Banking Union and Economic and Monetary Union

Debate between Bernard Jenkin and Andrea Leadsom

Tuesday 6th November 2012 Commons Chamber

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

In some respects, this is a modest debate compared with last week’s, although it is worth reflecting that employment in the City, as reported by City AM, has collapsed by more than 100,000 since the peak of 2007. Some of that was self-inflicted, but much of it was inflicted by increased regulation. The Centre for Economic and Business Research reports that employment in the City is set to fall much lower. Most of the jobs are highly paid, high-taxpaying jobs, on which the economy in general and the economy of London and the south-east in particular depend very deeply.

I commend the sincerity of my right hon. Friend the Minister’s approach. He is in a difficult position. The difficulties he is confronting are a microcosm of the conundrum of the UK’s place in the EU. We are not in the room, so we cannot function as a positively engaged member of the EU on our current terms of membership, but we are also not negotiating the alternative terms of membership that would protect us from the effects of the treaties we have already signed.

It needs to be pointed out that banking union simply was not envisaged in the Lisbon treaty. We now find ourselves confronted with a new institution and a reform that simply was not regarded as necessary when the Lisbon treaty and its predecessors were signed. The treaty is not fit for purpose for a banking union.

The problem is that no arrangements that nibble at those problems will protect the UK’s interests—a wholesale change in our relationship is the only way to protect them. Sadly, the motion represents the Government yet again passing up a substantial opportunity to start laying the foundations of a different relationship and to start leveraging the renegotiation of our terms of membership. That is a matter of great significance.

[Andrea Leadsom]

Will my hon. Friend give way?

[Mr Jenkin]

I give way to my hon. Friend, who made a very able speech.

[Andrea Leadsom]

I am grateful to my hon. Friend, but I have to challenge him, because I think that the Government are absolutely committed to renegotiating. Why does he think that they are not?

[Mr Jenkin]

Unfortunately, our party’s leadership does not intend to start substantive renegotiation of our relationship until after 2015, long after this particular opportunity will have passed us by. If we attempt to remediate this measure and its effects on our interests, we will not succeed. This is happening in case after case—the fiscal union treaty is another example.

European Council

Debate between Bernard Jenkin and Andrea Leadsom

Thursday 8th December 2011 Westminster Hall

[Andrea Leadsom (South Northamptonshire) (Con)]

I am delighted to follow the hon. Member for Luton North (Kelvin Hopkins) and to find myself agreeing with him yet again—we also agree on high-speed rail. I am also grateful to my hon. Friend the Member for Gainsborough (Mr Leigh) for his history lesson. I confess that I am one of those economists who tends to look at things from an economic perspective, rather than an historical one.

What concerns me about the latest proposals for eurozone crisis prevention measures is that they simply will not work. It boils down to the fact that what makes the difference between sovereign risk and credit risk is the undoubtedness of sovereign debt, backed by a lender of last resort. In the end, if a country is a sovereign risk, its lender of last resort can print money, its currency can devalue and it can get out of its difficulties that way. The eurozone has as yet failed to address that fundamental issue, and the measures that it now proposes mean nothing more than ever-greater fiscal integration, but without the ability to issue proper sovereign debt. Market chaos will therefore not cease for longer than the short term.

[Mr Jenkin]

Does my hon. Friend share my concern that, even if the European Central Bank was turned into a fully fledged sovereign central bank and printed unlimited sums, it might provide liquidity and buy some space for a while, but the fundamental structural problems between the different economies stuck in the eurozone would not be addressed? Austerity packages would still need to be applied, but the EU’s institutions do not have the democratic legitimacy to impose austerity on countries in that way.

[Andrea Leadsom]

Yes, I agree. The key issue is that if these countries are to have sovereign risk, they must completely guarantee and underwrite each other’s debt and obligations. That is very unlikely ever to be achieved in the EU, which just makes the problem of not having a lender of last resort even more existential for the eurozone. I therefore have genuine concerns about whether the proposals actually offer a solution.

