EU: Recent Developments

Lord Howell of Guildford Excerpts

Thursday 16th February 2012 Lords Chamber

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[Lord Howell of Guildford]

That this House takes note of recent developments in the European Union

[The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford)]

My Lords, I hope that noble Lords will welcome the opportunity for a European Union debate in the light of the very rapid changes and developments in the European Union, and that we will be able to bring to bear the accumulated wisdom of your Lordships' House on how we should proceed in the interests of this nation and of European strength and unity in the coming weeks and months.

Although the global pattern of influence, power and wealth is fast changing, Europe remains our neighbourhood and our largest immediate market. Obviously it is in a stable, prosperous and vibrant neighbourhood that we want to live within the European Union, on terms of close co-operation and friendship with our neighbours. It is therefore in Britain’s clear, immediate interest to see our neighbours’ problems sorted out, notably the present eurozone tangles. These are having a chilling effect not just on the eurozone but on our economy and the global economy, including even the great new markets of the emerging world on which we increasingly depend.

Addressing the eurozone problems in a realistic and sustainable manner is one of the best ways in which the conditions for renewed economic dynamism can be found and secured, both here and across the whole European economic space. The package of measures agreed by the European eurozone states in October last year set out the immediate steps that must be taken if the eurozone is to hold together and endure. Europe's banks must be properly capitalised; the uncertainty in Greece must be brought to an end, which we hope will happen soon—and without utterly destroying that noble country; and a firewall must be built that is strong and high enough to deal with the full scale of the crisis.

In the longer term, much more will be needed. Proper fiscal discipline built into the system will be the only path that goes forward for the eurozone. This is the inevitable consequence of the decision taken in Maastricht in 1992 to set up the single currency area, to which the United Kingdom did not sign up, and outside which we thankfully remain. For those inside the area, it was always the hope that, following monetary union, greater fiscal discipline would indeed somehow follow and be achieved. It was deviations by several states from this hoped-for path of fiscal discipline that built up into the current eurozone crisis, for which new rules on closer fiscal integration aimed at trying to correct the problem had to be hastily hammered out over recent months.

At the December European Council, the issue was whether these new rules aimed at closer fiscal union should be incorporated in the European Union treaties or implemented through an intergovernmental agreement. My right honourable friend the Prime Minister went to the European Council prepared to agree a treaty of all 27 countries, but only if there were proper safeguards in place to ensure that the integrity of the single market was preserved. They were not an opt-out for the UK, as some have suggested; they would have applied to the European Union as a whole, ensuring that the basic building blocks of the single market—that is, a level playing field upon which competition takes place—were properly protected in all member states. These safeguards were not acceptable to some, and so the Prime Minister vetoed the proposal to have a treaty change for all 27 member states. To have incorporated the changes in the intergovernmental agreement into the EU treaties as a whole now without proper safeguards would have been the effect of signing up in December.

[Lord Lea of Crondall]

I am sorry to interrupt so early in the noble Lord’s introduction, but he mentioned safeguards. Some parts of the Government seem to say that those safeguards were solely to do with the City of London. Does that mean that the rest of what was agreed on closer economic and monetary integration would have been quite okay?

[Lord Howell of Guildford]

Not necessarily. I would like to give a straightforward answer to the noble Lord, who follows these things, but there are a number of qualifications and details that I want to come to in my speech. I have tried to set them out most carefully because I know your Lordships’ detailed interested in them.

I was saying that to have incorporated the changes in the intergovernmental agreement, the fiscal union agreement, into the EU treaties now without the proper safeguards, which would have been the effect of signing in December, if my right honourable friend had gone ahead with it, would have risked changing the character of the European Union profoundly. It would have strengthened the euro area, but without corresponding balancing measures to maintain the integrity of the single market at 27. I shall come to the nature of those safeguards in more detail and why we felt they were not present.

As a result of the December meeting, eurozone countries and others are making separate arrangements outside the treaties for strengthening budgetary discipline, including by ensuring that there are much tougher rules on deficits. The Governments of 25 member states, so far, have indicated that they intend to sign up to the intergovernmental agreement reached in January.

This is a treaty outside the European Union. We are not signing it, we are not ratifying it and it places no obligations on the United Kingdom. It does not have the force of European Union law for us, European Union institutions or even the countries that have signed it. European Union legislation can be agreed only in the European Union Councils of Ministers, and we are a full member of them. There will be no inner group of European countries distorting the single market from inside the EU treaties. That is the protection that the Prime Minister secured in December, and that protection remains.

There has been much comment about the use of the European Union institutions, and I want to come to that. The new agreement sets out limited roles for the European Commission and the European Court of Justice. The legal implications are complicated and hinge upon how the agreement is implemented. It is for this reason that we have reserved our position.

