a huge overseas earner for us and we cannot do without it. It is a vital national interest where we have a comparative advantage. However, we have to acknowledge that things have gone wrong in the City in the recent past. Grave reputational damage has been done as the result of the LIBOR scandal and the scandals around mis-selling. Risks were taken that should never have been, and as a result we need to rethink the way we regulate the City.

The second proposition that should inform government policy on a national strategy in this area is that the City benefits hugely from being the financial centre of the European single market. The noble Lord, Lord Kerr, is right to say that what Britain achieved in the 1990s and the early 2000s—I was slightly involved in the 1999 Financial Services Action Plan—was tremendous. It opened up the market and ensured that London got a larger share of it. What happened, though, was that we had liberalisation without putting in place proper cross-country regulation, and we have to acknowledge that that was a UK mistake. It was a UK consensus that we should have light-touch regulation and we got it wrong. The Turner report that was published at the start of the financial crisis said that we have to choose between European regulation and being part of the European market or going back to national regulation, and that is basically right. I think that both the then Labour Government and the new Conservative/Lib Dem coalition have accepted that we are part of a properly regulated European single market in financial services.

However, the result of all this is that on the Continent there is now a great suspicion of UK motives in this field. I sense this an awful lot as I travel around to various meetings. Therefore, the third objective we have to set ourselves is to accept that we need re-regulation at the European level, but that it has to be done in a proportionate and sensible way. I have some sympathy with the remarks of the noble Lord, Lord Hamilton, about shutting the stable door and things moving on so that the new regulations will not cope with the new circumstances, but we must recognise that we have to put a national effort, as the noble Lord, Lord Kerr, said, into getting our regulatory strategy right.

We face big problems here. There are some basic asymmetries that put us in a difficult position. We had very strong support from what you might call the northern liberals for the positions that we took in the 1990s and 2000s but I am not sure to what extent that support is as solid as it once was, which I think is one of the reasons why the coalition on the financial transaction tax that the noble Lord, Lord Kerr, wants has not occurred. There is an asymmetry of expertise. People complain about the bureaucracy of the Commission, but when you look at the thousands of people employed in the regulatory agencies in London and the dozens who are dealing with these matters in the Commission—a very small group of people covering a very wide brief—it is not surprising that sometimes the proposals that come forward are flawed in key respects. The Commission tries to listen and amend in the light of representations made to it.

Another major asymmetry, which is a very serious one, is that there are euro-ins and euro-outs. We are among the euro-outs, and that is the way it is going to be, but we have to recognise, as a euro-out, that financial regulation is fundamental to the financial stability of the eurozone. If they are going to do whatever it takes to stabilise the euro then they will be prepared in the eurozone to adopt whatever financial regulations they believe are necessary to stabilise their currency.

In this situation, the national strategy clearly has to be to go out of our way to win friends and influence people. That is where the Government—or perhaps only one part of the coalition—has got it so badly wrong. There is a difficult environment for us in the European Parliament. They think bankers are to blame for the crisis and that Britain is, in part, to blame because we pushed a deregulatory agenda. How do we deal with that? Not by going in with the Thatcher handbag, nor by doing what David Cameron did at the December 2011 European Council in circulating a paper—which, incidentally, has never been disclosed to Parliament, although we have seen it and know what is in it—that had “unanimity” written at the top and which, to anyone who looked at it, would look as though the British Government were basically seeking to reverse qualified majority voting on a large number of financial services questions. It was a disastrous strategy: how could you expect the eurozone to agree to surrender sovereignty over their currency to Britain through our having a veto over financial regulation? We have to argue from a position of qualified majority, and we have to win friends and base our position on reason and good argument.

I agree with the noble Lord, Lord Kerr, that we have to point out to people the advantages of London being the global centre of the single market and all that that brings. At the same time, though, we have to acknowledge the criticisms of the City that have been made and demonstrate that we are prepared to see them tackled. That is basically the question that I put to the Minister: how are the Government going to do that? What is their political strategy for dealing with these questions, which are of vital national importance, even though they are of great complexity and difficulty for many members of the committee?

Economy: Credit Rating

Lord Liddle Excerpts

Monday 25th February 2013 Lords Chamber

[Lord Deighton]

I thank my noble friend for bringing a very constructive perspective on ways in which we can address some of our supply-side problems in the short term. Investing in infrastructure and devolving spend to the regions, where they have a clearer grip on the projects necessary for local growth, is one thing that we should be pursuing. I know that my right honourable friend the Chancellor will be making some announcements in the Budget with respect to following through the recommendations of my noble friend Lord Heseltine.

[Lord Liddle]

My Lords, can the Minister enlighten us as to what will be the Government’s response to the failure of their deficit reduction plan? That is the reason why we have had the downgrade: because the deficit is not being reduced as was hoped. Do the Government agree with the Secretary of State for Business, Innovation and Skills, who says, “No more cuts”, or will they accept the advice of the No Turning Back group, and say that what we need are more cuts in spending so that we can have more cuts in taxes? Does the Minister agree that this is a Government without a strategy to face this looming crisis?

[Lord Deighton]

The noble Lord identifies some of the trade-offs that we have to tread carefully between. I think that the Government have an extremely clear economic strategy. Not everybody necessarily agrees with it, but the strategy could not be clearer. It is to demonstrate to the markets that we absolutely have control of the public finances, to reform our financial system, to ensure that we have the right kind of activist monetary policy and to ensure that, right through the economy, we introduce real microeconomic reforms that can unleash the productive capacity of the economy. That is an extremely clear strategy. It has been prosecuted with consistency through the life of the Government.

Moody’s is entirely supportive of government policy, which is to focus on reducing the deficit. It has merely demonstrated that because of the slow growth in the world economy and the huge debts with which we started this process, it is taking longer than we would all hope.

European Banking Union: EUC Report

Lord Liddle Excerpts

Thursday 24th January 2013 Lords Chamber

[Lord Liddle]

My Lords, I begin with two personal points. First, I declare an interest in that the think tank that I chair, Policy Network, has in the past received support from the City of London Corporation. Secondly, it is a pleasure to welcome the noble Lord, my brother-in-law, to the Front Bench opposite. Therefore, there will not be an excess of partisanship on this occasion on my part.

As always, it has been an interesting debate, not least because of the final contribution from my noble friend Lord Desai, which I am still trying to absorb. My noble friend Lord Harrison began the debate with an admirable summary of his report. As usual, one wishes that the country was governed by the committees of your Lordships’ House rather than by the prejudices of its Executive, because we would be much better governed. It is an admirable report.