Here we are on the eve of a very important summit, which is designed, on the face of it at least, to put the market’s fears to bed once and for all. The Prime Minister has a strong hand, because the German Chancellor and the French President need a treaty at the 27 member state level, for two practical reasons. First, if they started again, with just the 17 eurozone members trying to create a treaty between themselves, they simply could not do that in the time frame that the markets would permit them. That is a very practical issue, which they need to consider. Under the Lisbon treaty, however, treaty changes can be fast-tracked. Secondly, as was pointed out earlier, the 17, as a group, could not simply annex the EU institutions and use them for themselves; they would require the permission of the 27 EU members. For both those reasons, a treaty is needed at the 27 member state level, and that makes the Prime Minister’s hand very strong.

Like other Members, I am pleased that the Prime Minister is absolutely determined to protect Britain’s interests. What does that mean? First and foremost for every EU member, regardless of whether it is in or out of the euro, that must be about stopping the crisis—there is no doubt about that. If the euro descends into a disorderly collapse, that will easily cost 6% or 7% of British GDP, and it would probably push us into a worse recession than the one after the financial crisis of 2008. There is therefore no doubt that our top priority should be to solve the eurozone crisis.

--- Later in debate ---

[Andrea Leadsom]

We will just have to agree to disagree. If people are in government, they govern. At the current moment, a referendum would be extraordinarily important in the history of Britain, but it would be extraordinarily difficult to get the sort of answer that would give the Government a coherent direction. It is for the Government to make the best decision at this moment. For what it is worth, I have always thought that a referendum needs to come at the tail end of a renegotiation of Britain’s relationship with the euro and that it should be used to ratify such a renegotiation, based on the simple question of whether Britain should be in or out of the EU on the basis of a pre-negotiated set of terms with the EU.

[Mr Jenkin]

I could accept that approach, and my hon. Friend has answered her own question about what the referendum question could be. We will not agree the treaty texts at the summit; the meeting will discuss issues of principle and the treaties will then be drafted, but their ratification will take months if not years. We are talking about a referendum some time during that period to ratify a new deal for Britain. Does my hon. Friend not think that that would be a sensible way to go? Would it not strengthen our Prime Minister’s hand if he was to put that view to those at the meeting this weekend?

[Andrea Leadsom]

I am perhaps not understanding. The calls that I have seen in the media are all about our needing a referendum, but now is not the moment for one.

[Mr Jenkin]

If I may say so, my hon. Friend has seen a bit too much of the Government’s propaganda, rather than heard what some of us have been saying. We cannot, of course, ask for a referendum on the spur of the moment; we are asking for a referendum on renegotiated terms of membership, which we desperately need and which this summit demonstrates that we will need. We should be able to tell our European partners, “Go ahead with your proposals for fiscal union. We don’t think they’ll work. It’s a big change for us, so we need these measures in return. As part of the ratification process, we will put this to the British people and recommend a yes vote, as long as you agree our terms.”

[Andrea Leadsom]

I thank my hon. Friend. In truth, right now, I genuinely believe that the Prime Minister has to focus his effort on creating the best solution for Britain, and that is what he is doing. As for all the demands for referendums, the fact that I am confused about what my hon. Friend has been saying, although I am quite close to these issues, demonstrates that other people will doubtless also be confused. The demands are seen as our party, at least, trying to cause trouble for the Prime Minister. For that reason alone, now is the time to get behind the Prime Minister, who has promised the British people that he will defend our interests.

Let me come to why defending the City is the key priority at the moment. People talk about renegotiating EU directives that have already been implemented, but as we have found as part of the Fresh Start project work, that is real spaghetti; it is extraordinarily difficult to unwind existing, implemented policies. I am a very practical person, and the best approach in terms of doability is to look at what has not yet been implemented and what the biggest threat to Britain is. On those two counts, there is no doubt that we should focus on financial services.