We have been clear that we will not allow the institutions to be used in any way that would undermine the interests of the 27, in particular, the single market, and that we will insist that the EU institutions continue to work for all 27 nations of the European Union. Indeed, those institutions are established by the treaty, and that treaty is still protected. The intergovernmental agreement is absolutely clear that it cannot encroach on the competences of the EU and that measures cannot be taken which undermine the single market. As my right honourable friend the Prime Minister made clear to colleagues at the informal January European Council, we will be watching closely the implementation of this new intergovernmental treaty, and we are able to take action if our national interests are threatened.

We want to see a reformed and strengthened European Union better able to cope with the new international pattern of powers and influences. I agree with the comments that I read, made by the noble Lord, Lord Mandelson, that the EU model needs “dramatic reform”—I think those are his words—but we do not want to be part of a fiscal union. We do not want to be part of the eurozone, and we have made clear that the British people have a say before any further competence can be transferred to the European Union.

Having said that I agree with the noble Lord, Lord Mandelson, I slightly disagree with his suggestion that it is the European social model that should guide us, as I believe we should have confidence that we can develop potentially our own model, especially based on wider capital ownership, and wider ownership and distribution on a fair and balanced basis in our society, and that is what we should think in terms of.

Nevertheless, as I have said, it is in the UK’s interests that the eurozone sort out its problems. The UK’s attitude is supportive and constructive. We are involved in discussions on the implementation of this agreement and, as ever, in the machinery of building a prosperous and competitive Europe and a good single market. These remain our aims. The view that the only way to exert influence in the European Union is through surrendering more sovereignty and control to Brussels is, frankly, outdated.

The EU is not monolithic. It contains flexible arrangements such as the single currency and the Schengen agreement, and it is right that the European Union should have,

“the flexibility of a network, not the rigidity of a bloc”,

as my right honourable friend the Prime Minister said in his speech at the Guildhall last autumn. The UK is at the forefront of efforts in Brussels to develop our union according to this model, which we believe to be the right one.

Britain’s agenda in Europe is to promote growth, competitiveness and jobs. We have said repeatedly that the best way in which the European Union can drive growth and create jobs is to complete the single market, establish trade deals with the fastest growing parts of the world—which we are seeking to do on many fronts—and cut the regulatory burdens on business.

Last year the European Commission estimated that growth in the Union this year would be 0.6 per cent. The IMF now projects minus 0.1 per cent. Competitiveness remains Europe’s Achilles heel. More than half of EU member states are now less competitive than they were last year. It is essential that countries across Europe take bold action to recover their economic dynamism, get to grips with their debts, and secure growth and jobs for the future.

This is why the UK has been arguing for a pro-business agenda in Europe. We are pushing for the completion of the single market in services, where there are still 4,700 professions across Europe to which access is regulated by government, and in the digital area, where there are over a dozen separate copyright regimes. Together, these measures could add more than 6 per cent to European Union gross domestic product within 10 years.

We are also committed to reducing regulatory burdens, especially for small and medium-sized enterprises and microenterprises, and pushing forward a patent package to support innovation. This has been discussed in Europe for over 10 years and decisive progress is now at last being made.

We are also actively pushing for decisive action to get trade moving. We want 2012 to see significant movement on EU free trade agreements with major partners such as Japan—which has been going for many years—India, Canada and the United States. Completing all the deals currently on the table could add an estimated €90 billion to Europe’s GDP. An agreement between the EU and the US could have a bigger impact than all of these put together.

For countries outside the European Union, the UK remains the gateway to the largest single market in the world. Of the 1,200 Indian firms operating in the EU, over half have their headquarters in the UK. Britain is a world-class destination for international business, and the most attractive foreign direct investment destination in Europe, and remains so. Being outside the euro does not affect that.

My right honourable friend the Foreign Secretary has emphasised that we need to develop our commercial, economic and political presence in fast-growing, emerging markets. We certainly do. At the same time, Europe is our neighbourhood and our biggest market. It is full of innovation and potential for the future. More than 40 per cent of our exports go to EU eurozone member states—more of course to Europe as a whole. Trade with the EU allows us to specialise in what we produce best and to run trade surpluses with other countries, such as the US and Australia. Our aim is to use this position to expand our exports to fast-growing markets in addition to our existing exports—not as an alternative or instead of them but, I repeat, in addition.

The Commonwealth is one such area. It is one of the great networks of the future. It provides a gateway to many of the great, new markets. It includes some of the world’s fastest-growing economies, with members showing democratic values and similar legal and accounting systems. These provide solid foundations for doing expanding business and a platform for trade, investment, development and, in turn, prosperity. Trade within the Commonwealth totals more than—

[Lord Ryder of Wensum]

I am very grateful to my noble friend for giving way. In light of all the wonderful objectives that my noble friend is setting out in his speech about British exports and how Britain is poised to gain even greater advantages in world markets, how does he explain the fact that the British Government barely opposed the clinical trials directive that is having considerable cost on our most successful manufacturing industry, the pharmaceutical industry, which brings in about £3 billion a year surplus on our balance of payments? Yet here we are in Britain with our pharmaceutical industries losing ground in terms of clinical trials to China and India. Ultimately, that will incredibly damage the British economy.

