European Council

Lord Strathclyde Excerpts

Monday 12th December 2011 Lords Chamber

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

My Lords, it may be a convenient time for me to repeat a Statement made 18 minutes ago in the House of Commons on the recent European Council. As it is a Statement of some importance, it has been agreed through the usual channels that if, after 20 minutes, there is still a number of Back-Bench speakers who would like to take part, we will increase the amount of time available to them to up to 40 minutes. I hope that that is met with relief by Members of the House.

The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on last week's European Council. I went to Brussels with one objective: to protect Britain's national interest, and that is what I did. Let me refer back to what I said to this House last Wednesday. I made it clear that if the eurozone countries wanted a treaty involving all 27 Members of the European Union, we would insist on some safeguards for Britain to protect our own national interests.

Some thought that what I was asking for was relatively modest. Nevertheless, satisfactory safeguards were not forthcoming, so I did not agree to the treaty. Let me be clear about exactly what happened, what it means for Britain and what I see happening next. Let me take the House through the events of last week. At the Council, the eurozone economies agreed that there should be much tighter fiscal discipline in the eurozone as part of restoring market confidence. That is something that Britain recognises is necessary in a single currency. We want the eurozone to sort out its problems. That is in Britain's national interest because the crisis in the eurozone is having a chilling effect on Britain's economy too.

So the question at the Council was not whether there should be greater fiscal discipline in the eurozone, but rather how it should be achieved. There were two possible outcomes: either a treaty of all 27 countries with proper safeguards for Britain or a separate treaty in which eurozone countries and others would pool their sovereignty on an intergovernmental basis, with Britain maintaining its position in the single market, and in the European Union of 27 members.

We went seeking a deal at 27, and I responded to the German and French proposal for treaty change in good faith, genuinely looking to reach an agreement at the level of the whole European Union, with the necessary safeguards for Britain. Those safeguards—on the single market and on financial services—were modest, reasonable and relevant. We were not trying to create an unfair advantage for Britain. London is the leading centre for financial services in the world, and this sector employs 100,000 people in Birmingham, and a further 150,000 in Scotland. It supports the rest of the economy in Britain and more widely in Europe.

We were not asking for a UK opt-out, special exemption or generalised emergency brake on financial services legislation. They were safeguards sought for the EU as a whole. We were simply asking for a level playing field for open competition for financial services companies in all EU countries, with arrangements that would enable every EU member state to regulate its financial sector properly.

To those who say we were trying to go soft on the banks, nothing can be further from the truth. We have said that we are going to respond positively to the tough measures set out in the Vickers report. There are issues about whether this can be done under current European regulations, so one of the things we wanted was to make sure we could go further than European rules in regulating the banks. The Financial Services Authority report on RBS today demonstrates how necessary that is. We have problems in this country that this Government inherited and need to sort out.

And those who say that this proposed treaty change was all about safeguarding the eurozone—and so Britain should not have tried to interfere or to insist on safeguards—are also fundamentally wrong. The EU treaty is the treaty of those outside the euro as much as those inside. Creating a new eurozone treaty within the existing EU treaty without proper safeguards would have changed the EU profoundly for us too. It is not just that it would have meant a whole new bureaucracy, with rules and competences for the eurozone countries being incorporated directly into the EU treaty, it would have changed the nature of the EU, strengthening the eurozone without balancing measures to strengthen the single market. An intergovernmental arrangement is not without risks but we did not want to see that imbalance hardwired into the treaty without proper safeguards.

And to those who believe this was not a real risk, France and Germany said in their letter last week that the eurozone should work on single market issues like financial regulation and competitiveness. That is why we required safeguards and I make no apologies for it. Of course I wish those safeguards had been accepted. But frankly I have to tell the House the choice was a treaty without proper safeguards, or no treaty. And the right answer was no treaty. It was not an easy thing to do, but it was the right thing to do. As a result, eurozone countries and others are now making separate arrangements for the fiscal integration they need to solve the problems in the eurozone. They recognise this approach will be less attractive, more complex and more difficult to enforce and they would prefer to incorporate the new treaty into the EU treaties in the future. Our position remains the same.

Let me turn to what this means for Britain. Britain remains a full member of the European Union, and the events of the last week do nothing to change that. Our membership of the EU is vital to our national interest. We are a trading nation and we need the single market for trade, investment and jobs. The EU makes Britain a gateway to the largest single market in the world for investors. It secures more than half of our exports and millions of British jobs. And membership of the EU strengthens our ability to progress our foreign policy objectives too, giving us a strong voice on the global stage in issues such as trade and, as we have seen in Durban this week, climate change and the environment.

So we are in the European Union, and we want to be. This week there will be meetings in the councils on transport, telecommunications and energy, and agriculture and fisheries. Britain will be there as a full member at each one. But I believe in an EU with the flexibility of a network, not the rigidity of a bloc. We are not in the Schengen no-borders agreement and neither should we be, because it is right that we should use our natural geographical advantage as an island to protect us against illegal immigration, guns and drugs. We are not in the single currency, and while I am Prime Minister we will never join. We are not in the euro area bailout funds, even though we had to negotiate our way out of it. And we are not in this year’s euro-plus pact.

When the euro was created, the previous Government agreed there would need to be separate meetings of eurozone Ministers. It is hardly surprising that those countries required by treaty to join the euro chose to join the existing eurozone members in developing future arrangements for the eurozone. Those countries are going to be negotiating a treaty that passes unprecedented powers from their nation states to Brussels. Some will have budgets effectively checked and rewritten by the European Commission. None of this will happen in Britain.

