European Union Bill

Lord Taverne Excerpts

Tuesday 3rd May 2011 Lords Chamber

[Lord Taverne]

My Lords, the previous two speakers eloquently demonstrated the importance of these amendments. They made a passionate plea for a much more sensible and enlightened policy towards Europe. I will deal with one particular aspect: Amendment 23F and the banking crisis.

There are two aspects to the current financial crisis in Europe: sovereign debt and bank liquidity. Many continental banks are undercapitalised. They need more rigorous stress tests as a basis for recapitalisation. National regulation and supervision have failed. We need a special EU-wide resolution regime. We need new, more effective European regulation. If we have that, it will of course give new powers to Brussels and that, as I understand it, would trigger a referendum. The question arises: what sort of question would be posed in a referendum dealing with bank regulation?

Leaving that aside, it will mean that in the course of negotiations taking place in Europe, when negotiators are being very careful and thinking that they can achieve something without triggering a referendum in Denmark or Ireland, or an adverse ruling of the German constitutional court, our negotiators will have to have regard to the fact that there will have to be a referendum. They will be inhibited and looking over their shoulders: they will be negotiating with their hands behind their back. Since this will be an obstacle to reaching a very important area of agreement, the likelihood is that we will be bypassed.

Already we are being bypassed in many important respects. While John Major wanted to be outside the eurozone in a multipolar Europe, it seems that Mr Cameron has more or less accepted that there will be a small but very powerful unit in Europe. We will find that being in the outside lane of a much less congenial Europe is not a particularly effective experience for very important aspects of our economy. I have heard Treasury officials saying that we are now in the same position as Latvia, asking what agreements are being reached in rooms where the important people are meeting.

A story was told at a conference I went to about an occasion when Gordon Brown insisted on being present with eurozone Ministers. They said that they would meet him, but the press outside were speculating on how long he would last: would he be out in five minutes? In fact, that was precisely what happened: after hearing him for five minutes, they thanked him, said that they must now have their private meeting and asked him to leave. He could not face the press after five minutes, so he stayed in the lavatory for half an hour.

It is not very dignified to be outside the corridors of power. This, however, will be much worse. Obviously there were problems about joining the eurozone, but the regulation of banks will affect the City profoundly, and it will be another case where we are likely to be bypassed.

[Lord Hannay of Chiswick]

My Lords, I will address Amendments 23C, 23D and 23E, as did the noble Lord, Lord Deben, who gave us a brilliant illustration of why flexibility in this area is not only desirable but necessary.

I have, off and on, had quite a few dealings with the issue of energy in the European Union, and I have to say that we have got it comprehensively wrong. In the 1970s we fought desperately—of course, Mr Tony Benn was the Minister at the time—to avoid the European Union having any responsibility in this field whatever in case it stole our oil, which it was never going to be able to do because European law is perfectly clear on that point, and so we prevented any policy emerging then. Then, when the Single European Act was passed, we allowed—I agree that by then we were not favouring it—energy to be kept out of the single market at that stage because of the objections of the French and the Germans, and that was a disastrous mistake. Now, when we have discovered that we are not one of the three major oil and gas producers in the world, we have discovered, surprisingly, that we could do with a common energy policy, but it is quite difficult to get; and, as the noble Lord, Lord Deben, has said, it is in an area of shared competence. So it may very well be that, sometime in the not too distant future, we will want to support some changes that will give more powers to Brussels in the area of energy security, competition, interconnectors and all these things; yet here we are subjecting all that to a referendum requirement under which the no campaign would no doubt say yet again, “This is the European Union coming to take all our North Sea oil”, and so on. The result may very well be negative because that campaign would be very emotive. Heaven knows what the Scots would think about it—quite a lot, I should think.

I do really feel that this illustrates the case for flexibility—and the same is true on climate change. It is rather clear that the European Union will struggle under its current institutional arrangements to find a way forward through the next 30, 40 or 50 years on climate change. Things are going to be very different. Crises are going to emerge and Europe is going to have to find a response to them. Some of those responses may involve new powers for the Union as a whole. And yet again, this will be made extraordinarily difficult by the provisions of the Bill.

I am not saying that these particular amendments are the last words in wisdom on this particular issue, but I do really think that the Government ought to be taking this a bit more seriously. We have not had a single serious response from the Government since we began this Committee stage on any point that has been raised. I am waiting now for the response to this debate to have, for the first time, a serious response to the substance, because we have not had it so far. Those are issues of major importance. I think that if the Government were to go away and reflect on this now, they would see the wisdom, at the very least, of truncating the list of issues on which there need to be referendums.

