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

Lord Davies of Stamford Excerpts

Wednesday 23rd May 2012 Lords Chamber

[Lord Howell of Guildford]

There is complete freedom outside the treaties to take any decisions we want. I will come in more detail to what I have just said in reference to the EFSM, and during the afternoon we can discuss what other mechanisms of support for economies, whether in Europe or the eurozone or not, are justified, but that is the position in relation to what we are discussing today.

It is not the first time that this treaty amendment has been considered by Parliament. Before the Prime Minister signed the treaty last March, a Motion in favour of signature was passed by both Houses, with no opposition in your Lordships’ House. At the time I committed to bringing the decision before Parliament again. Thus we are applying the more rigorous requirements for parliamentary control over European Union decision-making, as we committed to do in the European Union Act 2011. Parliamentary approval will enable the UK to complete its ratification process for this treaty amendment.

I recognise that 14 months is a long time in eurozone terms, so it may help your Lordships if I recap how the European Council came to decide to amend the treaty. In May 2010, in response to the first Greek crisis, two emergency instruments were established to respond to the financial crises. The first is the European financial stability facility. This is an emergency facility established intergovernmentally by euro area member states. It is used to provide loans to euro area member states in difficulty. The UK is not—I repeat, not—a member of the EFSF and has no exposure to the financial assistance provided by it.

The second is the European financial stabilisation mechanism, which I have already mentioned, which we inherited from the previous Government. Under this mechanism, the Council can agree, by qualified majority, to the Commission providing assistance using money raised on the financial markets, backed by the European Union budget. It therefore created a contingent liability for the United Kingdom, which is a very important point.

As uncertainty continued in financial markets, the European Council agreed in December 2010 to amend Article 136 of the Treaty of the Functioning of the European Union. The amendment confirms that member states of the eurozone may establish a permanent stability mechanism. This mechanism—the European stability mechanism, or ESM—which I have already mentioned, will provide a permanent means for dealing with events that pose a risk to the financial stability of the euro area as a whole.

Having gained Parliament’s approval in March 2011, the Prime Minister returned to Brussels to agree to the decision at the European Council. The decision must now be ratified by all 27 members before the amendment to Article 136 can come into force. The target date for entry into force, as set out in the European Council decision, is 1 January 2013.

As I have already mentioned, the Minister for Europe and I committed to further consideration of the decision under the terms of the EU Act 2011 when it came into force. Under the provisions of Section 5 of the Act, the Foreign Secretary laid a Statement before Parliament in October 2011. He indicated that in his opinion a referendum is not required to give parliamentary approval. The proposed amendment to Article 136 applies only to member states whose currency is the euro. Consequently it does not transfer further competence or power to the European Union from the United Kingdom. The statement was open to judicial review, but in the intervening eight months no one has sought to challenge it in the courts.

To comply fully with the requirements of the EU Act, I am now presenting this Bill to the House. Should Parliament grant its approval, the Government intend to ratify the European Council decision by the end of this year.

Now I turn briefly to the European stability mechanism itself. The ESM is a stability mechanism funded by eurozone countries to provide financial assistance to eurozone countries. The intention is that it will replace both the EFSM and EFSF. It is being set up under an intergovernmental treaty that was signed on 2 February by eurozone member states. It must now be ratified by all 17 member states and is expected to come into force in July 2012.

The treaty amendment does not establish the ESM. The UK, of course, will not ratify the ESM as we have not signed up to the intergovernmental agreement, and the amendment certainly does not commit the UK to contribute to any bailout fund. However, let me make it clear what the decision does. The treaty amendment that we are asking Parliament to approve will put beyond doubt the ability of eurozone countries to set up a financial assistance mechanism. It does this by adding a third paragraph to Article 136, which states that eurozone member states may establish a financial stability mechanism to assist other eurozone member states in financial difficulties. Article 136 applies solely to member states whose currency is the euro. Therefore, the provisions of Article 136 do not apply to the UK.

Alongside the agreement to enshrine the legal basis for the mechanism in the EU treaty, the Prime Minister secured an important agreement. Once the ESM is established, Article 122(2), on which basis the EFSM was established, should no longer be used for such purposes. Our liability for future euro area financial assistance programmes under the EU budget will be removed. This is strongly in the UK’s national interest.

The intensification of the crisis has led eurozone member states to agree to bring forward the introduction of the ESM to July 2012. When they announced this decision in January, we carefully considered the implications that it would have on our handling of the treaty amendment. Would it need to be ratified sooner, and was it still needed at all? We decided to proceed as planned, as it has always been the Government’s opinion that without the agreement to amend the treaty there would be no European stability mechanism. The clear message from eurozone member states is that they still need this treaty amendment.

That brings me back to the central point of why this Bill is important.

[Lord Davies of Stamford]

I am most grateful to the Minister for giving way. He said that it was the intention that the ESM should now enter into force next month. Indeed, we support the urgency of that, as I understand it. Therefore, why are we taking so long to ratify this? If we really support the initiative and recognise its urgency, why cannot we ratify it as soon as Parliament has approved this Bill?

[Lord Wallace of Saltaire]

My Lords, I do not think that it has been the usual practice of this House to interrupt Ministers in the middle of their opening speeches, when they are also winding up and when the interrupter has his chance to take part in the debate afterwards. These are questions that the Minister can answer in his wind-up speech.

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[Lord Lawson of Blaby]

If 90% of people say that they agree with some particular European convention, that is probably a lie. I doubt whether 90% of people know about any European convention.

To come back to the Bill that we are debating, a few days ago an item appeared on the Foreign Office website which read:

“Foreign Office Minister introduces EU Treaty Amendment Bill to the House of Lords … Foreign Office Minister Lord Howell said … ‘A stable and healthy eurozone is important for the UK’s long-term growth and prosperity. This treaty change is firmly in the UK’s national interest’”.

That is the basis for the Bill before us. I have the greatest affection for my noble friend Lord Howell. Indeed, I can hardly blame him for saying that, because it is government policy. But it is, of course, complete nonsense. It is not a stable and healthy eurozone that is important for the UK’s long-term growth and prosperity; it is a stable and healthy European economy which is important for the UK’s long-term growth and prosperity. So long as the eurozone staggers on, we will not have a healthy European economy. That is the problem that we face.

Greece has been mentioned. It has a number of special economic difficulties and also a special political difficulty. Greece is, and always has been, a “phavlocracy”. I owe this term, which is little used, to when I was editor of the Spectator, 45 years ago. I recruited an excellent Athens correspondent, because the colonels had just come in, and he explained that “phavlocracy”—a word the Greeks use—meant “government by corruption”. The high economic cost of that is an additional problem but we are not debating a Greek problem. This is a fundamental problem of the eurozone project. It is not the tired old argument of growth versus austerity, as if somehow you can say, “Let’s have some growth, what a good idea”. It is the particular problem of the eurozone that we need to address.

The European Monetary Union was fundamentally flawed right from the start. It was predictable and indeed it was predicted. I think I was the first Minister to point this out in a speech at Chatham House in January 1989. I analysed the eurozone project and I concluded in these terms. It is a long quotation but it is important to put on record what I said at the time, well before the eurozone came into being. It was a few days before publication of the Delors report on which European monetary union was based, but we all knew what would be in it. As Chancellor of the Exchequer at that time, I concluded in these words:

“Nor would individual countries be able to retain responsibility for fiscal policy. With a single European monetary policy there would need to be central control over the size of budget deficits and, particularly, over their financing. New European institutions would be required, to determine overall Community fiscal policy and agree the distribution of deficits between individual Member States.

The setting up of a European Central Bank or a new European institution to determine Community fiscal policies go to the very heart of nationhood. What organisation would really be the government? It is clear that Economic and Monetary Union implies nothing less than European Government—albeit a federal one—and political union: the United States of Europe. That is simply not on the agenda now, nor will it be for the foreseeable future”.

That is what I said as Chancellor of the Exchequer in January 1989. I elaborated on a number of further occasions, both in speeches and in articles, during the interim period until 1999 when it came into being. Then I gave up. I was seeking to persuade our European friends and partners not to make the huge mistake of going down this hugely damaging route. Once they had done it, I had failed and I gave up.

I was not the only one. My friend Hans Tietmeyer, when he was president of the Bundesbank in 1996, in the more measured terms that central bank governors are inclined to speak, said:

“Monetary union means a restriction on national sovereignty, on national manoeuvring room and the ability to go it alone. Participants lose the instrument of exchange rate adjustment … In a monetary union, countries have to tackle and solve their economic problems and challenges in a similar way and with similar speed. If the countries decide fundamentally different answers, then great problems will arise”.

He could say that again.

So why did this happen when everybody who was informed knew that this was fundamentally flawed? It happened because this was not economic at all; it was entirely political. There were of course some innocent worshippers at the church of Europe who believed that anything that was more Europe must ipso facto be a good thing. But most of the promoters were more sophisticated. Their objective, and they were clear about it, was full-blooded political union—a United States of Europe. That was the view of Jacques Delors and most of those who supported him. They thought that since monetary union and political union have to go together, if you want political union then you have the monetary union and it will inevitably lead to the political union which is the objective. That is a fundamental misreading of history; it is the wrong way around.

The example of Germany in the 19th century is interesting. German unification came in three stages. First, there was the zollverein, the customs union. Then Bismarck and Prussia forged a political union from blood and iron. It was only after they had political union that they had monetary union. That was the sequence. Doing it the other way around simply does not work.

One reason why you must have political union is that, as we all know, there must be transfers from the German taxpayers to the poor Greeks or whoever. However, you cannot make that work—nor does it have credibility—if it is on a sporadic and discretionary basis. You must have a single system of taxation, as there is in any currency union, such as the United Kingdom, which takes more money from the wealthier sections of the economy; and a single system of spending so that there is more spending on, say, social security in the poorer parts of the economy. The transfers become automatic and there is no discretion.

You must also have control of deficits. This simply means that you must have a single Finance Minister at the head of a single finance ministry in a single Government. That is the only way that it can work. Even then, it would, in my judgment, be economically harmful to the European Union. To use the economists’ jargon, which the noble Lord, Lord Giddens, enjoys so much, it would be suboptimal.

There is a great literature about what is known as an optimum currency area. No one quite knows what an optimum currency area is. We all know that you do not get individual cities with their own currency but, equally, you do not have a world currency. That is too big and the first is too small. Where is it right? I think all economists would agree, as would the noble Lord, Lord Giddens—even though he is not an economist, he follows these things—that an area as big as the European Union, with its great size and diversity, is not an optimum currency area. In particular, to help the transfers and so on to work you need wage flexibility, which the United States has but Europe does not. Indeed, it is anathema to the European social model, which is opposed to wage flexibility.

Above all, you need labour mobility. That is what happens in the United States. If one area is not doing too well, people move to another area. However, what do you have in Europe? For cultural and linguistic reasons, when there is 25% unemployment in Spain—indeed, 50% youth unemployment—but little more than 5% in Germany, the Spanish do not move to Germany. They riot in Madrid and call on their Government to do something to help them.

[Lord Davies of Stamford]

Is the noble Lord aware of Mundell, the author of the seminal article that defined the concept of the optimum currency area? Indeed, he invented it. That article produced the key criteria that define an optimum currency area and an equation that became part of standard theory and won a Nobel prize for Mundell. Is the noble Lord aware that Mundell is on the record as saying that he regarded the eurozone as meeting the criteria for an optimum currency area?

[Lord Lawson of Blaby]

Yes, I am aware of that. I am also aware that he subsequently changed his mind on that point.