But just as we wanted safeguards for Britain’s interests if we changed the EU treaty, so we will continue to be vigilant in protecting our national interests. An intergovernmental treaty, while it does not carry with it the same dangers for Britain, none the less is not without risks.

The decision of the new eurozone-led arrangement is a discussion that is just beginning. We want the new treaty to work in stabilising the euro and putting it on a firm foundation. I understand why they would want to use EU institutions, but this is new territory and does raise important issues which we will need to explore with the euro-plus countries.

So in the months to come we will be vigorously engaged in the debate about how institutions built for 27 should continue to operate fairly for all member states, and in particular for Britain. The UK is very supportive of the role the institutions play in safeguarding the single market, so we will look constructively at any proposals with an open mind. But let us be clear about one thing. If Britain had agreed treaty change without safeguards, there would be no discussion. Britain would have no protection.

Let me turn to the next steps. The most pressing need is to fix the problems of the euro. As I have said, that involves far more than simply greater medium-term fiscal integration, important though that is. Above all, the eurozone needs to focus at the very least on implementing its October agreement. The markets want to be assured that the eurozone firewall is big enough, that Europe’s banks are being adequately recapitalised and that the problems in countries such as Greece have been properly dealt with.

There was some progress at the Council but far more needs to be done. The eurozone countries noted the possibility of additional IMF assistance. Our position on IMF resources remains the one I set out at the Cannes G20 summit. Alongside non-European G20 countries, we are ready to look positively at strengthening the IMF’s capacity to help countries in difficulty across the world.

But IMF resources are for countries not currencies. They cannot be used specifically to support the euro, and we would not support that. There also needs to be greater competitiveness between the countries of the eurozone. But let us be frank—the whole of Europe needs to become more competitive. That is the way to more jobs and growth. Many eurozone countries have substantial trade deficits as well as budget deficits. If they are not to be reliant on massive transfers of capital, they need to become more competitive and trade out of those deficits.

The British agenda has always been about improving Europe’s competitiveness. At recent councils we have achieved substantial progress on completing the single market in services, opening up our energy markets and exempting microbusinesses from future regulations. This has been done by working in partnership with a combination of countries that are in the eurozone and outside it.

Similarly, on this year’s EU budget it was Britain in partnership with France, Germany and Holland among others that successfully insisted on no real increase in resources—for the first time in many years.

On defence, Britain is an absolutely key European player, whether leading the NATO rapid reaction force or tackling piracy in the Indian Ocean, and our partnership with France was crucial in taking action in Libya. Britain will continue to form alliances on the things we want to get done.

We have always had a leading role in advocating the policy of enlargement, and at this Council we all celebrated the signing of Croatia’s accession treaty. That is one European treaty I was happy to sign.

Let me conclude with this point. I do not believe there is a binary choice for Britain: that we can either sacrifice the national interest on issue after issue or lose our influence at the heart of Europe’s decision-making processes. I am absolutely clear that it is possible both to be a full, committed and influential member of the European Union and to stay out of arrangements where we cannot protect our interests. That is what I have done at this Council. That is what I will continue to do as long as I am Prime Minister. It is the right course for this country, and I commend this Statement to the House”.

[Baroness Royall of Blaisdon]

My Lords, I thank the Leader of the House for repeating the Statement on the EU Council made today in another place by the Prime Minister. In this House, Leaders of the Opposition tend to open their statements on normal, regular EU Council meetings in roughly that vein. This was a normal, scheduled EU Council meeting, even if it was taking place at a particularly difficult time. But this was no normal, regular outcome to a normal EU Council meeting. What happened in Brussels in the early hours of Friday morning was momentous. The implications of the Prime Minister’s decision may well take years, decades even, to unfold fully. It is clear that Britain is now travelling in a different direction from the rest of Europe.

The reality of where we are is this: the Prime Minister has given up our seat at the table; he has exposed, not protected, British business; he has got a bad deal for Britain. The Prime Minister told us that his first priority at the summit was sorting out the eurozone but the euro crisis is not resolved. There is no promise by the European Central Bank to be the lender of last resort. There is no plan for growth. There is little progress on bank recapitalisation, so can the Leader of the House tell us why the Prime Minister’s promise of a so-called big bazooka did not materialise and what that means for Britain? At the summit that was meant to solve these problems, the Prime Minister walked away from the table.

Let me turn to where that decision leaves this country. Many people feared an outcome of 17 going it alone. Few could have dreamt of the diplomatic disaster of 26 going ahead and one country—Britain—being left behind. The Prime Minister talks of isolation in the national interest but the truth is that this is isolation against the national interest. The Prime Minister rests his whole case on the fact that 26 countries will be unable to use existing treaties or institutions. Can the Leader of the House confirm that Article 273 of the European treaty allows them to use the European Court of Justice, and no doubt they will use the Commission’s service and, yes, even the buildings? In case anyone had any doubt, it is confirmed by what the Deputy Prime Minister said yesterday that it clearly would be ludicrous for the 26, which is pretty well the whole of the European Union, to completely reinvent a whole panoply of institutions.

