Banking Union and Economic and Monetary Union

Greg Clark Excerpts

Tuesday 6th November 2012 Commons Chamber

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move,

That this House takes note of European Union Documents No. 13682/12, a draft Regulation amending Regulation (EC) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No…/… conferring specific tasks on the European Central 5 Bank concerning policies relating to the prudential supervision of credit institutions, No. 13683/12, a draft Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, No. 13854/12, Commission Communication: A roadmap towards a Banking Union, and an unnumbered Explanatory Memorandum: Towards a Genuine Economic and 10 Monetary Union: Interim report; and welcomes the Government’s decision to remain outside the new supervisory arrangements while protecting the single market in financial services.

I welcome these debates. The subject matter of today’s debate is, if anything, even more important than what we discussed last week. It is essential that proposed developments in the EU are robustly scrutinised by this Parliament. I am grateful for all the work done by the European Scrutiny Committee and its equivalent Committee in the House of Lords, as they applied their attention to the 1,100 European documents that were referred to them last year.

One theme we will come on to is how we can strengthen the scrutiny of sovereign national Parliaments over the institutions and policies of the EU. I believe that that is essential. It is principally Members of this House and our colleagues in the other place who will search for assurance that our national interest is not being blown away by a zeitgeist that is capable of carrying people along in the wrong direction.

This week is a particularly appropriate one in which to recall the value of that questioning voice. It was 15 years ago on 10 November 1997 when the then Leader of the Opposition first stood out against all fashionable opinion at the time and, in a speech to the Confederation of British Industry conference, committed my party to oppose joining the proposed euro. I had a hand in preparing that speech, and I recall one of the lines that I was proud made the cut. It said that

“if the nightmare of our experience in the ERM teaches us anything, it is not to steer by the siren voices of a supposed consensus, but to exercise the independent judgement of a cool head.”

Of course, the two people responsible for that decision and that speech are now our Foreign Secretary and our Chancellor of the Exchequer. They were excoriated at the time for declaring on that day that they intended

“to campaign against British membership of the single currency at the next general election”.

I believe that this caused the brand-new Labour Government of the day to hesitate, and by missing the moment, they spared Britain from a disastrous fate.

Fifteen years on, the documents that we are considering today are a direct consequence of the creation of the euro and, in particular, of the failure to address from the outset some of the inevitable factors. Now, as then, it is imperative that the United Kingdom exercises the independent judgment of a cool head to determine whether the new policies being proposed are consistent with the interests of our own economy.

Let me deal first with the proposals on banking union. The first thing to say is that we and the EU need to tread particularly carefully on matters that affect financial services. The financial services industry, including banking, is not evenly distributed across all member states of the EU. The United Kingdom has a vastly greater strength in the conduct of, and international trade in, financial services than any other member state. Financial services and related areas employ more than 2 million people in this country—two thirds of them outside London—and contribute £1 out of every £8 of Government revenue. That is about £1,000 for every man, woman and child in this country.

We have a £37 billion trade surplus in financial services and Britain accounts for 61% of the whole of the EU’s exports of financial services. Commissioner Barnier said last month:

“It is in our general interest in Europe to have the biggest financial centre in the world. A strong City is good not only for Britain but for Europe.”

That is a welcome recognition. We will never jeopardise an industry of such particular importance to the United Kingdom.

In scrutinising these proposals, we need to have a clear fact in mind. People do not need banking union because they are part of a single market. The appetite for banking union arises solely because of the problems of the single currency. However, although banking union is primarily a matter for members of the eurozone, it strongly engages Britain’s interests in two ways.

[Wayne David (Caerphilly) (Lab)]

Does the Minister honestly believe that the Prime Minister throwing a tantrum, walking out of a Council meeting and claiming that he exercised a veto when he did not is helpful to Britain’s national interests?

[Greg Clark]

I and, I think, the country are pleased that the Prime Minister was prepared to stand up for British interests, and I know that he will always do so. It is certainly not a matter of regret.

I think it is desirable from the point of view of the British economy that, since the eurozone exists, it should be successful, rather than a source of economic weakness. Indeed, as the Governor of the Bank of England has said:

“The biggest risk to the recovery”

in this country

“stems from the difficulties facing the euro area, our main trading partner.”

Secondly, we need to be vigilant to ensure that our access to the single market in banking, now and in the future, is not undermined and jeopardised by the creation of a banking union. That means putting in place safeguards to ensure that the UK cannot be discriminated against in the future in single market decision-making processes.