Those who promoted European monetary union were guilty of great arrogance and unbelievable irresponsibility. They were arrogant because the only way to have political union was with the consent of the peoples of Europe. The people of this country, the people of France, where I live nowadays, and the people of most, if not all, of the countries of Europe—Luxembourg may be an exception—do not wish to give up national self-government. They do not want to be part of a full-blown European political union. It is a sad thing but I am afraid that for all its, no doubt, high-minded motives, the European movement has been marked by the most appalling contempt for democracy throughout the years that I can remember. The irresponsibility is that political leaders must have known that if this gamble did not come off and they were not able to achieve the political union, the disaster which we see all around us was bound to ensue. That seems to me to be the most irresponsible thing that political leaders could ever have done.

What now? In my judgment, the least bad course—I say “least bad” rather than best because I accept that it is not good—is the orderly dissolution of the eurozone, which will begin with the departure of Greece in only a matter of time, and it will not be a long time. This dissolution is already happening before our eyes, even if the politicians do not accept it. Holders of euro deposits in Greek banks are taking them out at a rate of knots and they will do so increasingly. After that, I am afraid that the same thing will happen as regards euro deposits in the banks of other countries considered to be likely candidates for withdrawal—whether it be the Spanish or Portuguese banks, or wherever.

I agree that the dissolution of the eurozone will be far from painless. There will be a whole lot more sovereign defaults. We have already had getting on for an 80% write down of Greek government debt. That will be bigger. There will be other sovereign defaults. There will be banks in difficulty.

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[Lord Davies of Stamford]

My Lords, I do not normally agree very much with what the noble Lord, Lord Dobbs, says about Europe and I disagree with some of the things that he said today. However, I enjoyed his speech and agreed with several of the things that he said; notably, first, that fiscal austerity, though necessary, is not enough and should not be pursued excessively; and, secondly, with his quite wise statement that the ESM, though important to a solution, is not a sufficient solution to the instability we face.

I have no problem with this Bill. I enthusiastically endorse it. I am very much in favour of it and very happy with the transfer of the basis for this form of firewall from Article 122 to Article 48. My one considerable sadness is that we are not part of it or have not made a voluntary contribution to it, as Poland and Sweden did to the previous financial stability facility. My reason for that is, partially, solidarity—I believe in solidarity, although it always seems to be a very long-term self-interest—and because of our immediate self-interest. We all agree that we face a desperate crisis. We are on the edge of a precipice and so forth, and we hope that there will not be collapse. We desperately hope that this firewall will be effective, so we ought really to be contributing to it. In my view, it would be a good use of the nation’s reserves to make some contribution.

If one’s neighbour’s house is likely to burst into flame or if one fears that might happen, it seems sensible to contribute to the local fire brigade, instead of which there is the Prime Minister’s approach. I agree with Members on both sides of this House who have criticised that approach, which seems to be not to make any positive contribution at all but simply to stand on the sidelines criticising loudly what is going on. He reminds me of a man who might be on the shore when he sees people in trouble in the water. He is not willing to take any risks by trying to help them and does not even want to get his feet wet. He just calls for a loudhailer and shouts at them where he thinks they have gone wrong. The Prime Minister is the last person to give any lessons to our European friends and allies on this subject, because he has got his own economic policies so wrong. He inherited growth and has produced recession. In the first quarter of this year the eurozone, despite its well publicised problems, had a positive rate of growth overall and we had a negative rate. I do not think any more needs to be said on that subject.

It has been generally agreed in this debate that the ESM is necessary but not sufficient. There are actually six pillars required for a viable solution to this crisis. First, of course, there is fiscal deficit reduction. That has happened on the continent, as here, but it should not be pursued excessively and certainly not to the point where the reduction in gross domestic product as a result of recession more than undermines the positive effect of reduction in the fiscal deficit on the debt to GDP ratio. When there is any danger of that happening, it is a time for Governments to think again. That rule should apply everywhere. It should apply here. We should be thinking again, as Christine Lagarde has said, and we should be thinking again about Greece. I hope there will be some revision of the austerity programme in Greece and some reduction, or at least elongation, of the deadlines in the bailout package. I hope it will be available for the Greek electorate to take full account of it and therefore be able to make a proper democratic choice at their forthcoming election.

The second central pillar of progress is supply side reform. Immense progress has been made in this direction under the pressure of the crisis. I have said before in this context that very often in human affairs—it is certainly true of the history of the European Union—people do the right thing but do it almost too late under the pressure of a crisis. We all know how that happens. It happens in our private lives and in business lives all over the place. That is just a fact of life. I thought that the 30 January European Council produced some very important supply side measures. I hope they are going to be pushed through by this Government and other Governments. I salute the progress that has been made by Mario Monti in Italy in producing labour market reforms and pension reforms. I think Italy is now the only country in the world which has a pension system that is formally linked to life expectancy, so that when life expectancy increases the pension age is automatically increased. The Greeks and the Spaniards have been tackling their labour market issues with a vengeance, which they would not otherwise have done. Of course, they should have done it years ago, but at least they are doing it now. Therefore, supply side reform is very much in place.

The third pillar is firewalls. I have a suggestion to make which I made in this House some months ago. It should be within the powers of the ESM to lend money to sovereign Governments who would be subject to a bailout and whose debt is trading at below the bailout price. That is certainly the case of Greece at present. We have missed a lot of opportunities over the past year or so for the Greek Government to buy back their debt at a much better discount—it was at 80%—than the bailout discount, which is about 50%, and then cancel it. It has been foolish that there has been nobody able, willing or empowered to lend for that very sensible purpose. I hope that may be taken on board as a positive suggestion.

The fourth essential pillar is banking recapitalisation. Nobody has been making the point in the public debate or in the debate in the press that banking recapitalisation is very problematic and dangerous in the present circumstances. At a time when we want banks to lend more money and want demand to be relaunched, banking recapitalisation produces a disincentive for banks to increase their lending. The easiest way, and some banks in the present circumstances will say the only way, that banks can achieve better capital ratios is by reducing their lending and maintaining the same capital base. It is certainly true that they cannot be expected to go for rights issues with their share prices on the floor as they are at present and for that reason other forms of tier 1 capital would be prohibitively expensive to raise. They cannot cut their dividends in the present market conditions as that would really shoot the value of their shares to pieces, which would be extremely destabilising. So what do they do? The only thing they can do is to reduce their staff costs. Of course, an individual bank cannot reduce its staff costs because people would just walk out of the door. It can be done only by governmental action to impose some limitation on the staff costs of undercapitalised banks, and that has to be enforced throughout the European Union. I hope that that thought will be taken on board.

It sounds very draconian, but the present circumstances require draconian measures. Of course, some people will say, “Don’t worry”. When I have raised this matter previously in the House I have had that response from the noble Lord, Lord Sassoon, who I am sorry is not in his place to hear it once again. He always says that it does not matter because the Basel criteria for capital adequacy come into force only in 2018 or 2019. I have been on the board of a bank so I know perfectly well that if you are told that you have to achieve certain capital ratios in five years’ time, it is going to affect your lending decisions and your policies right away because you know you have to move on that trajectory. Therefore, that is not an answer to the problem. The problem is in fact very urgent. We need to make sure that banking recapitalisation is not pursued at the expense of a solution but actually contributes to one. I fear that in the present circumstances you cannot possibly get rid of these requirements because for Governments to go back on them would be very destabilising. Therefore, the only way through is the one that I have suggested.

The fifth essential pillar for a solution is the use of market mechanisms, allowing the price mechanism to work in the factor markets throughout the European Union and particularly in the eurozone. Where demand is less, demand conditions are much weaker and there is unemployment, factor costs should be allowed to fall and wage costs need to be allowed to fall in nominal terms. Where demand conditions are much stronger and unemployment is much lower, then the price mechanism should be allowed to work and nominal wages should be allowed to increase; indeed, real wages should be allowed to increase. That is precisely what is happening now, I am glad to see. The other day, as we all would have noticed, IG Metall came to a Tarifvertrag—a wage agreement—in Germany, involving millions of engineering workers with an increase of more than 4%. Equally, in Greece, wages are falling quite substantially in the public sector—by 20%—which is absolutely enormous. I saw the other day that in Spain over the past year wages had fallen by 1% in nominal terms, which of course means more than that in real terms.

That is already a considerable element of internal devaluation—or revaluation, in the case of Germany. I say to the noble Lords, Lord Lamont and Lord Lawson, that that is infinitely preferable to the kind of external devaluation which they always advocate. It avoids the great problems of external devaluation. It avoids the idiocy and distortion of changing every price of every good and service overnight by the same amount irrespective of demand for it, which is completely crazy. It avoids the inflationary impact, through import prices, of a devaluation. It avoids suffering from the enormously excessive swings of currency markets in times of uncertainty, so that you can be certain that the external devaluation or revaluation will be far greater than is required by the circumstances. Of course, it avoids completely the threat to the solvency of households, corporates or banks—this is very relevant in Greece—which happen to hold their liabilities in the stronger currency, in this case the euro, and risk having their assets and revenues translated into a weaker currency with great threat to their solvency. This kind of internal devaluation is infinitely preferable and it is the most sensible way to go.

Finally, we need a growth package. Austerity is not enough. That is the message which is coming through loud and clear. It is not a message which the Government seem to want to hear in this country, and not a message in which they therefore have any credibility when, in contradiction to their policies in this country, they convey it abroad. But, of course, it is necessary. I hope that we will have really good, dramatic news tonight. We need some news which affects psychology and confidence. I hope that there will be some good, imaginative thinking coming out of the informal European Council meeting which is taking place this evening.

I support the idea of increasing the EIB capital. That is a splendid move, but it does not go that far. I strongly support the idea of making sure that we are spending the unspent structure funds. It may be necessary in Greece, and I hope that this happens, to relax the co-financing terms of the structure fund programme. If Greece is under this fantastic fiscal pressure, where can it find the money to come up with even 10% of the investment cost of schemes that are being funded out of the structure fund programme? Of course, there is a good argument in most circumstances for co-financing, to avoid moral hazard and so forth. In the present circumstances, however, it seems sensible to reduce that to an absolute minimum or to find some other way, like appointing outside consultants to vet programmes to achieve that flow-through. Above all, I hope that there will be some new initiative, which I cannot anticipate but I hope will come out very quickly. That is necessary to make sure that there is a new boost to growth and demand, ideally through infrastructure spending, in the eurozone and particularly in those countries which have been affected most by the downturn: Greece, Spain, Portugal and Italy.

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[Lord Liddle]

My Lords, this is a small Bill consisting of two clauses but, as we have heard in this excellent debate, it is about the huge topic of the future of the euro. As the noble Lord, Lord Howell, explained to us with his usual clarity, the Bill is an enabling measure. We are legislating here not on the substance of the European stability mechanism but only on the enabling treaty change to allow it to happen. Labour recognises the need for this enabling measure. As the noble Lord, Lord Lamont, said, it is already priced into the markets. No one should kid themselves that the establishment of the European stability mechanism is a sufficient response to the crisis that we have now. There is an enormous crisis in Greece and a growing calamity of collective austerity. To that extent but not much more, I agree with my noble friend Lord Reid.

My noble friend Lord Giddens said that he had had enough of talking about being on the edge of precipices. Perhaps I may say what I think is at stake here. At stake is a crisis that threatens the success of the post-war settlement that we have seen in Europe and the stability and prosperity that the European Union has brought to Europe. That is what is at stake in this crisis. I disagree profoundly with the noble Lord, Lord Flight, and his parallel with the gold standard. The difference between the European Union and the gold standard is that it is a political union, and politics can do something about it. If leadership is shown we can avert a crisis that threatens to break up the post-war settlement.

What we need, as the noble Lord, Lord Hannay, said, is a bit more solidarity and a bit less emphasis on limited liability. How should we go about trying to save the situation? First, the firewall needs to be a lot bigger in scale and more flexible in operation. The existence of the stability mechanism cannot be a substitute for a central bank. The central bank must be willing and prepared to intervene decisively in the bond markets to stem self-fulfilling speculation and panic. I do not think that we will get eurobonds at this stage; I do not think that the Germans will agree to eurobonds until there is established a European fiscal authority. However, we could have a more flexible stability mechanism.

