Banking Union and Economic and Monetary Union

John Baron Excerpts

Tuesday 6th November 2012 Commons Chamber

[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.

--- Later in debate ---

[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.

[Mr Baron]

What does the hon. Gentleman understand our guarantees to be to ensure that City interests are not adversely affected by QMV if the regulations go through unamended?

[Chris Leslie]

As I shall come to, we should seek such key guarantees. I do not think that there is a sufficiency under the proposals on the table. As I said, I am sympathetic to the Government’s situation. However, there is a crucial difference between the Opposition and the Government. We believe that it is really important that we stay in the room somehow so that our voice continues to be heard and we can shape and mould supervisory rules, given the importance of financial services to our economy. How can we continue to be involved while not being at risk of being overridden by the 17 eurozone members? That is the conundrum with which we are trying to grapple, and it is shaping up to be a test case in the two-speed Europe debate.

--- Later in debate ---

[Mr Cash]

That is precisely right. It was never intended when we voted—and I voted at the time, with a reservation about the sovereignty of the United Kingdom Parliament, which I was not allowed to debate—that we would be in this very position. That was in 1986 when I voted for the measure, but it was with that reservation.

To complete my point, where the comments from the City say “clarified”, I would say changed. We must change the rules, not merely clarify them, but we cannot do so because of QMV. That is the problem and it comes from the Single European Act.

[Mr Baron]

Will my hon. Friend give way?

[Mr Cash]

Just once more.

[Mr Baron]

Does my hon. Friend agree that the Government’s defence that QMV cannot be extended to decisions regarding the City cannot be right, and their defence of the idea that the ECB cannot override non-eurozone members is at least highly questionable when it comes to the legal situation that my hon. Friend is highlighting, and that therefore there is a distinct danger?

[Mr Cash]

I would go further and say that the Council’s legal adviser knows exactly what the position is, as do the whole European Union and our own Government. The opinion is out there; I have read it and it is crystal clear. The reality is that there is absolutely no question about it.

I have great sympathy for the Minister and pay tribute to him. I will not go into the details, but it was because of him that we got the documents in the first place. He is a man of great integrity, and I think that he is in a very difficult position tonight, stuck between a rock and a hard place. I have to say that I do not believe that what he has told us really gives us the necessary guarantees and satisfaction. This is not about what we think, or about grandstanding or being difficult for its own sake; as he said at the beginning, this is in many respects—I would not say entirely—on a par with the matters on which we rebelled last week. We do not want to have to do this, but it is a matter of fact that we face this situation.

I have another commentary from City analysts stating that the concern is that the UK could

“still lose the ability to prevent a decision from being taken by the EBA to intervene in a UK bank directly under the EBA’s binding mediation powers.”

They make a similar point about the need for amendments to the treaties. The truth is that it would not be right for Members of Parliament not to register their votes against these proposals in the hope—like Mr Micawber—that something would turn up, because I am afraid that what this amounts to is complicity by our own House and our Government in the violation by the EU of its own laws and the avoiding of amending the treaties for reasons of mere expediency. Even if the EU does come up with something, I believe that it will be merely a fix to avoid revealing its real intentions and, of course, the real results, which will cause so much harm to the UK and the City of London. I blame the Labour party for much of this, as I warned of it several years ago.

The so-called remorseless logic of advocating a banking union is more of a remorseless shift away from our own national interests while the banking union moves the eurozone into an ever deeper and blacker hole with money, either invented or printed, pouring into it. That is a recipe for economic disaster.

--- Later in debate ---

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

Like many other Members, particularly on the Government Benches, I have a healthy respect for the Ministers sitting on the Front Bench this evening—the Financial Secretary to the Treasury, my right hon. Friend the Member for Tunbridge Wells (Greg Clark) and the Minister for Europe, my right hon. Friend the Member for Aylesbury (Mr Lidington)—but I believe that they are trying to defend the indefensible. I find it hard to understand how a Government who are prepared to use the veto, and who have used it in defence of City interests, can be prepared, by passing these regulations unamended, to enter negotiations without being able to assure the House that cast-iron guarantees are in place to ensure that qualified majority voting will not be allowed adversely to affect the City.

I have asked the Minister at the Dispatch Box where those concrete guarantees are. Unfortunately, I have not heard anything to convince me that they actually exist. The idea that the European Central Bank would not be allowed to overrule or override non-members of the eurozone is, I am afraid, not a strong enough guarantee. I do not see where that stands up, particularly given that the legal opinion that has been sought and confirmed brings that sort of red line very much into dispute. There is no guarantee there at all. I very much look forward to hearing what the Minister has to say about what other concrete guarantees exist in defence of the City. Going into negotiations or allowing these regulations to pass without a clear idea of what the guarantees are could, I suggest, turn out to be a fool’s errand.

We all know how the eurozone has got into this mess. The eurozone went for monetary union, courtesy of the single currency, but we all know that there cannot be monetary union without fiscal union, so now it is playing catch-up. Easy credit and easy money have led to Governments borrowing too much, and the eurozone is trying to sort out this mess.

I have to say to the Minister, if he is listening, that having just returned from Germany with the Foreign Affairs Committee and having asked about the possible solution, I know that fiscal union or fiscal compact is definitely on the table—despite the fact that most members of the fiscal compact that is coming into effect next year have already broken the parameters of the financial limits set. The universal answer, whether one spoke to politicians of the left or the right or to trade unions, businesses or lobby groups, was more integration and more political union in order to make the fiscal compact work. We are on a collision course with the proposals that are now coming out of the eurozone.

My suggestion is that that is fine: let the eurozone members get on with it; we wish them well in their endeavour. I doubt whether it will succeed, because the economics do not stand up and time does not allow any further exploration. Let them proceed, but my concern as they do proceed along that journey is what damage they will do to our interests. My deep concern is that, if we are not careful, we are going to walk into negotiations without having the ability to call upon cast-iron guarantees if they are needed, and that our interests will be adversely affected as a result.

We all accept that in this country we perhaps need to rebalance the economy somewhat and to get manufacturing up. We cannot, however, ignore the importance of the City to our economy. We have been prepared to use the veto in the past, and it makes no sense for the Government’s proposals to proceed without those cast-iron guarantees in place. There is little doubt that if we enter into negotiations without those safeguards in place, we will stand a real risk of allowing others adversely to affect the City’s interests and, in the end, our prosperity as well.

I look to hear from the Minister what those concrete guarantees are. If, as I believe, they are not forthcoming, I will have no hesitation, having put my name to the amendment of my hon. Friend the Member for Stone (Mr Cash), in supporting him in the Lobby—[Interruption.]

[Mr Deputy Speaker (Mr Nigel Evans)]

I am grateful to the Minister for agreeing to cut back his winding-up speech to just five minutes so that every Back Bencher who wanted to could participate in the debate.