European Union Economic Governance

Chris Leslie Excerpts

Wednesday 10th November 2010 Commons Chamber

[Chris Leslie (Nottingham East) (Lab/Co-op)]

Thank you very much, Mr Speaker.

Lurking on the future business section of the Order Paper for some weeks has been a motion for the House to note the European Union taskforce report on European economic governance. Although that gestation period seems to have been overtaken by the events that have transpired following the European Council, it is a pity that an urgent question from the hon. Member for Stone (Mr Cash) was required before light began to be shed on any of the details being considered by the real power brokers in Europe. Our Prime Minister was clearly left on the sidelines in many of the discussions. If I were generous, I might say that that was fair enough, given that we are outside the eurozone. However, the European Council meeting at the end of October showed clearly that the Germans and the French are very much in the driving seat, leaving the Prime Minister with a few scraps to hold aloft as pseudo-trophies in the European Union budget discussions while clearly being unsure how to cope with the prospect of a new treaty being dropped in his lap.

[Mark Reckless]

As the Front Benches appear to be in agreement on this issue, may I ask the hon. Gentleman a question? Surely the point is that, as he said, France and Germany, which are in the eurozone, need something from us. We had a veto, yet we agreed to this notwithstanding the veto. The 2.9% had already been agreed by the Council. We had a veto on the Next Perspective. What do we get in return?

--- Later in debate ---

[Chris Leslie]

I shall deal with the nature of the changes in a moment—and there are changes. It would be a bit disingenuous to suggest that nothing is changing in this regard.

From our point of view, eurozone stability and a sensible crisis mechanism are worth while, and it is clearly in our national interest to engage strongly in discussions and reforms that promote economic stability across Europe. We will support sensible changes that benefit the United Kingdom. The core idea of improving the rescue mechanisms for eurozone countries facing severe economic difficulties makes logical sense, and it is also wise to find a permanent footing on which to base any new rules rather than relying on temporary arrangements that might either expire or be subject to legal challenge. However, the Prime Minister and the Government are protesting just a little too much that this is entirely a matter for the eurozone, and absolutely nothing to do with us. In fact, there are indirect implications for our economy because of changes that might affect economic growth in the eurozone, as well as direct policy implications that could change the way in which we operate in the United Kingdom.

[Mr Jim Cunningham (Coventry South) (Lab)]

My hon. Friend will recall that the previous Prime Minister and his Government drew up five economic tests. Had it not been for him, we would not be debating the motion today, because we would be part of the eurozone.

[Chris Leslie]

It was certainly worth punctuating the debate with that point, which my hon. Friend made forcefully and well.

[Mr Leigh]

Will the hon. Gentleman now kindly respond to the intervention from my hon. Friend the Member for Rochester and Strood (Mark Reckless)? Is the Labour party prepared ever to fight for a repatriation of powers, and would it be prepared to use the veto that it has used for the purposes of this measure as a bargaining chip to gain that repatriation of powers?

[Chris Leslie]

Our perspective is clearly different from that of the hon. Gentleman. I want to consider what is on the table. There are details still to come when the European Council meets in December, and we shall have to look at those proposals then. It seems to me that there is a case to be made for some sort of objective analysis of just what transfers of policy may or may not be involved in the proposals that are before us today.

[Philip Davies]

Does the hon. Gentleman think it makes sense for an organisation whose accounts have not been signed off by auditors for 16 consecutive years to be given more powers over economic and financial governance?

[Chris Leslie]

The hon. Gentleman has made his point in his own inimitable way, but I do not want to be diverted from the substance of what is before us. There is a substantial proposition on the table, and I think it is important for all Members to understand it. The detail that will eventually emerge from the final taskforce report is important, and it would be useful if the Minister could deal with some of the question marks that hang over some of the detail, to which Members have already alluded.

For example, a series of new fiscal disciplines—as they are called—will be pursued across the European Union but, of course, largely for eurozone countries; yet the adoption of enforcement measures will apparently be subject to the negative qualified majority voting procedure. That presumably means that the United Kingdom will take part in any of those decisions. If that is so, can the Minister say how we will inform our policy position if we are involved in votes on enforcement measures? While we may not have a vetoing power here, our role could be strategically significant.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is using terms like “largely” and “presumably”. These are not definite enough for me. Please will he be firmer and clearer in what he is saying?

[Chris Leslie]

I wish I could be firmer and clearer, but we are dealing with a malleable set of proposals. The bundle of directives keeps changing, moving and morphing from phase to phase, and the directives will clearly go into a different phase when the European Council meets in December, but we can discern the rough direction of travel, and many Members will take a firm view on that.