An interesting, rather off-the-wall point was made by the noble Baroness, Lady Falkner. It is something on which I have long reflected: why is discussion of Europe such a male-dominated subject? That is not something that we should discuss at length today, but we have to take it very seriously if the pro-Europeans want any chance of winning a referendum, so thank you to the noble Baroness for raising that issue.

I want to make three points. First, on the state of the euro itself, I believe that adjustment is on the way. Things are a lot better than they were. The question is whether what is occurring is socially and politically sustainable. I do not think that it will be without more fiscal flexibility. Nor do I think that it will be sustainable without considerable debt write-offs, particularly after the German elections in September. There will have to be an element of a transfer union to make the position of the mezzogiorno of the south, which the noble Lord, Lord Trimble, mentioned, sustainable. That will require further steps towards banking union, particularly in the case of Spain, because there is such an obvious link between bank debts and the sovereign debt position.

My second point is on the Britain in Europe debate. Banking union is the fourth major institutional development since the euro crisis started from which the United Kingdom has stood aside. There was the European stability mechanism, the euro-plus pact, the fiscal compact and now the banking union, which was agreed in principle in June 2012, and which the British urged the eurozone to get on with. Indeed, I think George Osborne first recommended it as long ago as January 2011. He was very foresighted about that, but it is something from which we have chosen to stand aside.

If you read what this is about, while in the British debate it is presented as a measure to rescue the single currency, in the continental debate it is about the creation of what is called a financial market union. I think the noble Lord, Lord Kerr, pointed that out. In the British Government’s view, this is all part of a clear narrative in which the eurozone is integrating and we have to establish a new kind of settlement and relationship with the members outside it; that is the British Government's narrative. However, the real question is: to whom does this narrative apply, other than the United Kingdom? How many other euro-outs share this conception of the British narrative? I might ask the Government what their view of that is.

That is a crucial point, first, in informing a view about the sustainability of the safeguards that the Government obtained on the banking union in the December 2012 summit. Secondly, it is fundamental to whether David Cameron’s essential assertion in his speech yesterday—that the core of Europe is the single market—is right. For most members, however, will it actually be the single currency? This point is fundamental because it is a question of whether we are going along with the support of other euro-outs, to try to negotiate a balanced relationship between outs and ins, or whether we are just making a case for special treatment for Britain, which will be far more difficult to negotiate.

The third point I want to make is about the position of the City of London. These are not just intellectual exercises; we are talking about something that is fundamental to our national interests. I have long believed that the UK is overdependent on financial services and I support the whole concept of rebalancing the economy towards manufacturing. My noble friend Lord Mandelson’s comment was right; there has been too much financial engineering and not enough real engineering. I agree with all that. However, the City is a crucial national interest and the financial centre of the single market. I also agree with the noble Lord, Lord Flight, that it is global and very resilient but it has benefited a lot from the single market in Europe—particularly from the opening-up of the financial single market, a lot of which occurred under the previous Labour Government.

Of course, no one worried about this at the time because it was the era of light-touch regulation. No one worried about the financial imbalances that were building up between countries and the lack of cross-border regulation. Well, the banking crisis changed all that and the Government recognised the need for regulation at EU level. It was a good thing that the Conservative Government, including Chancellor Osborne, accepted when they came in what Chancellor Darling had already agreed to: the establishment of European regulatory agencies.

[Lord Flight]

Could I just make this point to the noble Lord? The investment management industry, in which I spent 40 years of my career, has still failed to penetrate the EU. There are a variety of cultural and other barriers, but a lot of American firms came over thinking that Europe was like America and that all they had to do was have offices. If one looks at how much money the London retail funds business has got from the EU, it is still pitifully small.

[Lord Liddle]

I agree that things vary from sector to sector but one of the reasons why so many foreign-based banks are in London is because it is the financial centre of the single market.

The point is that the banking crisis has changed the way that we thought about the City. It has made regulation absolutely essential. The euro crisis has made banking union essential in order to break the link between sovereign debt and the fact that nation states have had to underwrite their banks. It raises difficult issues for us in the UK. As long as we see ourselves as being outside the single currency, the centre of the European financial market will be remote from the core of the banking union. There is also the block vote problem: if regulation is concentrated through the ECB, we could be outvoted.

The UK made a disastrous attempt in 2011 to try to tackle this problem of what to do. This was at that year’s December summit, where a paper was circulated late at night without prior consultation with anyone. Full of complex detail, it had at the top the horrible word “unanimity”. Basically it was asking for unanimity on questions of financial services. Not only was this tactically maladroit, it was strategically misguided. If the sincere wish of the British Government is to deepen the single market in the European Union, we cannot go around demanding unanimity on a specific UK interest, because every other member state will demand unanimity on an interest specific to it.

That is why the proposals of, for instance, the Fresh Start group are extremely worrying. They do not demand unanimity but in cases of financial services they do demand use of the Luxembourg compromise and they talk about emergency brakes. If you believe in the single market, you cannot put forward such things in the European Union. I should like to hear from the Government that they have no intention of pressing for the Luxembourg compromise or emergency brakes in this area. This would be so damaging to Britain’s interests in pressing forward to the single market.

However, the Government achieved a notable success in December with the acceptance of the double majority principle. I agree with my noble friend Lord Davies of Stamford that, for protecting our position, this is a lot better than nothing. Yet I also agree with the noble Lord, Lord Kerr, who asks how robust this is and whether it will last.

First, this double majority applies only to the banking agency, which is about the implementing regulations, and not to ECOFIN, which draws up the legislation. So we do not have a special position there. Secondly, the noble Lord, Lord Hamilton, is right that the ECB will be the big player in this and the EBA a weakly staffed and resourced organisation. How do the Government intend to deal with that? Thirdly, there is the question of time limitation. How many euro-outs, which are actually banking union-ins, will there be? If there are a significant number of euro-outs who will be banking union-ins, how long do we think that this special double majority arrangement will last?

There are alternatives. I am not saying that this is what the Labour Party would propose but, as my noble friend Lord Davies said, we have not had from the Government a proper cost-benefit analysis of what the alternatives might be. Did they look at how, as a euro-out, we might be a member of the banking union and whether it could be made to work? Could we have built on the model of the European Systemic Risk Board, of which the president of the European Central Bank is chair and the Governor of the Bank of England is vice-chair? Could we have used that as an umbrella? The Government have a duty to look at all the possible alternatives here because this is an issue of such vital importance to the future of the City. The fear that a lot of us have is that for reasons of ideology and prejudice, the UK has opted for very much a second-best, possibly a third-best, solution that would be gravely damaging to our interests in the long run. I will be grateful to the Minister if he can deal with some of these points.

