Euro Area

John Redwood Excerpts

Tuesday 21st July 2015 Westminster Hall

[John Redwood (Wokingham) (Con)]

I beg to move,

That this House has considered the UK’s relations with the Euro area and further Euro integration.

I am grateful to have secured this debate, because it is time that our Parliament discussed the big moves under way on the continent of Europe, which take the form of a major policy statement by the five presidents of the European Union on how they wish to make rapid progress to a more comprehensive union, including a political union. The document is a well-kept secret. It has been on the European Union website since the end of June. I have raised it a couple of times in the House and in interviews, but for some reason the British media do not seem to have realised that there is this radical prospectus, which is now official European Union policy, written and endorsed by the five presidents.

Some people in the United Kingdom will not have quite caught up with the idea that there are five presidents, but they are: the president of the European Council, who is the senior minister representing the member states’ ministerial teams; the president of the European Parliament, who represents the elected MEPs; the probably better known President of the Commission, who is Mr Juncker for the time being; the president of the European Central Bank, Mario Draghi, who is a bit better known thanks to the comings and goings over the Greek banking system and the Greek state debt problem; and the president of the Eurogroup, who is a little better known on British television screens because he has from time to time had to do the crisis response when we have had another difficult day in the relationships between Greece and the rest of the eurozone.

Those five very powerful men represent all the branches of the European Union. It is tempting to think that only three of the five presidents apply to the United Kingdom, because the UK, by common consent across the parties, is not a member of the euro and is therefore in a more independent position than EU member states that are members of the eurozone. The United Kingdom is a very small shareholder in the European Central Bank and has a non-paid-up, rather bigger shareholding ominously sitting there. Clearly the United Kingdom does not attend the Eurogroup meetings—it is right that we do not—but we have seen in the case of Greece that the Eurogroup cannot always deal with its financial problems. The European group of Ministers wished the UK to give consent to an emergency loan to Greece from outside the Eurogroup.

The problems that have emerged with Greece give the United Kingdom an important warning, as well as a sign that this period of change in the European Union gives us an opportunity. I hope our Prime Minister will utilise it to the full, both for the benefit of a happier United Kingdom in its relationships with the rest of the European Union and for the sake of the Eurogroup, which has its own need to drive further towards common financing and common decision making.

My first wish is that Her Majesty’s Government not be taken on a wild ride to political union. Some people in the proto-debate on what our relationship with the European Union should be seem to claim that staying in the European Union as it is currently constituted is a tolerable status quo that we need not worry about, because we know what it is like. However, there is nothing stable about it and no status quo. This is a wild ride to political union. The euro has been living through an intense and tragic crisis, which has highlighted to the custodians of the euro the need to go much further and faster in the direction of completing the creation of a comprehensive union that will look much like a federal state.

[Richard Drax (South Dorset) (Con)]

I congratulate my right hon. Friend on securing this wonderful debate. His speech highlights to me and many others just what a disaster the eurozone is. On that issue and the plight of Greece, does he agree that the more the disaster unfurls, the more the eurozone tries to patch things together? Now, we have news of a eurozone parliament. That is exactly the sort of thing that my right hon. Friend is warning about.

[John Redwood]

Indeed. After I secured the debate, no less a figure than the President of the French Republic made an important speech saying that the recommendations of the five presidents of the European Union do not go far enough. I thought theirs was a blockbuster recipe for pretty comprehensive union, but the President of France has said that he would like them to go further and faster. He would like to supplant the current European Parliament, or put alongside it a euro area parliament, to provide some democratic accountability to the increasingly large and important decisions that the Eurogroup makes.

[Sir William Cash (Stone) (Con)]

Will my right hon. Friend also note that, according to the press release I have here, President Hollande said that the eurozone needed a specific budget as well as its own government and parliament? In other words, they are going for political union or bust in the eurozone.

[John Redwood]

My hon. Friend is exactly right. The President of France has gone even further than the five presidents. I will briefly highlight what is in the rather lengthy and important report, because it has escaped most comment and attention in the United Kingdom. The five presidents say:

“For all economies to be permanently better off inside the euro area, they also need to be able to share the impact of shocks through risk-sharing within the EMU. In the short term, this risk-sharing can be achieved through integrated financial and capital markets”.

That is pretty comprehensive union, which they call “private risk-sharing”. Those markets would be

“combined with the necessary common backstops, i.e. a last-resort financial safety net”—

presumably that is public finance. They continue:

“In the medium term, as economic structures converge…public risk-sharing should be enhanced through a mechanism of fiscal stabilisation for the euro area as a whole.”

That is rather wordy and slightly opaque, but I think the meaning is clear. The five presidents have recognised that to have a successful single currency, taxpayer money needs to be standing behind the financial institutions—the banks and others—and the states involved in that financial union. That is exactly the issue that the tragedy of Greece has highlighted.

