European Union (Approval of Treaty Amendment Decision) Bill [Lords]

Emma Reynolds Excerpts

Monday 10th September 2012 Commons Chamber

[Keith Vaz]

I, too, wish to be brief, and my point arises from the comments made by the hon. Member for Basildon and Billericay (Mr Baron). I hope that the Bill will proceed, because I support the Government’s proposals, and the hon. Gentleman may know that the Home Affairs Committee has written on a number of occasions about the problems facing countries such as Greece in dealing with migration. Will the Home Affairs Committee have any say or be able to make suggestions about how funds will be deployed under the European stability mechanism? If we feel that not enough attention is being paid to the borders of Greece and Turkey because they do not have sufficient funds, will we be able to make such comments? I gather from the Minister that we cannot be part of the process but will we, at the very least, be able to comment on how the funds are to be spent?

[Emma Reynolds (Wolverhampton North East) (Lab)]

It is a great pleasure, as ever, to debate with the Europe Minister.

As my right hon. Friend the shadow Chancellor and I explained on Second Reading, we are in favour of the Bill and clause 1 specifically, which provides for article 136 of the treaty on the functioning of the European Union to be amended to allow the eurozone to set up a bail-out fund—to be financed and operated by the eurozone—to support eurozone countries when they need it.

The permanent bail-out fund, whose establishment was agreed by EU leaders at the European Council in March 2011, will replace the two existing temporary funds. The Opposition have concerns on conditionality, which I will go into in some detail later, but we believe that the ESM will enhance the stability of the eurozone if it is used appropriately. Given that our economy is so closely connected to eurozone economies through both trade and the exposure of our banks, we believe it is in the UK’s national interest that the fund is allowed to be set up.

[Mr Lidington]

I rise to respond briefly to the points that have been made. I am grateful to the hon. Member for Wolverhampton North East (Emma Reynolds) for her support for clause 1 and I shall respond to the points to which the right hon. Member for Rotherham (Mr MacShane) alluded when we debate amendment 1.

I should tell the right hon. Member for Leicester East (Keith Vaz) that the purpose of the ESM is not to provide an addition to structural and cohesion funds or any of the spending instruments to help with any problem, including Frontex, which rightly concerns him. The ESM is a way of providing a firewall or bail-out facility for a eurozone economy that might run into serious economic problems and have difficulty financing itself.

The direct answer to the right hon. Gentleman on the UK opinion is that we are not a member of the euro and have no intention of joining it, and therefore would not qualify for membership of the ESM. However, there are plenty of ways in which British Ministers and officials, both bilaterally with our fellow member states and at EU gatherings, can make constructive and informed suggestions and have good ideas. It is important that we acknowledge that the eurozone countries are potentially putting their taxpayers’ money on the line in the stability mechanism. Therefore, any suggestions that we might choose to make in future need to take account of that very important truth.

My hon. Friend the Member for Basildon and Billericay (Mr Baron) will forgive me if I do not follow him by giving a detailed analysis of the origins of the eurozone crisis. There are a number of different reasons behind it. In some countries, the problem is public sector debt, but in other stricken countries, the banking system is at the root of the difficulties.

However, I should take my hon. Friend up on his point about economic growth. He was right that the Bill is not the answer to Europe’s economic problems. I have said repeatedly—and, much more importantly, my right hon. Friends the Prime Minister, the Chancellor and the Foreign Secretary have said repeatedly—that the salvation for Europe must lie in its restoring competitiveness and economic growth, and above all in its becoming competitive in a world in which economic power and influence is shifting dramatically to Asia and Latin America. The inventiveness of European nations can stand them in good stead, but we need the right policies at both national and European level to restore competitiveness. I ask my hon. Friend to take note of the European Council commitments made in the March and May summits which, in terms, called for the further development of the single market, and in particular the creation of a single market for the digital economy, and for deregulation measures.

Last year, the Government achieved something of a breakthrough—a new precedent was set—in the European agreement to spare micro-businesses from future European regulations. We are taking that campaign forward with like-minded member states to get Europe collectively to address the burden and complexity of regulation imposed on businesses large and small at an EU level, just as we are committed to reducing the costs and complexity to business of regulation here in the UK.

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[Kelvin Hopkins]

First, let me say that I entirely support what the hon. Member for Hertsmere (Mr Clappison) said, and I was pleased to sign his amendment.

The idea that we are being difficult by talking about delaying our effective support for this European Union measure is wide of the mark. We are being asked for a favour in respect of something that does not technically affect us, because we are neither contributors to nor beneficiaries from this new mechanism. We as a country are being gracious by putting this Bill forward, as we are helping out. It is absolutely sensible that the eurozone countries, who are very different from this country, should make sure that they have approved this mechanism and that there is no possibility of legal challenges before we say, “Yes, okay, as you’ve all approved it, we’ll sign on the dotted line to help you out”—and we should do that at the end of the day rather than at the beginning.

If we were to rush ahead and do this, the left-wing Eurosceptics in Holland would rise up to derail the Dutch situation, or the German constitutional court would decide it did not like the system, and we would be left having approved something that the eurozone countries do not even like very much themselves. We would be in a very silly position. It is therefore entirely sensible that we and other countries outside the eurozone should only go along with any decisions once the eurozone countries have agreed to them.

However, I must say that I still believe this mechanism is simply another measure for kicking the can further down the road and putting off what some think of as the evil day when the euro comes to an end. I do not say that simply because I have been sceptical about the euro from the beginning and disagree with the whole principle of the single currency, because it is not just me saying this now; other people agree. Indeed, this week George Soros said that Germany should leave the euro. It would be daft of the Germans to do that, however, because if they did, the new Deutschmark would immediately appreciate in value and Germany would become very uncompetitive in comparison with other member states.

[Emma Reynolds]

I read reports of that George Soros quote as well, and will my hon. Friend clarify that what he actually said was that Germany should either lead or leave, and that he would prefer the former, not the latter?

[Kelvin Hopkins]

I stand corrected, but George Soros leaves open that possibility of leaving, and by talking of Germany leading he presumably means the country putting vast amounts of German funding into saving the euro.

Others have also been looking at the future of the euro—which I think is doomed. There was an interesting article by Anthony Hilton in last Tuesday’s Evening Standard. He said that, in a sense, the euro is already dead, because a genuine currency has a number of features. It should be a medium of exchange, and some people are starting to mistrust it as a medium of exchange and want to be paid in other ways. Indeed, some economic advisory bodies are advising their clients not to accept especially long-term payments in euros, but to accept other currencies—sterling or dollars, for instance. That is understandable.