The Prime Minister claimed in his Statement to have done what he did because this treaty posed a grave threat to our financial services industry. Can the Leader of the House point to a single proposal in the treaty that would have entailed the alleged destruction of the City of London? What was the threat? Can the Leader of the House now tell us? In any case, there is nothing worse for protecting our interests in financial services than the outcome that the Prime Minister ended up with. Can the Leader of the House confirm that there is not one extra protection that the Prime Minister has secured for financial services?

The Prime Minister has laid great stress since Friday on his claim that British interests would be better protected as a result of his decision in Brussels. Can the Leader of the House tell your Lordships the basis for such a claim? Can he say precisely what safeguards the Prime Minister asked for? Can he say what mandate the Prime Minister had, and from whom, for making those demands? Was it the full Cabinet or the Deputy Prime Minister? The Prime Minister wanted a veto on financial services regulation but he did not get one. The Prime Minister wanted guarantees on the location of the European banking authority but he did not get them. Far from protecting our interests, the Prime Minister has left us without a voice and the sensible members of the Prime Minister’s own party, including some Members of your Lordships’ House understand this as well as anyone. We on these Benches agree with the remarks made at the weekend by the noble Lord, Lord Heseltine, when he said:

“You can’t protect the interests of the City by floating off into the middle of the Atlantic”.

What about the rest of British business—the part of British business that the Prime Minister does not seem to have been thinking about? There is a danger for it, too, in that the discussions about the single market on which it relies will take place without us—a point that Sir Martin Sorrell, chief executive of WPP, the advertising company, is only the first from the business world to be making today.

The Deputy Prime Minister clearly does not agree with the Prime Minister. He says that this outcome leaves Britain “isolated and marginalised”. Does the Leader of the House agree with that assessment? Can the Leader of the House explain how the Prime Minister can expect to persuade anyone else that this is a good outcome for Britain when he cannot even persuade the Deputy Prime Minister? The Prime Minister believes that this decision was best for Britain, but the Deputy Prime Minister does not. Which is the Government’s position on this issue—the Prime Minister’s or the Deputy Prime Minister’s? With the Deputy Prime Minister saying that he is “bitterly disappointed” with the outcome obtained by the Prime Minister, can the Leader tell the House how the coalition can work properly with, at its heart, such a fundamental disagreement on such a fundamental issue?

The Prime Minister claimed to have wielded a veto, but a veto is supposed to stop something happening—it is not a veto when the thing you wanted to stop goes ahead without you. How did we end up with this outcome? Can the Leader of the House confirm that what the Prime Minister actually proposed was to unpick the existing rules of the Single European Act signed by the noble Baroness, Lady Thatcher? Given that it was changing 25 years of the single market, why did the Prime Minister propose it in the final hours before the summit, and where were the Prime Minister’s allies? If the Prime Minister wanted a deal, why did he fail to build alliances with the Swedes, the Dutch, the Poles—our traditional supporters? If the Prime Minister really wanted to protect the single market and financial services, can the Leader of the House say why no guarantees were sought that these issues would only be discussed with all 27 members in the room?

Can the Leader tell us why the Prime Minister walked away from a treaty negotiation even before there was a text on the table on which we could have negotiated? The treaty will take months and months to negotiate. The Prime Minister could have reserved his position and continued to talk, as other countries have done. We believe the real answer is that the Prime Minister did not want a deal because he knew that he could not deliver it through his Back-Benchers.

I usually start my day by having a loud, one-sided argument with the “Today” programme, either with the presenters or coalition Ministers espousing policies with which I disagree because of the detrimental effect they will have on the people of our country. However, on Friday morning I was stunned into silence when I heard that the Prime Minister had wielded the veto at the European summit. This was such an extraordinary failure of diplomacy. I simply could not understand why a veto had been used over a treaty that as yet has no text and which we are not even being asked to sign yet, and how our national interests could be best served by absenting ourselves from future discussions and negotiations. The implications of our isolation are huge and we are in danger of being sidelined on a vast number of issues, including the single market.

We now have no influence at all on the final form and content of the new intergovernmental treaty. Why is this important? It is about the future stability of our continent, the future stability of the euro and therefore the future stability of the UK economy. Of course, people are right to be concerned about the European Union and the situation in the eurozone because these have great implications for our country. However, by absenting ourselves from the negotiations, by leaving an empty chair, we are abnegating our responsibilities. We should have a voice in the discussions but we are choosing not to use it. This is clearly not in our national interest.

Nothing has changed in terms of banking, financial services and hedge funds. The decisions will continue to be taken by qualified majority because financial services regulation is part of the internal market rules. However, I suggest that the 26 will be less likely to listen to our concerns in future. In addition, the 26 will naturally develop the habit of working together on a broad range of economic policy, and our voice—the voice of the most economically liberal and free market member state—will not be heard until most of the discussions have taken place.

I have always believed, and continue to believe, that as a nation we are strengthened by membership of the European Union, not just in terms of trade but of our place in the world. Suddenly, with one fell swoop of a veto that was never even used by the noble Baroness, Lady Thatcher, we were sidelined, and our role in the world was diminished. It could mean that in future the Americans think doing business with Europe means doing business with Berlin, Paris and Brussels rather than London. This is a bad deal, which we have ended up with for bad reasons, and it will have long-lasting consequences. It is a decision that means that we are on the sidelines, not just for one summit but for the years ahead.

The Prime Minister told the other place on 24 October:

“At the heart of our national interest … is not only access to that single market but the need to ensure that we are sitting around the table … determining the rules that our exporters have to follow. That is key to our national interest, and we must not lose that”. [Official Report, Commons, 24/10/11; col. 38.]

