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

John Baron Excerpts

Monday 10th September 2012 Commons Chamber

[Mr Lidington]

I am grateful to my hon. Friend for that clarification.

Clause 1(3) fulfils the requirements of the European Union Act 2011 relating to the referendum lock. It demonstrates compliance with the condition in that Act that exempts the approval of certain European Council decisions from the requirement to hold a referendum. Section 3(1) provides that a Minister may not confirm the approval of a decision made under article 48(6) of the treaty on European Union unless three requirements have been met: first, that a statement has been laid under section 5 of the Act; secondly, that the decision has been approved by Act of Parliament; and thirdly, that the referendum condition, the exemption condition or the significance condition has been met.

The 2011 Act provides that a decision under article 48(6) is not subject to a referendum if its provisions apply only to member states other than the United Kingdom, and that is the case here. The decision amending article 136 applies only to member states whose currency is the euro, and therefore not to the United Kingdom. It therefore falls within the exemption provided for in section 4(4)(b) of the Act. My right hon. Friend the Foreign Secretary laid a statement before Parliament under section 5 on 13 October 2011 stating that in his opinion the decision amending article 136 fell within the exemption in section 4(4)(b) and therefore did not attract a referendum. To comply fully with the exemption condition, the Bill includes the provision in clause 1(3) stating that the decision does not fall within section 4 of the 2011 Act. I commend the clause to the Committee.

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

I stand briefly to question my right hon. Friend the Minister—I, too, welcome him back to his post—on whether he believes that the European stability mechanism risks prolonging the agony of the eurozone crisis. Although we are not members of the ESM, is it drawing us in yet further and adversely affecting us as a result? The eurozone crisis was caused by excessive debt—that is well established; it was Governments borrowing beyond their means. Being built on debt, we all accept that we cannot borrow our way out of this problem and crisis, yet numerous summits have basically moved debt around the system and between banks or Governments and, quite rightly, the markets are getting tired of that.

I suggest to the Minister that the best solution to the problem is economic growth, and to grow our way out of the problem for the sake of all eurozone countries and the EU as a whole. Where are the measures to encourage greater competitiveness? Where are the supply-side reforms? They are simply not there. I therefore put it to the Minister that he should consider whether the ESM prolongs the agony and delays the inevitable, and whether our interests, as such, are being adversely affected by the position we are taking on this treaty change.

[Mr MacShane]

If I may, I will try to speak to the clause. I might make other comments on Third Reading, but I hope not to detain us long. What is extraordinary about this clause is its sheer impertinence. Our Eurosceptic friends in the Conservative party are for ever telling us that we do not want Europe interfering in our affairs. The proposed legislation, however, says that we should wait until every other national Parliament has made up its mind—

“laid an order certifying that the constitutional requirements of all the members states of the EU have been complied with.”

What business or right is it of this Committee to demand that the constitutional requirements of every other sovereign nation state be met before we make up our minds, and until

“all the related and legal challenges have been disposed of”?

Let us imagine each of the other 26 fellow EU member states adopting the same clause and waiting for their Parliament to ratify the ESM treaty and all legal challenges to be completed.

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[Mr Baron]

I rise to support my hon. Friend the Member for Hertsmere (Mr Clappison), and to question my right hon. Friend the Minister for Europe on a number of what I consider to be design flaws in the ESM.

First, although £500 billion in lending capacity sounds like a big figure—and it is—it would be a drop in the ocean should an economy the size of Italy need help. That is especially the case as the ESM’s mandate will be broader than was initially envisaged. In fact, it could be argued that the perception that the eurozone rescue funds could run out of money could drive borrowing costs higher for the Italian and Spanish Governments and raise the likelihood of such an outcome.

Another design flaw, and perhaps a more fundamental one, concerns the circularity of having the facility guaranteed by the same group of countries that might need to draw on it. What will happen if one of those countries needs to draw on it? The burden on the remaining countries will increase, thereby increasing the likelihood that they, too, will face a debt crisis. That is another potential flaw that I wonder whether the Minister has considered.

A further flaw is the reliance of the ESM on the creditworthiness of all its guarantors. The triple A credit rating that it aims to achieve, and hence the low borrowing costs, hinge on a sufficiently large number of eurozone countries maintaining their credit ratings. We have seen in the past the effects of ratings downgrades, such as in January 2012 when Standard and Poor’s downgraded nine eurozone countries, including France. That was followed by a downgrading of the European financial stability facility only four days later. Has the Minister considered those potential but fundamental flaws in the design of the ESM?

Finally, I put it to the Minister that the ESM would not exist if were it not for the political will to maintain the euro. It is quite obvious to many, and certainly to many eurozone leaders, that one cannot have monetary union without fiscal union and, in large part, one cannot have fiscal union without political union. As many of us on the Conservative Benches and, to be fair, some on the Opposition Benches, have long argued, the euro endeavour is a political initiative to move towards closer political union, and the chickens have finally come home to roost.

If the politicians were not interfering so much, we would have something similar to the Asian debt crisis at the end of the 1990s. For a short period, that was a pretty bloody affair, but as nations’ sovereign debt was allowed to be reneged on, as countries defaulted and as currencies were allowed to depreciate, there was a rapid bounce back in economic growth. GDP was higher two to three years after the start of the crisis than it was at the beginning, because market forces kicked in, currencies devalued and growth rates picked up because of the greater competitiveness. The Asian crisis moved on and the countries involved are in a much better state than at that time, because their currencies were allowed to depreciate.