Currencies should be a store of value. Even Greek politicians, as I understand it, are buying gold because they do not trust the euro. Greek people do not want their euros to be devalued into drachmas overnight, so quite sensibly, they are buying gold. Trust in the euro as a store of value is dying by the day; so, let us wait a little. This could all happen very quickly, of course. It could happen over 10 days or over a year, but at some point a decision will be made that the euro is no longer going to function.

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[Mr Baron]

The hon. Gentleman is absolutely right, as he has been so many times; he has a long track record of being fundamentally right on this subject.

Although it can be argued that the ESM does not really affect us, that this is just a treaty change and that we should not get involved, I ask the Minister to reflect on the fact that we are actually playing a small part in prolonging the agony of the euro. We need some fresh thinking on this issue, because, to return to a point made earlier, by not facing reality we risk a very disorderly break-up of the euro, which cannot be good for this country or, indeed, eurozone members generally.

[Emma Reynolds]

The hon. Gentleman has outlined the case for Greece leaving the euro. What is his response to the fact that opinion poll after opinion poll shows that the Greek people, by a very significant majority—about 85%, according to a recent poll—want to stay in the euro?

[Mr Baron]

That is up to the Greek people. Unlike many initiatives relating to the eurozone crisis, one is not trying to replace the democracy that exists in Greece, although if we look at what has happened in Italy and, it could be argued, to a certain extent in Greece, we see that it is very much the bureaucrats who are in charge. However, ultimately Greece will have to make a decision; it cannot have it both ways. We have seen the high social cost of Greece remaining a member of the euro, and it is very saddening, with the suicide rate going through the roof and the economy collapsing. Perhaps someone needs to explain to Greece that a course of devaluation would do its economy a power of good.

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[Mr Stewart Jackson (Peterborough) (Con)]

I had not intended to contribute to the debate, but frankly I am astonished by the insouciant comments and complacent remarks of some Opposition Members. They ask, “How can this country have the temerity to make a value judgment on legal proceedings with regard to this mechanism?”

There seems to be a fundamental dichotomy for those unable to see the wood for the trees and who will support any initiative from the European Union. They tell us, “Well, this is just one more signature, treaty or concordat that we need to sign up to for us to be at the top table of Europe, and it may be in the UK’s interests or to the contrary.” Yet they then ask us, how dare we make a value judgment on the Pringle case at the Irish High Court—on which, incidentally, the European Court of Justice constitutional decision may hang?

Whatever happened to subsidiarity? Whatever happened to the autonomy, authority and independence of the 27 EU nation states’ own judicial systems? I am concentrating on the amendment tabled by my hon. Friend the Member for Hertsmere (Mr Clappison) in saying that it is absolutely right for us to be certain of our facts and for us to respect the decisions taken by other countries.

I defer to no one in my admiration for the hon. Member for Luton North (Kelvin Hopkins), who is the Nostradamus of Eurosceptics. He has ploughed a lonely furrow on the Labour Benches for many years. He has been saying unfashionable things. The unfortunate thing, from the point of the view of the Labour party, is that he is a socialist and can see the catastrophic economic calamity being visited on working people in Portugal, Spain, Greece and Italy. For what? For a Franco-German political construct. The lives of millions of our fellow Europeans are being sacrificed for the sake of a dead idea and the creation of a political entity called Europe.

It ill behoves the hon. Member for Wolverhampton North East (Emma Reynolds) to quote opinion polls. There was an opinion poll on the Lisbon treaty that said that we should have a referendum and give the people their say. That was the policy of her party in the previous Parliament, and her party reneged on it. Opinion polls say consistently, as they have over a number of years, that we should have a plebiscite on giving the British people the right to make a decision as to whether they wish to remain part of the European Union. That decision is coming, because the people’s voices will be heard by the end of this Parliament. Any party, including my own, that disregards the voice of the people and thinks that they know better will pay a very heavy price at the ballot box.

This is about kicking a can down a road. It is about putting the welfare, careers, vision, energy and lives of a plutocratic Euro-elite before the lives of real people. Real people’s lives are being wrecked. Children in Greece are being adopted because their parents cannot afford to feed them. People are going hungry in Greece because of the economy. That is the human cost of the words of a desiccated calculating machine, as Aneurin Bevan put it, that came out of the mouth of the right hon. Member for Rotherham (Mr MacShane). It is not just about a political idea; it is about real people. It is time that the House of Commons understood what the European Union is doing to the lives of those people, because we are complicit in that crime in allowing it to go on.

It is time that Her Majesty’s Opposition and the Government understood that this is not an academic issue or a matter of simply saying that it is in our interests to support the continuation of the euro at any price There is a world out there—Latin America, south Asia, the far east. We are a global trading nation, but we are locking ourselves into a sclerotic, backward-looking, high-tax, high-regulation customs union. It is destroying people’s lives, and we have a moral obligation to say that. It is appalling that the Government do not have more courage and determination to say that what is going on in Europe is wrong and we should not be part of it.

[Emma Reynolds]

When EU leaders agreed to set up the permanent bail-out fund, the ESM, the intention was to introduce it earlier this year. Regrettably, the original date has been delayed owing to the constitutional issues mentioned by the hon. Member for Hertsmere (Mr Clappison), such as the court cases going on in Ireland and Germany. I agree with him to the extent that he raised some important issues about the EFSF and the EFSM on which I look forward to the Minister’s response. However, while it is important that those constitutional issues are ironed out, they should not in themselves delay the UK’s ratification of the treaty change. As the hon. Member for Cheltenham (Martin Horwood) suggested, if each member state were to delay their ratification in order to wait for the ratification of the next member state, we would have a mass stalemate. Ultimately, that would produce an inertia that perhaps the supporters of the amendment would like to produce—but I will not make any judgment on that. I do not want to intrude on the private grief of Conservative Back Benchers and the Minister, but there seems to be a contradiction between saying on the one hand that the Government got a good deal while on the other arguing for a delay. I am sure that the Minister will tackle that.

On the ESM and more widely, it is regrettable that there have been several delays and that there has been a lack of political leadership and inertia and inaction at a European level which has served to deepen the eurozone crisis. As my hon. Friend the Member for Caerphilly (Wayne David) set out, we believe that the stability of the eurozone is in the UK’s national interest and that the ESM will, if used appropriately, contribute to that stability. Any further delay, such as that proposed by the amendment, would act manifestly against that stability and our national interest. It is complacent to suggest that we should not ratify the Bill, so we oppose the amendment.

