Banking Union and Economic and Monetary Union

Jacob Rees-Mogg Excerpts

Tuesday 6th November 2012 Commons Chamber

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

No pressure there, then, Mr Deputy Speaker.

I have a lot of sympathy with the Minister today. Let us hope that he is a little luckier than he was last Wednesday, although of course the curse of Tunbridge Wells will have its way. In a way, as he explained, banking union is a natural downstream consequence of monetary union. It would be wrong to resist it for the eurozone, as the eurozone crisis has exposed a series of risks to economic stability, not least of which is the relationship between sovereign debt and banking debt and the need to find credible ways to prevent private banking losses from dragging down sovereign fiscal positions. The UK has its own banking union and our monetary policy sovereignty has given us a measure of protection during the sovereign and bank debt crises that have engulfed the eurozone.

I thought the Minister was perhaps labouring under the impression that his plucky Members of Parliament kept us out of the euro between 1997 and 2010—that is too funny, as of course that was the decision of the previous Labour Administration. It was the right decision.

[Jacob Rees-Mogg (North East Somerset) (Con)]

rose—

[Chris Leslie]

I will not give way yet, as I am conscious of the time.

We were right, too, to bail out the banks in 2008, but that came at a high cost for the taxpayer and for the country’s economic prospects. UK public debt was adversely affected by the purchase of banking assets and the subsequent loss of revenues from financial services. These issues are now affecting countries around the world, especially in the EU. Monetary policy sovereignty has allowed the UK to adopt an active interest rate policy to counteract those economic headwinds—something less available to those in the eurozone.

To save the euro, the eurozone has looked at new rules to grip the fiscal policies of its member states. Fiscal union in the EU is now widely recognised as dependent on banking union. Germany initially insisted on that, and it has asked that the single supervisory mechanism—the eurozone nation state regulators and Governments—be completed before banks can access the European stability mechanism and the European Central Bank’s outright monetary transactions programme, hence the imperative to agree these matters. In recent weeks, however, Germany is rumoured to have lost some enthusiasm for that tougher banking union and its consequences, especially as some of its smaller banks face major regulatory upheaval.

It is right that the ECB’s role in supervisory policy should be triggered, by unanimity if necessary, as required in the Maastricht treaty. Central banks are increasingly in the driving seat in financial regulation, as is the case in the UK, and it is necessary for the ECB to have a clear capability in its role overseeing the operation of the eurozone. The ECB is a full treaty institution, and it must be governed by treaty rules and member state unanimity, as we heard from the Minister. In that process, the rights of non-eurozone members, particularly the UK, must be safeguarded in several ways. We should not be party to any deposit guarantee mechanisms or pre-fund recovery or resolution mechanisms. The UK has undertaken its own measures in that respect, and there are no proposals on the table that would affect our taxpayers directly.

The rules for the single market, including a single rule book for the financial services sector in the EU, should involve all 27 member states. The European Banking Authority—as well as other European supervisory authorities—is the vehicle for preserving the integrity of the single market. The Commission says in its documentation that

“it is proposed that voting arrangements within the EBA should be adapted to ensure EBA decision-making structures continue to be balanced and effective and preserve fully the integrity of the Single Market”.

That is absolutely crucial, but we need far more details about how that will work. The 17 eurozone countries will act en bloc through the ECB in their seats on the EBA, which could represent a permanent majority on all issues, as the Minister explained. The EBA has rule-making powers under qualified majority voting decisions, it mediates between supervisory institutions, and it shares supervisory best practice. There is a real risk of the ECB bloc acting as a permanent caucus to overrule the 10 non-eurozone nation states.

--- Later in debate ---

[Chris Leslie]

I do not want to get too much into the history of these things. We could go back to the Maastricht treaty, the formation of the eurozone and the inexorable logic of how we have got to where we are today. All I know is that it is important that we try our best and redouble our efforts to ensure that we have a negotiating strategy that secures the best deal possible for the UK.

[Jacob Rees-Mogg]

Will the hon. Gentleman give way?

[Chris Leslie]

I should like to make a little progress if I may.

I know that hon. Members will say, “How can we manage to secure these particular arrangements? What should our stratagem be?” Government Members will recall Lady Thatcher’s invocation of the Luxembourg compromise—a quiz question for hon. Members who recall that device. It has not been in use in recent times, but it was a way, in certain circumstances for qualified majority voting arrangements, to ensure that there was a capability of promoting vital national interest. There was at one point a recognised device for ensuring that one could stay in the room. If vital national interests were affected, then certain levels of protection were possible. I do not in any way deny that that is a difficult position, but that is the sort of scale of proposition that the Government should be more actively asserting. The Government need to negotiate a clearer and more distinct set of rules that protect our status outside the eurozone while ensuring that we have an ongoing role in how new rules develop across the whole EU. In our view, that must be the Prime Minister’s negotiating objective.

We have other concerns and questions about the SSM. How can it connect with the wider public and be subject to democratic accountability? That is an important point, because the bodies at the heart of the SSM will need to be more transparent. I am not clear whether they will publish their minutes in the same way as the Bank of England or the Federal Reserve, but we need to start addressing some of those transparency questions. Furthermore, what will be the relationship between the ECB’s monetary policy stance and its approach to decisions on financial supervision?

The composition of the SSM is complex and lines of accountability are extremely confused. For example, the European Central Bank is a superior treaty institution, yet the EBA will in theory sit on a junior institution. It is extremely difficult to see lines of accountability and how the legal issues raised in the amendment will be resolved. What will happen in the intervening months and potentially years before this complex constitutional wiring is settled? What if new market pressures force banking crises that require the stability mechanism or outright monetary transactions to be triggered, and what if there is no SSM in place?

