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

Debate between Emma Reynolds and Andrew Love

Monday 10th September 2012 Commons Chamber

[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.

[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.

--- Later in debate ---

[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?

--- Later in debate ---

[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.

[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.