[Mr Lidington]

The purpose of the amendment, which was moved with characteristic courtesy and understanding of the issues by my hon. Friend the Member for Hertsmere (Mr Clappison), is to delay the coming into force of the Bill until the constitutional requirements of all EU member states have been complied with and all related legal challenges have been disposed of. I am grateful to him for saying that this a probing amendment, intended to examine various issues connected with the Bill, and that he does not intend to press it to a Division. I am happy to accept that his points are significant and worthy of debate.

It is the Government’s view that to accept the amendment and the consequent delay in the ratification of the change to article 136 would harm the interests of the United Kingdom. It would also not achieve the purpose lying behind the amendment. I will respond in detail to the points that my hon. Friend and others have made.

As my right hon. Friend the Foreign Secretary and I both stated on Second Reading, the decision to amend article 136 is in the interests of the United Kingdom. It benefits the UK in two ways. First, the Prime Minister has secured agreement that once the decision enters into force and the ESM is established, no further commitments will be made under the European financial stabilisation mechanism, which is the mechanism under which the United Kingdom has contingent liability.

Secondly, the Bill and the creation of the ESM serve the interests of the United Kingdom because they will provide euro area member states with a permanent financial assistance mechanism to assist in their quest for stability. My right hon. Friend the Prime Minister has talked frequently about the need for the eurozone countries to put in place an effective and credible firewall. The creation of the ESM is a significant step by the eurozone countries in the direction that my right hon. Friend and this Government have been advocating. We therefore believe that it is in the interests of this country that this treaty change is ratified and the ESM set up as soon as possible.

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[Mr Lidington]

Clause 2 simply declares that the Bill extends to the whole of the United Kingdom and will come into force on the day on which it is passed, and gives its title.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

New Clause 1

Impact of the European Stability Mechanism on the UK

‘The Chancellor of the Exchequer shall make a report to Parliament within one year of the Act coming into force and annually thereafter setting out an assessment of the impact of the European Stability Mechanism on the risks to the interests and obligations of the United Kingdom from eurozone instability.’.—(Emma Reynolds.)

Brought up, and read the First time.

[Emma Reynolds]

I beg to move, That the clause be read a Second time.

[The Temporary Chair (Mr Joe Benton)]

With this it will be convenient to discuss new clause 2—Report on the use of the European Stability Mechanism

‘The Secretary of State shall, whenever a loan is made to a beneficiary Member State by virtue of the decision in section 1(2), lay before Parliament a report setting out the nature and terms of the use of the European Stability Mechanism and its potential effect, both direct and indirect, on the interests and obligations of the United Kingdom.’.

[Emma Reynolds]

It is a pleasure to serve under your chairmanship, Mr Benton. We are seeking to add two new clauses to the Bill to underline the importance of the European stability mechanism to the British economy. New clause 1 would require the Chancellor of the Exchequer to provide an annual assessment of the impact of the ESM on the British economy. For instance, in the best case scenario we would hope that if ESM funds were needed and used appropriately, they would enhance the stability of the specific member state they were put in place to support, and therefore also have a positive effect on our economy.

We have some concerns about the conditionality of the ESM, for example if the conditions attached to granting ESM support were too harsh. It would, therefore, be beneficial to have an assessment of the impact of that austerity on the eurozone member state in question and—importantly for new clause 1—of the knock-on effect on the eurozone more widely, and on the British economy. Given that 40% of British exports go to the eurozone, and that our financial sectors and banks are closely connected, it is important that the Government provide systematic assessments of the operation of the ESM and its impact on our economy.

New clause 2 would introduce a specific and timely requirement for an analysis of each instance of ESM activity, without having to wait for the Chancellor’s annual report that is provided for in new clause 1. For example, if the ESM is triggered to provide support for Spain, Italy, Ireland or Greece, there will be varying levels of economic impact on UK trade and growth. An analysis of the downstream impact that each instance of ESM activity might have on the UK would give Members of this House and the other place, as well as the public, a clearer sense of the nature of the conditions imposed and the indirect impact of the ESM’s operation on our economic prospects.

The ESM conditions are to be detailed in a memorandum of understanding between the European Commission and beneficiary member states that will outline specific economic policy and fiscal adjustment conditions. The Committee should be informed of those conditions, and should have the opportunity to debate and scrutinise whether they are fair and reasonable, and whether Ministers should make their own representations on the nature of those terms and conditions.

It is imperative that any conditions imposed are not detrimental to the fragile recovery of the economy of the member state in question, and that any effects of those conditions do not have an indirect negative impact on our economy.

Regrettably, the Government have isolated themselves to such an extent that they might be unable to exert the requisite leverage in debates on conditionality. Nevertheless, the Europe Minister is conducting a charm offensive—he has written various articles, including one written in beautiful French for Le Monde and one written in Swedish for a Swedish newspaper—with the intention of rebuilding bridges with our European partners.

The Opposition applaud the Minister for that initiative —Conservative Back Benchers might not applaud him, but we do not want to intrude on private grief by going through the differences of opinion between those on the Treasury Bench and Conservative Back Benchers who do not agree with them—but we fear that the charm offensive might be too little, too late. We wish the Minister the best in his endeavours.

[Mr Love]

It is important that the Minister speaks seriously to his European counterparts in his charm offensive about the role that austerity can play in depressing the eurozone economy to our detriment. Is it not critical that the Minister speaks up for growth strategies so that Europe can grow and we can grow off the back of that?

[Emma Reynolds]

I could not agree with my hon. Friend more and I recommend that the Minister takes his advice. The Government would have more authority to speak to our European partners about the importance of European growth if our economy were growing, but unfortunately it is not—it is one of two G20 economies to be back in recession, which is a great shame. That unfortunately diminishes the authority of our Government’s voice in proposing the useful measures that my hon. Friend suggests.

I mentioned the Minister using his multilingualism to build bridges with our European partners, which the Opposition believe is essential. Even if it runs against the wishes of Conservative Back Benchers who are nervous about the Government’s continued commitment to European membership, the Minister is right to reassure our European partners that our place is firmly in the EU.

[Wayne David]

On dialogue, which I agree is extremely important, our dialogue with Ireland, which has the same language, is vital. Will my hon. Friend speculate on what would happen to our good relationship with Ireland if the closeness of our two economies were not fully realised? What detrimental impact beyond the economic could that have on our long-term relations with Ireland?