--- Later in debate ---

[Lord Lamont of Lerwick]

My Lords, I want to make one simple and brief point, but before I do that perhaps I may respond partly to what the noble Lord, Lord Taverne, said because I was a little puzzled by it. He is a former Treasury Minister and chairman of a think tank in the City. He was referring to the two aspects of the banking system in crisis being capital and liquidity, with which I totally agree. But he was, I think, arguing that perhaps we need more European attention to capital. That was quite a surprising thing to suggest because, as he will remember, not long before the Irish banking crisis struck and the Irish banks were revealed as hopelessly undercapitalised, we had stress tests carried out on the European banks—a separate exercise in the European Union and in Britain. The European Union banking tests revealed that no bank had a problem with capital other than one bank in Germany. That was shortly before the crisis was fully revealed in all its horror in Ireland.

I agree with the noble Lord that there is a separate aspect of liquidity which the European Central Bank has, in a skilful and constructive way, provided to the European banking system. Equally, the Bank of England has also exercised its national function well. He did not make the case for further European competence or the transfer of power or competence from this country to Europe by merit of that alone.

The noble Lord went on to make the familiar point about the eurozone and whether we were marginalised by not being in it. It is of course true that eurozone Ministers may make certain decisions affecting themselves in which we do not participate. We do not participate in meetings of the Federal Reserve Bank, although its decisions affect us. However, anything that eurozone Ministers decide to do that is governed by the rules of the single market or competition law continues to be governed by the rules of the single market and competition policy. He was careful to say that issues would arise if we were proposing to join the euro but the implication of his argument was that in order to gain influence we should join the euro, which I am sure he does not really subscribe to. Very few people will own up to arguing that we should join the euro today.

[Lord Taverne]

I was not arguing that we should join the euro today. On the earlier question, I defer to my noble friend’s greater experience in these financial fields. However, a large number of economists have taken the view that what is needed at the moment are much more effective stress tests for European banks on a euro-wide basis. For example, I dare say my noble friend has read economist Willem Buiter’s considerable contribution to Citigroup’s paper on the subject. He is not alone in this because a large number of economists are concerned that only through a much more rigorous euro-wide stress test system will the banking liquidity part of the problem be adequately resolved.

[Lord Lamont of Lerwick]

I think the stress tests refer to capital rather than liquidity, which is a slightly shorter-term issue. I agree with the noble Lord and Willem Buiter that we need proper stress tests. However, the previous stress tests that were applied within the EU were revealed in all their nakedness as thoroughly inadequate.

As the noble Lord, Lord Wallace, said, we should remember that the regulations that govern these issues are not only European but worldwide. The BIS has a crucial role—in fact the lead role—in determining the capital ratios of banks. I do not think that the argument about the failure of the banking systems is an argument per se for why the UK, which is outside the eurozone, ought to contemplate further integration in this field than has already been provided for. This area has to be addressed internationally and through many agencies.

The main point that I want to make about the debate is this. We have had some amazingly excellent speeches but there is confusion, or insufficient distinction, in these debates between the European Union acting to legislate or make a policy decision and it altering its own constitution—if I can use the word “constitution”; I know people who might object to that—or its own rules. People have made eloquent speeches about human trafficking, piracy and the environment, but not all the speeches have distinguished between the EU’s ability to act and to have a policy and its need for more powers.

The noble Baroness, who made a tremendously moving speech about human trafficking, did not actually demonstrate that more powers were needed. More agreement might be needed, and might be achievable within existing powers, but she did not demonstrate that more powers were needed. Equally, the noble Lord, Lord Davies, spoke about piracy but did not demonstrate that we could not have an EU policy on piracy within the existing competencies and powers of the EU. I appeal to the Minister to make that distinction when he addresses all these areas.

Where there are political and human problems—piracy, the environment, energy, human trafficking and all the other issues listed in the amendments—can the Minister distinguish between the EU’s ability to act, to legislate under its own rules and, quite separately, the need to change its own constitution? The people speaking for the amendments ought to have argued for a change in the European Union’s rules. With great respect to all those who spoke so movingly on the issues that mattered to them, not all of them made the case for a change in the rules of the EU. That seems to be the crucial point in this group of amendments.