Financial Services Bill

Lord Liddle Excerpts

Tuesday 10th July 2012 Lords Chamber

[Lord Myners]

My Lords, I take note of my noble friend’s comments, but I feel compelled to say a few words in response. Without drawing the ire of the Minister, I can link it back to the subject of the amendment.

I worked with Mr Tucker, the deputy governor, during the banking crisis. We should wait for the outcome of the Treasury Select Committee’s report and the Joint Committee report. It is wrong to say that if the manipulation of the LIBOR-setting process had not occurred we would not have had the global financial crisis. It was undoubtedly bad and reprehensible, in the words of Mr Diamond, but it did not itself cause the crisis. Listening to Mr Tucker yesterday and reflecting back on the extraordinary circumstances of October 2007, I sympathised with him. The banking system was on the verge of complete collapse. It is still not fully appreciated how close we came to the edge of the cliff. In those circumstances, when one seemed constantly to be in meetings and constantly to be on the telephone, not taking notes of meetings is pretty forgivable. I was delighted that Mr Tucker was able to settle the issues arising from Mr Diamond’s file note about the senior Whitehall figures. I look forward to the Chancellor of the Exchequer responding to the clarity that Mr Tucker has brought there.

Reflecting on my noble friend’s amendment, I ask whether we are creating positions in the Bank of England and in the architecture which are simply beyond the talents of any one person to fulfil? Mr Tucker is one of the outstanding candidates to be the next governor. He is not the only one, but it is not a long list and it has got decidedly shorter in the past seven days. Two people previously spoken about as candidates, Mr Varley and the noble Lord, Lord Green, have probably dropped off in the past few days, so it is not a strong list.

Looking then at the FPC and its oversight, where are we going to find the people with the necessary talents to do this job? We are on the horns of a dilemma. On the one hand, you want knowledgeable people—people who do not have to be taken through everything step by step, but come to the issues with a good and clear knowledge and the ability to spot where the critical questions lie. On the other hand, you do not want to start these committees with people who in some way are conflicted by their current employment, their past employment, their pension arrangements and so forth.

I do not have a view about whether the shadow FPC is doing a good job. I think one or two of its members appear to be. Mr Robert Jenkins, in particular, appears to be an independent spirit who is not in any way caught up in the groupthink and consensus that I associate with much of the heart of the Bank. The simple fact is that most members of the FPC have a career background in investment banking. They have a career background in the very activity which was associated with the global financial crisis. I think we have a problem here. How do we get the right people into the right committees and the right courts and the offices of governor and deputy governor? No architecture makes sense if we are creating it on the presumption that we can find people of integrity, raw talent and understanding to fill the jobs when that is not a realistic assumption. I think the heart of the matter raised by my noble friend in his amendment is: how can we be satisfied that the people sitting on the FPC are appropriately competent and are managing conflicts of interests, as they probably will always have conflicts as a prerequisite for qualification to sit on these various committees?

[Lord Liddle]

My Lords, that was a very interesting exchange between my noble friends Lord Davies and Lord Myners on the crucial question of how these matters should operate. I would like to add a point in favour of my noble friend’s amendment on the basis of work I have done on how the new European system is operating. I had a conversation in Brussels recently with André Sapir, who is on the board of the European Systemic Risk Board, about the role of independent economic expertise in assessing systemic risk. On that board, the independent economists have made a decision that they will not rely on the internal expertise of the European Central Bank, precisely for the reason that the noble Lord, Lord Eatwell, said. We are operating in a very uncertain world and no one really knows what the right road map is. What we need is the maximum amount of well informed, independent expertise on these matters. I feel very strongly that this amendment should be supported.

[Lord De Mauley]

My Lords, before I start on the amendment, I shall say in response to the noble Lord, Lord Davies of Stamford, that the deputy governor for financial stability is a very fine and highly respected deputy governor. As the noble Lord, Lord Myners, said, it is for the Treasury Select Committee to assess what he said yesterday.

Turning to Amendment 89, it would create an advisory panel with a two-fold brief: first, to advise the FPC on systemic risks to financial stability; and, secondly, to assess and report upon the effectiveness of the FPC in assessing systemic risks to financial stability, the macroprudential tools provided by the Treasury to the FPC and the actions taken by the FPC. The membership of the panel would include the deputy governor for financial stability and a number of external members appointed by the Treasury, drawn from a range of relevant professions, including academia.

The Bill already creates, in the FPC, a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. The noble Lord, Lord Eatwell, was good enough to compliment the external members of the interim FPC. Let me give some details of the specific expertise of the current external members to give a flavour. Alastair Clark has, in addition to extensive real-life experience, degrees from Cambridge and the LSE and is an honorary visiting professor at the Cass Business School. Robert Jenkins, who the noble Lord, Lord Myners, referred to, not only has extensive experience of trading and asset management but is also an adjunct professor at the London Business School. Donald Kohn, in addition to extensive experience in financial regulation in the US also has academic experience. Michael Cohrs has experience at senior level in the private sector in investment banking but is also a Harvard MBA and an adjunct professor at Beijing University. We want, and we have, multifaceted people. We agree with the noble Lord regarding the need for extensive broad experience, including academic experience, but we do not think this needs to be set down in legislation.

--- Later in debate ---

[Lord Flight]

My Lords, it strikes me that this amendment points an important finger at a number of territories. In some ways the mismatch concerns me less; there are always likely to be mismatch problems. For starters, I was disappointed that the previous Government, as it were, gave away power in the territory of financial regulation to Europe. Substantial things are happening: we have MiFID 2; the banking supervision proposals; and, following on from those, the recent proposals arising from greater European economic and financial union. First, I would like to know that the UK parties batting for the UK are doing a good job and have raised all the issues. Secondly, I agree with the noble Baroness, Lady Noakes. I am not certain whether this is a Treasury or a PRA matter but the PRA at least has the lead for the regulators in negotiating with the EU bodies. I should like to know how the Bank of England thinks it has done in dealing with the issues and protecting British interests.

The MiFID 2 proposals are coming up and I think that they could be extremely damaging to the UK if they went through as presently proposed. A lot of work needs to be done for them to be workable. If there were no public review or airing of what has been going on and the issues, it would perhaps be—in a fast-changing territory—somewhat undesirable. However, I am not quite sure what the right mechanism is for achieving what I seek to achieve.