[Emma Reynolds]

Our relationship with the Republic of Ireland, which is incredibly important, is testament to the temporary mechanisms put in place in May 2010, which had cross-party agreement. Conservative Members like to tell Labour Members that the mechanisms were agreed unilaterally, but there is proof in a note by the former Economic Secretary—she is now Secretary of State for International Development—of cross-party agreement on setting up the EFSM at a time when the eurozone looked like it might collapse. The EFSM has been incredibly important to Ireland’s recovery, so much so that Ireland has been able to sell Government bonds on the international markets again since July this year.

[Mr Love]

Have the Government not recognised that? They were critical of the previous Government’s decision, but subsequently gave a substantial loan to Ireland because of its critical position in relation to the British economy?

[Emma Reynolds]

I could not agree more with my hon. Friend. There were some naysayers on the Government Benches who thought the Government were wrong to give a bilateral loan to Ireland, but Opposition Members agreed with the Government, because our economies and financial systems are so closely intertwined. It was therefore incredibly important to make that bilateral loan to Ireland. As I said to my hon. Friend the Member for Caerphilly (Wayne David), it pleases all hon. Members that Ireland’s economy looks like it is getting back on track. That is important for the Irish people—our neighbours—but, given the close links between our economies, it is also important for people in our country.

Given the Minister’s fantastic charm initiative, we hope the Government are in a better position to influence conditionality on the use of ESM funds, as I have suggested. The Opposition do not believe that harsh conditions would be in our interests or in the interests of the member state to which support is given.

[Wayne David]

Both new clauses call for reports to be made to Parliament. There is a strong case to be made for in-depth reports to be debated on the Floor of the House, but there is also room for debate in Committees, and particularly the European Scrutiny Committee. Does she envisage that the debate should be conducted not just on the Floor of the House, but elsewhere?

[Emma Reynolds]

I agree with my hon. Friend. New clause 1 would mean an annual report by the Chancellor on the economic impact to the UK economy of the operation of the ESM, and new clause 2 would mean the Foreign Secretary submits a report when a loan is made. As my hon. Friend suggests, the reports would be discussed not only on the Floor of the House and the other place, but in the European Scrutiny Committee and other Committees that deem them important.

The success of the ESM is in our national interest. If it is used effectively and appropriately, it could have a positive effect on our economy as well as on the member states to which it gives support. However, what if the ESM’s conditionality is misguided and imposes austere measures?

[Mr Love]

On conditionality, there is currently a discussion on easing the conditions of receiving support from the European Central Bank. Would my hon. Friend welcome Government support for such easing? Will she go further, and suggest that it could spark growth in the southern European economies?

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[Emma Reynolds]

Conditionality should not be too severe. The ECB’s initiative to buy Government bonds, which was announced by Mario Draghi last week, would be linked to support provided by the ESM. That is why it is vital that the reports asked for in the new clauses are made to Parliament—there is an interaction between the ESM and the initiatives announced by the ECB last week.

[Wayne David]

That is important. The situation is volatile, nobody knows with any certainty what will happen next, and the interrelationship and co-ordination between different financial instruments—the ECB bond market initiative has a relationship with the ESM facility—are important. That makes a regular, ongoing review to find out how compatible they are in practice all the more important.

[Emma Reynolds]

I agree with my hon. Friend. The new clauses would introduce annual systematic assessments of the impact on our economy of the ESM and, in specific cases, of loans granted by the ESM. As he suggests, that is becoming ever more important, given the complicated interaction with the ECB’s other initiatives. If ESM conditionality is too harsh, we fear that it could have a detrimental effect not only on the member state to which the support is being granted but indirectly on our own economy, and could shrink the eurozone economy.

[Mr Love]

Are the British Government not in an ideal position to make this case, given that they introduced too harsh an austerity programme, the result of which has been a double-dip recession?

[Emma Reynolds]

It is regrettable that, in a way, we are a test case for the detrimental effect of severe austerity. Since we left government, the economy has slipped back into recession and we have seen high unemployment, including an unemployment crisis among young people. My hon. Friend is right that unfortunately Europe is looking to the UK to see what it should not do in its economic policy. I am glad that there has been a shift, to a certain extent, within the European Council, in that member states on the centre left, such as the French Government, are now arguing for growth and job creation, not austerity alone. His suggestion is critical.

[Mr MacShane]

Are not the IMF and World Bank loans, to which Britain fully subscribes—we will be subscribing absolutely nothing to the ESM—also worthy of scrutiny? Would it not be a good idea to extend this concept and invite the Chancellor of the Exchequer to present to Parliament an annual review of all IMF and World Bank loans, the conditionality of which has a huge impact on the British economy and worldwide developments? I am interested in this notion that we are now advancing, which I fully support, that Parliament should debate all the external loans and financial instruments that Britain provides to help other economies get going, as well as those in Europe to which we do not subscribe a penny.

[Emma Reynolds]

My right hon. Friend makes a good suggestion, but I would not want to comment in too much detail on other external loans, given the remit of the debate. I am sure, however, that those on the Treasury Bench will have heard his suggestion.

In either scenario—whether best or worst case with regard to the operation of the ESM—it would be reasonable and enhance scrutiny in this House and the other place were the Chancellor to provide an annual report of the economic effects on the UK, as set out in new clause 1.

[Mr Love]

Would it not be critical for the Chancellor’s report to Parliament to indicate what the British Government had done to make the ESM a success and to relate it to the benefits received by the British economy?

[Emma Reynolds]

That would be important, but, for reasons I have set out, I fear that the Government’s voice and influence will not be as strong as it should be on these matters, because unfortunately they have chosen, through their actions, to isolate themselves—I think of the walkout at the European Council meeting last December and the Prime Minister winding up the French President by telling him, for some reason, that he would roll out the red carpet for French taxpayers. I am not clear why he thought that that would be in the national interest, given that he had already refused to see the French President earlier in the year. For all those reasons, it is clear that the Government place much more importance on keeping their party together—the Conservative party—than on the British national interest. Regrettably, therefore, our influence over ESM conditionality is severely weakened.

[Andrew Bridgen (North West Leicestershire) (Con)]

Is the hon. Lady saying that her party supports UK taxpayers’ money being used, through the ESM, to support the eurozone?

[Emma Reynolds]

It is nice that the hon. Gentleman has made a late entrance but, had he been here from the start, he would have known that the Opposition are not in favour of the Government paying into the ESM. He was not here when I mentioned it, so I shall say again that in May 2010 the then Economic Secretary, the now International Development Secretary, admitted that there was cross-party consensus that if the eurozone collapsed, we would have to agree to the emergency measures drawn up at the last Council, when the then Labour Chancellor, in the interim period after the election, was still in place. So there was cross-party agreement—I can show him the documentary evidence, if he wants to see it.