Financial services account for 11% of Britain’s tax take each year—about £50 billion. It employs nearly 2 million people; it is our biggest export; and it creates a huge positive trade surplus. Given that we have a big overall trade deficit, we would be looking at a far worse trade balance without financial services. Added to that is the fact that the potential for the future growth of financial services is all outside the eurozone; it is in the BRIC countries—Brazil, Russia, India and China—and America and Asia. That is where the potential lies. Yet, before the financial crisis, Britain was in a strong position in creating an EU financial services single market. We were influential. That was all about deregulation, open access to markets, growth and jobs. Britain did very well out of that and so, by the way, did the rest of Europe. Other eurozone countries did extraordinarily well, because the City was the entry-point to European financial services markets. That benefited us all.

Since the financial crisis, however, the agenda has changed. Britain has rightly changed its regulatory environment by greatly increasing controls, the closeness of supervision and the requirements for capital, liquidity and so on. The EU’s goal has been more to ban what it does not like: “Let’s reduce financial activity; we will constrain, prevent and reduce what is going on.” Nowhere in the EU treaties is there any talk of prudential decisions that the EU might make that would go against the fundamental commitment to single markets and growth opportunities, so the 49 EU directives and other proposals on financial services coming down the track are already in breach of the spirit of the EU treaties, which are all about creating better markets and more access.

I want to mention a couple of those matters in particular. First, on the financial transactions tax, people may think, “They will never do it; it would be cutting off their nose to spite their face and the business will simply go elsewhere.” Actually, however, I think many people in the EU are determined to do it, because they do not want the business. They think that Anglo-Saxon light-touch regulation and the success of financial services are partly to blame for the eurozone crisis. They are quite wrong, but that is where they lay the blame, so they would consider a financial transactions tax that would drive business abroad to be a good thing. To anyone who thinks, “They would not do it,” I would say that they would if they had the opportunity. Of course, that would be disastrous for Britain. It would not be a tax on bankers; it would be a tax on pensioners, investors and savers, because it would go straight to the bottom line of every investment portfolio. If anyone said that it would serve bankers right, I would reply that it would affect not bankers but savers. I could not support that.

Secondly, a slightly unbelievable idea has been proposed in the eurozone that a clearing house with more than 5% of its turnover denominated in euros should relocate to the eurozone. That would be daylight robbery and steal our business, and I am glad that the British Government are already challenging it in the European Court of Justice. Where in the single market treaties, which are all about growth and jobs, does that appear? How would it support British growth and jobs? It would not. I am extremely concerned about the tone and extent of EU directives coming down the track. They are not yet implemented; but unfortunately, under QMV, they could be implemented without Britain’s say-so.

European Union Bill

Debate between Bernard Jenkin and Andrea Leadsom

Monday 11th July 2011 Commons Chamber

[Mr Jenkin]

Yes, but I am left wondering whether their advice to us from the House of Lords today reflects the advice they gave to Ministers and the policies that Ministers in their day pursued. I am also left wondering whether my right hon. Friend the Minister’s advisers, when they go to the other place, will be advocating the policy he is now pursuing. I think that we are up against the establishment here. The establishment in this country is still wedded to the idea of ever-closer integration and even of joining the euro. I do not think that the British people or the Conservative party, which I think represents the aspirations of the British people on this subject, accept that view. I hope that there is a change of heart in Whitehall officialdom such that when the next generation of civil servants arrives, they will seek to re-establish the independence of the UK within the EU, rather than to carry on weakening it.

[Andrea Leadsom]

Does my hon. Friend agree that the referendum lock will place a new onus on successive Governments, if needs be, to work harder on any further giveaway of powers so that this and future Governments, rather than giving way to civil service opinion, will have to consider public opinion much more carefully and seek to justify any further transfer of powers? That has to be a good thing.

[Mr Jenkin]

I agree that it is a good thing, but I wish that the Bill applied to some of the powers that the Government want to give away now through treaty amendments and opt-ins.