However, that is exactly what the Prime Minister has done. He has done what no Prime Minister has ever thought to be wise before: to leave the room to others, to abandon our seat at the table. The Prime Minister says that he had no choice, but he did. The Prime Minister could have stayed inside and fought his corner. He should have stayed inside and fought his corner.

This country will rue the day that the Prime Minister left Britain alone without allies and without influence. The outcome obtained by the Prime Minister is bad for business, bad for jobs, and bad for Britain.

[Lord Strathclyde]

It is always good to hear the noble Baroness, the Leader of the Opposition, on such fine form. I strained to hear, in all her words, whether or not the Labour Party would have signed up to the agreement on Thursday night, and I have no idea if anybody else heard the answer—I certainly did not. I invite the noble Baroness to nod, or shake her head, and she is doing absolutely neither.

[Baroness Royall of Blaisdon]

My Lords, we are not the Government. The noble Lord is in the Cabinet and represents the Government.

[Lord Strathclyde]

It is very hard for the noble Baroness to criticise when she is not able to tell us what her party would have done in our position. When the Labour Party was in a position to stand up for British interests, it gave away the opt-out on the social chapter, signed up to the Lisbon treaty and refused to ask the British people for approval, and gave away something like £7 billion of the rebate and got absolutely nothing in return.

The Prime Minister was clear all along that he would protect our national interests. That is exactly what he did. It is in our national interest for the countries with the euro to fix their problems. We said that we could only agree a new treaty if certain modest, reasonable and relevant safeguards were obtained—safeguards for the EU as a whole, not just for the UK—but we could not get those safeguards. That is why the Prime Minister did not sign the treaty.

The noble Baroness asked specifically about the EU institutions. At this stage it is very difficult to know exactly what role is proposed for the EU institutions, and therefore to take a view as to what will happen in the outcome over the course of the next few weeks.

The noble Baroness asked, though she did not put it quite in these words, what we fear from the existing treaty. What concerned us was the huge damage that could potentially have occurred to the single market and financial services. We stopped Britain from signing up to something that was damaging.

The noble Baroness asked what has changed since Thursday. The answer is, very little between Wednesday and Friday. We are still firmly part of the EU, as I, or rather the Prime Minister in his Statement, explained.

The noble Baroness asked what safeguards we were asking for. We were not asking for very much. We were asking for legal clarity, that decisions on running and extending the single market would not be taken away from the EU as a whole and be made instead by the eurozone-led group. On financial services we asked for practical and focused proposals to protect the openness and competitiveness of the single market for all, especially for those outside the euro. We also asked for a proper role for our national regulators, scrutinising institutions from outside the EU which are present in Britain but nowhere else, and for freedom for our regulators to impose additional requirements on our banks, if we in this House, and in another place, so chose.

These are the most humble safeguards that we could possibly have asked for. The noble Baroness should not be asking why, in her words, we were isolated, but why the 26 countries did not agree with us, or agree to give us these safeguards. The noble Baroness says that we are isolated and marginalised. But no, we are one of the biggest economies in Europe and one of the biggest contributors to the EU. We are one of the most successful countries, and we will continue to be so. That, my Lords, is why we did not sign the treaty.

[Lord Dholakia]

My Lords, I thank the noble Lord for repeating the Statement in your Lordships’ House. I have two questions. First, the decision taken by the Prime Minister requires not just a Statement but an early debate in your Lordships’ House. Will the Leader of the House consult the usual channels so that such a debate can take place well before the Christmas Recess? Secondly, the Chancellor is reported to have said that,

“his officials were putting unprecedented effort into planning for all eventualities”.

Will the Leader make available information to indicate how the interests of the City of London are to be protected?

[Lord Strathclyde]

My Lords, I wholly understand why my noble friend would ask for a debate; obviously this is an area of great interest. Perhaps I may suggest that the usual channels should meet, perhaps with representations from all parties and groups in this House, to see whether we can find a time. As the House knows, we will rise for Christmas next Wednesday. It might be a little bit difficult to find a suitable date before then, and in any case it might be better to meet again in January to discuss these issues. We had a very successful debate on 1 December but I am not averse to having a further one.

My noble friend also asked a question about the Chancellor of the Exchequer saying that he was planning for all eventualities. The reality of our decision not to join the euro means that, for some time now, the eurozone countries have developed and continue to develop their own arrangements. For the UK and other countries that have not joined the euro, that means being vigilant in protecting our national interests. That will remain the case, but it is nothing new.

We will continue to exert our influence on financial services legislation and on single market legislation more broadly. But I am sure that, for reasons which I am sure the House will understand, the Government do not comment on the detail of their contingency planning in order to ensure that we can best protect the interests of the whole economy, including the City.

[Lord Kerr of Kinlochard]

My Lords, I congratulate the Leader on the ebullience of his response to the noble Baroness, Lady Royall. Perhaps I may ask that he include a little more content in his answers to the questions that I have for him. First, will he confirm that since 1988, when at the initiative of Prime Minister Thatcher we secured qualified majority voting for financial services regulation legislation, the United Kingdom has never been outvoted on a financial services proposal in the Council of Ministers in Brussels? Secondly, will he confirm that the financial transaction tax is a complete red herring because, as a tax measure, it is on a unanimity legal base and if we do not agree with it, we can block it?