On new clause 2, it is also important that the Foreign Secretary provides a report whenever a loan is made under the ESM. Both reports will enhance scrutiny in the House.

[Wayne David]

There is one important element of the ESM with which I am not familiar—I frankly admit—and that is the degree of private sector involvement. In this respect, the IMF is an example of good practice, but given that I and—I suspect—many other Members are not familiar with this element, an effective annual report would be crucial.

[Emma Reynolds]

I agree that it would be important. It is not clear when the ESM will be introduced—the constitutional court in Germany will rule on Wednesday —or what the significance or extent of the interaction with the private sector will be. It is important for those reasons as well, therefore, that the Chancellor and the Foreign Secretary produce reports in the way suggested by the new clauses. It would enhance the scrutiny of these important subjects in the House and the other place and make it clearer to the general public exactly how the ESM will operate and how its operations will affect the British economy.

[Martin Horwood]

I will not trouble the Committee for long. It is sometimes tempting with a simple Bill to think of things to put in amendments to provoke debate—it can be helpful—and asking someone to make a report is always quite a good one, but we need to be a little careful with civil servants’ time. To ask the Treasury to make a report to Parliament annually on

“the impact of the European Stability Mechanism on the risks to the interests and obligations of the United Kingdom from eurozone instability”,

and to ask the Foreign and Commonwealth Office

“whenever a loan is made”

to report on the

“potential effect, both direct and indirect, on the interests and obligations of the United Kingdom”,

will involve days and days of civil service time.

[Emma Reynolds]

Will the hon. Gentleman give way?

[Martin Horwood]

No, I will not. I am not going to take up a lot more of the Committee’s time.

The proposals are superfluous, given that we endlessly debate the impact of the eurozone and of the various bits of European constitutional and financial architecture on the United Kingdom and its economy. We also endlessly debate the individual bail-outs, and there are always statements to the House on such matters. If these reports were produced by the Treasury and the Foreign Office, I suspect that Her Majesty’s Opposition would disagree with them anyway. There will be plenty of opportunity to question Ministers on what they think of the indirect or direct implications of any bail-outs.

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[Wayne David]

I absolutely agree with my hon. Friend.

This is an important matter, and it should be debated not only on the Floor of the House but by the European Scrutiny Committee. We should also encourage other Select Committees—the Treasury Committee in particular —to debate these issues. It is one of the weaknesses of the House that, all too often, we tend to put European issues into a neat compartment without fully appreciating the fact that they are cross-cutting, cross-departmental and cross-Committee in nature. If we are fully to appreciate their impact, and the need for them to be changed, we need to discuss them in a number of different Committees.

[Emma Reynolds]

Does my hon. Friend agree that it is regrettable that the Liberal Democrats—who are now in government, not in opposition—should not want increased transparency and scrutiny of the effects of the ESM on our economy? Had they still been in opposition, I am sure that they would have been calling for that today.

[Wayne David]

I can see that the hon. Member for Cheltenham (Martin Horwood) is straining at the leash to intervene on me. I will give way to him, so that he can give my hon. Friend a comprehensive answer. She has made an astute point.

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[Jacob Rees-Mogg]

I am all in favour of scrutiny. I am a member of the European Scrutiny Committee, and I am the greatest admirer in the House of my hon. Friend the Member for Stone (Mr Cash), who scrutinises with an eye like a hawk and ensures that every aspect of scrutiny is carried out to the fullest, most proper and deepest effect. However, I thought that the new clause might be an example of the socialist sense of humour, which involves tabling a motion that is completely and utterly meaningless and, indeed, the opposite of what the Bill is all about.

Perhaps the Members concerned did not listen to my right hon. Friend the Minister, who explained—beautifully, elegantly and with charm—what the Bill was all about. He also explained what the treaty was about, namely getting us out of responsibility and liability for the eurozone mess so that we would not have to pay to prop up the eurozone. The new clause proposes that the poor old Chancellor of the Exchequer, who has quite enough to do—for instance, he has a growth strategy to draw up, and his infrastructure Bill will be presented to us next week—must write a report on why a fund of which we are not part, and to which we do not contribute, has had an effect on the propping up the stability of the eurozone, which is a matter for the people—

[Emma Reynolds]

rose—

[Jacob Rees-Mogg]

Of course I give way to the shadow Minister.

[Emma Reynolds]

I could not agree more with the hon. Gentleman. The Government need to cut through the dither, and the Chancellor needs to see to that as a matter of urgency. However, I do not really understand why the hon. Gentleman objects to the Treasury’s conducting an impact assessment of the operation of the European sustainability mechanism. He takes a great interest in European matters, and I find it surprising that he does not welcome further transparency and further scrutiny of such an important issue.

[Jacob Rees-Mogg]

The hon. Lady flatters me. I do indeed take an interest in the issue.

It is extremely important for the Government to be scrutinised on what they do in terms of European policy, but I do not think that we should scrutinise Her Majesty’s Government in relation to what the Germans or the French do, because that is a matter for them. We are outside this mechanism. The whole point is that a new mechanism is being set up to ensure that there is no liability for the UK taxpayer. What is the Chancellor supposed to say? Must he send a letter to Parliament saying “Something over which I have no authority, something to which we have made no contribution, something which is not actually British in any sense, has worked”, or has not worked? We can read that for ourselves in the Financial Times, or in other reputable newspapers.

We really do not need the Chancellor to be bogged down in more bureaucracy. There is a difference between scrutiny and bureaucracy. Scrutiny is about challenging Her Majesty’s Government to ensure that the Government’s decisions are in the best interests of the British people. These decisions—the European stability mechanism decisions—will not be Government decisions in any sense once the treaty is passed, and once this Act is enforced. They will be decisions over which we will have no control, and that is the whole point. We do not want to have any control, because we are not part of the eurozone, and most sane and sensible people hope that we never will be. It is our aim and ambition to be out of the eurozone.

--- Later in debate ---

[Emma Reynolds]

I remind the Minister for Europe that it was our Government who did not take this country into the euro, and that is a matter of fact, not opinion. I also remind him that as the shadow Foreign Secretary and I set out on Second Reading, and as I set out earlier today, we are in favour of the European stability mechanism precisely because it will be a bail-out fund operated by the eurozone for the eurozone and, crucially, financed by the eurozone.