[Lord Howell of Guildford]

My noble friend puts forward one of the many challenges that we have to address. I will not go into the full details at this stage, but he is right; there are several areas where the challenges are very great for the whole of Europe, including this country, from the rising power of the great emerging markets. We have to face the fact that, as I began by saying, the world’s pattern of wealth and competitiveness has changed radically over the past five years. I am not sure that many people in the media or, dare I say, some of our great policy thinkers have always grasped this fact.

The changes that we are making provide solid foundations for doing business and a platform for trade, investment and development, which in turn will be the prosperity, or perhaps I should say in a more realistic tone the survival and maintenance, of our existing standards. Trade within the Commonwealth totals more than $3 trillion annually. Our European membership is very valuable in promoting trade interests and access to new markets such as these.

The UK continues to play a strong role in achieving collective European action on many foreign policy issues, when appropriate and effective, in order to advance our shared interests and values. We drove concerted action forward at the EU level in response to Libya. The EU was actively engaged since the early stages of the conflict and we secured a UN resolution and assembled a multinational coalition force faster than at any time in history. Today, we are playing a prominent role in the EU response to the continuing violence in Syria. Some 11 rounds of EU sanctions have already been agreed and we hope to agree further measures on 27 February at the Foreign Affairs Council.

We have been at the forefront of action on Iran where, along with France, we led the EU in agreeing an unprecedented package of sanctions. The UK continues to be a strong supporter of European Union enlargement, which helps to create stability, security and prosperity. Enlargement brings significant benefits for the United Kingdom. An enlarged market obviously expands the opportunities for trade and investment. We want European nations to succeed not just as an economic force but as an association of countries with the political will, when they wish to mobilise it, and the values and the voice to use their collective weight to make a difference in the world.

Looking ahead to the March European Council, the UK will focus on ensuring that EU initiatives and projects deliver growth and jobs as agreed at the January Council. The UK plays an important role in these and other issues of significance for the Union as a whole. We are driving forward the single market, we are improving competitiveness across Europe and we are leading decisive foreign policy action when collective action works. European eurozone members are often our closest allies on some of these issues. Britain is part of the European Union not by default but by choice. It does reflect our national interest to be part of a single market on our doorstep and we have no intention whatever of walking away.

We want Europe to be a success, and not just for parochial reasons. We are going through a fundamental rebalancing of global power, a point I have just made to my noble friend, as economic weight shifts from west to east and from north to south; some of us have been pointing this out for two decades. Political power is diffusing from the G7 to the G20 and beyond, and from global groupings of states to regional groupings such as the Arab League, the African Union, ASEAN and many others.

[Lord Clinton-Davis]

My Lords, I am very interested in all that, but the Prime Minister withdrew from the European People’s Party. Does the noble Lord agree with that? I thought that the EPP was in favour of a muted Europe, not an entirely neutered Europe.

[Lord Howell of Guildford]

That is a debating point from the noble Lord, if I may say so. He believes that that is what has happened, but some of us believe that we are working in ways that fit the pattern and evolution of the role of the European Union to be effective in the 21st century. I do not accept his words at all.

As I was saying, we are dealing with a new landscape to which Europe as a whole must adjust, as indeed must this country. Our commitments to Europe must be seen as part of a larger repositioning of ourselves in a world in which no country can go it alone. To maintain our prosperity and political clout we must work together with our neighbours and our friends. We face the same challenges and will be much stronger in dealing with them if we do so together.

I end by saying that we want to be quite clear that Britain is an active and influential member of the European Union and will remain so. That is the basis of this Government’s approach to European affairs, as an integral part of our response to the changing global conditions generally. As old enmities and differences recede, it is time to forge new alliances and strengthen old ones in a reformed European Union, through the Commonwealth—indeed, perhaps I can add even here in the British Isles with our Irish neighbour, which has been through so much with great courage and to which Her Majesty the Queen recently paid such a fabulously successful visit. The coming year of the Diamond Jubilee and the Olympics gives us a golden opportunity to reposition Britain firmly in the new international landscape that is now unfolding, and that is what we will do. I beg to move.

[Lord Richard]

My Lords, the noble Lord did say in the course of his speech that he would say something about the safeguards. I wonder whether he would concede this point. If we do not know what the safeguards were, how on earth can we judge whether the Prime Minister was justified in casting his veto when he did not get the safeguards? It is nonsensical for the Government now to ask us to judge this on the basis of what the Prime Minister did not get when we do not even know what he asked for. Can the noble Lord lift the curtain just a little on what safeguards the Prime Minister actually demanded?