I have three questions on institutions. I listened with great interest to what the Leader said about the Government looking constructively at any institutional proposals. First, if the Government consider that tighter deficit control arrangements among eurozone countries could somehow create a threat to City interests—and I do understand the concern—would this threat not be best contained if the arrangements that the eurozone countries make were required not to undermine the single market, not to create barriers to trade between all member states and not to distort competition between them? He will recognise the language of Article 326.

Secondly, as the Government constructively consider institutional proposals, will the Leader consider Article 136, under which eurozone member states may go for tighter control of their deficits, and only they may vote on measures imposing such controls, but all member states are entitled to be present and able to defend their interests? Thirdly, will he confirm that it is still the Government’s view that the survival of the eurozone, and therefore the “remorseless logic” of fiscal union among eurozone member states, is an important UK interest and that we therefore wish to help the eurozone quickly reach effective, enforceable arrangements for tighter deficit controls?

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[Lord Kerr of Kinlochard]

May I ask one question of tactics? I am grateful to the noble Lord. Will he confirm that, exactly 20 years ago, John Major secured the social opt-out and the euro opt-out by attaching his conditions to the conclusion of the negotiation, where unanimity is required, and not to the convening of a negotiation, for which only a simple majority is required?

[Lord Strathclyde]

My Lords, I know that the noble Lord, Lord Kerr of Kinlochard, is trying to be constructive and helpful in guiding the Government through all this. He asked a number of questions, but I will not be able to answer them all in the time allowed. However, he is right on the financial transaction tax, and I am sure that he is right about us never being outvoted under QMV over the past 20 years. As for the question that he posed at the end about John Major and the opt-outs, I supported the opt-outs. The opt-outs were an excellent thing. However, as soon as the Labour Party got into office it got rid of the opt-outs, and it got absolutely nothing in return. We want something far firmer and longer-term than that.

There are two key questions. First, on the EU institutional proposals and whether we should consider using Article 136, it is, of course, still the earliest possible days in how all this plays out. Even the French President and others have agreed that this process will last until March. There are at least three countries that need parliamentary approval before they can sign up to these treaties, so there is plenty of time to look at these things.

As I said earlier, the exact role being proposed for the institutions is not yet clear to anyone. We will need to look carefully at the detailed proposals as they emerge to ensure that Britain’s interests are safeguarded. The noble Lord also asked about our view overall of the eurozone. Let me say most emphatically that we hope that the new treaty can play a significant role in stabilising the euro and putting it on a strong, sustainable path. That is in the interests of Europe, and it is in British interests as well.

[Lord Clinton-Davis]

My Lords—

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[Lord Mandelson]

My Lords, people will differ in their view about whether the Government’s negotiating position last week was tenable or realistic. Will the Government reflect on the utterly shambolic way in which they prepared their position and sought support for their proposals at the summit last week? Why were the Government’s proposals only shared with the legal service of the Council literally the day before the summit? Why were they not shared with, and why was support not sought from, more than a handful of German officials? The French were not informed or consulted at all about these proposals. In view of such lamentable incompetence, is it really surprising that we ended up in a majority of one?

[Lord Strathclyde]

My Lords, I cannot agree with the noble Lord, even though he brings immense experience to this House. We believe that we issued every signal possible by the Prime Minister, the Foreign Secretary and many others as to what we regarded as vital British interests. In the run-up to last Thursday’s summit everyone should have been entirely clear what the implications of that were.

[Lord Lawson of Blaby]

My Lords, I warmly support my right honourable friend the Prime Minister. He took an extremely difficult decision in the circumstances, but it was the right one, and I have no doubt that it will increasingly be seen to have been the right one as time unfolds. Is it not clear that the misbegotten venture of European monetary union has already proved a massive disaster for the whole of Europe and that, furthermore, this particular agreement, if that is the name for it, which was made on Friday has not solved any of the problems? I do not think it can, because I think that it is doomed. Indeed, as the financial markets have made clear today, it certainly has not solved any of the problems. All it will do is create increasing divisions within the members of the eurozone. They will interpret it in different ways and are concerned about many different aspects of it. Differences will also arise between the Governments of a number of eurozone countries and the peoples of those countries. This is not clever. As for—

[Lord Lawson of Blaby]

Finally, perhaps I may commend my right honourable friend on being determined to protect the interests of financial services both in this country and in Europe. Unconsidered and malicious regulation will lead to financial services companies going not to other European countries but to Hong Kong, New York and Zurich.

[Lord Strathclyde]

My Lords, I thank my noble friend for his unqualified support for what the Prime Minister has done and I strongly agree with much of what he says. As I said to the noble Lord, Lord Kerr, we wish the euro well, and we wish it to succeed, because unless we resolve the crisis that is facing the eurozone it will have an extremely negative effect on the British economy. I also agree entirely with my noble friend on his last point about financial services. There is a view that even if we could veto the financial transaction tax, it would affect only the UK. It would be too easy for many companies and organisations simply to relocate to the rest of the world, so it would be a loss to Europe as a whole, not just London. That was why the Prime Minister was trying to defend the financial services industry right across Europe, not just in the United Kingdom.

[Lord Skidelsky]

My Lords, there are three questions which the Prime Minister ducked, and I hope that the Leader of the House will do better. First, in which paragraphs were proposals tabled which required the British to use their veto of the treaty? Will he enumerate the paragraphs to which we took objection? Secondly, what safeguards of our interests were we trying to secure? Thirdly, why could we not have reserved our position, since this was a very early stage in the whole process? As I said, the Prime Minister ducked those questions. I hope that the Leader of the House will be able to do better.