Both new clauses introduce a requirement for the Government in the first instance to assess annually the ESM’s impact on the British economy and, in the second instance, to assess the impact on it of loans made by the ESM. I was disappointed and surprised to learn that the hon. Member for North East Somerset (Jacob Rees-Mogg) does not share our desire for additional scrutiny of European matters. We look forward to his future speeches on Chinese monetary policy. He should not underestimate himself—I am sure there is a member of the Chinese Communist party listening carefully to what he is saying, even if they do not take the advice he is proffering.

The Opposition believe that it is incredibly important that the impact on our economy of the European stability mechanism be assessed, and that both new clauses would add to the scrutiny by this House, the other place and the greater public. For that reason, I would like to divide the Committee on new clause 1.

Question put, That the clause be read a Second time.

--- Later in debate ---

Brought up, and read the First time.

[Emma Reynolds]

I beg to move, That the clause be read a Second time.

New clause 3 would require the Government annually to update the House on their assessment of the impact of the ESM on the economic performance of the EU. Our economy and those of the member states of the eurozone, as well as those of the wider EU, are closely entwined through trade and our financial sectors. We also use the collective weight of the EU to negotiate free trade agreements with both developed and emerging economies. We therefore believe that it is reasonable to require a regular update from the Chancellor on how the ESM arrangements are affecting our major trading partners in the EU.

We welcome last week’s decision by the European Central Bank to set out its approach to outright monetary transactions, which is an example of the lender-of-last-resort role that such a eurozone central bank ought to have reached many months ago. However, the operation of OMTs will be tied to the operation of the ESM. It is therefore imperative that the operation of the ESM is undertaken appropriately and that any strict conditionality does not harm the delicate path back to economic growth.

As we explained on Second Reading, we are in favour of the Bill, which provides for the treaty change necessary to enable the establishment of the ESM by the eurozone, but we have concerns about the conditionality of the ESM. We will continue to argue that ESM and ECB support needs to avoid the punitive austerity that undercuts confidence and demand in an economy, pushes an economy back into recession, reverses the generation of tax receipts and increases welfare costs. Regrettably, that is exactly what has happened in the UK owing to the severe austerity that our Government have chosen to impose, despite the fact that the Business Secretary admitted yesterday that there is a problem of demand in the economy and despite the fact that he and his party agreed with us before the general election that cuts that went too far and too fast would choke off the recovery.

The question of ESM conditionality is at the heart of the divisions between right-wing and centre-left Governments across Europe. Germany holds a veto on the operation of the ESM, because its share of contributions converts to a blocking vote share. Germany’s representative on the ECB board was the only dissenter to the new ECB policy on OMTs that was announced last week and, incidentally, this week its constitutional court is expected to rule on whether the ESM is constitutional according to German law.

--- Later in debate ---

[Mr Lidington]

New clause 3 would require the Chancellor of the Exchequer to make a report to Parliament, within a year of the Act coming into force and annually thereafter, setting out an assessment of the impact of the ESM on the EU’s economic performance. To some extent that touches on issues similar to those we addressed when debating the Opposition’s previous two new clauses.

My argument to the Committee is that the requirement the Opposition are seeking to impose on the Government is simply unnecessary and otiose. The ESM treaty—the intergovernmental treaty among the 17 eurozone member states—requires the publication of annual accounts, so we fully expect information on the financial assistance that will be provided by the ESM to be made publicly available. That would be done in the same way that information on the use of the EFSF and its financial assistance programmes is currently made available on a public website. Furthermore, every EU member state is already required, as part of the assessment known as the European semester, to submit annually to the Commission a report on its own economic plans and performance. Therefore, the information that the Opposition are seeking will be in the public domain anyway.

We seem once again to have a proposal that would create an unnecessary reporting obligation and use civil service time in the UK on a mechanism of which the UK is not part. Parliament, through its Select Committees, the scrutiny system and the powers of the Backbench Business Committee, will continue to have plenty of opportunity to require Ministers to come to the House to be held to account for Europe’s economic performance and the United Kingdom’s place in shaping the EU’s economic policies. We do not need the new clause to give Parliament those powers. I hope that the Opposition, on reflection, will choose to withdraw the motion.

[Emma Reynolds]

The objective of new clause 3, as I have set out, is for the Government to monitor closely and assess the impact of the European stability mechanism on the wider economy of the European Union. Our economy is closely connected to the other 26 economies of the EU, with regard to both trade and, crucially, our banking sector. Our banks are heavily exposed to developments in the financial sectors of the other member states. It is therefore important that the Government allow the House to scrutinise the impact of the ESM, as well as their own decisions on the level of influence they choose to have on these discussions, even though we are not a member of the eurozone. It is not our policy that we should join the euro, just to clarify that for the Minister once more. Even though that remains the case, as a big member state in the European Union we should have a significant voice in all its developments, including the conditionality imposed on eurozone member states that seek support from the European stability mechanism.

Such matters may not be our primary responsibility as a non-eurozone member state, but we would nevertheless like the Government to be less isolated and to have more influence on the discussions about conditionality, because, as I set out earlier, we have reservations about the harsh austerity that is being imposed on Greece and other member states and that will probably be attached to support from this fund as well as previous mechanisms. It is for that reason that we tabled new clause 3. We believe that it is important that the Chancellor of the Exchequer monitors these developments closely and gives this House the opportunity to comment on and debate them.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Jacob Rees-Mogg]

It is a real pleasure to speak in favour of this Bill, because it is surprisingly important. The more we have debated it, the more clear its importance has become. It is important because it saves the British taxpayer risking substantial amounts of money. When the treaty was agreed, I was disappointed that we had not asked for more, because Her Majesty’s Government had a strong negotiating position and might have been able to start the process of renegotiation and ask why we did not have a more à la carte Europe, to use a French term, if I may, Mr Deputy Speaker, against the preferred guidance of “Erskine May” that one should stick to English.

The Government have achieved something considerable by appearing to be very modest. We have seen the clawback of powers from Europe for almost the first time. Under article 122 of the Lisbon treaty, we had opened ourselves up to substantial and potentially unlimited liabilities for the failures of the eurozone. Once it was accepted that article 122 could be used for emergency bail-outs and the regulation was not challenged, it was conceivable that further regulations could be introduced and that, although each one would have been subject to challenge individually, once the first was accepted, there could have been a continuous chain of bail-outs, resulting in billions and billions of pounds’ worth of liabilities for us.

If I may make a cheap party political point—there is an occasion for such a thing—it is worth noting that it was the previous Labour Government who signed us up, during their dying days, to this almost unlimited liability.