The Commission’s current proposals are not yet acceptable in that respect. For example, the European Banking Authority—which, as Members know, is the organisation that currently ensures that there is a level playing field for banking within the single market—operates on the basis not of unanimity but of majority voting. The European Central Bank regulation specifies that that the ECB would

“coordinate and express a common position of representatives from competent authorities of the participating Member States in… the EBA”.

That effectively requires participating member states in the euro to caucus in adopting positions and voting in the European Banking Authority.

[Mr James Clappison (Hertsmere) (Con)]

I warmly welcome the approach that my right hon. Friend is taking to the whole issue, and to voting rights in particular. Are not the voting arrangements for the European Banking Authority completely unacceptable to our national interests, as he has described them, in that they will result in a banking authority that is determined by a caucus that has been arranged in advance and in which this country is deprived of its say? The Labour party may think that that is somehow in accordance with our national interests, but it most certainly is not.

[Greg Clark]

My hon. Friend is entirely right. I do not think that we should be shy about insisting on protecting something that is very important to us. The single market in financial services is essential, and the current proposals would compromise it.

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

I, too, welcome my right hon. Friend’s approach, but may I caution him about the double-edged invocation of the single market? We are threatened not just by the voting rights in the European Banking Authority, but by those in the Council of Ministers. It is equally possible that the member states of the eurozone that are in the banking union will caucus in the Council and use a single-market measure to create a single market in banking services to reflect the policy already adopted by the banking union. How are we to be protected from that?

[Greg Clark]

My hon. Friend is right to be alert to those dangers and risks. One of the clear principles on which we have insisted throughout all our negotiations on all the different dossiers is that we will accept nothing that would compromise our ability to participate in the single market.

Let me say a bit more about our stance on the EBA. What is currently proposed would not just require but enable members of the eurozone to caucus and adopt positions, which poses the clear risk that the ECB could dominate EBA decision-making. Given that 17 of the 27 EBA members are in the eurozone, that would constitute a blocking minority on all issues decided by qualified majority voting, and indeed a qualified majority under the new Lisbon rules.

Moreover, such action by the Commission would create an asymmetry of treatment between supervisory bodies. The proposal reflects the legal position that, as an EU institution, the ECB cannot be legally bound by EBA decisions on binding mediation, whereas the Bank of England could be. We have argued since the start of the negotiations that it would be inequitable and unacceptable if the Bank of England could be directed in that way but the ECB could not. We are pleased that our concerns are finally being acknowledged, but the asymmetry must be resolved if there is to be any final agreement.

As is required by both the motion and the amendment tabled by the Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone (Mr Cash), we will certainly use what the amendment describes as our

“best endeavours to ensure that the proposed changes…in the European Banking Authority are not adopted”.

In fact, that is an uncharacteristically mild form of words from my hon. Friend. We will insist that those changes are not adopted, and we will require full protection for the position of the United Kingdom and the other non-eurozone members in the EBA.

[Mr John Baron (Basildon and Billericay) (Con)]

I am very pleased to hear what the Minister is saying, but what concrete guarantees would exist if the Government’s proposals were adopted to ensure that the City of London’s interests could not be adversely affected by qualified majority voting by eurozone members, the ECB or anyone else on the continent? That is the key question that concerns us today.

[Greg Clark]

A number of mechanisms could require that, for example, the requirement for a dual majority. A number of possibilities are being discussed at the moment. What I have set out clearly is a very firm principle that we will not find ourselves in a position where we will be dominated by the ECB. That is what we are taking into the negotiations. We take a firmer view even than we are urged to do by the amendment.

[Mr William Cash (Stone) (Con)]

Does my right hon. Friend not accept that because this is governed by qualified majority voting, even with our best endeavours the reality is that it is not merely likely but it is as certain as we could imagine, given what we hear from the other side of the European Union, that we will be outvoted? To follow on from the remarks made by my hon. Friend the Member for Basildon and Billericay (Mr Baron), what guarantee can the Minister give, in the light of the fact that this is so important for the City of London?

[Greg Clark]

As my hon. Friend knows, the ECB aspect of the regulation requires unanimity, and we regard both aspects of this as reinforcing each other. We have made it plain, as I am doing from the Dispatch Box today, that it is an absolute requirement that we will not be dominated by the ECB. After the Prime Minister goes to the Council he will come back to this House. If he has been able to establish agreement, he will set out what that is, and if not, he will set out why it was not possible.