The Minister talked about the sanctions. Yes, it is the case that they may not apply to the UK because of our opt-out from the euro, but the range of non-binding standards and early warning requirements in the event of significant deviation from the adjustment path apparently would apply to the UK; I should be grateful if the Minister would confirm that that is the case. Even if the UK is to be subject only to such commentaries, public observations or other non-binding standards, the Minister should tell the House how they would work and what the implications for us would be. Clearly, what the taskforce report calls the new reputational and political measures will be phased in progressively, but is it correct to read the proposals as also applying to the UK? In other words, is it not true that we will be subject to reporting requirements, potential formal reporting to the European Council in certain circumstances and enhanced surveillance—whatever “enhanced” may mean—if the situation dictates? Is it not also true that we will be subject to onsite monitoring from a mission of the EC—which I thought was curious, and which certainly might be of interest to some Conservative Members—and possible publication in the public domain of these reports and surveillance? Will the proposed regulations to strengthen the audit powers of Eurostat also apply to the UK, and what are the anticipated compliance costs of those changes for the UK and the Treasury? If we fail to comply with the proposed requirements, is it not the case that sanctions could be applied to the UK?

[Mr Redwood]

If this House and a properly elected British Government have chosen a certain course of action on the deficit or the balance of payments—or on whatever—how does it help to have the EU marking the homework, condemning it and using moral suasion to say that this House is wrong?

[Chris Leslie]

Well, my point is that it may or may not be a sensible move—as a pro-European I think benefit could come from it—but what is important is that we get clarity from the Government about what exactly is on the table. If there are to be treaty changes and other new regulations, the Minister has to be straight about that with the country and the House. The latest sanctions in the framework—in terms of interest bearing deposits, non-interest bearing deposits and eventual fines—may not apply to the UK, but there is a first phase to that process which is the application of standards and assessments of our economic and fiscal position, and that will apply to the UK. The motion seeks approval for the Government’s position that any sanctions should not apply to the UK because of our euro opt-out, but there are developments here that strengthen the role of the EU in respect of our economic policy, and while that may be a good thing, some Members of this House would be wary of it.

There are also wider implications for our economy and our growth trajectory. For example, I am particularly intrigued by the German argument that bondholders should have greater liability—such as in the form of interest payment holidays, or bond value haircuts, as they are known—for potential future eurozone bail-outs. The implications for UK banks and bondholders could be significant if they are embroiled to a larger extent in the crisis management mechanism. UK banks hold particularly high proportions of Irish and Spanish liabilities. A recent Bank for International Settlements report found that 22% of Irish bonds and 11% of Spanish bonds are in UK hands. There has been much discussion of whether City investors are therefore subject to higher risk, or whether the markets have already priced that in. Either way, there are indirect implications for British investors. Moreover, the new suite of policy changes affecting eurozone economic governance will not just be on paper; the changes will bite in the real economies in each of the eurozone countries and could have a bearing on their own internal growth and investment plans.

[Mark Hendrick]

My hon. Friend hits the nail on the head. While the UK may not be signed up to the stability and growth pact and we may not be subject to EU deficit procedures, stability and growth in the eurozone are very important to the British economy. Moreover, the way in which the Government are dealing with our deficit will put British growth at risk, and that is part and parcel of how we interact with the other economies in Europe.

[Chris Leslie]

My hon. Friend makes a strong point. If fiscal policies across the eurozone are simultaneously shifted towards a marginally more deflationary stance as a result of the new policy framework that we are debating tonight, the resulting contraction in economic activity and consumer spending could impact on the sale of British goods and services in those countries. In other words, the eurozone—which, as we know, is by far the UK’s largest trading partner, accounting for more than 50% of our exports—could face economic challenges and, in turn, it is likely that UK companies will face problems exporting to those markets. Add to that the G20 discussions on international currency issues and an influx of capital to the eurozone following worries over the dollar and the Chinese renminbi and we can imagine a relative appreciation of the euro afflicting our exporters still further. We will have to see how that latter issue pans out in particular, but this is of significance to the UK.

[Mr Jenkin]

Is the hon. Gentleman arguing that somehow these arrangements will give us more influence and more control over the economies of other member states? On that basis, should we therefore not be seeking to enter into arrangements of the same sort with, say, the United States, so that we can control its deficit? The US deficit will have far more effect on our economy than any individual deficit in any individual member state of the EU.

[Chris Leslie]

Those of us in opposition are merely asking questions and scrutinising what is on the table, but we are trying to find out what will be the impact on the UK. Ministers are arguing, “Don’t worry, absolutely nothing changes and there is no impact whatever.” As far as I can see, there are strands and suggestions that there will be an impact, both direct and indirect. In that respect, although we might have different views, there might be a point on which we can agree.

If the eurozone deflation and the shrinkage of European economic markets affect our exports, that matters, because the Treasury has depended on them so greatly. The June Budget and the spending review were predicated on a return to strong economic growth here in the UK, based principally on higher business investment and strong export growth. The Office for Budget Responsibility analysis shows that the cuts imposed because of the Chancellor’s austerity programme and his overly speedy deficit reduction strategy will see private consumption shrink rapidly and Government consumption doing the same.

