Treaty on Stability, Co-ordination and Governance

David Lidington Excerpts

Wednesday 29th February 2012 Commons Chamber

[The Minister for Europe (Mr David Lidington)]

I thank my hon. Friend the Member for Stone (Mr Cash) and all hon. Members who have taken part in the debate. I am conscious that in the limited time available I am unlikely to be able to do justice to all the various and detailed questions that have been asked. As my hon. Friend said, I gave evidence on this subject to the European Scrutiny Committee for nearly two hours last Thursday. I am not sure whether the transcript is yet available on the Committee’s website, but if Members wish to explore these matters further, I refer them to the detailed answers that I attempted to give to my hon. Friend and other members of the Committee.

I take very seriously the comments made by a large number of hon. Members about the importance of scrutiny. I completely agree with those who have said that while the European Scrutiny Committee does an excellent job within its prescribed terms of reference, which are confined to looking at documents as they come from the EU institutions, there is a powerful case for what one might term more upstream engagement by Parliament in examining the strategic direction of European policy before it takes the form of specific items of European legislation. Some, at least, of the Chairs of the departmental Select Committees are interested in pursuing that further, and I very much hope that they will feel encouraged to do so.

In response to my hon. and learned Friend the Member for Sleaford and North Hykeham (Stephen Phillips) and others who asked about having debates before European Councils, I can only repeat what has been said before from this Dispatch Box: it was an explicit part of Tony Wright’s report, which led to the creation of the Backbench Business Committee, that such debates should be among those for which responsibility was transferred from the Government to the Backbench Business Committee, to be dealt with in the time that was allocated to that Committee.

[Mr Bone]

rose—

[Mr Lidington]

I will not give way, but I take seriously the point that my hon. Friend the Member for Wellingborough (Mr Bone) made about the Backbench Business Committee wanting to have predictable times at which it can schedule such debates. The Leader of the House was listening carefully when he made his remarks and, I am sure, will be attentive to that particular point. I draw my hon. Friend’s attention to the fact that a review of the procedures suggested by the Wright Committee is due in the near future.

I did not agree with my hon. Friend the Member for Stone when he laid strictures on individual EU countries. Greece and Italy may do things differently from how politics is done here, but everything that has happened in those countries so far has been within the bounds of their constitutions. The legislation that the Governments of those countries take through has to be enacted by the democratically elected Parliaments.

My hon. Friend the Member for Stone was right to point to what I believe to be a genuine, underlying tension in European affairs at the moment between two important pressures. The first is the economic logic, which prescribes that if we had a single currency, interest rate and monetary policy, logically we would have to move towards greater fiscal integration. That, after all, is one reason why I and most members of my party opposed the United Kingdom entering the euro. We felt that that was the inherent logic of the project. Against that, there is the political challenge, which is whether, if there is to be greater fiscal integration among countries that share a single currency, there is a sufficient sense of common political identity, not just for the Governments of those countries, but for their voters, that they can accept major decisions in economic policy being taken at, and democratic accountability being transferred to, the European institutional level, rather than being based solely at national level.

[Mr Baron]

My right hon. Friend is well respected in his post. Can he highlight the concrete and substantive guarantees that will exist to prevent the two-tier Europe that is being created through the establishment of the fiscal compact from acting against the best interests of this country?

[Mr Lidington]

There are two parts to my answer. First, the action that the Prime Minister took in December ensured that what other countries chose freely to do, through sovereign decisions, will not be binding on the UK through European law. Secondly, as a number of my hon. Friends have said, the Government are determined to work actively with other members of the European Union in pursuit of common interests. Although this might not give the assurance that can be given by a rule book, the culture that I see at work in the European Union week by week is one in which countries come to the table with interests and views of their own. Countries do not act as a predictable bloc or cohesive caucus because they happen to belong to the euro. There are eurozone countries lined up with us to support budgetary discipline. Other eurozone countries—largely net recipients—want to see a greater EU budget. There are also euro-outs that are net recipients and that want to see a bigger European budget. The way in which countries line up on particular issues does not follow logically from where they stand in relation to the fiscal compact or from whether they are members of the eurozone.

[Several hon. Members]

rose—

[Mr Lidington]

I will not give way again, because I have limited time and there are a lot of points to which I wish to respond.

I will not dwell on what happened in December because I want to get on to what hon. Members asked me this afternoon. However, I draw the House’s attention to the fact that my right hon. Friends the Foreign Secretary and the Chancellor of the Exchequer have now sent detailed accounts of the approach to the December European Council meeting and the events that took place shortly afterwards to my hon. Friends the Members for Croydon South (Richard Ottaway) and for Chichester (Mr Tyrie) in their capacities as Chairs respectively of the Foreign Affairs Committee and the Treasury Committee. Those letters have been copied to my hon. Friend the Member for Stone and are already available on the websites of the Foreign Affairs and Treasury Committees. I am making arrangements for them to be placed in the Library today.

The Prime Minister’s decision in December ensured that the treaty, to which 25 countries subscribed, was “outside” the European Union. As my right hon. Friend told the House in January,

“we are not part of it and it places no obligations on the UK. It does not have the force of EU law for us, nor does it for the EU institutions or for the countries that have signed it”.—[Official Report, 31 January 2012; Vol. 539, c. 678.]

I want to deal with some of the points that my hon. Friends the Members for North East Somerset (Jacob Rees-Mogg) and for Hertsmere (Mr Clappison) made. The treaty does not govern how the European Union shall act. It imposes certain obligations on the contracting states, which are linked to the EU. However, in so far as it refers to EU treaties, it makes it clear that they and their rules have primacy and apply in any circumstance where there might be overlap or apparent contradiction.