Euro banknotes have no symbols of French or German taxpayers in the way that our banknotes have the Queen as a representation of the full power of the sovereign in Parliament and the revenues going into the Treasury. Euro banknotes do not have that, for the good reason that the symbols could not be agreed and there was a bit of reluctance to put the full power of taxpayers behind the banknote. They have a misleading symbol on them: the European Union flag. One has to ask why that is, when the United Kingdom—the largest country in the “outs”—has made clear that we have no wish to put any taxpayer money or finance behind the euro, because it is not our project and we are not part of it. That illustrates a much bigger problem that the eurozone is grappling with: who stands behind its banks? Who stands behind the member states when they get into financial difficulties? That problem has come out in the Greek struggle.

The five presidents go on to say:

“Progress must happen on four fronts: first, towards a genuine Economic Union…Second, towards a Financial Union that guarantees the integrity of our currency across the Monetary Union and increases risk-sharing…This means completing the Banking Union and accelerating the Capital Markets Union. Third, towards a Fiscal Union that delivers both fiscal sustainability and fiscal stabilisation”—

that means sharing tax revenues, basically—and

“finally, towards a Political Union that provides the foundation for all of the above through genuine democratic accountability”.

They go on to say that there will have to be a lot more common decision making or shared sovereignty, although I would call that the gift of sovereignty to a higher body. They say that

“this would require Member States to accept increasingly joint decision-making on elements of their respective national budgets and economic policies. Upon completion of a successful process of economic convergence and financial integration, this would pave the way for some degree of public risk sharing”—

that is, countries using other people’s taxes to sort out their own problems—

“which would at the same time have to be accompanied by stronger democratic participation”.

[Sir Gerald Howarth (Aldershot) (Con)]

My right hon. Friend is making some incredibly important points. Would what he just quoted not be more accurately described as the “United States of Europe”?

[John Redwood]

I hope that it would be the United States of Euroland, but my hon. Friend is right. I hope that the Minister will say that we will not be part of it and that a plan exists to negotiate a new relationship for the United Kingdom. We will clearly need such a relationship, because no party in this House wants the UK to risk-share on that basis, putting in British taxpayer money to help Greece, Portugal or whoever is in trouble due to the euro.

The five presidents want a euro area system of competitiveness authorities that will try and create commonality of policy and outturn across the Union. They claim to have largely achieved the goal of bank supervision with the setting up of the single supervisory mechanism, but the single resolution mechanism is not fully implemented, and they want to complete a financial union, launching a common deposit insurance scheme and a full capital markets union. They want to get on with those immediately and not await treaty change, which they will need for some of their other proposals.

The five presidents ultimately want a single European capital markets supervisor, which would have great implications for the City of London and the conduct of our markets and our regulatory system were we to take part. They say that

“regulation creates incentives to risk-pooling and risk-sharing and ensures that all financial institutions have sufficient risk management structures in place and remain prudentially sound.”

Even more importantly, they go on to say, referring to the capital markets union:

“Taxation can also play an important role in terms of providing a neutral treatment for different but comparable activities and investments across jurisdictions.”

Will the United Kingdom be able to opt out of this capital markets union? If we sign up to it, does that mean that we would have to accept common European taxation on this rather important business interest for the UK?

Last, but by no means least, the report contains a heading referring to a euro-area treasury, under which it states:

“The Stability and Growth Pact remains the anchor for fiscal stability and confidence in the respect of our fiscal rules. In addition, a genuine Fiscal Union will require more joint decision-making on fiscal policy”—

in other words, a euro-area treasury.

[Sir William Cash]

My right hon. Friend knows this, but there is benefit in getting it on the record. The Germans and the French broke the stability and growth pact three years in succession with impunity when it suited them. On the question of how far our Government would go in accepting the proposals, does he agree that the creation of a eurozone is only a de facto organisation and not a legal one? We are caught up in this. When the fiscal compact was proposed, our Prime Minister, having listened to us, decided that he would veto. Would we not want him to veto all this as well and to make it clear that that is the case now?

[John Redwood]

My hon. Friend is right to draw attention to the legal complexities that the euro area and the EU face. He is right that there is no formal, treaty-backed legal entity of the euro in full. There is the relatively informal euro-group of Ministers, who meet monthly just before the full economic affairs council, to settle euro business.