Secondly, the stability mechanism should be preparing now to act quickly on recapitalising the banks in Europe on a pan-eurozone basis. If responsibility for sorting out the banks remains with the national countries—the sovereigns—the problems of countries such as Spain can only get worse because sorting out the banks increases the fiscal problem; dealing with the fiscal problem involves a squeeze that makes austerity more severe; and the impact of this fiscal squeeze on growth ultimately also deepens the problems of bad loans and zombie banks. We have to deal with this on a pan-European level and the ESM is the body to do it.

Thirdly, we need a more balanced strategy—not choosing growth over austerity but a balanced strategy. François Hollande’s victory has changed the political weather in Europe. There is a growth plan under preparation in Brussels. We have heard about it in our debate—unspent structural funds to be used better, recapitalisation of the European investment bank and an experiment in project bonds. Put with that, the noble Lord, Lord Davies of Stamford, talked about the need for structural reforms and the need to revive the single market which Prime Minister Monti is so behind. That is a credible package. They are welcome initiatives but from our side we not think that they are enough. For one thing, their impact would take too long to work. Infrastructure schemes and renewable energy projects are rarely ready to go. Southern Europe needs stimulus to growth now.

[Lord Davies of Stamford]

I am grateful to my noble friend for giving way. He will be aware that in Greece the motorway building programme was stopped midstream because of the bailout conditions. Those projects are shovel ready—a lot of work has been done on them and they are all ready to go. Some financing there could affect demand very rapidly.

[Lord Liddle]

The noble Lord, Lord Davies, is absolutely right. In addition to infrastructure, I think that we need a more moderate pace of deficit reduction. The Commission argues that the fiscal compact gives you all the flexibility that you need in a crisis situation. That should be done. Secondly, we should be mobilising the structural funds to tackle the employment issues, particularly the fact that in countries such as Greece and Spain, getting on for half of young people are out of work which is completely unsustainable socially and politically. It is also the case that a major competitive weakness of southern Europe is the low skills level of its workforce. That must be addressed from Europe through the structural funds—a crash programme of social investment in human capital.

Thirdly, the eurozone needs more balance between the strong and the weak in the urgent competitiveness adjustments that it must make. Stronger countries such as Germany have room for manoeuvre. Noble Lords talked about higher wages for German workers, which are certainly affordable. German wages have gone up very little despite the country’s enormous export success. I am glad that there is now a consensus between the Social Democrats and Christian Democrats on the introduction of a national minimum wage. Germany would have to tolerate only a bit more inflation to help the south, which is suffering debt-trapped deflation. That would enable the ECB to meet and maintain its target level of inflation of around 2% across the whole eurozone.

Our hope is that the political ramifications of the Hollande victory will result in a wider and bolder set of actions to build a stronger firewall, recapitalise the banks, adjust the pace of deficit reduction, offer immediate help on jobs and increase demand in countries with surpluses. That will not get us out of the need to make harsh adjustments. However, if we continue with collective austerity it will lead to collective suicide.

What is the coalition’s view? Is it still backing Mrs Merkel’s priority of fiscal austerity, which has been its policy at home for the past two years? Or is it undergoing a latter-day Keynesian conversion to the need for growth in Europe? If the eurozone can have a plan B, can we not have one at home? That is what we need. It is very odd for a Eurosceptic Conservative Party to argue that it is all right to have additional public borrowing through the EIB and project bonds at European level, but that of course it would be a complete disaster to tolerate any flexibility in the public borrowing of the UK. I find this an amusing contradiction in the present situation.

That confusion and contradiction, with a sharp eye for public relations, have been characteristic of the Government’s conduct of their European policy. As the noble Lord, Lord Williamson, said, they treat the eurozone as a convenient whipping boy to cover their own failures. As we know, last year growth in the eurozone was higher than in the UK. I am interpreting what the noble Lord, Lord Williamson, said.

Somalia: Piracy

Lord Davies of Stamford Excerpts

Wednesday 11th January 2012 Lords Chamber

[Lord Howell of Guildford]

My Lords, the noble and gallant Lord will not be surprised at my answer that these matters are kept under constant review. We need to deploy in the most effective manner the forces that our resources allow us to deploy, and we will continue to examine all needs and priorities in that light.

[Lord Davies of Stamford]

My Lords, I am very glad that I gave way to the noble and gallant Lord because I thoroughly agreed with his intervention. If we are half-serious about dealing with this menace, should not the first and indispensable step be to cut off the flow of funds to the pirates? Every week literally millions of pounds are passed to the pirates from ship owners and particularly from underwriters. The largest share of this probably comes from underwriters in the City of London. The means used to pass the funds may be unconventional but the payments are perfectly legal. If we were to criminalise the payments and use the existing apparatus of criminal assets seizure legislation and money-laundering legislation to interdict them, would that not be a very substantial step in the direction of dealing with the problem?

[Lord Howell of Guildford]

I say to the noble Lord that actually the first step is to deal with the conditions on land that give rise to the piracy operation by sea; that is where we start. However, he is quite right that the flow of cash and finance is a very important part of this. We are working with Interpol and with the UN Office on Drugs and Crime to see whether we can be more effective in tracing the patterns of finance. It is not easy but it is certainly an area where we should concentrate.

European Union Bill

Lord Davies of Stamford Excerpts

Wednesday 13th July 2011 Lords Chamber

[Lord Lester of Herne Hill]

My Lords, of all the people have spoken in this debate, the noble Lord, Lord Hannay, has the greatest practical experience, since he has had the responsibility of seeking to negotiate on the international plane in Europe and elsewhere. If he cannot persuade the House, nobody can. In supporting this amendment and therefore, I am afraid, not acting in accordance with the wishes of the Government, I agree with everything that the noble Lord, Lord Hannay, has said.

As somebody who, as I have said on previous occasions, takes his holidays in Ireland and has seen what has happened in the Irish referendum, I think that the good thing about this amendment is that it places us in roughly the same position as the Irish. They have referenda only according to constitutional criteria such as those in this amendment, so the Irish Government are not fettered with the inflexible overreach of the Bill as it otherwise stands. Therefore it seems to me that this amendment has the merit of Parliament authorising the Minister to exercise her or his discretion in the particular case using a criterion that is well understood and doing so under the authority of Parliament.

‘Otherwise, what we will really be seeking to do is to fetter decision-making by future Governments and Parliaments, even though that would be most unwise. I was once induced by the whipping arrangements to stand on my head and to vote against my own amendment. I then made it clear that I would not make an idiot of myself again in that way, and I do not propose to do so today either.

[Lord Davies of Stamford]

My Lords, this is a very revealing debate. The Government have behaved rather dismissively towards this House. The noble Lord, Lord Howell, has said, rather pro forma, that the Government have carefully considered our arguments. In actual fact, there has been no attempt whatever to come even 5 per cent of the way to meet us. I hope that, as a result, your Lordships will have the courage of their convictions and continue to stand by the principles we voted on previously. I particularly support this new amendment, brought forward by my noble friend Lord Triesman and so ably and vigorously argued by my noble friend Lord Liddle.

I said that it has been a revealing debate. I thought that the noble Lord, Lord Blackwell—the only Conservative to have taken part in this debate, so far at least—really gave the game away. He entirely supported the point I have been making all along: that no Government have a referendum voluntarily at all. If they can possibly avoid it, no Government ever have a referendum; that is exactly what the noble Lord said and exactly what I have been saying. That means that the apparent intention to have referenda on any or all of the 56 subjects in the Bill is entirely hypocritical. There is no such intention whatever. We all know that it would be quite absurd to have a referendum on almost all of them—on 50, at least, out of the 56. The British public would think it a ludicrous waste of time and money, and they would be completely right.

The intention is really entirely obstructionist, which is what I am so worried about. It sends the worst possible signal to our partners in the European Union. Indeed, it presages a period of great difficulty for us in our relations with our EU partners and our ability to positively influence the EU. It is so important that we influence the EU in the right way because it is such a vital element in the modern world, where in so many contexts we cannot possibly achieve our national purposes acting on a purely national basis. We need to form an effective, cohesive bloc with our European partners and argue with them in the relevant international fora.

What does one make of this argument that the Government keep on coming up with—the noble Lord, Lord Wallace, repeated it this afternoon—that this extremely obstructionist concept of having referenda on all those subjects is somehow indispensable in better communicating to the British public the virtues and merits of our membership of the European Union? The noble Lord’s argument really does not have any conviction at all; it does not ring genuine or true. Anybody who knows the first thing about marketing knows that if you want to sell something, the one thing you can never do is be negative about it. If you want to sell it at all, you have to sell it with enthusiasm and genuine conviction. Once you start saying, “Well, this is a problem so we need to apply brakes and think of new blockages”, and so forth, you have lost it completely. The noble Lord was a very distinguished professor of international relations but if he had chosen a marketing career, he would have been an absolute disaster. He would never have sold a single car or tube of toothpaste on the basis of the approach which he outlined this afternoon.

Our enacting this Bill will have two effects. One is that there will be substantive damage done to the interests of this country in specific areas. In an amendment on Report, I raised the issue of a single market in the defence industry. That is quite clearly in our national interests, but we would not now be able to agree to it unless we had a referendum. I went through that and explained that we really would shoot ourselves in the foot—that was the expression I used—if we went ahead with that. The Government did not seriously argue against that case at all. They simply said, “Sorry, we are embarked upon this course and there may be a few things to be thought of”. The noble Lord, Lord Howell, was nice enough to say that I may have some arguments there but that they would carry on regardless—that was more or less the response I had.

Let me give another case, because it is important to look at specific, concrete cases where it may be in the national interest to transfer powers or competences to the institutions of the European Union, particularly the Commission. A few years ago the Commission made a proposal that it should have the right to audit and monitor the accounts of member states. That was opposed by a number of member states, including ourselves and the Germans, and it did not go through. Had it been able to go through on a qualified majority voting basis then we would have had the Commission monitoring the national accounts of Greece. The scandals and mistakes that have occurred with devastating consequences—going into tens of billions of euros, as we all know, and the threat of a banking crisis which undoubtedly will affect us if it arises, and so forth—would have been avoided, because somebody else would have been able to go through those accounts. The European Commission would have been able to do so. Of course all the Eurosceptics in this Chamber and in the other place would have said, “Oh, this is a terrible thing because it is somehow another integrationist step forward”, but it would have been enormously in our national interest.

European Union Bill

Lord Davies of Stamford Excerpts

Thursday 23rd June 2011 Lords Chamber

[Lord Howell of Guildford]

With great respect for the noble Lord, whose experience in European affairs is enormous, that is widening the debate vastly from discussing the amendment before us at Third Reading. The noble Lord is raising all sorts of political issues, on which I am very happy to engage, but this would not be the appropriate process and your Lordships would rightly criticise me for going into those issues. I am pleased that we have seen an acceptance of the principle that there should be a referendum on future treaty changes which transfer power and competence from the UK to the EU. That is a step forward, although I repeat that I fully respect my noble friend’s intervention to the effect that she does not accept that for a vast range of activities.

[Lord Davies of Stamford]

The noble Lord has been talking at great length about referenda and justifying the use of referenda in the 56 cases listed in this Bill. What is the rationale for going for referenda in all these 56 cases, some on very esoteric grounds, and not having a referendum on the very substantial and dramatic reform of our legislature as proposed by the Government?

