EU: Recent Developments

Lord Wallace of Saltaire Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Harrison]

My Lords, in setting up ESMA, the European Securities and Markets Authority, have we not already given away that power in order to frustrate credit default swaps legislation?

[Lord Wallace of Saltaire]

My Lords, I think it would appropriate if we continued with the debate. The Minister has sat down. I will answer some of these questions when it comes to winding up.

--- Later in debate ---

[Lord Wallace of Saltaire]

My Lords, at the end of a seven-hour debate in which a very wide range of points have been made and perspectives have been introduced, it is of course impossible to answer everything that has been raised, so I promise that either I or my noble friend Lord Howell will write to noble Lords to answer the points that I am not able to reach. In some ways, it has also been a debate on the just-published EU Committee report, The Euro Area Crisis. It is unusual to have a debate on a report that is close to publication, and I am sure that the noble Lord, Lord Harrison, is pleased about that. The Government are very pleased with the report and we will of course be responding in due course.

The coalition Government have no doubt that the UK is better off in the EU, not better off out of it. We support a prosperous and competitive Europe and a strong single market. These are good for Britain. It is therefore in Britain’s interests that the eurozone sorts out its current serious problems. We want to see a reformed and strengthened European Union, better able to cope with the new international pattern of powers and influence. We want Europe to succeed not just as an economic force but as a political force—that is, as an association of countries with the political will, the shared values and the voice to make a difference in the world. European countries acting together pack a bigger punch in a changing world. To repeat what my noble friend Lord Howell said in opening this debate, Britain is part of the European Union not by default but by choice. It fundamentally reflects our national interest to be part of the single market on our doorstep and we have no intention of walking away.

The benefits of the single market are hard-wired into the UK economy. Half our trade is with Europe—not surprisingly, as this is our nearest and most open market. This trade has been growing faster than our overall trade without diverting British companies with global ambitions from trading more and more with the big emerging markets. There is an absurd view which I see when I look at some of the Eurosceptic blogs that somehow being in the European Union prevents us trading more with China and Brazil. They do not look at the figures which show that German trade with China and Brazil is four times as large as that of Britain and that currently French trade with China is twice that of Britain. These are not contradictions. The UK therefore continues to play an active role and to lead the way in the European Union, and the Government continue to act decisively to defend our national interests within it, as do other Governments within the European Union.

In October, the eurozone countries set out the package of measures that will be needed in the short term if the euro is to resolve its ongoing problems: Europe’s banks need to be recapitalised properly; the uncertainty in Greece needs to be brought to an end; and the firewall must be big enough to deal with the full scale of the crisis. In the longer run, proper fiscal discipline in the eurozone is essential, and the question at the December European Council was on how this process should be taken forward. My right honourable friend the Prime Minister sought sensible and reasonable safeguards to protect the integrity of the single market, and my noble friend Lord Howell has spelt out what those safeguards were. The eurozone countries and others have since reached an intergovernmental agreement outside the European Union.

With the eurozone at the centre of the crisis, the UK is to some extent unavoidably at one side. Some say that we should have been more active, engaged and critical; others, such as the noble Lords, Lord Newby and Lord Kerr, say that we should not intervene too far—that unsolicited advice only irritates those who have to sort out the mess in which they find themselves. The Prime Minister, the Chancellor and the Foreign Secretary have all made it clear that the UK wants the eurozone to survive and prosper. However, we have also made it clear that the single market must not be threatened or sidelined, and there have been a number of noises from some other Governments who have suggested that they would not be unhappy to see aspects of the single market threatened. Europe needs economic recovery and growth, not the stability and no-growth pact of which the noble Lord, Lord Kerr, spoke. We are continuing to pursue that agenda in Brussels through active bilateral conversations as well as with groups of like-minded countries, with which the Government are fully engaged. We are neither isolated, nor ignored. There are many active exchanges in which all of us are fully engaged.

In a rather underreported speech the other day in Berlin, Chancellor Merkel went out of her way to say:

“Britain is essential and also more pro-European than some other countries. We want to have Great Britain in the European Union. We need Britain, by the way. I want to say this emphatically, because Britain has always given us strong orientation in matters of competitiveness and freedom and in the development of the single European market”.

This Government are actively engaged in close relations with Germany. After all, Germany is now the central power—the central economy—in the single market and therefore we all have to ensure that we are fully engaged with it.

Many noble Lords have quoted Keynes and said that they are already Keynesians. Halfway through the debate, I dashed out to find my copy of The Economic Consequences of the Peace, where on page 14 the young John Maynard Keynes argues against the very harsh reparations being imposed on Germany and that Germany was, after all, the natural centre of the European economy. I quote:

“Round Germany as a central support the rest of the European economic system grouped itself”—

it is talking about the 1890s and the 1910s—

“and on the prosperity and enterprise of Germany the prosperity of the rest of the Continent mainly depended. The increasing pace of Germany gave her neighbors an outlet for their products, in exchange for which the enterprise of the German merchant supplied them with their chief requirements”.