[Lord Strathclyde]

My Lords, I spelt out in some detail what safeguards we asked for in reply to the noble Baroness the Leader of the Opposition, so I will not repeat them. However, the noble Lord has asked a good question to which people will want to know the answer: why did we exercise the veto at the start of the process? It is my understanding that the French made it absolutely plain that under no circumstances would they accept the safeguards that the Prime Minister was asking for. At that stage, the Prime Minister had absolutely no choice if he was going to continue in good faith. That is why he took the decision that he did.

[Lord Davies of Stamford]

My Lords—

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[Lord Pearson of Rannoch]

My Lords, my gratitude is exceeded only by my surprise. I trust that the Leader of the House will forgive me if I congratulate the Prime Minister on his courage in standing alone and on taking what I hope will be the first small step towards the lifeboats on the “Titanic” which is the EU. I have two short questions. First, where do the Government now stand on the 49 proposals for new Brussels legislation in the financial area, some of which will be very serious for our financial industries and taxpayers, and which are already in the pipeline under qualified majority voting? Secondly, the noble Lord has said that we do not know what is on the way, so do not yet know the precise answer, but can he confirm that the other EU countries cannot use the institutions of the whole EU to further their ill-fated plans to prop up the euro without our consent?

[Lord Strathclyde]

My Lords, on all proposals emanating from the Commission on financial services, we will vigorously defend British interests. We will continue to do so. Indeed, we believe that we have protected our interests in being able to do so by not signing up to the treaty. On the second question, I hope that I have dealt with EU institutions. We do not rule out the use of the institutions outside the treaty. After all, we have agreed to that before, along with all the member states, for the EFSF treaty where we thought that made sense. There are other intergovernmental treaties that became part of the umbrella of EU treaties, such as on Schengen, where we have an opt-out. So it is too early to give a specific answer to the noble Lord but he will understand that in our vision of a flexible Europe there should be enough room to have different treaties at different times to deal with different issues.

[Lord Brittan of Spennithorne]

Would my noble friend agree that, as financial services regulation can be passed without unanimity, the only reason such regulation has not been passed in a way that is unacceptable to this country over the last 30 years is because we have been able to get sufficient goodwill from our partners? In order to retain the goodwill which will continue to be needed in future, would my noble friend agree that it will be necessary—if not today, certainly soon—to make it clear that we are not going to try to stop the 26 going ahead by denying them the use of European Union institutions? That would be regarded as an act of great hostility and would deprive us of that goodwill in future.

[Lord Strathclyde]

My Lords, we very much want to retain goodwill and there is no reason why we should not do so. I say again that it is not yet entirely clear what role is being proposed for the EU institutions. We will want to look carefully at the details of what is proposed. No doubt we shall do so over the course of the next few months.

[Lord Davies of Stamford]

My Lords, does it not beggar belief to suppose that anybody could be so stupid or incompetent, if he really believed that there was a threat to national interests from a prospective change in financial service regulation in the EU, as to engineer a situation in which henceforth such regulation will be discussed and in practice decided in a context in which we will not even be in the room? Is it not absolutely clear that it was not national interests at all that drove the Prime Minister but party political interest and the desire to curry back the favour of the Tory Eurosceptics who gave him such a hard time last Wednesday? Does the Leader not think that the country is intelligent enough to see through the propaganda that they have heard this afternoon and to realise that the Prime Minister has played with the national interest for party political reasons?

[Lord Strathclyde]

My Lords, only the noble Lord could come out with that particular quip. Of course we feared the dangers to our national interests or we would not have said what we did. It takes two to agree but it also takes two to disagree. The other 26 could have wholly accepted that we had a deep concern about our national interest and agreed with us. Then there would have been a treaty of the 27.

[Lord McNally]

I am trying to keep count here. We will have the Liberal Democrats and then the Cross-Benchers.

--- Later in debate ---

[Lord Ashdown of Norton-sub-Hamdon]

My Lords, given that we have now cast the veto without stopping anything; that in the name of protecting the City of London we have made it more vulnerable; that we have in a time of crisis given greater incentive to investors to put their money in northern Europe than in isolated Britain; and that we have reduced our leverage in Europe and diminished our voice in Washington, is it not now necessary that we take every step to get ourselves out of the position that we find ourselves in, make ourselves relevant to the argument and get back in the game? How do we intend to do that? Does my noble friend realise how much depends for this country—and for this Government—on our success in doing so?

[Lord Strathclyde]

My Lords, I cannot agree with my noble friend. We believe that we are very firmly in the game. Our voice is not diminished. It is strong. We have defended vital British interests and we will continue to do so in the single market at the level of 27.

[Lord Hannay of Chiswick]

My Lords, would the Minister confirm that, had the texts before the Council in Brussels been agreed by 27, not one word would have applied to this country because they solely concerned tighter arrangements for the eurozone countries? If that is so, it is a little hard to see why they were contrary to our interests. Would he also now perhaps answer the question that has been put to him quite a lot of times? There was a tried and trusted route used by the noble Baroness, Lady Thatcher. In 1985, when she was voted down on the procedural issue of starting a treaty-changing negotiation, she nevertheless decided that her Government would participate in that negotiation. She stated that if it did not come out in a way that safeguarded British interests, she would have no hesitation in vetoing it at the end. In the end it came out for British interests. Why on earth did we not do that this time?