[Lord Howell of Guildford]

We have debated this at length. I have enjoyed some of the noble Lord’s interventions—not all of them—and this one is based on a total fallacy and misunderstanding of the Bill which I have tried to disabuse him of. Clearly I have not succeeded. There is no question of having referenda on 56 different items. As we have debated at enormous length, the items included in Schedule 1 and Clause 6 all relate to a handful of very big, so-called red line issues which the people of this country do not want to be dealt with other than through popular consultation. That is the reality. The 56 story is a wonderful myth. It should be utterly dismissed and I hope that we do not hear anything more about it.

Perhaps I may return to the amendment. Clause 18 would not alter the rights and obligations of the UK by virtue of our membership with the European Union.

European Union Bill

Lord Davies of Stamford Excerpts

Monday 13th June 2011 Lords Chamber

Moved by

[Lord Davies of Stamford]

22A: Schedule 1, page 14, leave out lines 32 and 33

[Lord Davies of Stamford]

My Lords, it would be possible to make a well founded and persuasive argument to get rid of all the provisions of Schedule 1. At this point, however, I will focus on one provision where there is an absolutely demonstrable, concrete, national, economic and industrial issue at stake. I hope I shall persuade the House, and indeed the Government, that there is more than good reason to think again about this element of Schedule 1. The House will be well aware that military equipment is one of the rare exceptions and exemptions from the single market. That is achieved by Article 346(1)(b) of the treaty, which states:

“any Member State may take such measures as it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material; such measures shall not adversely affect the conditions of competition in the common market regarding products which are not intended for specifically military purposes”.

That is an explicitly protectionist measure that allows individual member states to protect their own markets, as in generations gone by before the single market, or Common Market, were ever conceived of. It is an anomaly in what is otherwise a free market, and it is very difficult for some member states to give this up because they are protecting industries with considerable lobbying potential in their own countries.

I have no financial interest to declare in the British defence industry. When I became Defence Procurement Minister, I made sure that I had no shares in defence industries and that has remained the case. I have not developed any relationships with the defence industry since I left government. Indeed, it would have been impossible under the rules for me to have done so in the last year. I acknowledge an admiration for the British defence industry, which I was able in the course of my job to get to know extremely well. The technologies that it has developed over the years, many of which you cannot even talk about the existence of let alone describe the nature of, are extraordinary. We really are at the front line in this area of technology. It is not surprising, and a demonstrable fact, that the British defence industry is by far and away the largest in turnover in the European Union. In other words, we are the losers through this protectionism.

The EU market for defence procurement is roughly €70 billion, say £55 billion, or something of that order. Our own element in that is about £15 billion—say €18 billion—so we are talking about a potential market of some €50 billion to €55 billion. The French, who are very protectionist and make considerable use of Article 346, have about the same spend. The Germans and the Italians have rather less and are also very protectionist. Everyone else in the EU adds up to that sum. There is at stake a market for something like €55 billion, or £45 billion to £50 billion. Of its own nature and operating against the largest most productive sector in the EU, this protectionism deprives us of the opportunities for sales and therefore for employment and for investment, not least for sharing the considerable overheads of R&D with the Ministry of Defence, which is very much in the interests of this country—the interests of defence, the taxpayer and industry.

It might be thought—indeed, I hope it would be—that any rational Government, and I am sure that the coalition Government are in no sense irrational, would want to seize any opportunity that could be identified to deal with that anomaly in the single market. We have been pioneers in, first, opening the single market initiative under Margaret Thatcher and Lord Cockfield and, subsequently, in pushing through the opening of financial services, intellectual property and many other areas in which there was hesitation on the part of our partners in moving forward to implement the principles of the single market.

One would assume that it would be common ground between all the major political parties, in addressing the electorate in our own ways and in addressing the economic interests of the nation, to want to get rid of the protectionist barriers that face that particularly important industry. I think it would also be common ground to agree that the defence industry, perhaps after pharmaceuticals and biochemistry, is the area of manufacturing in which we have the greatest competitive technological advantages in the world market. It is very important, and we ought to be able to come, more or less, to a consensus on what should be done about it.

How do you generate an opportunity to get rid of a form of protectionism when certain member states find themselves subject to considerable pressures and lobbies and find it difficult to move? It is difficult for some of them to vote openly, clearly and decisively for the abolition of Article 346. As I said in Committee, and as all of us with experience of negotiations in any context will know, often the best way to solve a substantive problem or make progress on a substantive issue, especially in a complex negotiation where people have strong and differing interests at the outset, is by a procedural route. I gave the example of setting up a committee to solve the problem rather than taking a decision around the board table, the Council of Ministers, or whatever. The qualified majority voting system is undoubtedly a very useful weapon that has proved its worth over the past generation in achieving substantive progress through procedural routes.

I can see one or two noble Lords looking for the text of the provision in Schedule 1, so let me say that it is on page 14, the penultimate element in Schedule 1, and states:

“Article 346(2) (changes to list of military products exempt from internal market provisions)”.

The provision does exactly the opposite of what I suggest is the obvious thing to be done in the national interest. It makes it impossible for us to agree to, let alone to propose, QMV to decide the future of that derogation from the single market without a referendum. We are putting a ball around our own necks, we are shooting ourselves in the foot, with that provision. It makes no sense at all. Where we have an interest in liberalising trade—I think I would carry a number of people on the opposite side with me in saying that we surely do—and where that means might be the only way to make progress in the area, as has proved to be the case in other similarly difficult areas in the past, we are preventing ourselves from doing so.

We all know that if a British Minister is not allowed to agree and says, “Well, we've got to have a referendum beforehand”, that in effect denies us the chance to seize the opportunity rapidly. It might need to be seized there and then, because if it is not you have lost it. You have your interlocutors in a favourable frame of mind in a particular situation when they agree to resolve the question through QMV. That element in Schedule 1 is entirely perverse. It goes in exactly the opposite direction from that in which any responsible Government would want to go. It is contrary to rationality and good sense; it is directly contrary to the national interest.

The Government have been very statesmanlike in saying in the course of our debates that they will listen to new arguments, that their minds are not closed. Both noble Lords, Lord Wallace and Lord Howell, have said that in answer to me and to other noble Lords. I am sure that that is true, because they are both sophisticated men of the world who know that one always needs to look carefully at these things. When you have a schedule of 56 items, it is almost certain that something somewhere will have crept through when it should not really be there, and it needs to be looked at again.

I claim no monopoly of wisdom in this matter, but I raise it because, as I said, I have a background in this subject and I was struck very forcibly on reading the text of the Bill. I hope that on the basis of the considerations that I have just set out there will be scope to reconsider this important matter. It is important for a major British industry which I think we all wish to support in every way we can. I beg to move.

[Baroness Nicholson of Winterbourne]

In moving his amendment, the noble Lord has not explained to my satisfaction, or perhaps to the satisfaction of others, why the removal of these two lines from the text of the Bill, which would result in QMV rather than a veto on the protectionism of military products, would assist the development of the free market, as he and I wish to see. From my experience in Brussels, sometimes sitting in the chair on common security and defence policy debates, it was very clear that some member states—particularly some of the smaller and newer ones—wished to pursue protectionism to an extent that would have been extraordinarily unhelpful both to the defence of the European Union and to the wider defence policies of countries such as the United Kingdom. In other words, we need the veto and I cannot understand why the noble Lord wishes to remove it.

--- Later in debate ---

[Lord Davies of Stamford]

Perhaps I may try to help the noble Baroness. Of course I did not suggest that adopting QMV in this case would guarantee that we would solve the problem. I said that the problem had not been solved until now but an opportunity might arise to solve it via QMV. Many problems that were solved by QMV did not prove to be solvable when each individual member state was put on the spot with a requirement that it make an explicit and public declaration and hold a public vote in favour of a change, particularly when the change was to remove protectionist support for a domestic industry. I am saying simply that it would be quite perverse to deny ourselves the opportunity of using QMV as an instrument. Of course, there is no guarantee that it would work, but that is no reason for not trying it or keeping it open as an instrument that we might need.

[Baroness Nicholson of Winterbourne]

My point was purely that from my experience and that of others in Brussels, a number of member states wish to keep protectionism. As the noble Lord has already clearly indicated, it is in Britain’s interests to have an open system, and in the case of the defence of the European Union and beyond it is in all our interests to have an open system. I cannot see how QMV will assist an open system when Britain may need a veto.

Since the noble Lord was involved in the defence industry at an earlier stage in his political career, the European Union has widened immensely. Some of the newest member states have had a significant interest in keeping protectionism moving in the defence industry, with some of them having very large interests in it. The contracts are massive; the potential for dealings that are less than transparent is huge, as some of the biggest contracts on the globe are before individual member states; and one of the great strengths of the potential of the EU common security and defence policy is an open system of military equipment, which would stop the protectionism to which the noble Lord rightly refers. I have failed to be convinced so far by what the noble Lord has said about the loss of the veto and the introduction of QMV.

--- Later in debate ---

The chance of a future Government agreeing to give up this veto in practice is vanishingly small. The chances of this being proposed as a separate one-off move are zero. A remote possibility is that it could be put forward as part of a package of transfers of competence and powers to the EU, however undesirable it seems to us at present that it should be so. That would be the sort of event where people rightly want and expect their say. If denied their say people would feel that, once again, powers were being transferred without adequate public accountability. For those reasons, although I salute the feeling and validity of half of the noble Lord’s argument, I hope that he respects my half of the argument and I ask him to consider what he has said and withdraw his amendment.

[Lord Davies of Stamford]

My Lords, I am deeply grateful for the consideration which the House has given to my amendment and for the warm and supportive words of the noble Lords, Lord Hannay and Lord Triesman, and the noble Lord, Lord Kerr, who seized on an argument that I was about to deploy myself in response to the noble Lord, Lord Howell. I will address the points of the noble Lord, Lord Howell, in a moment and bring my remarks to a conclusion by addressing the Government’s response. I am grateful too for the contribution of the noble Baroness, Lady Nicholson. Frankly, I did not understand her argument that somehow possession of veto was going to help us in any circumstance in advancing the cause of reform of Article 346. I shall correct her on a practical point: she says that since I was involved with defence there have been a lot of changes in the world, including the end of the Cold War. I think she is going back to the time when I was a defence spokesman in the Conservative Party. My experience of defence in government ended 13 months ago, in May last year.

I always enjoy the contribution of the noble Lord, Lord Hamilton, to these debates. He deployed an argument today which I have heard him deploy in other contexts. It is, “If it is such a good idea, why not have a referendum and you will win it? The public will support you”. I am not sitting close enough to see whether he has a twinkle in his eye when he says it but I think he has. He knows as well as I do that there is no prospect of having a referendum on a subject as esoteric as Article 346. If we have a serious opportunity to change it, it is no use saying to our partners, “For once we have got the chemistry right—there is an opportunity to go for QMV on this, and then maybe there will be a consensus and we’ll get some reform. But sorry, chaps, you’ve got to wait for two, three, four, five or six years, when it is particularly convenient for us to have a referendum with a whole package of measures”. Even then, as I have said before in these debates, it would be quite unsatisfactory for the British electorate to do their homework on a whole series of rather technical matters. It is just not practical politics. The noble Lord, Lord Hamilton, knows more about politics than I do; he has been involved in politics longer than I have, and I am quite certain that he had his tongue in his cheek when he said those things.

I move to the points made by the noble Lord, Lord Howell, on behalf of the Government. He started off by saying that Article 346 had been in the treaties in one form or another—of course, it had different numbers—since 1957. What is new is the idea of having a referendum on a change. That is brand new. It has not come in yet—it is in the Bill before us. That is what I want to change. It is not an argument against changing this new measure that the instrument that we might want to use to reform Article 346 is now under threat from a new provision in this Bill, so it would be sensible for us to remove that threat. I do not think that there is a logical argument there against my proposal.