[Lord Liddle]

My Lords, I rise briefly to support my noble friend Lady Hayter’s amendment. She has drawn attention to a crucial issue for the United Kingdom. The fact is that we benefit greatly from the existence of the European single financial market. I believe that one of the reasons why so many overseas banks base themselves in London is that we are part of a single regulated market. There are grave dangers for us in going down the road of separating ourselves from that single market.

It is important that we keep very closely in touch with European developments at all times. It is a very fast-moving scene. As we understand the results of the last European Council, banking supervision within the eurozone will be put under the European Central Bank by the end of this year. I noted with interest the Governor’s comment, as reported in the Financial Times at any rate, that this would make it easier for the Bank of England to deal with regulatory issues because there would be, as it were, a single telephone number to ring in the European Central Bank. It is also the case that the UK has a critically important influence in the European Systemic Risk Board. It is vital that we play a crucial role in that board, of which the Governor of the Bank of England is the deputy chair.

[Lord Sassoon]

I think that he is the first deputy chair.

[Lord Liddle]

Britain’s position is given a special status given that we are the financial centre of the European single market. The governors of the central banks who make up that body are alive to London’s concerns at all times. It is very important that we play a major role there. It is therefore crucial that we keep these issues under review. I do not think that the way in which the Government have handled the proposals for a banking union is in the UK national interest. It is a bit rich to say, “It is none of our business because this is to do with the eurozone”, but then to complain that the creation of this thing might mean that there was an inbuilt majority against Britain on all financial regulatory decision-making. It is rather contradictory.

The position we have to adopt is that although we are not in the eurozone and will not be in the eurozone, we have to sustain the single financial market. That involves us having the closest possible relationship with the relevant European bodies and keeping abreast, in terms of our own arrangements, with developments there. For those reasons, I strongly support my noble friend’s amendment.

[Lord Davies of Stamford]

I also strongly support my noble friend’s amendment, which was very well conceived and—if I may say so—very persuasively moved. I also agree very much with my noble friend Lord Liddle in the way that he approaches this problem. I think that there are four major issues on which the House needs to ponder carefully. The first is the emerging mismatch between the evolving structures in financial regulation on both sides of the channel. Something has already been said about that so I will not go into it any further.

The second issue is subjective, but I fear that it is very difficult to deny. It is our declining influence in matters of financial regulation and supervision around the world. Many of us can remember a time when the British were regarded as great experts in these things. We obviously were brilliant because we had such a successful financial services industry. Therefore, when we said something about financial regulation, supervision or the right way of creating a framework for a thriving financial services industry, whether it was said in Washington, New York, Brussels or Frankfurt, it was listened to with great attention. We naturally had a very strong influence. I am sorry to say that a combination of the Euroscepticism of this new coalition Government and our recent failings in financial regulation and supervision—one thinks of the failings of the FSA in matters of RBS and so forth, and now the terrible and very upsetting scandal of LIBOR fixing, which I will not go into any further—inevitably will, and is, undermining the influence that we used to have. That is a very worrying situation.

There is, thirdly, the competitive issue, which we will come on to in later amendments. It is quite clear that as the framework for financial regulation diverges between this country and the continent, there is always a danger of competitive advantages changing, and possibly not in our favour. One of the obvious examples of which people are well aware is the possibility of lower capital-adequacy ratios on the continent. Presumably, particularly in the light of the crisis that we have all been through, they will always be set at a fairly sensible prudential level. However, there may be significant differences—for example, in retail deposit insurance schemes—which would lead people to want to hold their accounts on the continent rather than here. All kinds of things could emerge from regulatory and supervisory initiatives that would change the competitive balance. We need to be very alert to that.

Finally, the jury is out on whether or not it is in the national interest for us to be part of the emerging European banking union. I can see a great many theoretical reasons why it might be very strongly in our interest to join, but I do not have the slightest hope of persuading colleagues in the House today of that. Indeed, I am happy to wait and see, but we need to keep the matter under review. The regular review which my noble friend proposes in this amendment is exactly the kind of procedure and discipline that we want.

All British institutions involved should be aware that they are being reviewed in this matter; that their collaboration and effective participation in European structures is being watched; that they are expected to use their influence as effectively as they can on our behalf; and that they should be very conscious of the role they are playing. All that is very important and we need to monitor the results. We need, a few years after it comes, to be able to look back over the record as revealed by these reviews and otherwise—quite pragmatically and open-mindedly, without dogmatism or emotionalism—and to take a rational decision on the best way of achieving the national interest going forward.

European Union Committee: Multiannual Financial Framework

Lord Liddle Excerpts

Tuesday 19th June 2012 Grand Committee

[Lord Liddle]

My Lords, I declare an interest as chair of the think tank Policy Network, which has received some funding from the European Parliament budget.

This has been an excellent debate, typical of the quality of the work of the European Union Committee of this House. On behalf of the Opposition, I welcome the noble Lord, Lord Boswell, to his new role as chair, which I am sure he will carry out with distinction as his predecessor, the noble Lord, Lord Roper, did. He must have had a very satisfied feeling, as this debate proceeded, about the group of heavy-hitting Members he has on his committee. They and the noble Lords who chair the various sub-committees have shown today a wide range of knowledge and experience of the EU’s business. It is a balanced and objective analysis, with recommendations, and I am sure that the report of this debate will be widely read in the European institutions and by those concerned with Europe’s work.

Having said that, I regret that the committee did not issue a bolder clarion call for radical reform of the EU budget. I make no secret of the fact that I am a very passionate pro-European, but I do not think that pro-Europeans should pull their punches in any way about the need for radical budget reform. If ever there was a case for it, surely the crisis that the eurozone has now entered is a justification.

I remember at the last budget settlement in 2005 that one of the things solemnly agreed by the European Council was that there would be a thorough mid-term review of the common agricultural policy in the period of that financial framework. It never happened. I was in the Commission at the time and remember the arguments that were put forward: “Oh, we don’t want to do a review now, what we’ll do is have a really thorough intellectual examination of what needs to be done”—this was in 2008—“and will come up with radical proposals for the next seven-year period”. However, when we get to the radical proposals published by the Commission in June 2011, I am afraid they can only be described as a damp squib. It is not just the Commission’s fault but it is to an extent, because it has a duty under the treaties to speak for the European interest. The Commission should never have allowed itself to get into the mood of complacency that the member states were only too happy to be in. The Commission should have challenged them, but on the budget, it has not. As a result, it makes the task of making the case for Europe more difficult.