The process has gone a bit further, because of course there is a separate legal entity called the European stability mechanism, which is a formal entity for bailing out or offering loans to euro states in need of additional money. It is currently the object of the entreaties of the Greek state as the Hellenic Republic seeks a long-term loan to replace the short-term loan that the European financial stabilisation mechanism has just provided to see it through July. Greece is currently in negotiation over €86 billion—Germany would like it to be less—of possible money from the ESM. There is a legal structure to do some of the financing but, as my hon. Friend rightly says, they probably need treaty modification and a firm legal basis for the euro. In recognition of that, the five presidents suggest that they may need to move towards having an elected-President of the eurozone, which I imagine would have full legal authority and would therefore give personality to the zone as a legal entity and which would make things easier from their point of view.

I am conscious that several colleagues have turned up to join in this debate and, with your permission Sir David, I would like to see whether they can be accommodated, so I will move rapidly on to my questions to the Minister. It seems that much of what the five presidents want is perfectly reasonable in the context of people who have set up a currency that does not yet have a country to love it or back it. They desperately need to make a lot of progress to create a political union, to create a flow of tax revenues and to provide the financial solidity that a main currency usually has, so I can see their agenda. We have already heard the French President say this week, “Let’s go further and faster”, so we know the direction of travel.

Will my hon. Friend reassure us that the UK could not conceivably travel that route? Having made the crucial decision not to join the euro, the British people and Parliament are not going to want to go down the route of political union. Will he also say where the British Government will now stand on the challenge or opportunity of full banking and capital markets union? There would be great hazards in the UK signing up to the full banking and capital markets union, because that would, by implication, drag us into the financing of the euro area and involve us in decisions that it would properly want to make for itself, as we are not a full member. I would be grateful to hear the latest Government thinking on how we can have our own independent markets but co-operate with and work alongside the euro area as it creates its capital markets union.

It seems to me that there will definitely have to be treaty change. The five presidents are suggesting that they can get by without treaty change until 2017, after which they will need it. From the UK’s point of view, that is an inconvenient date, because we would like treaty change as a result of our renegotiations. As the gap between the likely date of our referendum and the date for the euro area considering treaty changes is quite narrow, might one part of our renegotiation be to say to our partners in Europe, “As you need treaty changes quite soon and we would like them now, let’s bring the thing together”? Is it not the case that the treaty changes we need relate not only to the fact that the EU already has more power then we would like over aspects of our lives, but to the fact that it is about to take a lot more power to consolidate the euro? That is a step that we could not conceivably take.

The detailed issues under all that relate to who is responsible for recapitalising failing banks—for example, who is going to recapitalise the Greek banks? Are we fully insulated from all that? Are we now happy that the formulation from the European financial stabilisation mechanism is watertight so that there is no recourse to British taxpayers in the temporary loan to Greece? Can we ensure that all future bailout loans and other advances to euro states come entirely from euro funding and not from EU legal structures, which have added complications? Can we urge the euro area to ensure that it completes its banking arrangements as quickly as possible? It would be much to the convenience of not merely the Greeks but everyone else who needs to deal with Greece that its banks do not shut down for several weeks and can reopen, as they have done partially today, with a full service, so that they can be a proper part of the European market and the world economy.

This is a great opportunity for the UK from which the Prime Minister should take heart. I admire the honesty of the five presidents coming out with all this now, despite the Greek crisis and the knowledge that the UK wishes to negotiate a new relationship. I think it makes things much easier for us, and we should share that fact with the British public, which is what I am trying to do in my modest way today. We must say that there is a big plot afoot—a wild ride to political union that is not something to which the UK can sign up. We should not get in their way, but the price of our happy consent to their new arrangements must be a new set of arrangements for us to get back powers that insulate us from all this. We need to try to find a way to work alongside the euro without being part of it.

[Several hon. Members]

rose—

--- Later in debate ---

[Sir William Cash (Stone) (Con)]

It is a great pleasure to serve under your chairmanship, Sir David. Perhaps I should put on the record the fact that this morning I was re-elected as Chairman of the European Scrutiny Committee.

In a nutshell, everything that my right hon. Friend the Member for Wokingham (John Redwood) said is completely true. The current situation represents both a massive challenge and an opportunity for the Government. On a number of occasions, when the Prime Minister has been confronted with such difficult, challenging questions, he has decided to do the right thing. This debate, however, demonstrates that there is another new opportunity because of the disarray in the European Union.

The question of the relationship between the eurozone and the rest of the EU provides us with an opportunity, in particular given what President Hollande has said about wanting a eurozone budget, Government and Parliament, as I said in my intervention. That is completely inconceivable for the United Kingdom, the Government and our Parliament. We would be driven inexorably into all the nooks and crannies of those arrangements, because we are bound to be affected by them, as we already have been in the crisis that has engulfed Europe for the past five or six years and that I believe has been apparent since the Maastricht treaty in 1990.