[Emma Reynolds]

It is always a pleasure to intervene on the hon. Gentleman. I have in my hand an explanatory memorandum by a previous Economic Secretary, who is now the International Development Secretary. It states:

“The Government regrets that the Scrutiny Committee did not have time to consider this document”—

meaning the document on the establishment of a European financial stabilisation mechanism—

“before it was agreed at Council. It should be noted that whilst agreement on behalf of the UK was given by the previous administration,”

to which the hon. Gentleman has referred,

“cross-party consensus had been gained.”

[Jacob Rees-Mogg]

When the hon. Lady started with, “I have in my hand”, I thought she was going to say, “a piece of paper”, and that we were going to be promised peace in our time, but, sadly, she offered party political disagreement instead. It was more like a battle than peace. All I would say is that the Government of the day were Labour. I accept that the incoming Government failed to challenge the use of article 122—they should have done that and it was a pity that they did not—but that was where we were: socialist extravagance spending our money and signing us up to bailing out the whole of Europe over and over again.

What did we get in place of that? We got a sound Conservative Government, with the help, for once—the worthwhile, marvellous and delightful help—of our Liberal Democrat coalition partners, who were robust enough, which some might say is most out of character, to support us in getting powers back from the European Union, which has almost never happened before. That is important because the whole basis on which the powers of the EU have been built—the acquis communautaire—has been one whereby it gets powers and never gives them away again. It is the doctrine of the occupied field that once Europe has taken over a policy area, it is in control of it and it never goes back to the nation state.

It is therefore a real triumph for the Government to have got this agreement on the treaty on the functioning of the European Union and that the article 122 mechanism has been cast to history. Although that is not being said officially—we do not have a signed document saying that article 122 will not be used—we have a very strong political agreement between all the Heads of Government and Heads of State, signed up to by the Commission, and, most importantly of all, a new mechanism.

The other good thing about the mechanism and the treaty approach that has brought it to us is that we have a proper parliamentary procedure to ratify it. It is so marvellous and commendable of this Government that they are taking parliamentary accountability and democracy seriously. They could have done it differently. They could have just bulldozed it through on a quiet Wednesday afternoon in a debate lasting an hour and a half or two hours, but they chose not to do that. They introduced a Bill that required a proper process and they actually allowed time for the debate—so much time that we may even finish early. That is another good argument for parliamentary scrutiny—time is not used up unnecessarily in the House of Commons; it is used for proper consideration of what the Government are doing.

This new Session’s resolution can therefore be: let us support this marvellous Government and let us support the Front Bench and Treasury Bench representatives as they go boldly forth. They stand up, show backbone and act like a lion—not, as somebody may have once said, like Bagpuss—against Europe. They make sure that the British position is put clearly and forcefully and that powers are returned home.

There is a great lesson for Her Majesty’s Government in this: when they show backbone, force and courage, not only do they receive rapturous support from Members on the bustling Back Benches, but they receive support from the country at large. As the Brussels directives are sent away and batted back home, so the opinion poll rating rises. I hope that the Government will learn from this and act on it in future.

[Emma Reynolds]

As always, it is a great pleasure to follow the hon. Member for North East Somerset (Jacob Rees-Mogg). On behalf of the Opposition, I, too, would like to thank all right hon. and hon. Members who have taken part in today’s and last week’s debates on the Bill.

The Opposition support the Bill, as my right hon. Friend the shadow Foreign Secretary and I set out on Second Reading. Indeed, there seems to be a worrying level of harmony between those on the Opposition Front Bench, the Government Front Bench and the Liberal Democrat Benches. It even extends to the hon. Member for North East Somerset, to whom I say, in French, c’est un plaisir. To return the compliment, it is a pleasure to be in agreement with him. That agreement, however, does not extend to all of the Conservative party’s Back Benchers. As ever, there is some disagreement between those on the Treasury Bench and Conservative Back Benchers, but let us not dwell on that.

The Bill does not deal with the substance of the eurozone’s new bail-out fund, the European stability mechanism; it deals only with the treaty change required to allow for its establishment. To make our position clear, we do not believe that the UK should stand in the way of the eurozone setting up a fund that will be financed by the eurozone, operated by the eurozone and used by eurozone countries should they need that support. We believe that the eurozone must be allowed to take responsibility for this new, permanent bail-out fund.

Forty per cent. of British exports go to the eurozone, and many British businesses rely on the wider consumer market of 500 million people offered by the European Union. We therefore support immediate and decisive action by the eurozone to stabilise the single currency, because we believe that that stability is firmly in the UK’s national interest. The European stability mechanism is one necessary element of that decisive action. For too long there has been an absence of concrete action by eurozone leaders. Political inaction has, unfortunately, become the norm. As the eurozone’s problems developed, that inaction served only to deepen the crisis.

As many commentators have noted recently, had the European Central Bank announced its support for the eurozone two years ago and used the unequivocal terms that we have heard recently from Mario Draghi, who said that the ECB would provide a fully effective backstop for the currency, it is possible that the crisis would not have reached this stage and that it would be nearing its end.

As the OECD stated last week,

“weakness in the periphery is spilling over to the core.”

It continued that

“further policy action is needed to instil more confidence in the monetary union.”

Although the ESM is certainly not a silver bullet to solve the eurozone crisis, its establishment is definitely part of the solution and is exactly the type of action that the OECD has called for.

Speculation on the future of the euro and uncertainty about the political will of eurozone leaders to save the currency have driven instability in Europe’s financial markets. Without that essential market confidence in the eurozone’s readiness to protect its weaker members, borrowing costs for countries on the periphery have rocketed. Coupled with the weak and under-capitalised banking systems of certain countries in the eurozone, that has led to a vicious circle of financial instability.

The OECD has emphasised that:

“Solvency fears for banks and their sovereigns are feeding on each other.”

It also stated:

“Concerns about the possibility of exit from the euro area are pushing up yields, which in turn reinforces break-up fears. It is crucial to stem these exit fears.”

It is clear that as banking systems have become increasingly weakened, pressure has grown on sovereigns, and that as the financial uncertainty has grown, the cost of sovereign borrowing has risen, which has raised borrowing costs for businesses and individuals. As economic growth has stagnated, the Governments of certain eurozone countries have had to borrow more, and as they have become more indebted, fears about their sustainability and ability to support their banking sectors have risen. That has driven an increased cost of borrowing, and the cycle begins again.

In the short term, it is extremely difficult to break that vicious circle without action from an external body, such as the EU, the ECB or the IMF. In Greece, Italy and Spain, the circle has become almost impossible to break without the financial markets believing that the eurozone as a whole is acting as guarantor.