I agree with the noble Lord, Lord Teverson, that the European Union has very strict procedures for audit, in many ways better than many of its member states. However, the fact is that there is a widespread perception of waste and bureaucracy in that 6% administration budget. The United Kingdom should be pressing for an independent review, not just of the Commission but of the Parliament and Council budgets. The Council tends to hang on to its own budget and say that no one can look at it. We need an independent review of all the institutions and their budgets and whether they could be more efficiently spent.

The other problem with the budget is that it is such a collection of vested interests. It is the problem of an acquis of vested interests, which is extremely difficult to change. As reformers within the European Union, we have to think how, either through time-limiting certain programmes or pieces of legislation, we can make it easier to get things changed. What is the Government’s policy for making that kind of change possible? Change in the EU’s policy programmes is much needed.

The noble Lord, Lord Williamson, is right that the common agricultural policy is radically different from the policy that was launched in the 1960s, but it still needs an awful lot of reform. The payments that are made to rich farmers in northern France and parts of Britain and that often go to commercial companies are an abuse, and we ought to be capping them. I ask the Minister: is it his policy that payments to rich farmers should be capped or is it not?

Secondly, some of the Mediterranean subsidies that are given to tobacco famers in Greece, for instance, are an absolute disgrace. If we want to help Greece, the last thing that we should be doing is helping its tobacco farmers. We should help Greece to train the unskilled workforce that means that it has a real problem in competitiveness.

On the structural funds, I am a passionate supporter of regional policy. However, an independent review by Barker set out very clearly what needed to change in the structural policies. We need to get away from the doctrine of the juste retour. We need to focus on growth priorities and be clear about what they are. We need more conditionality. These things are happening to an extent, but not nearly enough.

My position, which is certainly the Labour position as well, is that it is impossible to argue for any increase in the EU budget until much more radical reform takes place. I accept the intellectual argument that a successful monetary union may require a bigger budget to make it work, but it will be impossible to argue that unless the existing budget is reformed. There is a case for some of the programmes being expanded. If there were reform, that is what should happen. We know that there are proposals to increase the research budget and expenditure on infrastructure and to extend ERASMUS. These are all very worthy objectives, which will help Europe’s competitiveness. However, I seek an assurance from the Minister. If additional money is made available under the growth plan that will come to the Council next week, will Britain be a participant in the extra money that will be available? Will we benefit from some of it as well the eurozone, or are we abstaining once again from full participation in the Union’s development?

Therefore, some areas could be expanded if only there was reform, but the reform nettle has yet to be grasped. The growth agenda to which President Hollande is so attached is an opportunity to grasp the reform agenda, but I wonder what strategy the UK Government have for being bolder in this respect. It is very difficult to get reform. I welcome the alliances that the Government have built so far, but in the past, they have tended to crack under pressure. As I have mentioned, there are vested interests everywhere in the EU budget. The European Parliament rightly has co-decision powers in the budgetary area. What is the strategy?

I read an interesting analysis from the Centre for European Reform by John Peet, the eminent Economist correspondent, and Stephen Tindale. They argued for a tripartite initiative by Britain, France and Germany, in which each member state was prepared to put their red lines on the table and try to work out a radical plan for change. Are the Government prepared to think in those terms, or are we essentially stuck with the status quo?

As my noble friend Lord Giddens said, a Europe 2 is emerging. We are in the middle of a crisis. We cannot just let the opportunity of the European budget pass us by. If Europe is to gain legitimacy, there must be radical reform of its budget.

Economy: Budget Statement

Lord Liddle Excerpts

Thursday 22nd March 2012 Lords Chamber

[Lord Liddle]

My Lords, this has been a very good debate about what I found the profoundly depressing event that was yesterday’s Budget. The only bright spark in that Budget was the announcement that the noble Lord, Lord Heseltine, was going to take a thorough, long-term look at the competitive challenges facing the country. He spoke about that with sharpness and authority today. However, much of the rest of the Budget—its main themes—was about politics and about holding together an increasingly fractious coalition, with the Chancellor positioning himself for the future leadership of a rightward-trending Conservative Party. That is what the Budget was about; it was not about achieving the necessary national unity and consensus that we need to address the long-term challenges.

Some of these challenges, as the noble Lord, Lord Heseltine, said in his remarkable speech, have been with us for a century. But we have also been hit, as my noble friend Lord Eatwell described in a wonderful metaphor, by a tsunami of a banking crisis. It was a global banking crisis that has led to the deepest slump that we have experienced since the 19th century; it is the gravest banking crisis since 1825, as some economic historian friend of mine was telling me. The likelihood is that we will not recover the level of output that we achieved in the UK in 2007 until 2013 or 2014 at the earliest.

This was a crisis that few anticipated. The occasional economist did so; Mr Vince Cable claims to have anticipated it as well. But certainly the majority of the political establishment, such as the Governor of the Bank of England and the Treasury mandarins, never saw it coming for a moment. It was a global crisis; not a crisis of public debt in Britain, but in origin a crisis of the total debt of a banking system and private debt bubble which has reached more than 500 per cent of British GDP. As a result of the explosion of that private debt bubble, we have had our tax revenues in this country decimated. That explains the rising deficit, not the Labour Government’s irresponsibility. We have had a banking system which is now completely dysfunctional, and is still unreformed and not lending to the economy in a proper way. We have had an economy which is badly out of balance, a trading sector that is too small and manufacturing that has shrunk.

Here, I accept that Labour was slow on its watch in seeing what was happening to manufacturing during its period of office. British manufacturing was, to a large extent, crucified by an artificially high exchange rate, which rose far too high in the past decade as a result of the banking system pulling in capital from overseas, with its assets rising from 200 per cent to 500 per cent of GDP. In other words, there was a repetition of a problem we have been familiar with in Britain: of the interests of the City of London being different from the interests of the manufacturing sector of the economy. In the essence of a policy for manufacturing, one key element has to be a policy for the exchange rate. Yet this is still something we do not talk about in polite company in this country, and we have to change that.

As a result of this crisis, we face very tough times, and on this side of the House we, of course, accept that. There is no alternative to spending cuts and tax rises, or to many difficult decisions. For my part, I certainly accept that there are severe, practical limits to the scope for Keynesianism in one country. However, there is more room for manoeuvre on the deficit than the Government have so far been willing to exploit. On youth unemployment, the Government are doing less than the Thatcher Government did with the Manpower Services Commission in the 1980s. On mobilising investment, we are still short of the action necessary to get the huge investments in energy and housing that we need. There is still scope for prioritising within public expenditure social investments such as training, research and higher education, which will strengthen our position in the knowledge economy—exactly the sort of thing that the Swedes did in response to their banking crisis in the 1990s. On a prudent view of public finance, those kinds of expenditures on youth unemployment and social investments would pay for themselves within a very short period. We ought to be doing more to put money into these areas as part of our growth strategy.