Like the noble Lord, Lord Kerr, I really wondered how serious the noble Lord, Lord Howell, was when he said that it may be in our interests to prevent protectionism to have a veto, because then we could stop our partners from being even worse protectionists than they were before. As the noble Lord, Lord Kerr, pointed out, in that case the noble Lord, Lord Howell, would have logically opposed the whole single market programme. It would not have made any sense at all. So the noble Baroness, Lady Thatcher, and Lord Cockfield were actually doing something very dangerous in threatening greater protectionism by agreeing to have qualified majority voting in the Single European Act.

The noble Lord, Lord Howell, tried to justify that approach with the distinctly implausible suggestion that different rules applied to defence. I do not think that different rules applied to defence; I think that the argument is rather different from that. That is why, for two reasons, I think there might be an opportunity to achieve QMV, if only the British Government have not deprived us of that opportunity in advance, ab initio. First, there is a positive incentive on Governments to reduce the costs of their defence procurement—and protectionism, as we know, is extremely expensive. If they opened their markets they would be able to purchase more cheaply, given a measure of defence capability. When I was the Defence Procurement Minister—and I was very proud of this, because I did it for the first time—I introduced a unilateral open market in the EU. I said, “Sorry, we’re going to buy the cheapest and the best, wherever it is. We’re not going to be protectionist”. It is only when there is inequality of quality and price between the British supplier and non-British supplier that I will favour the British supplier. I made that absolutely public, and it was what I operated on. For example, I bought the 42-millimetre cannon for the Scout vehicle and potentially for the Warrior upgrade from France. Why? Because it was the best. The French were obviously delighted. There was no quid pro quo. I said to my French colleague, Laurent Collet-Billon, “You know, you and I must do something”. He said, “Of course, mon cher collègue, we will see what we can do”. But of course nothing has come through. Unless we do something about this protectionism, it will probably not.

[Lord Hamilton of Epsom]

As the noble Lord was responsible for the posting of the aircraft carrier orders, why were they not submitted to bids from all round Europe? Why were the bids all placed with British shipyards in this country?

[Lord Davies of Stamford]

As a matter of fact, I would be very proud to take credit for those particular contracts, but that contract was let before I came into my job in the MoD. However, I did manage to save that project when it was under very severe threat, in similar circumstances as last year. But unfortunately the new Government decided to throw in the project and deny us carrier strike capabilities for at least the next 10 years—disastrously so. Let me answer the question hypothetically, therefore, and say what I would have done had I been there at the time. Undoubtedly, I would have been delighted to have had those carriers procured on the best bid from within the European Union basis, as long as it was reciprocal and we had some chance of getting an order for a French frigate from a British shipyard. It has to be reciprocal. That was a particularly big order, and the protectionism the French afford to their shipyard, the Chantiers de l’Atlantique, is particularly great, so there would have been a situation in which competition would have been completely false.

I would have been delighted to have had the opportunity to procure on a common EU basis because that would have enabled us to bring the costs down further and it would have meant that our yards, over time, would have done very well. If you just look at two—the Type 45 destroyer and our submarine-building capability in Barrow—I am convinced that they are the best in the world, including the United States, when it comes to building very sophisticated warships. We would have done very well with that solution.

As I said, there are two reasons why there is a chance of Article 346 being reformed. It is particularly unfortunate, therefore, that we should be about to make it much more difficult for that to be achieved through QMV, if that seems the most likely way forward, which I think it is. The second argument is that, unlike us, our continental partners always have a sense of guilt in acting in a non-communautaire fashion. They are signed up to the principle of the single market. They find it very difficult and embarrassing to argue for derogations, though of course they do so when they are under great political pressure. Therefore, it is the sort of situation when agreeing to the intermediate stage of going to a QMV decision-making process has some hope—I do not put it more strongly than that—of achieving the substantive change that we all want.

I put to the Government, in my last comment on the subject, that when you have some realistic hope of something—it does not matter whether it is 20 per cent or 50 per cent or 70 per cent or even 10 per cent—but there is no downside, logically you do it. In this case there is a real hope of moving forward. There is no possibility whatsoever of extending the list under Article 346. The list is already far too great, as somebody has already said in the debate. Nothing that could conceivably be argued to be military materiel is not currently included, and this clause has been used to cover things like trucks, notably in the case of the Italians—I do not mind embarrassing them by mentioning this now—who claimed that because they were military trucks they were military materiel. There is no chance; I am quite convinced that the European Court of Justice would rule out any further use of Article 346 because such a use would no longer be consistent with the description in the article itself.

There is no downside. I ask the Government to look at that point again. There is a potential upside through using QMV, and the stake is important. This is a major national industrial interest for one of the major British industries in which we have a worldwide capability. There is a direct benefit to us—the taxpayer—as well, because if we can expand the sales which carry the overheads, including R&D, of the British defence industry, it will mean that we can achieve given levels of military capability from that industry when we procure from them at lower cost. It will be a win-win situation if we can break through here and we would be very foolish to deny ourselves any opportunity or instrument which made it even slightly more likely that we would achieve that.

On the basis of that, you would expect me to put my amendment to a vote. However, I am conscious that we are after dinner and that the Whip has been withdrawn, so there may be an uncharacteristic result from any particular vote, and I am also anxious not to take up too much time. We have already had a very good debate. I think I have said enough and colleagues have said enough. I trust to persuade the Government to look at this again. The noble Lord, Lord Howell—I am very grateful for this—was kind in his remarks about my intervention and he said that there were strong arguments on my side, though he said there were strong arguments on the other side as well. I understand that. That indicates to me that despite what is in the Bill the Government are a little bit more open-minded, perhaps, than one might have thought at the beginning of this debate. On that basis, I beg leave to withdraw my amendment.

Amendment 22A withdrawn.

European Union Bill

Lord Davies of Stamford Excerpts

Monday 13th June 2011 Lords Chamber

I am afraid that these amendments to me amount to little more than the tactic deployed by certain noble Lords throughout our debates on the Bill; that is, endeavouring in all possible ways to weaken the principle of the Bill, which is to make absolutely sure that even if Governments are unwise enough to propose giving away power, there will be the check of the British people being able to say no. Some say that we cannot be swamped with referenda, but it is clear that they are there as a deterrent. Although the prospect of referenda occurring at all is pretty small, I cannot think of a more effective check. In an age when we are likely to be going into very new territory as the drop-out of the weak financial positions of certain European states is felt, we are likely to enter an era in which it will be only too easy for Governments to be persuaded or dropped into giving away further major powers. The Bill is there to stop that. I can understand why a keen Europhile might not like that very much, but the whole point of the Bill is to protect the British people.

[Lord Davies of Stamford]

My Lords, I rise to do two things. One is to address the contention made by the noble Lord, Lord Waddington, that I have heard before from him and other noble Lords during our debates on the Bill. His contention is wrong—that the British people have been systematically deceived about the nature or purposes of the European Union, or the European Community as it previously was, and that therefore they were unable to take informed decisions at election time or, indeed, at the time of the 1975 referendum.

It was always clear from the beginning that the European Union, or the European Community, was not a dead institution that was fixed once and for all. It was a dynamic institution, even a teleological institution which had a final purpose or end; all that was stated in the preamble of the treaty of Rome. The phrase about the ever closer union of peoples was always there. Right at the beginning, even when Macmillan first suggested that we might join the Common Market, or the European Community, I remember that speeches were made by members of my own party. I was a schoolboy at the time but I was already taking an interest in these matters. I remember Hugh Gaitskell’s famous speech. My noble friend Lord Radice, who has written books on this subject, will correct me if I have the date wrong. I think that it was in 1962 that Hugh Gaitskell made a famous speech saying that the effect of our joining the European Community ,or the Common Market, would be that we would become like Texas in the United States. If I am right and that speech was made in 1962, that means that literally for the past half century this discussion about the constitutional significance, and the significance for national sovereignty, of our being members of this institution have been clearly, expressly, openly, overtly and thoroughly transparently discussed in public.

[Lord Flight]

I thank the noble Lord for giving way. It may be that he was more involved at the time than I was, although we are roughly the same age. However, I remember being organised by the Conservative Party at the time to go out and preach on voting in the referendum for the Common Market—indeed, I voted for it—specifically on the grounds that it would be a good economic prospect for this country. We had lost an empire and we needed to belong to something where we could trade. I was not even aware of the idea that I was trying to market something about political unification—fool though I may have been at the time.

[Lord Lea of Crondall]

I am sorry—I do not know who is speaking and who is intervening here.

[Lord Davies of Stamford]

Perhaps I may resume my remarks and then of course I will give way to my noble friend Lord Lea. Given that the noble Lord, Lord Flight, brings up his personal reminiscences of the 1975 campaign, I can respond only by saying that I did indeed take part in it. I actually became chairman of the City in Europe committee—I had been working in the City only for a year or two at that time—that organised the campaign in the City, and I chaired a meeting attended by 600 or 700 people at which Edward Heath spoke effectively. I remember that very well. I say with great sincerity that then, as now, I was committed to the long-term agenda explicitly set out in the treaty of Rome, which I had taken the trouble to read—even in those days. I believe that I knew what I was doing and that those who campaigned with me knew what we were doing. We made it absolutely clear to the British public what was intended and what we had in mind. I am very proud of that campaign.

Those are my personal reminiscences, and I am delighted that at the time the noble Lord had the right views on the subject. Perhaps he will come around to the right views again one day. Both of us took part in an interesting campaign. I give way to my noble friend Lord Lea.

[Lord Lea of Crondall]

I am most grateful to my noble friend. Perhaps I may give an even more telling example that gives the lie to the other contention. I recommend to the noble Lord, Lord Flight, that he looks at the 1971 White Paper. Mr Heath was Prime Minister, although he was not necessarily the favourite Conservative Prime Minister of the noble Lord. The first page refers to going towards ever-closer union. That is not a phrase that I particularly like, but I invite the noble Lord, Lord Flight, to read that White Paper, which is in the Library, and see whether he wants to keep reiterating this falsehood—I am sorry, I withdraw that—or, rather, this error.

[Lord Davies of Stamford]

My Lords, the second point to which I wanted to draw attention is a theme that has come through in all these debates. All I shall say in a few sentences is to try to make explicit in Hansard what should be implicit for anyone who reads our proceedings with any degree of attention. A clear difference is emerging between those of us who are in favour of the Bill and those of us who are against it as regards the role of Parliament and our view of Parliament’s constitutional importance, functioning, efficacy and efficiency. It is clear that the coalition Government and those who support them in this Bill do not really believe in Parliament in the same way that those of us on the other side of the argument do. That is a sobering thought, because until now, for hundreds of years, there has been no distinction between the parties about Parliament and the fact that it is the best way of taking complex decisions on behalf of the country. That is why most of us came into politics and public life in the first place. It was because we wanted to be part of that process and to influence it in one way or another. All parties in this country and all of us who have stood for public elected office have always believed that Parliament was the best possible mechanism for achieving good governance and for making sure that complex arguments had been viewed from their different perspectives and debated, and that we came to a mature and considered conclusion on difficult issues. I am very proud of being here in the mother of Parliaments.

Now half our Members in this House this afternoon—perhaps more than half; I do not know, but we will see what happens in the vote—are sceptical about Parliament. They pay lip service to it and, no doubt, see some role for it, but they are clearly very sceptical indeed about Parliament. They do not think that Parliament is mature enough or sufficient for the purpose of deciding complex questions in the future. They want to go back to this Napoleonic concept of the plebiscite or referendum as a mechanism that is superior to that of parliamentary government. That is a sobering thought. I will not go further into the constitutional implications or the historical significance of that because it would take me well outside the amendment we are debating. However, it has been a theme which, unambiguously, has emerged from the debates we have been having on this Bill. It is something that we should all reflect on carefully because the long-term consequences of such a split in what has always been a constitutional consensus in this country are to my mind very sobering indeed.