Six weeks ago, the president of the ECB, Mario Draghi, said that he would do “whatever it takes” to save the euro. Only with that guarantee does the ECB believe it can break the vicious circle and begin to lower the cost of borrowing in the eurozone periphery. To that end, the ECB last week announced plans for a new scheme of Government bond buying, which will operate alongside the ESM. Along with other voices around the EU, including our Government and other Governments, we welcome last week’s announcement. Indeed, the French President, Francois Hollande, said in reaction to Mario Draghi’s announcement that “the euro is irreversible” and that the eurozone is now solving problems that have been pending for too long.

[Mr Clappison]

The hon. Lady is giving a most interesting analysis of the situation. What is her view, as the Opposition spokesman, on the means by which the ECB’s interventions will be financed?

[Emma Reynolds]

It was important that in its announcement, the ECB emphasised that there would be some sterilisation of its additional spending, which was intended to allay fears about inflation, particularly in Germany.

[Mr Clappison]

How credible does the hon. Lady think those promises of sterilisation are?

[Emma Reynolds]

The market reaction to Mario Draghi’s announcement suggests that they are very credible, because in the days afterwards, the markets rallied.

[Steve Baker]

People in the markets have a much shorter-term view than is generally suspected. They will always be grateful to know that there is a willing buyer with unlimited funds for whatever they are holding.

[Emma Reynolds]

I agree that they will be happy about that. That is why it is important that what the ECB president set out last week is carried through and supported by the eurozone Governments. It must not be seen as an announcement that will come and go. I believe that Mario Draghi and the ECB have set out important steps that have been needed for some time to provide a back-stop for the single currency.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

The ECB’s announcement was made alongside the fact that it would impose conditions on the buy-outs of bonds. There is concern in some countries that they will not be able to meet those conditions. Is my hon. Friend the Member for Wycombe (Steve Baker) not right to say that the market is taking a very short-term view? Unless there are strict fiscal conditions so that the situation improves, the buy-outs of bonds will not solve the problem.

[Emma Reynolds]

I thank the hon. Gentleman, because he brings me on nicely to the next part of my speech, which is about the conditionality of the ESM and the bond buying that was announced last week.

The conditionality of the ESM requires further scrutiny. As with our Government’s economic failings, we are concerned that the ESM will impose harsh austerity on countries that receive its support, and thereby choke off economic growth and recovery. In the UK, the effect of such “austerity alone” economics is acutely felt by the 2.65 million people who are unemployed. The former US Treasury Secretary, Larry Summers, last week reflected on the Government’s economic mismanagement at a conference in London:

“We have avoided the prospect of a 1930s-like experience in the US. I cannot say the same with respect to Great Britain. The downturn in British output is more sustained than at any point in the twentieth century. In such an environment, to radically slash public investment is, I would suggest, to violate the Hippocratic Oath—first, do no harm.”

Although he was referring to the catastrophe of our Government’s economic policy, he could have been talking about other countries within the eurozone that have been the subjects of severe austerity.

Although it is true, as the hon. Member for The Cotswolds (Geoffrey Clifton-Brown) suggests, that the fiscal position of countries in the medium term must be looked at—the level of debt to GDP in Greece, which has been over 100% since the early 1990s, is certainly unsustainable—Greece and other countries must be allowed to get back to growth as a means of reducing their deficits and debts. As we are seeing in this country, without that growth, it is more difficult to bring down a country’s annual deficits and longer-term debt.

Thankfully, the debate in Europe is beginning to shift towards a focus on growth and job creation, rather than austerity alone. In particular, we welcome the growth measures agreed at the European summit in June. However, we note that the debate is ongoing in Europe between those who argue for growth and job creation, and those who believe in austerity. It is regrettable that our Government are still very much on the wrong side of that debate.

The Government try in vain to blame the eurozone for their own economic failure, but even their own Back Benchers are not convinced. Last week, the right hon. Member for Haltemprice and Howden (Mr Davis) told an audience in the City that it was wrong for the Government to blame the eurozone for their current economic failings. Before the summer recess, the hon. Member for Bury St Edmunds (Mr Ruffley), a member of the Treasury Committee, said that the Government must not use the eurozone crisis as an alibi. The Opposition recognise the importance of the eurozone and of Britain’s place within the EU in building growth and prosperity. However, the Government’s failure to deliver growth two years ago and their continuing failure to focus on it have left us more vulnerable to the escalation of the eurozone crisis.

I will reflect briefly on the wider future of the eurozone and the role that the ESM will play. In contrast to the unequivocal statements of support for the euro from Mario Draghi and Francois Hollande that we have heard in recent days, some hon. Members have called today and throughout the Bill’s passage for the break-up of the euro and have argued against the establishment of the ESM. However, the break-up of the eurozone is not an easy, cost-free way out of the crisis.

If Greece were to leave the eurozone, the consequences could be disastrous for Greece and for the rest of the EU. If the euro were replaced by a new currency in Greece, the value of that currency would in all likelihood plummet, causing a further disaster in the Greek economy. Moreover, the contagion effect following that could be hugely damaging for the rest of Europe. Far from stabilising the eurozone, a Greek exit might serve only to deepen the sovereign debt crisis. International lenders, seeing Greece cut loose from the euro, may become wary of lending to other struggling states in the eurozone. Greece may become only the tip of the iceberg as investor panic drives up borrowing costs for Italy and Spain, the eurozone’s fourth and third largest economies.

[Mr Clappison]

I am grateful to the hon. Lady for giving way; she has been most generous. Throughout the debate, I have been interested in how the various measures will be financed. She has now turned from Mr Draghi’s proposals to those that we have in front of us today. What is her view of the fact that Italy and Spain seem to be significant contributors to the ESM, even though she has just mentioned them as being prospective beneficiaries?

[Emma Reynolds]

It is not impossible for them to be beneficiaries and contributors at different points, so I do not really see the difficulty that the hon. Gentleman is trying to point out.

Depositor confidence would also be damaged by the contagion effect that I mentioned. In the past year alone, 10.9% of deposits have been withdrawn from Spanish banks, which is a staggeringly high amount. In the event of a Greek exit, it is unlikely that such banks would be robust enough to survive if there were a sustained run. In that scenario, the Greek bail-out could appear small in comparison with the sums that may be needed to support other states in the eurozone.

For the reasons that I have given, we support the Bill. The establishment of the ESM is not a silver bullet, but it is nevertheless a key part of the solution that is so urgently needed to resolve the eurozone crisis. It is manifestly in the UK’s national interest that stability is restored to the eurozone, so we welcome the Bill.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.