Most of all, we need a more coherent industrial strategy for Britain. It is a great pity that when it was first elected the coalition, instead of building on my noble friend Lord Mandelson’s industrial activism, chose to distance itself from it. Instead of reforming the regional development agencies and using them as an instrument for the Regional Jobs Fund which the noble Lord, Lord Heseltine, chairs, it chose to abolish this means of getting money out into the productive economy. There has been, as Vince Cable said in his leaked letter to the Prime Minister, no “compelling vision” of our future. That is why we look with great expectation to the work that the noble Lord, Lord Heseltine, is now undertaking. In my view, the noble Lord has to think very radically. We have to look again at the proposals that the noble Lord, Lord Skidelsky, has put forward for a state investment bank or national investment bank of some kind to resolve the relationship between finance and industry. None of the schemes being promoted at the moment is really effective. We have to do something more radical.

The Kay review looks very carefully at the shareholder relationship and how the relationship between shareholders and the managers of companies needs to improve. In terms of local business engagement and local initiatives, the new enterprise partnerships can, in my view, work only if they are accompanied by much more radical decentralisation within Whitehall so that questions such as how training budgets are spent are not decided by some central bureaucracy but are effectively devolved to the cities and regions that are in a position to know what best suits their local economy.

We have to change the Treasury mindset. The noble Lord, Lord Heseltine, said that he was not in favour of wasteful spending. When I advised the noble Lord, Lord Mandelson, my experience was that the Treasury appeared to think that any kind of industrial spending was wasteful. We also have to break what I fear has become a Whitehall mindset that Ministers and markets do not mix. I believe that in the right circumstances public policy and markets can mix and that you can promote an active industrial policy more successfully than we have done.

The Budget does nothing in those areas. Instead, it cuts the top rate of tax. The noble Lord, Lord Flight, talked about Blair and Brown advisers. I was one of them, and I was in favour of sticking with the 40p rate. However, in the circumstances of the 2008 crisis, when sacrifices were going to be required all round, there is no doubt in my mind that the increase in the top rate was justified, and I cannot see what has caused the Chancellor to change that judgment.

This is a fiscal consolidation that is to last seven years and we are at the end of only the first two. Even if the amount of money to be raised from these taxes were not substantial, the fact is that we have been debating in this House scandalous cuts in welfare spending, such as depriving disabled people of an extra bedroom in their rented home. We have been saying that that kind of expenditure cannot be afforded and, at the same time, are cutting the 50p rate of tax.

I feel sorriest for my friends in the Liberal Democrats. They have thrown away the 50p rate for nothing. There is no progress whatever towards the taxation of wealth in this Budget. They have shown themselves to be weak and irrelevant in this coalition. They are like the National Liberals in the 1930s and they should draw the lessons from this Budget: they have no power to influence anything.

EU: Fiscal Compact Treaty

Lord Liddle Excerpts

Tuesday 7th February 2012 Lords Chamber

[Lord Sassoon]

My Lords, I do not think that it is for me to tell my right honourable friend the Prime Minister in any way where he should seek advice but I am sure that he seeks the advice of all his senior Cabinet colleagues.

[Lord Liddle]

My Lords, following on from the Question asked by the noble Lord, Lord Dykes, I recognise the concern of the Government that a caucus of eurozone member states should not compromise the integrity of the single market, but does the Minister agree that the best guardians of that integrity are the Commission and the Court? How does he expect them to act in that role if the Government keep saying that they are reserved about the position of the Commission and the Court in the treaties and there is a chorus of criticism from his own Back Benches in the House of Commons demanding that these institutions be kept out of any role?

[Lord Sassoon]

My Lords, the first thing is to be clear that the intergovernmental agreement is explicit that it cannot encroach on the competences of the EU and that the signatories to the intergovernmental agreement must not take measures that in any way undermine the single market. That is set out in the preliminary recitals and in Article 2 of the treaty. It is principally a matter for the signatories to the treaty. We have made it clear that the Government have a number of concerns about elements of this inter- governmental agreement, one of which is the use of EU institutions. Some of the proposed uses of EU institutions in this intergovernmental agreement are already in the EU treaties and others are not. The Government will watch very carefully how this develops.

Eurozone Crisis

Lord Liddle Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Liddle]

My Lords, I thank the Minister for repeating the Statement that the Chancellor made in the other place. As my colleague Rachel Reeves acknowledged there, we on this side of the House welcome the agreement that has been reached, but we also believe that there are many crucial, unanswered questions; I hope that the noble Lord can help us deal with some of those today. The future of the eurozone is vital to our national interests. It has huge ramifications for British businesses and families and that is why we need to see on the part of our Government a policy of constructive and positive engagement, even though we are a “euro-out”.

On the recapitalisation of the banks, does the Minister believe that the deal announced is sufficient and that UK banks do not require any further recapitalisation? What estimate has he made of the exposure of UK banks to Greek, Italian, Portuguese and Spanish sovereign debt? What can he tell us about that? Does the noble Lord rule out any possibility that the Irish might at some stage ask for similar treatment to that of the Greeks? What would then be the impact on the UK banking system? What would then be the expectation of our partners as to our role?

On the expansion of the European Financial Stability Facility, does the noble Lord believe that the €1 trillion package is sufficient? Is it the big bazooka that the Prime Minister talked about so eloquently before the summit? Does he think that we are going to be back here discussing these issues in a few months’ time, which would add to the uncertainty that is undermining confidence?

Can the noble Lord explain in more detail—and I understand the difficulties here—how the leveraging of the EFSF will work? If it is not clear now, when does he expect it to become clear in terms of credit enhancement and special purpose vehicles? If the EFSF must also fund bank recapitalisation, will it be sufficient to give confidence to the markets, and will there be sufficient remaining funds to underpin the sovereign debt of member states in difficulty, such as Italy?

On the question of British contributions, paragraph 22 of the euro summit statement says:

“In addition, further enhancement of the EFSF resources can be achieved by cooperating even more closely with the IMF. The Eurogroup, the Commission and the EFSF will work on all possible options”.

Are we to interpret what the noble Lord said in the Statement as meaning that the British would oppose any such exploration and try to veto such efforts?