[Lord Kerr of Kinlochard]

I support the final point made the noble Lord, Lord Davies, and the final point made by the noble Lord, Lord Goodhart. My point is a Burke point. I hope that the noble Lord, Lord Waddington, is listening: I am addressing it to the rising hope of the stern, unbending Tories. It seems to me really important that we should try not to undercut Parliament. As the noble Lord, Lord Goodhart, said at Second Reading, as he has said again today, what we are doing with these referenda, the ones talked about in this clause and in this Bill, is asking the simple question: do you wish to overrule Parliament; do you wish to disallow an Act of Parliament? In every case, the Act will be on the statute book and the question for the electorate will be: do you want overrule Parliament? What, I ask the noble Lord, Lord Waddington, would Burke have said?

European Union Bill

Lord Davies of Stamford Excerpts

Wednesday 8th June 2011 Lords Chamber

[Lord Wallace of Saltaire]

My Lords, I shall speak also to Amendment 7. I hope that the noble Lord, Lord Liddle, will regard this too as a major concession by the Government. These two amendments are intended to address a point raised by a number of Peers during our debate on the first day in Committee some weeks ago on what the noble Baroness, Lady Symons of Vernham Dean, described as a probing amendment. The noble Baroness, along with the noble Lord, Lord Davies of Stamford, and the noble and learned Baroness, Lady Butler-Sloss, raised the question of the correct interpretation of Clauses 2 and 3 with respect to the application of the referendum provision to Gibraltar. They raised the concern that the provisions as drafted could result in the need to hold a referendum in the UK even if the proposed treaty change happened to apply solely to Gibraltar and not to the United Kingdom. They said that this would be nonsensical. I agree that in such unlikely circumstances it would be nonsensical.

As your Lordships’ House is aware, the Bill concerns only the future transfer of competence or power from the UK to the EU. As I promised at the end of that debate, we have reflected further on this issue. Our view remains that the requirement for a referendum to be held in Gibraltar under the provisions of the EU Bill is not self-standing but is dependent on three things: first, that there is a treaty change which applies both to the UK and Gibraltar and, secondly, that the treaty change would result in a transfer of competence or power from the UK to the EU. Then and only then does the third condition arise; namely, whether the treaty change would also represent a transfer of competence or power from Gibraltar to the EU.

That said, we recognise that it is important to be as transparent and clear as possible. That is the Government’s intention. Consequently, we have tabled these two simple amendments to Clauses 2 and 3 to make sure that the meaning is clear beyond doubt. The amendment makes explicit that only if a treaty change were to apply to both the UK and Gibraltar, and the referendum is to be held in the UK, would that referendum also be held in Gibraltar. I beg to move.

[Lord Davies of Stamford]

I hoped to intervene before the Minister sat down but I missed my cue. I shall be very brief. As the noble Lord and his colleague, the noble Lord, Lord Howell, have been courteous enough to mention me in the context of our debates on these matters in Committee, it would be wrong of me not to say that we on this side appreciate that the Government have genuinely reflected on the Committee stage debate on these two matters, relatively minor though they may be. That is encouraging for us and the hope that we can all take part in improving this legislation and that the result of our labours will not be entirely nil. Does the noble Lord have in mind any specific contingency in which there might be a proposal involving the transfer of powers from Gibraltar to the EU, or is this whole subject merely theoretical? Have the Government provided for it as a purely theoretical possibility, or do they have any issue in mind that might be triggered by this clause?

[Lord Triesman]

My Lords, I appreciate the tabling of these two amendments by the Government. I share the view of the noble Lord, Lord Wallace, that they will probably not be thought of as huge concessions almost anywhere. He put that rather generously and he is quite right—they will not. More to the point, they are wise amendments. It may well be that on some future occasion he will wish to land in Gibraltar. He would not want to receive the sort of frosty reception that he would receive if he had done anything to the people of Gibraltar other than what appears as a result of these two amendments. It is a helpful clarification. We are satisfied with it and thank him.

--- Later in debate ---

[Baroness Falkner of Margravine]

I say to noble Lords opposite that we on the Liberal Democrat Benches recognise that this amendment is intended to enhance scrutiny and to improve propositions that might be put forward by the Executive. We also accept the spirit of what noble Lords opposite are trying to do. For the record, I do not find, in the copy that I have just looked up, the elements of the coalition agreement to which the noble Lord, Lord Liddle, referred as endorsing this amendment. I would not want to tempt him to read out the entire section on Europe in the coalition agreement, as the hour is late.

I shall speak to the substantive elements of the amendment. We do not believe that it would be right to take such a dramatic step to remove from the Executive, the Government of the day, the decisions about what they will support or not and to give them to a committee of both Houses. We have had a long debate about Parliament and the importance of parliamentary scrutiny and so on. In Committee, we heard a lot of argumentation across the House regarding urgent situations and what would happen because decision-making was so late and would be so stymied. I find that the methodology proposed here would certainly add to the amount of time that would be taken to deal with measures if a Joint Committee had to rule on them. There would also be the issue of reintroducing some rather subjective concepts: urgency and national interest. We have had debates on those subjects; both are highly subjective. We are also conscious of the judicial review implications contained in the Bill.

Finally, the amendment seems to miss the underlying theme of the Bill, which is that the Executive make a call on a proposal, bring it to Parliament, Parliament agrees it and then the public are to ratify that decision through a referendum. As we have repeatedly heard from the ministerial Bench, the Bill is designed to reconnect the British public with these policy issues that emanate from the European Union. The public will be empowered, through the processes proposed here. To take that away and to give it to a Joint Committee of both Houses seems to me to entirely miss the point of the Bill. On that basis I suggest that it goes contra to where we had got. Before I conclude I give way to the noble Lord,

[Lord Davies of Stamford]

The noble Baroness has said that one of the reasons why she did not want to support the amendment was that she was worried that it would raise the possibility of judicial review on the decision about whether a referendum was necessary. According to this amendment, that decision will be taken by a parliamentary committee—in this case a joint parliamentary committee—so how could there possibly be a judicial review? That would be contrary to the Bill of Rights.

[Baroness Falkner of Margravine]

I think I can see the point that the noble Lord is making. I wonder whether he is interested in hearing my reply, as he is now engaged in another conversation. As I understand the amendment, the committee would make a recommendation to the Government on the basis of urgency, significance and national interest. I think the decision of the Minister, in accepting or not accepting the recommendation, would be subject to judicial review.

For the reasons I have enunciated, I can see that the amendment is well meaning but I urge my noble friends to oppose it.

[Lord Davies of Stamford]

My Lords, the clause makes no reference to the Joint Committee advising the Government. The Joint Committee would have the responsibility for making a decision. By definition, if the decision is made by a parliamentary committee—a Joint Committee or other parliamentary committee—it could not be subject to judicial review.

[Baroness Falkner of Margravine]

Since the noble Lord continues with the matter, I will detain the House for a moment. What is the point of a recommendation coming out of a Joint Committee if the Government ignore it?

European Union Bill

Lord Davies of Stamford Excerpts

Wednesday 8th June 2011 Lords Chamber

[Lord Wallace of Saltaire]

My Lords, we all understand that events happen—although I believe that what Harold Macmillan said was, “Events, dear boy, events.” We also understand that in a crisis Governments get together and take the necessary decisions to deal with that crisis. The noble Lord, Lord Triesman, rightly said that we cannot envisage what sort of crisis we might be facing in five to 10 years’ time or even in two years’ time. The G20 is a very good example of the sort of body which has come to operate relatively effectively, as a form of consultation about a number of global problems. However, the G20 is of an entirely different quality from the European Union. If there were a crisis, the relevant Governments would necessarily get together and have to act, but they would undoubtedly act by consensus. That would be different from agreeing to change the structures and competences of a European Union, which is not simply an international organisation but a structure of law, a semi-confederal institution of which we have become a co-operative member.

Having had some informal conversations across the table with the noble Lord, Lord Kerr, I note that Article 48(6) states—

[Lord Davies of Stamford]

I thank the Minister for giving way. Is not the argument that he is adducing one that entirely excludes even the theoretical possibility that the European Union might turn out to be the best instrument for addressing the crisis that we are talking about? If the crisis can be dealt with by consensus with other Governments—the G20 or whatever—that is well and good, but what the Government are doing in the Bill is excluding the possibility that the European Union may be the most effective instrument for solving the problem and might need additional powers for that emergency.

[Lord Wallace of Saltaire]

My Lords, the Bill in no way excludes the European Union from being the appropriate body to respond. It is entirely appropriate that bodies such as the European Council and the Council of Ministers in its various forms should take decisions. How those decisions are taken, and what their legal implications will be, are matters probably best not dealt with in an emergency. Where there might be a transfer of competences, one should consider it not under emergency conditions but rather more coolly.

I was about to quote Article 48(6), which states that the decision under the simplified procedure,

“shall not enter into force until it is approved by the Member States in accordance with their respective constitutional requirements”.

That is why urgent decisions will take 18 to 24 months to get through the various constitutional requirements, and why the question of what we mean by urgency does not limit the British Government.

It is of course very difficult to foresee what sort of crises we might face, or how and in what framework we and others would respond. The European Union exists as a framework and therefore may very often be used as such, and we and others would work through it. It has plenty of competences and the ability to take decisions by consensus in response to a crisis. However, that does not transfer powers and competences. That is the difference between taking urgent decisions and changing the nature of procedures, structures, powers and competences. With respect, I say that the urgency question is not an important part of the Bill. There would be sufficient time to complete the processes set out by the Bill, by an Act of Parliament and, where required, a referendum of the British people.

The second part of the condition is that the treaty change should be in the national interest. My noble friend Lord Howell said, when debating a previous amendment, that the national interest is not an entirely objective concept. I am sure that the noble Lord, Lord Triesman, agrees that the coalition has come together in the national interest and is acting in what we think is the national interest—although he may have a different view of the national interest from members of the coalition. Politics revolves around our contesting views of Britain's best national interests. Therefore, the concept is not an entirely objective one that we can usefully write into the Bill. No Government would agree to any treaty change at EU level if they were not of the firm belief that such a move was consistent with the national interest. No Administration would ever agree to a treaty change if they considered that it would be against the interests of the United Kingdom. Therefore, I assure noble Lords that the national interest, as we see it, is at the heart of every major decision that this Government take on EU matters—as I assume was the case with the previous Government and will be for any subsequent Government.

Having answered those questions, I urge noble Lords to withdraw the amendment. We have had a useful but general debate about what might happen in a hypothetical crisis that none of us can yet quite envisage, let alone consider what immediate changes in powers or competences it would require.

--- Later in debate ---

[Lord Lamont of Lerwick]

My Lords, I think that this is what might be called the Rumsfeld amendment, because it has been moved to deal with the unknown unknowns. That is what it is all about. I had not remotely intended to speak in this debate, but the noble Lord’s enthusiasm is so infectious. He looks at the European Union and sees that nothing has ever gone wrong with it. We ought always to be in there and engaging with it. We must be careful not to miss the train. We must always be positive regardless of what is happening. He tells us about the wonderful speech that Monsieur Trichet has made, saying that we ought to have fiscal union in order to save the euro. No mention is made that that comes out of the ashes of the disastrous ruin of monetary union.

I think it was the noble Lord who used the same arguments to try to persuade us to join the euro. He said that we are losing influence. Even though the euro has now itself faced enormous problems and even though some of my noble friends on the Back Benches have said that we shall never be able to have a single currency area without a fiscal union, we are told, “That is ridiculous. Now fiscal union is just another great step forward. We have got to be positive about it”.

The noble Lord also says that the European stability mechanism is another thing that we are missing out on, and that we ought to be involved in it. Of course, the ESM is in complete contradiction to the whole basis on which the euro was set up. It is not because it was an unexpected disaster—it was a predicted disaster. The reason the ESM had to be created was because the treaties totally forbade it. Yes, we do face some unknown unknowns.