How do we prevent City of London institutions and firms, which contribute about one sixth of Britain’s GDP, from changing their opinion about London in the long run as the right place to locate, when there is a risk that we will be marginalised in the decision-making forum for EU banking rules? They will worry about the prospects of operating under a different set of rules from those on the continent. Our vital national and economic interests are at stake, so we need to ensure that we keep involved, do not get pushed out and avoid being marginalised, while of course reserving our rights.

--- Later in debate ---

[Mr Clappison]

The proposals are here in black and white. I hope very much that the hon. Gentleman will join us in supporting the Government to take every measure, up to and including a veto if necessary, to preserve our position and to stand up for our interests in the European Banking Authority. We simply cannot have a sham.

It is no use pretending that by talking nicely, going into the room, being at the top table and all the rest of it is going to be the solution. We have heard those warm sentiments so many times in the past. We are discussing a matter of negotiation to protect our interests, and we have to be prepared to take decisions that are unpalatable.

[Jacob Rees-Mogg]

Further to the point made by our hon. Friend the Member for Cheltenham (Martin Horwood), is it not the case that every member state of the European Union, with the exception of the United Kingdom and Denmark, is obliged to join the euro at some stage? When 25 out of 27 EU members are members of the euro, they will have a majority whatever voting system is cooked up.

[Mr Clappison]

My hon. Friend pre-empts my next point. I am drawing attention to the voting arrangements laid down as a matter of European law in a regulation that gives the eurozone the whip hand, as matters stand. But of course he is absolutely right that other non-members of the eurozone have the ambition to join the euro and that, along with Denmark, we do not have to join it as a result of the opt-out.

As my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) said, even without the legal obligations we could expect members of the eurozone to cohere together to be a majority, and we can see that it will be a growing majority.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

I have a feeling that Christmas has come particularly early this year, because I had the opportunity to speak in a European debate just three hours ago, and to speak twice on Europe in one day is almost as joyful as 25 December.

The Government have a problem and I am sympathetic to them. The report of the European Scrutiny Committee—its Chairman, my hon. Friend the Member for Stone (Mr Cash), spoke brilliantly, as always, and has tabled a sensible amendment—shows that the Government’s problem is that, of the two decisions that they face, the one that they support requires unanimity and the one that they oppose will be decided by qualified majority voting. I have quite an easy solution for them— I think they are looking for a solution—namely that they should use the threat of not supporting what they support to get leverage on the decision that they do not support. As we have heard from the Minister, there is widespread agreement across the House on the things that the Government do not support and on concerns about the European Banking Authority, particularly on voting and caucusing in the voting, and the nature of the European Central Bank, as against other central banks, in relation to the European Banking Authority.

When it comes to caucusing, getting a particular voting arrangement in the European Banking Authority will be no good at all. It will be a temporary palliative, because unless a voting system is devised that gives the UK a permanent veto, which personally I would be all in favour of, but which seems unlikely, then as soon as other member states begin to join the euro—which they are under a treaty obligation to do, with the exception of the United Kingdom and Denmark, as I said earlier— the non-euro member states will be easily outvoted. Therefore, we need to look, with the veto we have got, at the whole system of financial regulation and how it affects the United Kingdom. I understand that total renegotiation of the treaties is not currently being considered. I appreciate that in a coalition with the Liberal Democrats—which includes my hon. Friend the Member for Cheltenham (Martin Horwood), who loves the European Union and everything that comes from it—it is difficult to get a renegotiation that would satisfy Conservatives.

[Martin Horwood]

Just to put the record straight for the benefit of Hansard, I do not love everything that comes out of the European Union. I simply regard it as another level of authority with which we must negotiate gently and carefully, rather than necessarily taking the rather Gaullist approach that the hon. Gentleman and his colleagues are taking today.

[Jacob Rees-Mogg]

I am enormously grateful to my hon. Friend, who gives me an extra minute every time.

This is an important and good opportunity for the Government to get back powers that should never have been given away. It was a great folly to give away financial regulation to the power of the European Union, because as my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) so wisely said, we have much more financial services in this country—I think she gave the figure of 36% for wholesale financial markets in the whole of the European Union that are in the UK. Therefore, we ought to regulate our own affairs and we ought not have delegated that to the European Union. We need to be careful about what is being proposed when it comes to the regulation of what are substantial international banks based in the United Kingdom in their business—which may be subsidiary business—with eurozone countries, because there is obviously a risk that they will find themselves under the auspices of a European regulator when they ought more appropriately to be under the auspices of a British regulator.

I think the Government’s position is quite strong, and I think the amendment is extremely sensible. It is interesting that we learn only through the Financial Times that the proposals that have come forth from the Commission are illegal. We do not learn it from the Government or the Commission; we learn it from an underhand leak, which comes via a newspaper to inform our debates, which is a pity. It would be nice if we could get such information directly to a sovereign Parliament, so that we knew what was or was not legal. Perhaps the Government will consider releasing the legal advice that will guide them—or perhaps ought to guide them—in their approach to this debate.

I would encourage the Government to accept the amendment tabled by my hon. Friend the Member for Stone. I listened very carefully to the Minister—I always do: he is a great Minister, who is much admired on this side of the House, and I imagine in other parts too. There was nothing he said which in essence contradicted my hon. Friend’s amendment, so I ended up thinking that what we were really debating was which way up an egg should be eaten—whether it should be the big side or the little side up. We are united as egg eaters in this context, and we think it would be “egg-cellent”—if I may carry on with this theme—to support my hon. Friend’s amendment, to which I was pleased to add my name, because it provides us with a solution in our negotiations in Europe and a clear way forward.

[Several hon. Members]

rose—