The question of what President Hollande said a few days ago is important. In my judgment, what is significant is that he has a real problem with Germany—I will come on to Germany—because the question for France is one of sovereignty and the question for Germany is one of sharing the risk. That will present a significant problem between France and Germany, which is why Angela Merkel and President Hollande clearly had severe differences of opinion. This is a moment when it is imperative for the British Government to make their position clear. With France and Germany at loggerheads over the question of sovereignty and sharing economic risk, we have a classic Waterloo moment, when we should simply go straight through with our cavalry and say through the Financial Secretary to the Treasury and the Prime Minister what we will not have, that we want clarity and that this is not the time for fudge. This is the time for decisive action and to make it clear what we cannot possibly accept.

Other matters to be looked at include the purposes that lie behind what Wolfgang Schäuble has been edging and pushing, nudging and driving, during the Greek crisis. My right hon. Friend the Member for Wokingham and I each wrote essays in a recent book called “Visions of Europe II”, following on from “Visions of Europe”, which came out in 1993 and in which I quoted myself. I said, I hope not immodestly, that

“the answer to the German question lies primarily in Germany itself”,

but to

“hand her the key to the legal structure of Europe with a majority voting system gravitating around alliances dependent on Germany simply hands to”

Germany

“legitimate power on a plate.”

We can say that that is exactly what has happened since I wrote those words in 1990.

Furthermore, because I wanted to be positive, I wrote:

“Britain wants to work together with Germany in a fair and balanced relationship, based on free trade, co-operation and democratic principles. She does not want to be forced into a legal structure dominated by Germany. Plans for a united Europe stray into the darkest political territory, and must be firmly rejected.”

That was in 1990, and here we are now.

I added that

“if Germany needs to be contained, the Germans must do it themselves…now is the time for the Germans to prove themselves”—

I am afraid that they have. Given the treatment of Greece, irrespective of whether there was culpability on the part of the Greeks, the really big landscape—the manner in which the whole European project has been driven forward since Maastricht—the really big landscape—the manner in which the whole European project has been driven forward since Maastricht—is that the Germans are now in control of the eurozone. No one doubts that. I have a whole stack of cuttings here, from Germany, including from Bild, and from French newspapers. I do not have time to go through them all, but every single newspaper throughout the whole of Europe—rather curiously, there was a fairly muted response from the British press—has made the assumption that it is now effectively a German eurozone, if not a German Europe.

It is not in our interests to allow that, or to allow ourselves to be affected by this situation. We will be driven into the second tier of a two-tier Europe. The eurozone is part of the over-arching legal framework of the EU as a whole, of which we are a part. That is what is driving us towards the exit of the European Union.

[John Redwood]

I wonder, Sir David, whether, if my hon. Friend agrees, it might be helpful to know how many colleagues would like to speak, so they can all have a fair amount of time.

--- Later in debate ---

[John Redwood]

My hon. Friend made a funny remark about the apparent absurdity of the five presidents, but does he agree that they are not figures in a Gilbert and Sullivan opera, but are enormously powerful figures commanding billions and influencing the lives of hundreds of millions of people across Europe? Just as they took the exchange rate mechanism well beyond the point at which it did untold damage, they could do untold damage with their euro scheme. Is not that a reason why we should try to let them get it right, rather than making it more difficult for them?

[Mr Baker]

My right hon. Friend is right, and it is not for us to choose the destiny of the other peoples of Europe. We might offer them our advice in different ways, but since they now have the euro as a currency they had better make the best of it—although, again, I do not want to be drawn too far off into ideas about money and banking. We are in a fix. I agree with my right hon. Friend that since those people are extremely powerful, they had better make the best of it, and we should not get in their way.

I was saying that history, while not repeating itself, sometimes rhymes. We had an enormous credit expansion, which broke the banks and led us into a position of desperation in several countries of Europe. We should not in such circumstances cast aside democracy and assemble a supranational state that is not accountable to its people. There we would be running the risk of a tragic rhyme in history—a cataclysmic mistake, possibly, should it go wrong—and it really might. The evidence of history is that it might.

I want to mention four things: we should undo what I would call the spell of Plato—the idea that a guardian class can look after us, free of democracy. We should get off the road to serfdom. We should make sure that we reject the omnipotence of government, and we should overturn this managerial revolution. I refer of course to books by Popper, Hayek, Mises and Burnham, all books written during the period of war in the first half of the 20th century. They are books that I would commend to anyone, lest, while not repeating history, we rhyme with the tragic events of the past.

--- Later in debate ---

[John Redwood]

I think that the debate illustrates that we need rather more time to do justice to these mighty issues. I hope that the Government take away from this short debate our enthusiasm for a new relationship with the EU and the opportunity that the five presidents report proposes. Let me reassure the Labour representative, the right hon. Member for Wolverhampton South East (Mr McFadden), that I said clearly that I wanted Labour to succeed and did not want to get in their way, but we ourselves must opt out of the wild ride to political union.