I apologise to the House because we should not all give our own views on Europe, but I was completely provoked by the noble Lord, who seems to be like Alice through the looking-glass: every disaster is seen as a step forward. We just ought to take a step back, hold our breath, and think about it a little.

[Lord Davies of Stamford]

My Lords, I am going to resist the great temptation to respond to the noble Lord, Lord Lamont. I do so not because I do not think that he is completely wrong, which I think he is. He is quite wrong to write off the euro in this way, and he is wrong to suppose that we would not have had to face a systemic crisis caused by fiscal collapse in Ireland, Portugal and Greece. Whether or not the euro had ever existed, we would have needed to take intelligent and concerted action. The noble Lord, with whom I have debated these matters with great pleasure on many occasions over the years, is as wrong as he has always been. I am happy to give him good money in a private conversation afterwards that the euro is far from being in a state of crisis and that it will survive.

I hope noble Lords understand the very important distinction between a fiscal crisis, which has hit a number of countries that are members of the eurozone and have the euro currency, and a crisis for the euro itself. You can have a fiscal crisis caused by Governments overborrowing irrespective of the currency in which they are borrowing. Even if those countries had been members of the dollar area and had borrowed so much that the financial markets were in danger of ceasing to refinance them, there would have been a crisis affecting them; and because of the number of assets that we inevitably hold in those countries, which are major trading partners of ours here, we could not have been immune to a fiscal crisis irrespective of the currencies involved.

[Lord Hamilton of Epsom]

Does the noble Lord accept that the ECB is technically bankrupt?

[Lord Davies of Stamford]

I accept nothing of the kind—the ECB has a triple-A credit rating, as I am sure the noble Lord knows.

[Lord Flight]

Would the noble Lord give even just a little bit of credibility to the argument that the problem of different economies sharing the same currency is that the costs of some in the southern part of Europe have gone up 35 per cent while Germany’s costs have only gone up 10 per cent, so they have a big competitiveness problem, which is part of their fiscal problem? In the case of Spain and Ireland, the problem is that they have had a low rate of interest that is unsuitable for their own domestic rate of inflation, causing real interest rates to be negative. That caused everyone to borrow too much and the banks to lend too much, so they have had an overlending problem, in part caused by the fact that they are sharing an inappropriate currency. If they had their own currency, they could devalue when they had such a crisis.

[Lord Davies of Stamford]

I am getting signals, quite rightly so, from my Front Bench so I really must not respond to the substance of that because I shall be turning this into a debate—which we ought to have in this House on these important matters—on fiscal and monetary issues in the European Union at present. I hope that the Government take note of the obvious interest on their own Benches in having the opportunity to discuss this matter and exchange our various perspectives on it. I wanted to intervene really just to support my noble friend’s excellent amendment. If it is accepted by the House, it will get rid of a large amount—80 or possibly 90 per cent of the damage—that could be done by this Bill. If this amendment goes through, Clause 3(4) would then read:

“The significance condition is that the Act providing for the approval of the decision states that … the decision falls within section 4 only because of provision of the kind mentioned in subsection (1) of that section, and … the effect of that provision in relation to the United Kingdom is not significant”.

In other words, the only exemption from the need to have a referendum would be in relation to matters that were not significant for the United Kingdom. Surely, to accept this particular amendment is a cost-free concession on the part of the Government. I cannot believe that the Government actually want to provide for having a referendum on something that is not significant for the United Kingdom. Am I perhaps wrong about this?

We need to probe the Government’s logic a little here, because what an extraordinary thing it would be if the Government want to take through Parliament a Bill providing for the possibility of having referenda on issues that are not significant for the United Kingdom. The Government cannot turn around and use the argument that what is significant or not might be a subjective and difficult matter to determine at any one point, because they have already accepted in this Bill, as it stands, the need to make a distinction between significant and non-significant. That argument cannot be made. The only argument that can be made is that we need to provide for having referenda on something that is not significant, which does not make the slightest sense. I ask noble Lords to envisage a scenario in which we have a referendum in this country on something that everybody accepts is not significant for the United Kingdom. We ask the electorate to focus their mind on a difficult, technical and perhaps rather abstruse matter—maybe a whole package of such matters, which is what the Government have been suggesting recently; to take the time to master the relevant briefs or at least make up their minds on this matter; and to take time off from their work or from their leisure activities and go to the polls on something that they are told in advance is not significant for the United Kingdom.

[Baroness Nicholson of Winterbourne]

Since the noble Lord has such confidence in the judgment of Ministers that he wishes to recentralise the possible decision-making that would come through referenda, why does he not have confidence that the judgment of Ministers would be that something inessential would not come to Parliament in the first place? There is an illogicality in his circular argument.

[Lord Davies of Stamford]

There is no illogicality at all. There is no need to provide for a referendum on something which is not significant for the United Kingdom unless the Government believe that they might, at some point, wish to have such a referendum, which I regard as an utter absurdity. It would be an insult to the electorate; it would be treating the whole electoral system of this country in a thoroughly frivolous way. I have to ask the Government: what is the purpose—what is the logic, because it is not clear to me at all—in providing for the possibility of referenda on non-significant subjects? It would be an utter contradiction in terms.

I have to mention to the House a matter which I must not go into in any detail for fear of breaking the relevance rule. I shall not do that, but I need to refer to the fact that a week or two ago the Government published a Bill on reform of the House of Lords which provides for fundamental changes to this House, and therefore to the legislature of this country, without providing for a referendum at all. So we have a situation in which the same Government are saying, on one hand, “We have to change the House of Lords in a fundamental way and we cannot have a referendum on it”, and at the same time saying, “We have to have referenda on changing the rules on qualified majority voting on taking decisions about the future of the public prosecutor’s office in the European Union”—something idiotic like that. Now they come forward and say, “No, actually we need to provide for referenda on explicitly non-significant matters”. What an extraordinary contradiction.

I see that, for once, I have the agreement of the noble Lords, Lord Flight and Lord Hamilton, as well as other distinguished Members opposite. Maybe the Government, in responding, should not just turn to me; they should turn to their supporters on their own Back Benches. They certainly need to turn to the country to explain the logic of the Bill, because, whatever it is, it does not appear to be coherent or something that has been properly thought through. I am sure that it is not deliberate hypocrisy—I would not dream of accusing noble Lords of that. Maybe it is some kind of confusion, but we need to know what it is, because what they are bringing forward seems to have no sense at all either from the rational or the pragmatic point of view, or to be credible in any way.

--- Later in debate ---

I hope that these matters do not come forward. However, if they did, they would raise very important issues that would excite considerable public comment and attention and deal most intimately with out national interests and plans. We would have to start thinking about that which the noble Lord, Lord Liddle, talks about. This thinking ought to lead rapidly to ways in which we could deal with these issues in a co-operative and practical way. However, if it came about that there was an overwhelming demand and conviction that there should be a new treaty throughout the whole European Union, it would certainly have to be put to the people. The idea that it would not be put to the people is absolutely incredible.

[Lord Davies of Stamford]

I am most grateful to the noble Lord for giving way. With the greatest respect, this amendment is about having a referendum, or not having a referendum, on matters the effect of which—to quote the Bill—

“in relation to the United Kingdom is not significant”.

Nobody in the world would argue that setting up a finance ministry for the European Union was not significant for the United Kingdom; the question is why we should have referenda on matters which are not significant. The noble Lord has cited a lot of possible scenarios, all of which involve dramatically significant events which would obviously be significant events for us, but the big issue concerns why we should have a referendum on matters which are known not to be significant for the United Kingdom.

[Lord Howell of Guildford]

I think that we are arguing in a circle because the Bill provides the significance test and matters in paragraphs (i) and (j) of Clause 4(1), which I have described, might well be ruled by Ministers not to be significant, and therefore there would be no referendum. Furthermore, in Clause 4(1) there is a whole string of exempt conditions where no referendum will occur. Therefore, I do not see what the noble Lord is worried about. As regards issues that are deemed to be insignificant, or issues that are deemed to fall under Clause 4(4)—sorry, I said Clause 4(1), whereas I meant Clause 4(4)—Clause 4(4) states that:

“A treaty or Article 48(6) decision does not fall within this section merely because it involves one or more of the following”.

There is your list. There are the things that are not significant which will not attract a referendum. The noble Lord was speaking with great feeling and fervour but I cannot see that his worry is well founded. I am clear that this amendment would not assist the purposes of the Bill and would undermine certain values and aims of the coalition’s European policy. On that basis, I strongly urge the noble Lord to withdraw it.

European Union Bill

Lord Davies of Stamford Excerpts

Wednesday 25th May 2011 Lords Chamber

[Lord Hamilton of Epsom]

Of course—but the noble Lord will know well that the late Lord Hailsham described government as an elective dictatorship. I view what will happen as being very much more in the hands of the Government than of Parliament. I take the point that we are talking about Parliament rather than the Government. However, it is an entirely different matter when you give powers to people in the form of a referendum, because if you then take them back you are taking them from the people. That is different from all the other sunset clauses that we have in our legislation.

[Lord Davies of Stamford]

My Lords, I put forward five simple propositions. Many of them will be regarded by noble Lords as entirely unexceptionable. The first is something that most people would regard almost as a platitude; every human institution must be able, in order to survive, to adapt to changing circumstances, and to change from time to time its decisions, procedures and way of doing business. I think people would accept that proposition for the private and public sectors, and for any realm of life. The Government have not attempted to argue that this principle does not apply, for some extraordinary and miraculous reason, to the institution known as the European Union, and no such argument could cogently, coherently or credibly be made. I will leave the proposition there in the hope that it will not be challenged; I shall be fascinated if any noble Lord chooses to.

My second proposition is one that I have already put forward in these debates, and about which the Government have not succeeded in persuading me that I am wrong. It would not be credible, or possible in practical politics, to have a referendum on 90 per cent of the issues listed in Schedule 1, such as the appointment of judges or the prosecutor general or something of that sort. The British public would consider these matters to be of tertiary importance and interest. We all know how difficult it is to get a respectable turnout in general elections, even when they are the high point of political controversy in a five-year parliamentary period.

The Government have not attempted to argue that I am wrong about that. They have said that, in practice, referenda issues would be bunched. There would be a referendum on six or 12 issues—they have not come up with a figure—at one time. That is not practical politics, either. You cannot ask the British public to answer yes or no to a dozen different questions; you would have to ask for a dozen different considered responses, which would mean that you would have to have a campaign running in parallel on a dozen separate questions, many of which will have a complex technical background. That is not a practical proposition at all.

That is my answer to the noble Lord, Lord Hamilton. I often agree with the noble Lord in this Chamber and always appreciate his interventions. He asked why noble Lords on this side should be worried about referenda, because if we think that something is in the national interest, the public will vote for it. That was the noble Lord's argument; there will be a referendum and it will be won, and the result will be in favour of, for example, greater integration in a particular area. My response is that those referenda will not occur, because it would not be practical politics to have a referendum on at least 90 per cent—or some such very high figure—of the issues set out so conveniently in Schedule 1.

[Lord Hamilton of Epsom]

I thank the noble Lord for giving way. Is he suggesting to me that it is in the national interest that we should integrate more greatly with Europe?

[Lord Davies of Stamford]

I am suggesting that sometimes it may be and sometimes it may not be. We need to be pragmatic about these things. I believe that the noble Lord is in favour of our membership of the European Union and of the single market. I believe that he voted for the Single European Act, so he is in favour of qualified majority voting. He therefore considered that it was very much in the national interest to integrate policies in those areas. It may be that he is on record as having been in favour of other forms of integration on equally respectable pragmatic grounds. I think the noble Lord’s record would be quite inconsistent with any suggestion that it is never in the interests of this country to integrate our policies with the rest of the European Union.