[Lord Strathclyde]

My Lords, my right honourable friend the Prime Minister made an entirely appropriate and sensible decision on Friday night not to agree with the treaty that was going forward. He did so because he believed that vital British interests were at stake. Contrary to what the noble Lord said, our view is that the new treaty would have completely reshaped the whole basis of the EU treaties. We would have been dragged into a whole series of changes and evolutions that would not have served our interests well. That is why we vetoed it.

[Lord Harrison]

My Lords, would the Minister give one clear, crystal example—

--- Later in debate ---

[Lord Strathclyde]

My Lords, I am bound to say that I disagree with all of that. This was not about party but national interests. It was not about—what did he say?—playing to the worst aspects of the British character. That is quite wrong. This is the problem that noble Lords opposite find themselves in. Time and time again, they feel that agreeing with our European partners on everything will protect our long-term interests. We disagree.

[Lord Trimble]

My Lords, we are not absolutely sure of this but is it not likely that the issue will come back to the European Council if there is any attempt or desire on behalf of the eurozone people to make use of the institutions of the Union? When the issue comes back, we will be there making our point of view known. Did the Leader of the House hear on Radio 4 this morning the comment by the distinguished American economist that if you are not prepared to walk away you will have no leverage?

[Lord Strathclyde]

My Lords, I did not hear that interview, but my noble friend is right. In any negotiation, particularly one as important and controversial as this one, you have to take a decision right at the beginning on whether you are going to negotiate in good faith. As I have already said, we put forward a proposal that was relatively humble, it was not agreed with, and that is why we said no.

On the question of EU institutions, I think I have covered that very fully this afternoon. Of course, it will come back as an issue and we will take a decision in due course.

[Lord Bilimoria]

My Lords, with the veto of the treaty, we are losing sight of the essence of this; it is about sorting out the eurozone mess. I have two questions. First, the Government seem to be encouraging greater fiscal union among the eurozone countries to sort out the eurozone problem. Surely the Government accept that the euro is dead in the water—in fact, it is under water—and that these countries will never be in sync, and fiscal union and handing of sovereignty realistically will never happen. If it were to happen, those countries would unite even more and we would be even more isolated.

Secondly, the Prime Minister insinuated in his Statement that the veto was almost a negotiating tactic, and that, if we did not use it, we would not be taken seriously as being able to protect our own interests. Surely, if that is the case and we intend to go back to the table, we might be seen not as a bulldog but as a dog returning with its tail between its legs.

[Lord Strathclyde]

My Lords, the noble Lord says that the eurozone is in a mess and that it will not succeed. That is not the view of the British Government. We believe that the countries of the eurozone have got themselves together. It is true that they face a crisis, but the issue that needs to be resolved is how to solve that crisis, and to do so as quickly as possible, since, as every week goes by, it becomes more expensive to be able to do so. We think that sensible steps were taken forward over the last few days, but only the markets will decide whether the euro is to succeed. We believe that it is in British interests that the euro should succeed, that there should be a greater fiscal union and that many of the things that were proposed late on Thursday night are the right things for the EU to do.

Secondly, as to question of whether this was a negotiating tactic by the Prime Minister, it most certainly was not. Of course we understand that at this level these summits end up in negotiations. Indeed, we put forward a very fair proposal that we wholly expected the other European countries to agree to. They did not do so, and that is why the Prime Minister could not agree.

[Baroness Morgan of Ely]

My Lords, does the Minister agree that, if the Prime Minister had not attempted to pacify his party when he was first elected by leaving the European People’s Party—a group to which both Chancellor Merkel and President Sarkozy belong—and hooked up with some pretty unsavoury parties from Eastern Europe, he would have been invited to the pre-summit meeting in Marseilles where he could have made his case? He locked his party out of the room and now he has locked the country out of the room.

[Lord Strathclyde]

My Lords, it is a nicely put question, but I cannot agree with the noble Baroness. We left the EPP for very good reasons to do with a different philosophical view of where the EPP was heading. I also cannot believe that, if we had been present at the Marseilles meeting, Thursday night would have ended up any differently.

[Baroness Williams of Crosby]

My Lords, does the Leader of the House recognise the huge damage done to Britain’s influence and reputation far beyond the European continent, as any reading of recent journals in the United States or, for that matter, in Russia indicates very clearly? Would he agree that, in the negotiating document that was put to the 26 by the Prime Minister, there were a number of issues that were already on the way to being resolved in ECOFIN, and some of them had already been resolved in ECOFIN 2009? Would he also agree that there were some issues that related to unanimous votes like the financial transfer tax, and therefore there was no threat to British interests? Finally, going back to the question asked by my noble friend Lord Ashdown, I ask whether the Prime Minister and the Government will now recognise fully the need to make a gesture towards the crucial importance of saving the eurozone, which is in our interests as much as in theirs, by making clear that the European institutions will not in any way be blocked from being part of the outcome of that difficult decision?

[Lord Strathclyde]

My Lords, I really do not believe that Britain’s influence or reputation have been affected in any way negatively by what was done at the end of last week. If anything, they have been enhanced. A British Prime Minister laid out very carefully what he was going to do to protect British vital interests. He went and negotiated, and when he could not get what he believed was right, he said, “I am not going to agree”. That is a position of courage, and he was absolutely right to make that decision.

On the question of the institutions of the EU, which I know are of great interest to many Members of this House, at this stage it is too early to take a view of what is proposed or all the detail of what is meant and what EU institutions are going to be asked to do at what stage. We will look very carefully at these proposals as they come out.