Cuts in domestic expenditure will hit growth—that much is clear—but the Chancellor has bet the shop on the countervailing growth in trade and business investment. The Treasury states clearly that it needs £100 billion of growth in exports and business investment, yet the last time we saw such a massive rate of growth for exports was in 1974 and we achieved that rate of improvement in business investment only in 2005, but the Chancellor’s sums depend on the UK achieving both those record levels in each of the next three years—a very tall order indeed, equivalent to tripling our exports to the US and seeing our exports to China grow 20 times or to India 40 times.

Clearly, our reliance on the eurozone’s appetite for our exports is central to the Chancellor’s strategy, so there are implications for British fiscal policy here.

[Kelvin Hopkins]

I thank my hon. Friend for giving way yet again. He focuses on trade, but it is in trade that we have our worst possible relationship with the rest of the EU. We have a gigantic trade deficit. We buy billions more from them every month than they do from us. The only advantage we have had in the last year or two is that we have depreciated the pound relative to the euro and we have started to see a slight improvement in our trade balance with the EU.

[Chris Leslie]

If we see growth dented here in the UK because those ripples flow from the eurozone—changes as a result, perhaps, of the measures we are debating—we could see further implications for spending cuts here in the UK in respect of vital public services and more austerity when perhaps stimulus would be the order of the day. However, there is a balance of risks here and it is clearly important for fiscal discipline to be exercised, but responsibly so. We have argued for a sensitive and measured approach to deficit reduction in this country, rather than the doctrinaire approach of steep and swift cuts favoured by the parties whose Members sit on the Government Benches.

I am glad to note the ironic analysis of the Minister in the explanatory memorandum that was referred to, which he signed last week. He said that he believed

“that the main consideration should be whether a Member State’s debt is on a downward trajectory, rather than the specific pace of annual debt reduction”.

He also said that the numerical pace should remain

“only as an indicative benchmark…that…is not used as a concrete rule by which Member States’ debt reduction plans are judged.”

How right he is—if only he applied such pragmatic sense to our economy and public services in the UK, too.

[Claire Perry (Devizes) (Con)]

I am enjoying the hon. Gentleman’s measured canter around the potential risks associated with this legislation and I am also entertained to hear the words “stability and growth” coming from Members on the Opposition Benches—something that perhaps they did not achieve towards the end of their time in office. However—perhaps I am front-running his conclusion—is he going to vote for or against the legislation tonight?

[Chris Leslie]

As I see it, it is difficult to know yet what propositions are before us. I want to hear the Minister’s answers to our questions and we will make up our minds then. The substance of the regulations and the eventual treaty changes might be beneficial, but we also have to wait and see what President Van Rompuy proposes in his eventual treaty amendment and what emerges from the December Council meeting. We are not at the end of a process; we are in it. There are further propositions to be put on the table.

[Mark Hendrick]

One regulation that might well be on the table is for any member state of the European Union, within or outside the eurozone, that has a debt level of greater than 60% of GDP to reduce that debt at a rate of at least 5% per annum. That could well be a regulation that the Government sign up to, even though they might not be subject to penalties if they do not keep to it.

[Chris Leslie]

Indeed. There could be significant direct policy changes as regards transfers of policy and also indirect economic impacts on the UK. We have to see more detail about what will emerge from those who are in the driving seat—unfortunately, that does not seem to be either our Chancellor or our Prime Minister.

[Matthew Hancock (West Suffolk) (Con)]

Will the hon. Gentleman give way?

[Chris Leslie]

I want to make a bit of progress—but it is too tempting.

[Matthew Hancock]

I am extremely grateful. The Minister made a clear statement that this House, under this Government, will retain fiscal sovereignty. Would the hon. Gentleman?

[Chris Leslie]

We take the view, as we always have, that where it was in the British interest to co-operate with our European colleagues, we would do so. The hon. Gentleman’s continuing loyalty to the Chancellor is laudable—he has a record of that—but I am not sure that he has convinced the colleagues on his own side. The coalition remains precarious on Europe, straddling so many major divisions on how to proceed. It is little wonder that the Prime Minister is on the margins of these discussions in Europe when he is buffeted between the margins of his own Government. He is caught somewhere between the pro-European enthusiasms of the Deputy Prime Minister—at least, that used to be his position before the general election, and I am not quite sure what his position is now—and the anti-European Union noises from a sizeable chunk of his party. Will the Prime Minister persuade his colleagues that any treaty should not require a referendum? We shall have to wait and see. Although the Government might be concentrating on papering over the cracks in the coalition, the Opposition will monitor closely the impact of these changes on exports, growth, jobs and the prosperity of this country. Those are the issues that matter to our constituents and they are our priorities.

[Several hon. Members]

rose—