Is not the big thing missing from the agreement that has been concluded the lack of any plan for jobs and growth in Europe? Is it not the case that countries such as Italy are not conceivably going to be able to solve their debt problems without a revival of growth? Is this not a time when Britain should have been leading the charge with our partners to argue for a proper plan for jobs and growth in Europe? We need not simply collective austerity but a new drive to open up the single market, an investment plan using up unused structural funds—of which there are hundreds of millions in this country—and a greater role for the European Investment Bank, which has already played a considerable role in financing small businesses. We need to look at whether this can be extended to provide central support for privately funded energy and other infrastructure projects. Should we not be putting together that kind of European plan for growth?

However, is not the real problem that this Government cannot do that because unemployment is at a 17-year high, there has been no growth in this country for a year, borrowing is £46 billion higher than was planned and, by clinging desperately to an austerity plan that is failing here in Britain, as my colleague Ed Balls has so persuasively argued, we are nailing our colours to a mast of austerity when what we need is a comprehensive plan for growth? Is not one reason why the Government are being held back from putting forward a plan for growth in Europe that they are fundamentally conflicted on Europe, not really being able to make up their mind whether they want Britain in the room or out of the room?

On the arrangements for future decision-making that have been agreed, the agreement says:

“The President of the Euro Summit will keep the non euro area Member States closely informed of the preparation and outcome of the Summits”.

What does “closely informed” mean? Does it mean anything more than Britain simply being told by a letter in the post, as it were, what has happened in Brussels? What arrangements will be made to ensure that the British voice is heard loud and clear?

On the forthcoming treaty changes, which are mentioned, it is totally unclear where the Government stand. I understand that there was a report this morning from a No. 10 press briefing that any treaty changes were expected to be minor and certainly would not require a referendum in this country. In that case, how will they be a vehicle for the repatriation of powers and the renegotiation of Britain’s relationship with the European Union that the Prime Minister promised his Back-Benchers in the House of Commons earlier this week? The fact is that, as long as the Government fail to resolve these fundamental issues about their stance towards our membership of the European Union, our influence over the eurozone’s future is going to be minimal.

[Lord Sassoon]

My Lords, I congratulate the noble Lord, Lord Liddle, on asking, in my experience, the maximum number of questions in the minimum amount of time, which certainly gives me a bit of a challenge. He addressed some of the key issues that are left outstanding, which is very helpful, and I shall attempt to address as many of his questions as I can.

First, on the sufficiency of the bank recapitalisation, what is important here is that for the first time, unlike the somewhat obscure and clearly failed stress tests—failed in the sense that they were not nearly tough enough—we have a very clear direction about the hurdle of 9 per cent core tier 1 capital on the basis that sovereign debt is market to market and the European Banking Authority has done the calculations on that basis. That is materially different from the way that the assessment was made last year, which was woeful in its inadequacy. To be absolutely clear, through that process and through the ongoing process of the tripartite authorities—particularly the FSA in the UK—under this assessment UK banks do not need any new capital, as indeed is the case for banks in a number of other countries, including the Netherlands and, critically, Ireland.

The noble Lord asked about Ireland and I shall come back to that in a minute. He also asked specifically about the UK’s exposure to other peripheral countries, and it may be helpful to give the latest data on that. The information is set out on the Bank of England website, and the latest numbers that it gives are that UK financial and monetary institutions have exposures to the public sectors of the peripheral eurozone countries—that is, Greece, Ireland, Portugal, Spain and Italy—of up to $34 billion, the currency in which the numbers are reported. Twenty-five billion dollars of that relates to the public sectors of Italy and Spain, and a total of $9 billion to Greece, Ireland and Portugal—$3 billion to Greece, $4 billion to Ireland and $2 billion to Portugal. These are relatively modest numbers in most cases compared with those for other core European countries. They are much lower than the exposures of banks in France and Germany, for example, to Greece.

So far as concerns Ireland, as I just said, the first thing that came out of the statement overnight is that the Irish banks do not require further capital injections as a result of this package. I support the euro summit’s statement on Ireland—that it is making good progress on the full implementation of its adjustment programme. As we all know, it is clearly in our national interest that the Irish economy is successful and that its banking system is stable. Ireland accounts for some 6 per cent of Britain’s exports, and that is why we signed the bilateral loan agreement with it. As is clear from everything that has happened since then, the Irish Government have a strong commitment to programme implementation, and we very much welcome that.

A recently completed staff mission ahead of the fourth EU/IMF review of Ireland’s programme concluded that Ireland is indeed delivering its programme effectively and making substantial progress on deficit reduction, banking repair and structural reforms. The progress that Ireland has made is a positive lesson for other countries in Europe.

The noble Lord then asked whether the €1 trillion is sufficient. The critical point for now is that, although a lot of numbers have been bandied around in negotiating the package, we have gone up a step from €440 million to €1 trillion and that is a very significant increase. The first priority is to see to the details because, as the noble Lord, Lord Liddle, points out, important details have to be put in place. That has to be the next priority and there is a commitment that we should get the details on that by the end of November, which answers the noble Lord’s question. Otherwise, all I would say about indications of the sufficiency of the package is that the markets—whether the equity markets, the debt markets or the markets in European banks—have been positive today and although we should not set too much store by one day's reaction in the market, clearly that reaction has been positive, having looked at the statement and the package.

Turning to jobs and growth, of course we want the EU27, as well as the eurozone, to be putting in much more effort, as I have already said, to questions of structural reform, competition policy, external trade and so on. From the Statement it is clear that yesterday the Council was looking hard at these matters, not least in drawing attention to the Spanish plans for structural reform and the new Italian plan for growth. To be fair to the eurozone, both in the generality and in relation to two of the countries that wish to see speedy action, growth issues are certainly not forgotten.

On the noble Lord's jibes about the UK, I stress again that the approach of the UK Government is threefold: first, we must stick to the deficit reduction plan if we are to have the continued low interest rates which we need for sustained recovery; secondly, yes, there is room for monetary activism, as seen in the Bank of England's recent announcement on more quantitative easing but also in my right honourable friend the Chancellor's announcement that we are looking at further credit easing measures; and thirdly, yes, we need to continue to bring forward supply-side reforms, as we will do in and around the autumn Statement next month to underpin medium-term balanced growth.