I have a third proposition to put forward. Most noble Lords have had some experience of decision-making bodies in the private sector, company boards and so forth, or in the public sector. Anybody with any background in affairs of any kind will agree with this proposition as well. It is a very simple proposition. They might also think it is a platitude. In normal circumstances, it might not have been necessary to put it forward. Often in life, in order to make substantive progress in any human institution or to achieve a particular substantive decision, it is sensible and expedient to move via a procedural change. If you want to get members of your board to come to a particular agreement on a particular matter, you might suggest that you do not take the decision then but set up a committee to take it, or you have some other arrangement that will lead in the right direction.

That applies to the way the European Union works. It works as a horse-trading body. I do not think that is a disparaging comment. Human life is like that. People have different views about different questions and sometimes take some time to realise that they might have an interest in concerting and integrating their policies. It is sometimes quite difficult for Governments to change publicly the way they vote on an issue. It may be that declarations have been made in the past, in their Parliaments and so forth, saying, “We will never agree to vote this way”. We all find ourselves with that kind of commitment on our backs, in our luggage, and it is very embarrassing and trying. Sometimes when you are doing business with somebody who has this kind of problem, he would quite like to agree with you, but finds that he cannot because of some prior commitment of that kind. The way round that often is to change the procedure and say, “Let’s have qualified majority voting”. Then your counterparty may well say, “That’s fine. Nothing wrong with qualified majority voting in my Parliament. Maybe the British Parliament has neuralgia about it, but our people don’t, so we will agree to have QMV on this matter from now on”. Then you can make progress and achieve your common purposes. The single market, of which I know the noble Lord, Lord Hamilton, is a strong supporter, was achieved in precisely that way. That is why Margaret Thatcher came out with qualified majority voting in the first place. That is my third proposition. It is often sensible, if one wants to make substantive progress, to have available to one the opportunity for procedural change and for changing the method of decision-making. It therefore makes no sense to block off that possibility altogether in the way that is often suggested.

You would think that my fourth proposition would be a platitude as well, and I hope it will not be challenged. It is that it is sometimes in our interest to change things. It is sometimes in our interest to get a new decision. It would be very odd if there was a systematic and entirely symmetrical position in which the British national interest always coincided with no, if whatever the question was, it was always in the British national interest to say no. We could save a lot of money if that was the case. We would not need highly paid, highly talented people such as the noble Lords, Lord Hannay and Lord Kerr, living in Brussels. It would be very simple because the answer would always be no. That could be delivered electronically with no expense at all whenever it was required.

[Noble Lords]

Oh!

[Lord Davies of Stamford]

Noble Lords may laugh, but it is an absurd idea that the answer regarding the British interest is always going to be no. But if the British answer is not always going to be no and we need to think about it intelligently, and sometimes it might be yes, then does it make any sense to paralyse ourselves, to tie ourselves up, to put handcuffs on ourselves? I do not think it can. That is my fourth proposition: that the way that the Government are going forward with the Bill is profoundly not in the national interest.

At the end of the Committee stage, a lot of us on both sides of the House evidently feel very strongly that serious damage could be done to the national interest. It can make no sense whatever to say that, for the rest of time, the British answer to everything must be no; or that the British answer to everything must be a referendum, because there will not be referenda so that comes back to saying no. The Government say, “No, in fact, if we have this lock on ourselves, the compensation will be that the British public will have greater confidence in the European idea”. The implication of that argument, which we have heard several times from the noble Lords, Lord Howell and Lord Wallace, is that at some point in the future we will not want these handcuffs on us. We will want to revert to normality and be able to take a pragmatic view as issues come up of where our interests lie and whether we should go ahead with colleagues in a greater degree of integration, have the normal arguments, use our veto when we want to, change the procedures and set up QMV where we think that that is in our interests, and so on. The implication of the Government’s argument is that we do not want to tie ourselves in for ever; we do not need to; it is a temporary problem, which they think will be resolved by the passage of the Bill. That is a matter of judgment; I will not go back over that; it is obvious to the Government that most of us are not persuaded by that argument, but they could be right.

As, sadly, I do not think that we will be able to defeat the Bill—I would like to; I do not disguise that fact; I have never disguised that fact from anyone—is not the sensible solution simply to say, “Let the Government have the Bill for this Parliament. Let them have it for four or five years. Let us see whether they are right and that there is some improvement in national sentiment towards the EU as a result of the Bill being enacted and being part of the law of the land”? Let us hope that over just a few years no cataclysmic damage is done to the national interest by preventing us from taking rational decisions in the way that I just described. Is that not a sensible compromise? I think it is. At this stage of the proceedings, it is probably one that we could all bring ourselves to live with, coming from different points on the spectrum and different parts of the argument.

I commend noble Lords—the noble Lord, Lord Taverne, in particular—on the amendments and I hope that they end up enshrining the solution which this House brings to this complicated problem.

[Lord Wallace of Saltaire]

Does the noble Lord accept that there is a clear distinction between changes in the rules of the EU and decisions in the EU? The Government's case is that extensive competences are provided within the Lisbon treaty. There is already extensive QMV within the treaties. The Government’s case is that there is plenty of opportunity for us to say yes, as we have done on a number of opt-ins and day-to-day decisions. We do not always have to say no in Brussels, nor do we always say no in Brussels. The question is one of competences. There is plenty of room for competences. At some point, there may be a need for further treaty change. That will have to be negotiated. But the time for further treaty change is not now or in the foreseeable future.

[Lord Davies of Stamford]

I was invited to comment before I sat down, so I shall. I am grateful for the Minister’s intervention and, in particular, for his comment, which is now on the record and which many of us will be pleased to hear, that he does not exclude treaty change in future. As he knows, the drift of my argument this morning has been that it is wrong to make the distinction between changes in decisions and changes in voting procedures. Often the best way to get the right decision will be via a change in the voting method. That is exactly the argument that I was making. I do not need to repeat myself, because I know that the noble Lord always listens to my comments with the greatest attention.

[Lord Radice]

We all do, Quentin.

[Lord Davies of Stamford]

I am most grateful for that flattering comment from my noble friend Lord Radice.

That is exactly the burden of my remarks this morning. In adapting, as any institution needs to do, to the challenges of the future, we should not exclude doing so by decisions within the existing structures and rules, or the need, where necessary, to evolve those rules. That is a false and damaging distinction to enshrine in our law.

[Lord Howe of Aberavon]

My Lords, I notice that my name is attached to one of the amendments on the Marshalled List. I rise with rather a heavy heart to say anything at all. The kind of discussion that is now taking place—I rebuke nobody for it—and which has been launched by the Bill and beforehand, casts a shadow over an enterprise which deserves to have been given more wholehearted support from a much earlier stage.

I am on record in my own disreputable memoirs as having written a letter in 1948 commending the prospect of Britain taking part in the original negotiations on the formation of the European Community. I reproached the Attlee Government for not having then undertaken the initiative commended by Winston Churchill. It is sad that we did not join at the beginning. We were proud at the time, and entitled to be, of our survival and success in the war. However, at some points we have allowed that pride to be transformed into conceit and have staggered and stumbled in quite a less attractive way in joining this enterprise.

It was entirely right, when we had considered it carefully, to conclude as we did after the 1972 Act that the British people should be entitled to express their view on the major, fundamental change involved in the transfer and sharing of sovereignty, an enterprise that was already under way and working quite well. In that spirit, we were able in successive Governments to play a reasonable part in carrying forward an important and worthwhile policy. I was content and proud, for example, when, under the leadership of my noble friend Lady Thatcher, we circulated a document around the Community entitled Europe—the Future, which visualised steady progress in enhancing the influence of Britain and Europe on the world stage as it was developing.

I have become less and less happy with the to-ing and fro-ing, which has been illustrated as a reductio ad absurdum in this debate. I find my name attached to a thing called a “sunset clause”, which is also a “sunrise and re-set clause”, and does not do justice to the enterprise on which we were embarked and to which we are still committed. The Bill is a response to anxiety among the British people and a tendency to think that we can resolve that lack of understanding if we have an immense clutch of referenda ad infinitum. It would be far better if we were to recommit ourselves to the original enterprise rather than find ourselves engaged in this kind of discussion on this kind of issue.

There is a great course still to be put under way. I grieve at the fact that the Bill purports to give the British people an opportunity that they ought not really to have because it becomes so complex that it is absurd. They were entitled to have that question put to them, as was done in 1975; it was the major step. It is on that foundation that I would prefer us to be going forward now rather than allowing it to get into this morass of multiple referenda.

I do not support my own amendment. I apologise for the fact that it is there because I have joined the rattling to and fro in a context which does not deserve it. I hope that the amendment is not put and that the Bill does not pass, but I am not going to challenge it single-handed at this stage. However, I think that I am entitled to express my dismay in the light of what could have been achieved and sustained, and what can be achieved and sustained if we commit ourselves more wholeheartedly to the European Union, about which Winston Churchill spoke with favour and where successive Prime Ministers have led us forward—even my noble friend Lady Thatcher. We worked together for 15 years, trying to enhance the power of the United Kingdom in the European Union. Our political marriage, which lasted for 15 years, concluded in a divorce, about which the less said the better. However, I reaffirm the legitimacy of that which we did together in those years, and the legitimacy of the objective to which we should be directing ourselves.

The sooner we allow this Bill to spread itself into the morass of discontinuity and die a death, rather than have a sunset clause fluctuating one way or the other, the better. We should let it die of senility because we have had enough of it. That is what I should like to see happen.

European Union Bill

Lord Davies of Stamford Excerpts

Monday 23rd May 2011 Lords Chamber

Therefore, my short answer to the noble Lord’s well intentioned endeavour to raise this issue is that I understand the sentiments behind the amendment but we do not need a statutory requirement in a Bill to make the point he is trying to make. For those reasons, I ask him, in, I hope, a good spirit, not to press the amendment.

[Lord Davies of Stamford]

I put it to the Minister that this Bill will be seen by our partners on the continent of Europe and in Ireland as an example of terrible British negativity about the European Union. That is quite the wrong spirit in which to negotiate with friends and partners to defend the national interest and to achieve successful outcomes from difficult and complex negotiations. What do the Government propose to do to try to persuade our European partners that, despite the evidence of this Bill, the British Government are positively committed to making a great success of our membership of the EU, and to continuing to build up and strengthen the institutions of the Union?

[Lord Howell of Guildford]

I welcome the noble Lord back to our debate although I am not sure that I welcome the spirit of his contribution. He has certainly made a very lively contribution to previous debates and we missed him earlier this evening. However, his premise is wrong. We have clear indications that there are no difficulties. Jean-Claude Piris, the former head of the Council’s legal service in Brussels, has commented that he sees no difficulties with Clause 18, and that he also has no difficulties with the thrust of the Bill. We have checked with people around the European Union and we are not getting the picture that the noble Lord talks about. Of course, it depends who you talk to. If you find people who support your views, that will reinforce your argument as you can then say, “These people support my views”. However, I assure the noble Lord that throughout Europe there is a real desire on the part of different countries, with their different models and different ways, to seek to enhance the transparency, accountability and public support for the European Union, and to do it in ways not dissimilar to ours—which is to say that this great Union has all the competences it needs and can go forward in a whole range of areas. It does not need to draw new powers from the nation states through treaty changes, competence transfers or power transfers.

All around Europe there is a strong sentiment in that direction. It is a pro-European sentiment and I do not think that it does at all what the noble Lord says. On the contrary, this spirit shows that we are trying to make the architecture—I hope an enduring architecture; and we will debate that later—for a more democratically based Europe that is soundly build on a popular consensus, instead of one that is regarded with hostility and suspicion.