We are back to that position and we need to ensure that we erect the complex political mechanisms and exchanges in which we can ensure that we all manage to return to growth together.

There are tremendous problems in the European political system in which we operate about rhetoric and practice. Part of the problem, including in the past two or three months, has been that what people say is very often different from what they mean. The fiscal pact itself is a good example of that. The noble Lord, Lord Kerr, argues that we should have signed after all because it would not make any difference, to which one has to say that, if it will not make any difference, then it is not worth signing.

There are some very large issues in that respect. Institutional construction has been too frequent an alternative to policy change. The rhetoric on political union is still with us. Years ago when I was a graduate student, I remember Karl Deutsche saying that the concept of political union was immensely attractive to politicians because it means so many different things—indeed contradictory things—to many different people. The French and German Governments often believe contradictory things about what they mean by political union. “The European project” and “ever closer union” are phrases that are very loosely defined. We started with the threat of a financial transactions tax which was thought to be, and puffed up in Paris to be, a threat to the City of London. We are now in the process of discovering that what the French will propose is a stamp tax on share transactions at a much lower rate than the British already have for the City of London. What appeared to be an enormous threat turns out to be a very small step forward and attacks on Anglo-Saxon capitalism from Governments whose banks have been very rash in how far they have overextended themselves in lending to Greece and Portugal.

We need to promote, among other things, a greater interchange among economists, or at least a dialogue among economists. When I taught at the London School of Economics, I used to say to my international relations students that, if they went to lectures in the economics department, they would discover that according to the economics taught in the London School of Economics the German economy should have collapsed about 25 years before. I fear, at present, that if one follows the economics taught in German universities, we are pushing the Greek economy into collapse. We need to learn from each other and begin to understand how interdependent our approaches to financial economics and real market economics need to be. We also need to recognise that passing regulations is not the same as implementing them. Part of what we discovered about Greece was the extent to which it had simply ignored the rules of the single market. The noble Lord, Lord Pearson of Rannoch, said absurdly that the euro alone brought down Greece. What we are now discovering about the extent to which the Greek economy was running, with a structure of expensive restrictive practices and very extensive tax evasion, demonstrates that there was always a very large and deep domestically oriented problem there.

[Lord Pearson of Rannoch]

My Lords, perhaps I may put the question slightly differently. Would the Greek people be suffering as they are today without the project of European integration and its euro?

[Lord Wallace of Saltaire]

My Lords, in the context of a global recession, the Greeks would be facing a very severe run on the drachma and quite possibly also a default. As a number of people have remarked, the Greeks defaulted on a number of occasions over the past 120 years.

People talk also about a common European foreign and defence policy. When I am in Germany, politicians there often tell me they are deeply committed to it—and to a European army. However, they cannot explain the strategy, funding, structure or command structure that it would have. In practice, the United Kingdom contributes a great deal to a European foreign policy and to European co-operation in defence. The UK/France defence relationship continues to move forward very well. We are working with others to cope with the immensely complicated problems of the Syrian crisis. In Libya, we flew missions with our French, Belgian, Danish, Swedish and Italian partners. We have been working in Helmand with Estonian troops embedded in British battalions. When I went some weeks ago to the joint command centre at Northwood, I was briefed by a Latvian naval officer on the anti-piracy patrol. In practice we are very deeply embedded in co-operative defence and foreign policy in Europe.

We will have to work hard to defend liberalism in a recession. I mean liberalism in the broader sense of liberal societies, open markets and international co-operation. The noble Lord, Lord Judd, made a wonderfully liberal and internationalist speech. Nationalism, populism and protectionism thrive when unemployment rises and incomes go down. The noble Lord, Lord Monks, mentioned the problems in Hungary. The Commission is now in active dialogue with the Hungarian Government about the extent to which some of their new laws will fit with EU rules. I was fascinated to hear from my Finnish friends that there is now a sort of Eurosceptic International across the European Union, with Eurosceptics in Britain working with their Danish, Finnish and other colleagues internationally against internationalism, so to speak.

The problem of popular opinion across Europe is very severe. I suggest to the noble Lord, Lord Grenfell, that young people in Europe are often not immensely committed to internationalism. They take what they have for granted and they do not support the distant co-operation of elites through international organisations, which is what the European Union provides. It would be easy for us to give way to similar forces in the United Kingdom, in the belief that leaving the European Union would relieve us of international regulation. The demonisation of Germany is part of the way in which one finds easy answers to very complicated problems.