Let me deal with the second part of my hon. Friend’s amendment, where he draws attention to the need to ensure that the powers of the ECB’s governing council are not delegated to the single supervisory function in a way that is unlawful in terms of the treaties. That is a serious matter. It is vital that the weighty responsibilities that the single supervisory mechanism will discharge are vested in a way that is accepted to be legal. His observation in his amendment that it would ultimately be a matter for the European Court of Justice if there were doubts about the legality of the final arrangements is very constructive and accurate, and I hope that he will accept my assurance that our criteria in evaluating the SSM will be as in his amendment. In other words, they will be: first, that it is lawful—we reserve the right to establish that; secondly, that the integrity of the single market is respected, as I said; and, thirdly, that the UK cannot be discriminated against in the way that is proposed.

[Mr Cash]

Does my right hon. Friend recall that in relation to the fiscal compact our representative at UKRep, Sir Jon Cunliffe, wrote a letter to the Secretary-General of the European Council specifically stating that the UK Government wanted a legal reserve in respect of the illegality of that matter? On this issue, where there is clear evidence from the Council of Ministers’ legal adviser that the matter is regarded as unlawful, will my right hon. Friend guarantee that not only have we received a legal reserve, but, unlike on the previous occasion, we have followed it through with a reference to the European Court? So far, we have got a promise but no completion of it.

[Greg Clark]

I am grateful to my hon. Friend for that. I am not as familiar as he is with what went on in the previous exchange of correspondence, but I can say that it is essential that the arrangements need to be legal. There is no point marching up a hill of banking union if the whole thing falls apart—I mix my metaphors, but he understands what I mean. There are also other matters on which we will need to be satisfied before any of the proposed measures can be adopted.

[Mr Jenkin]

My right hon. Friend made an important point when he said that the British Government would reserve their position on the legality of this new instrument and how it might be used. Will he just expand on that? Would it not be sensible for UKRep to write a letter similar to the one written in the case of the fiscal union treaty, at the very least, in order to make that clear?

[Greg Clark]

I do not think that there is any difference between us on this. It is essential that this arrangement is legally sound. At the moment, the negotiations are continuing and the shape of the regulation is evolving, but the sensible commitment I have given is to make sure not to proceed unless we are satisfied that it is legally robust.

Let me talk about some of the other measures we need to bear in mind. We must make it absolutely clear that both now and in the future there should be no requirement, for example, for clearing houses that handle significant amounts of euro-denominated business to be located geographically in the eurozone, as proposed by the ECB—a proposal against which we have launched legal proceedings. That blatantly undermines the single market and the United Kingdom’s financial services industry. It is a poor indication of the ECB’s attitude if it intends to proceed in such a way. We need to be clear, too, that London is home to more clearing houses than any other EU capital and such proposals are unacceptable.

As the House will see, there is some way to go before the banking union proposals are acceptable to the Government. They will not be agreed by the United Kingdom unless and until we are satisfied that the UK’s position in the single market has been secured.

Let me turn briefly to the document known as the four presidents’ report, which was published on 12 October. It is an interim report that gives a general overview of the measures that the euro area member states might want to consider taking to improve the functioning of the euro. At this stage, there is little detail in the report apart from in the area of banking union and a great deal more discussion will be needed before there is agreement even on which issues should be explored further. The House will have a particular interest, however, in the discussion about democratic legitimacy and accountability.

I emphasise again that although the UK will not be part of the arrangements, it seems to me to be important that when significant decisions are being taken at the eurozone level about national matters, national Parliaments should be able to scrutinise those decisions, just as the Bank of England, the UK regulatory authorities and not least Ministers are accountable to this House and the House of Lords.

[Wayne David]

I welcome what the Minister has just said, but does he accept that in much of the documentation we are discussing, as the European Scrutiny Committee has pointed out, preference is given to the European Parliament rather than national Parliaments as regards accountability?

[Greg Clark]

Indeed it is. The point I am making very clearly—perhaps not clearly enough—is that I think there should be a greater role for national Parliaments.

The Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone, was characteristically eagle-eyed and meticulous in his regard for independence when he baulked at the line in my explanatory memorandum that stated that

“there should be further consideration of how we can use national parliaments to enhance legitimacy and oversight.”

He is absolutely right that “use” is not the mot juste and instead I should have said that the authority of national Parliaments should be respected. It was the very independence and rigour of his and the Committee’s scrutiny that I was commending, and anyone who labours under the misapprehension that his Committee can be used does not know him or his colleagues. I will be more exact in future.

When the document was considered in the October Council, the Prime Minister secured an explicit commitment that the final report and road map in December must include concrete proposals to ensure that the single market’s integrity is respected. I look forward to this afternoon’s debate and tell all hon. Members who will participate that their guidance and advice will be taken seriously by the Government as the detailed negotiations on all these matters proceed in Brussels and across capitals in Europe over the weeks and months ahead.

[Several hon. Members]

rose—