What do we have? We have a system by which countries are locked into a single currency and cannot devalue, which prolongs the agony. What Greece needs now, desperately, is to devalue its currency so that it can become more competitive and can grow its way out of its problems. Holidays for British tourists, for example, would be 25% cheaper with a 25% devaluation, which would help the economy. The goods that Greece manufactures would be 25% cheaper, which would help it to export its way out of its problems. However, the euro is sealing its fate in many respects, and prolonging the agony. My concern is that the ESM is part and parcel of the package to preserve the euro and prolong that agony.

[Kelvin Hopkins]

To return to the hon. Gentleman’s earlier point about the Asian crisis, the Asian countries were strongly advised by the International Monetary Fund not to do what they did in the end. They ignored the IMF, did what they thought was right—rightly—and of course they recovered, as he said.

[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.

[Neil Carmichael (Stroud) (Con)]

I want to develop that point, because it seems to me that Greece has effectively decided to stay in the euro—the Government are committed to that—so exactly what business do we have trying to tell the Greeks how to run their economy, especially since we are not in the euro?

[Mr Baron]

One is not trying to tell them how to run their economy at all. I am afraid that my hon. Friend was obviously not listening. What one is suggesting is that the experience of past cases illustrates the merits of devaluation. Since the second world war there have been about 40 occasions when currency blocs have broken up, and in the vast majority of cases—I struggle to think of an exception—the countries that left currency blocs benefited. Their growth rates picked up because they became more competitive, their currencies devalued and, most importantly, their peoples benefited. If my hon. Friend can think of one exception to that general rule, I would be delighted to hear it, because I cannot think of one. In summary, I believe—

[Neil Carmichael]

rose—

[Mr Baron]

If my hon. Friend does not mind, I am about to finish. Interruption.] All right, I will give way, if he can think of an exception.

[Neil Carmichael]

I was casting my mind back to 1967, when the Labour Government devalued the currency, but can see no evidence at all that the decision brought about any improvement. In fact, it was followed by the creation of the Department of Employment and Productivity, and by 1970 that was an unmitigated disaster.

[Mr Baron]

rose—

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

Order. We are going a little wide of amendment 1.

[Mr Baron]

I take your point, Mr Evans. My hon. Friend was clearly not listening, because I was talking about currency blocs, and to the best of my knowledge we were not a member of a currency bloc in 1967. However—I throw this back at him—I do not for one moment believe that he is arguing that our exit from the exchange rate mechanism in 1992 did this country any harm at all. In fact, our economic recovery kicked in, almost to the day, because we left what was in effect a currency bloc.

In summary, I fully endorse the comments made by my hon. Friend the Member for Hertsmere. We should delay the introduction of the ESM. There are too many questions that need answering. I would very much welcome some clarity on the points that I have raised, particularly about the design flaws in the ESM. I would also ask the Minister for Europe to address the fundamental point: why the Government continue to believe that by joining in the political mantra that we need to save the euro, we are doing our eurozone partners any favours. I would point out to him that all the economic evidence suggests that by sticking to that mantra, and indeed by implementing the policy, we are prolonging the agony and delaying the inevitable.

[Wayne David]

I profoundly disagree with the previous contribution. I am no fan of the Government, but it is simply sensible for the Bill to be agreed and the amendment to be defeated, because it is sensible for us to introduce the European stability mechanism as quickly as is practicable. That is in Europe’s interests, but more importantly it is in the United Kingdom’s best interests. I say that for one simple but important reason: about 40% of the United Kingdom’s trade is with our eurozone partners, so it is in our best interests for stability and eventually prosperity to be achieved and maintained inside the eurozone.

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[Mr Lidington]

The legal position is that yes, that is possible, and it would be by qualified majority voting. That flows from the decision taken on the final day of the last Government’s time in office. It may be some reassurance to my hon. Friend, though, if I say that the EFSM has tended not to feature in the discussions over the past year. The discussion has been very much about the EFSF, which can draw on a much larger sum and can therefore command much more credibility with the markets.

I say to those of my hon. Friends, and Opposition Members, who have been extremely critical of the European Union, that I have found that there is an understanding in other member states, whether among Heads of Government, Finance Ministers or Europe Ministers, that the EFSM is a sensitive and delicate subject for the United Kingdom and particularly for the House. I do not get the impression that our European Union colleagues want to push us into a corner for the sake of it. What they hope for, and reasonably so, is our co-operation, not in sacrificing our vital interests but in helping them solve the existential financial and economic crisis that the single currency area faces.

[Mr Baron]

My right hon. Friend rightly referred to the fact that the ESM is much larger than its predecessor. Will he therefore address the questions that I put to him about the weakness of the fundamental design of the ESM? By agreeing to it, we are signing up to a system that has many flaws. Does he recognise those flaws, and if not, why not?

[Mr Lidington]

I think my hon. Friend is trying to draw me into writing my own blueprint for a permanent European stability mechanism. I will not be tempted on this occasion, because it would be pretty extraordinary if British Ministers were to start laying down the law in public about the design and scope of a mechanism to which we have chosen not to be a party and into which we do not propose to put a penny of our taxpayers’ money. We should not give such lectures to countries that have decided to put their taxpayers’ money on the line, because they will have to deal with any political reaction among their own electorates. As a democratic House, we need in this instance to respect the sovereign, democratic decisions of the eurozone member states.