My hon. Friend the Member for North East Somerset asked about the prospect of non-eurozone members being fined under the fiscal compact. If a non-eurozone member state has ratified the treaty, until it joins the euro, it can decide which parts of titles III and IV of the compact apply to it. Once that country joins the euro, the whole fiscal compact applies to it. The fiscal compact rule in article 3(2) and the jurisdiction of the Court under article 8 fall within title III, so pending membership of the euro, the non-euro countries can choose whether they wish to be bound by those aspects of the compact. A member state, whether in the euro or not, can be fined only once it has ratified the fiscal compact through its national means.

My hon. Friend also asked about the risk of the treaty somehow being imposed on us in the next five years by underhand means.

[Jacob Rees-Mogg]

I want to clarify the point that I was trying to make. The treaty might possibly come in through enhanced co-operation, so although it would not formally be imposed on us, it would reach the status of an EU treaty if the current treaty that we are in the process of ratifying is ratified.

[Mr Lidington]

I do not know whether we will have time to explore that this afternoon. I may write to my hon. Friend setting out the answer in greater detail, but I do not believe that his fears are justified. Treaty change can take place only under the procedures for treaty change in the treaty on European union and the treaty on the functioning of the European Union. It cannot take place under enhanced co-operation, which can, in any case, bind only those countries that choose to participate in it. That is clear in the treaties.

The role given to the European Court in the compact in relation to the balanced budget rule—and, indeed, the imposition of that rule—could not be introduced under enhanced co-operation. Although the compact declares that it has the objective of being incorporated in the EU treaties in five years, that is only an aspiration, not a given. Any changes to the EU treaties would have to be agreed by all 27 member states, using the procedures under the EU treaties themselves for treaty amendment. Change cannot be made through the EFSM treaty, which is to be signed intergovernmentally by the eurozone members only.

[Stephen Phillips]

Will the Minister give way?

[Mr Lidington]

Forgive me, but I will not because I want to press on and try to answer more of the questions asked during the debate.

It is a fact that the compact says that it is a treaty that shall be applied in conformity with the obligations set out in the EU treaties. The declared intent of the signatories is that they shall act at all times in accordance with EU law.

It is a matter of legal fact that the primacy of EU law laid down in the EU treaties is not and cannot be affected by the drafting of an intergovernmental treaty. Article 2 of the compact explicitly states that if there is any conflict or overlap, the EU treaties will prevail. In any case, even if that phrase were absent from article 2, it would be against EU law for EU member states to enter into any kind of international agreement that contradicts the EU treaties and EU law.

However, it is also true that elements of the fiscal compact give us serious concern. Our concerns relate to certain tasks accorded to the European Commission and the European Court of Justice. I set out our concerns in greater detail in my evidence to the European Scrutiny Committee last Thursday. In fairness, it is worth alluding to the fact that others who gave evidence to the Committee—I am thinking of Professor Dougan, of Martin Howe, who is by no means a euro-enthusiast, and of the Council Legal Service written evidence to the Committee—presented a different interpretation and argued that article 273 of the EU treaties could be interpreted as justifying what was set out on the use of the institutions under the fiscal compact.

The concern of the British Government is that the example set under the compact for the EU institutions, the role and functions of which are determined by treaties agreed by all 27 member states, could be used in future either to set unwelcome precedents or to impinge on the integrity of EU law and the arrangements set out in the EU treaties. That is why we have reserved our legal position. That in turn means that we are vigilant and ready to act, including by taking legal action in the European Court of Justice, if we believe that the EU institutions are being used in a way that is contrary to the provisions of the EU treaties and that harms our national interest.

The Prime Minister made clear at the informal January European Council that the EU institutions can be used outside the EU treaties only with the consent of all member states. He also said that the treaty should not undermine the operation of the single market or otherwise infringe on areas of policy that are properly for discussion by all member states in the EU context. That position was repeated in writing by Sir Jon Cunliffe, our permanent representative to the EU, on 22 February. I deposited that letter in the Library of the House on the same day.

The actions the Government have taken in respect of the compact have been informed by advice from across Government. I will not be drawn into a detailed discussion of what the Government’s legal analysis says, not least because reserving our position means that we might at some stage wish to go down the path of legal action. I do not want to say anything that might prejudice or reveal a position that we might take in court in such circumstances.

I am sure most hon. Members realise how foolish it would be to speak in such a fashion, but I am confident that reserving our position is the best way of protecting UK interests. It enables our partners to undertake economic and political tasks that we hope will help to stabilise the eurozone while preserving our right to take legal action should that become necessary.

The problem all our economies face in Europe is a lack of growth. That growth will not come from increased Government spending, nor will it come from consumer spending funded by increased private indebtedness; it can come only from structural reform and a growth in trade, both within Europe and beyond. My right hon. Friend the Member for Wokingham (Mr Redwood), and my hon. Friends the Members for South Swindon (Mr Buckland), for Cheltenham (Martin Horwood) and for Stroud (Neil Carmichael), spoke strongly in the interests of their constituents when they urged the Government to press forward with an innovative and assertive agenda for economic reform and growth in Europe. We are working with our partners to do that, as was evidenced by the letter to which the Prime Minister added his signature to those of 11 other Heads of Government, and for which Bulgaria, Slovenia, Portugal and Lithuania have voiced support. The Government intend to be active in promoting our economic interests in Europe and the wider world, and I commend our approach to the House.