[Baroness Symons of Vernham Dean]

My Lords, there has been a lot of controversy about when exactly the British proposals were put before our colleagues in the European Union. May I follow up on the question raised by my noble friend Lord Mandelson and ask when exactly were these proposals put to the French?

Secondly, the text of the Statement twice refers to an intergovernmental arrangement being “not without risks”. Can the Minister tell us what are the risks that the Government acknowledge are inherent in the intergovernmental position that is now before us?

[Lord Strathclyde]

My Lords, I cannot give an exact date as to when the proposals were put to the French, but, if I can find out, I will be very happy to write to the noble Baroness. However, the generality of the Prime Minister’s position has been well known for some weeks, and particularly over the course of the days leading up to the summit. Of course, even within an intergovernmental treaty, there are some risks attached. To some extent, we will have to wait to see exactly how that works out. As to the kind of risks, I think that the noble Lord, Lord Kerr, spelt out that there are some countries that might feel the need to go along with what the big countries in the intergovernmental treaty want. Again, we shall have to wait to see. Nobody should be under any illusions that the British Government will not continue to fight very strongly for vital British interests, whether it is within an EU treaty or an intergovernmental treaty.

[Lord Howe of Aberavon]

My Lords, if I may strike a slightly more optimistic note, is my noble friend aware that our achievement in getting major headway on the Single European Act at the Luxembourg summit followed immediately after the Milan summit, in which our agenda scarcely received any attention at all? That is another rather surprising matter that went ahead without us having much enthusiasm for it. Is my noble friend aware that the future is not as gloomy or as difficult as some people might believe?

[Lord Strathclyde]

My Lords, I very much welcome the positive note that my noble and learned friend brings to all of us. He is also right about the Single European Act, which was a vital and game-changing initiative. I agree with him that nothing is ever quite as bad as you think it is, and perhaps some things are not quite as good as you think they are either. Nevertheless, the Prime Minister made the right decision on Thursday night and, if he were asked again, he would do the same thing.

[Lord Wigley]

My Lords, if the Prime Minister had secured the safeguards that he sought for the financial services, would he have supported the treaty going forward?

[Lord Strathclyde]

Yes, my Lords.

[Lord Forsyth of Drumlean]

May I congratulate my right honourable friend the Prime Minister on standing up for Britain and speaking for the people of this country, as opinions show? May I also congratulate the Deputy Prime Minister on establishing a new principle that a weekend is a long time in politics?

[Lord Forsyth of Drumlean]

I think this may be the last time that I get called. On the substance of the meeting, why did no one address the immediate crisis, which is what to do about repaying the debt? If anyone is isolated, is it not Germany because Germany needs to realise that she needs to write a cheque or allow the European Central Bank to be the banker of last resort and print money? We will otherwise go into deep crisis. This crisis is being used as an excuse for further integration and as such is deeply irresponsible.

[Lord Strathclyde]

My Lords, I entirely agree with my noble friend that the substance of the issue is to solve this economic crisis—an economic crisis which has a chilling effect on the rest of Europe, including this country. In the first instance in the short term, you have to have a firewall of money to stop contagion. Secondly, we accept that there need to be clearer fiscal rules so that countries cannot get into the trouble they have got into in the past. Thirdly, far more work needs to be done on competitiveness within Europe and between countries of the European Union. It is the only way that we are going to succeed in the long term.

[Lord Lea of Crondall]

Are the Government aware that the British press—the Daily Mail, the Daily Express and the Telegraph—are becoming more and more xenophobic in the way they treat this question? Is the Minister content with this trend whereby British public opinion seems to think that a “fight them on the beaches, fight them in the air, no surrender” policy is reasonable and one with which we can make friends and influence people around Europe?

[Lord Strathclyde]

My Lords, I do not at all agree with the noble Lord. This is not about the newspapers. I think that the British people generally accept and support what the Prime Minister did because they understand that he was standing up for vital British interests.

[Lord Elystan-Morgan]

My Lords, the Leader of the House has time and again stated the clear intention of Her Majesty’s Government to assist the eurozone. Does he accept the stark reality of the situation; namely, that 17 countries with different economies and utterly disparate economic circumstances formed a eurozone but, when bad weather came along, disintegration became a very real possibility? In practice, the only two real possibilities are either that there should be a draconian situation of considerable discipline imposed on the eurozone or that there should be a United States of Europe or a Republic of Europe.

[Lord Strathclyde]

My Lords, that is a huge question and one that requires a much longer debate on another occasion. However, I agree with the noble Lord that there is a mess. There needs to be discipline; whether that is in a United States of Europe is another question altogether.

[Lord Garel-Jones]

My Lords, does my noble friend agree that under the terms of Article 136 of the treaty of Rome, to which the United Kingdom is a signatory, those members of the eurozone have been entitled, and are entitled—we wish them well in doing so—to take measures specific to those member states whose currency is the euro, so in that sense nothing has changed? Furthermore, is it not the case that under Article 136, those measures must be taken ensuring that they are compatible with those adopted for the whole of the Union, of which the United Kingdom continues to be a member? Does he not agree that what we are witnessing is not the end of the European Union or of the eurozone, and it is certainly not the end of Britain’s influence in those matters?

[Lord Strathclyde]

My Lords, this is a good note on which to finish. I thank my noble friend for his constructive comments, with which I agree.