The noble Lord asked about issues concerning the structure of the euro-ins and the euro-outs, treaty changes and so on. As regards what “closely informed” means, the best evidence is what happened over the past few days: the Prime Minister successfully argued that we needed to have a seat at the table yesterday for issues that concern the whole EU27 and specifically there was the bank recapitalisation. That was accepted; we were there; the other euro-outs were there and we were kept extremely closely informed about the deliberations within the eurozone. The best thing to look at is the evidence of how that worked over the past couple of days.

The eurozone Statement talks about possible treaty changes, so we must not jump the gun and say that there will be some. I do not have the wording of that paragraph in front of me, but it makes the point that they are not necessarily extensive changes—I forget the adjective.

[Lord Liddle]

Limited.

[Lord Sassoon]

I thank the noble Lord for that—possible limited treaty changes. We should not get excessively excited too soon about that but, if and when the treaty changes come forward, the first priority of the UK Government will be to ensure that those treaty changes are fit for purpose in terms of the better governance that we want in the eurozone, and the second is that we will take every opportunity at that point to see what advantage we can get for the UK out of the discussions around any package that may come forward. I hope that that rather briskly answers the noble Lord’s many questions.

Euro

Lord Liddle Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

My noble friend Lord Lawson of Blaby cuts to the chase with singular directness. I think that this is an onion with many layers to it and we need to go stage by stage. Having established the immediate priority of the stabilisation of the eurozone, of course the strengthening of the fiscal arrangements within the eurozone is the second priority. The Government signed up to that during the summer and the implementation of that needs to be taken forward. It is in the UK’s interest that that happens. It may lead, as the overnight statement said, to treaty changes and, as a consequence of that, the UK Government will seek to ensure that they take advantage of any opportunity to advance the UK’s interest. I think we need to regard this as a step-by-step process.

[Lord Liddle]

My Lords, will the noble Lord pass on our best wishes to the Prime Minister for many more enjoyable dinners with the Swedes and Poles, having enjoyed one yesterday evening? Does the Minister agree that in the new two-tier Europe, which this Government are bringing on, it is essential to defend Britain’s vital national interest in the single market and financial regulation by keeping Britain as close as possible to the eurozone? In the light of that, will they be reconsidering their decision not to join the euro-plus pact, which was offered? Does he not also agree that it is totally contradictory and counterproductive to talk at the same time about repatriation of powers for which, if the coalition can agree on what they mean, our partners are bound to demand a higher a price?

[Noble Lords]

Too long!

[Lord Liddle]

How do the Government propose to resolve this looming conflict between defence of the national interest and their own party unity?

[Lord Sassoon]

My Lords, it really is not helpful for the party opposite to try to paint this completely false picture of a two-speed Europe. As I have already explained, the euro-out countries are integral to the single market—the eurozone understands that—and we will be part of the centrality of what needs to be done to drive forward structural reform of the single market, and so on. The other thing that is completely wrong is to paint Europe now as two-speed. There is a variable geometry EU, as we have it. Remember that other important areas such as justice and home affairs, as the noble Lord, Lord Liddle, recognises, also run in different ways. Therefore the idea that there will be some fundamentally changed, two-speed Europe is again ridiculously simplistic.

EUC Report: Economic Governance

Lord Liddle Excerpts

Thursday 16th June 2011 Lords Chamber

[Lord Liddle]

My Lords, first, on behalf of the opposition Front Bench I congratulate my noble friend Lord Harrison and his committee on an excellent report. It shows that this House can bring an intelligence and clarity to complex issues that are unusual in the political world, and I sincerely congratulate them on that. Secondly, when my noble friends Lord Woolmer and Lord Haskins make the point that the recommendations of the Van Rompuy taskforce do not address the fundamental crisis that the euro faces, they are of course right. In my view, it is a crisis of solvency not liquidity that at some stage has to be addressed.

This economic governance package is not about the immediate resolution of the present crisis but about trying to make sure that we prevent future crises happening. From our perspective, the proposals here are an advance on the stability and growth pact. The stressing of the need to monitor the debt to GDP ratio, not the deficit, is good. The new emphasis on economic imbalances is good, as it is on credit conditions, the risk of asset bubbles and the new streamlined processes for monitoring member state budgets. Where we have ended up on the sanctions regime, which was mentioned by the noble Baroness, Lady Maddock, is right as well.

However, we have some reservations about this and some questions to ask the Government. First, on debt, Mr Hoban’s letter says that the Government were concerned that on debt to GDP, the proposals might involve too much of a target-based, semi-automatic approach. However, they say that the proposals have been modified to make sure that that is not so. Could we have more of an explanation of how they have been modified? On this side of the House, we believe strongly that one should not take short-term actions on deficits which make the long-term position on debt worse, not better. It may be that that is what the present Government are doing in terms of their “too far, too fast” economic adjustment in this country but we would like to know more about avoiding that target-based semi-automatic approach.

Secondly, on the long-term challenges of debt to GDP, is there not a need for an emphasis on positive policies, social investment policies, to overcome issues such as the rising costs of ageing, so that we activate more people in the workforce and invest more in research, education and infrastructure to raise productivity? Is that not a positive absence from these proposals? Thirdly, are there not other measures that the EU could be taking to promote growth in the sovereign debtor countries—for example, bringing forward unused structural fund money or trying to develop, through the European Investment Bank, a cross-border infrastructure investment—which might help to revive the economies in countries such as Greece and Spain? What view do the Government have of that?

Finally, although I must sit down in a moment, the noble Lord, Lord Hamilton, made a very thoughtful speech on the role of the UK. I have disagreed with him on the EU Bill but his speech today was extremely thoughtful, as was that of the noble Baroness, Lady Hooper, about the impact on the UK. The Government have looked rather Janus-faced to me on these issues. They say at the start of their letter that economic shocks do not respect geographic borders and that it is very much in our economic and political interests to engage, but then they express reservations about engaging. What were the reasons for the Government deciding, for instance, not to join the euro-plus pact, where they might have been able to exert a positive influence on eurozone policies? What would be their attitude to future treaty changes that might lead to further steps towards fiscal union?

[Lord Campbell of Alloway]

My Lords, may I ask a very short question? Being very much impressed by the speech that has been made, what is the position of the Opposition? I am not quite sure what the policy of the Government is, but with vast extraterritorial commitments now, should there be a moratorium until we can retrieve our debt without borrowing more money to pay the interest? I do not say that they should be excluded for ever. I am not expert on these things but I would like to know what the noble Lord has to say.

[Lord Liddle]

Given that that is not a short question, while I have the greatest respect for the noble Lord, Lord Campbell of Alloway, I cannot conceivably deal with a question of such complexity without breaking the rules of the House.