A number of noble Lords said that the fundamental underlying issue was that of Britain's place in the world. On my blog this morning, I came across references to a speech by Daniel Hannan MEP to the Conservative Political Action Committee in the United States, in which he praised Newt Gingrich and was in turn praised by Fox News. He made all the obvious references to Churchill and the Nazi threat, and suggested that Britain should leave Europe and blindly follow wherever the next American Republican Administration might lead us. Others would like us to become Switzerland with nuclear missiles or Norway without having to pay the very substantial sums that Norway contributes on a “voluntary basis” to the European Union. Our political leadership over the past 25 years, including the previous Labour Government, has failed to make the case for active engagement in Europe.

[Lord Lamont of Lerwick]

The noble Lord is enjoying himself attacking Eurosceptics right, left and centre. Is he going to answer some of the points in the debate? In particular, will he answer the questions asked by the noble Lord, Lord Kakkar, about the working time directive as it affects hospitals? Or will his answer be that it means different things to different people, or that it does not really mean what it says?

[Lord Wallace of Saltaire]

The coalition Government are clear that Europe is our firm base from which we look outwards. France, Germany, the Netherlands and Ireland are our closest neighbours and our natural partners, and with them we work to promote our shared values, economic and political, across the world.

Perhaps I may answer some of the points that have been made. The net British contribution to the EU budget was raised but, according to Treasury figures—which are, as always, entirely reliable—last year it was €7.4 billion and not the €10 billion that the noble Lord, Lord Pearson, suggested.

[Lord Pearson of Rannoch]

I was going on Pink Book figures, which include a number of contributions which we make to the European Union that are outside the ambit of the Treasury. The Pink Book figure of €10.3 billion last year is the correct net figure.

[Lord Wallace of Saltaire]

We will continue to disagree.

The noble Lord, Lord Kakkar, raised the working time directive and asked a number of other questions. We are working to ensure that it retains a secure economy-wide opt-out. We would welcome more flexibility on the areas of on-call time and compensatory rest. On the General Medical Council and the overinterpretation of language testing, I am confident that that is also an issue on which the British Government are actively engaged. I will write to the noble Lord further about that.

[Lord Lea of Crondall]

It is not the case that we have a general opt-out on the working time directive. I do not know what the Minister is referring to.

[Lord Wallace of Saltaire]

As I understand it, there is an individual right to opt-out voluntarily from the working time directive. That is precisely what I was explaining. I am sorry that the noble Lord misheard.

On the clinical trials directive, we are working with the Commission on revising the directive, and the Commission will publish proposals this year.

On other matters, the noble Lord, Lord Willoughby de Broke, suggested that the European Union is forcing regulations on the UK. In terms of climate change, the coalition Government, like the previous Government, are committed to climate change and work through the European Union. It is not Brussels forcing that on the United Kingdom.

In other areas, noble Lords may well be aware that some of what comes back from Brussels—the zoo regulation, for example, and a lot of the animal welfare stuff—has been promoted in Brussels extremely actively by British lobbies and is intended to implement and enforce new rules on other Governments across the European Union. That is the way in which democratic politics takes place to some extent above the national level.

The noble Lord, Lord Monks, talked about rebalancing. There is a good case for rebalancing competences between the European Union and its member states, but this would require the agreement of all 27 member states on the basis of negotiation and agreement. It would not be achieved through a unilateral decision.

The noble Earl, Lord Sandwich, asked a number of questions about the Balkans and Africa. Briefly, we are strongly in favour of Serbia finding its place within the European Union. We all understand the conditions which are required for that. We also support Kosovo coming into the European Union, but it will be a slow process for all the remaining Balkan countries. We have to make sure that they meet the criteria.

On the question of co-operation with China in Africa, the EU and the United Kingdom are working very closely on that. I hope the noble Lord noted Andrew Mitchell’s visit to China, during which he persuaded the Chinese to take part in the conference in Korea on the quality of aid. That is the basis on which we hope to find a closer partnership with the Chinese.

The noble Lord, Lord Newby, raised the issue of procurement. In December 2011, the Commission published new proposals to modernise the procurement rules, and I will write to the noble Lord in more detail on that.

The noble Lord, Lord Lea, asked about the Madagascar cyclone. The European Commission humanitarian office has provided nearly €20 million over the past five years for humanitarian response and disaster risk reduction, including cyclone-related support. Any future UK support is likely to be through multilateral channels, notably the European Union, UNICEF and the International Committee of the Red Cross.

I recognise that I cannot have covered all the points raised, but I will conclude by saying that the European Union as a whole is not in an easy position, as we all recognise. We are caught in a financial crisis that is also partly a fiscal crisis and which has contributed to a wider economic recession. We have to work together to resolve these crises—each member state is hobbled by its own domestic politics and the myths that float through the different national debates. It is not at all easy, facing successive rounds of domestic elections, for Governments and political leaders to rise above immediate interests and provide enlightened European statesmanship. The noises coming out of the French presidential election campaign this week illustrate that well. All of us, in all political parties, need to navigate carefully and reasonably between the pressures of our own domestic opinion and the obstacles created by domestic opinion in other countries. That is the task we all face and must all share.

Motion agreed.