--- Later in debate ---

[Lord Howell of Guildford]

Yes, I would like to tell the noble Lord a great deal more and detail the reasons why the decision was taken not to make this into a total EU treaty. Before I answer him in detail, the larger point is that it would have profoundly changed the whole nature of the European Union. That was the essential reason why my noble friend recognised and argued that if there was to be an attempt at a fiscal union pact and it was to go ahead, it would do so without the United Kingdom. That is why he stood back from it.

On the details, let me give four very strong reasons why it did not make sense to go ahead with agreeing with the treaty—I have to find the precise bit of paper in order to do this, which is not so easy.

My right honourable friend the Prime Minister made it clear that our preference was to move forward as 27 with the protections of the single market. That is what we sought. The Prime Minister in his post-assembly European Council statement explained the safeguards that the UK was proposing, which were modest, reasonable and relevant to ensuring that the integrity of the single market was preserved. The Government do not confirm the authenticity of documents or published informal draft texts proposed during the negotiations.

There were four areas where we felt our involvement might damage the single market and our national interests. First, we were concerned about the voting powers on financial levies; secondly, we were concerned when we sought assurances, including on the voting procedure for handing powers to European adviser agencies; thirdly, we were concerned about the freedom that member states had to wreck their own financial stability regimes. I believe that we also sought a fourth assurance. None of those assurances was forthcoming.

I apologise to the noble Lord for my hesitation in putting my finger on all these issues, but they were complex and our concerns were very precise. Those safeguards were not provided.

[Lord Harrison]

My Lords, in setting up ESMA, the European Securities and Markets Authority, have we not already given away that power in order to frustrate credit default swaps legislation?

--- Later in debate ---

[Lord Hannay of Chiswick]

My Lords, it is a pleasure to follow the noble Lord, Lord Judd. We are both on the same committee and discuss many EU matters in great amity. However, I have to say that I do not follow him on the financial transaction tax.

I make no apologies for focusing the major part of my contribution to today’s long overdue debate on the economic and financial travails of the eurozone, particularly those aspects of the crisis that directly concern this country. This long-running saga still has far to go and, however it ends, will have profound effects on all members of the European Union, not just on the members of the eurozone. That basic reality has been grasped from the outset by the Government. I pay tribute to the firm and repeated conclusion of the Prime Minister and the Chancellor of the Exchequer that it is in Britain’s national interest that the eurozone should surmount this crisis; and to their rejection of the view, expressed on the wilder shores of their own Back Benches in another place, that we could regard the disintegration of the eurozone with equanimity, or even with glee.

A second reality, which the Government have been less willing to grasp, is that as a non-participant in the eurozone—in saying that I do not intend to stray into a discussion of the pros and cons of our joining the euro at the outset—our views on the handling of the crisis are neither particularly welcome nor at all influential. There is a lesson to be learnt from this about the consequences of being absent and our subsequent marginalisation in the decision-making processes of the European Union.

That lesson leads me directly to the events of last December’s European Council and the serious error of judgment that was made on that occasion. It is first necessary to dissipate some of the myths that have accumulated around that meeting and which now, like layers of varnish on an old master’s painting, obscure the picture beneath. I fear that several more layers of varnish went on in the introductory statement of the noble Lord, Lord Howell.

Myth No. 1 was propagated by the Prime Minister himself when, in his Statement to Parliament after the December Council, he said that he had refused his signature on changes to the treaty. No such signature was proposed in Brussels on 9 December; there was no text to sign. The past two months have been taken up by negotiating a text, which is to be signed next month by 25 of the 27 member states, with Britain a mere observer of the process. Why the Prime Minister rejected the tried and trusted precedent set by the noble Baroness, Lady Thatcher, in the context of both the Single European Act and the Maastricht treaty—the practice of participating in negotiations to ensure that British interests were safeguarded, while keeping in reserve the right to refuse to sign if they were not—remains a complete mystery to me.

Myth No. 2 is that there was a veto at all on 9 December. All that happened was that the other member states, whose determination to move ahead was not in doubt well before that meeting, felt compelled to use an entirely predictable procedural bypass to achieve their objective of strengthening the fiscal disciplines attached to eurozone membership. Incidentally, the Government have said that they strongly support that objective and believe that it is entirely logical and reasonable.

Myth No. 3 is that the treaty to be signed in March is in some way objectionable to the United Kingdom, thus justifying our refusal to sign it. On three successive occasions I have asked three separate Ministers—the Leader of the House, the noble Lord, Lord Howell, and the noble Lord, Lord Sassoon—to state what provisions in the treaty are objectionable to the United Kingdom and on three occasions—alas, a little bit like St Peter—they have each refused to answer. I scored a fourth one last night with an official from the Foreign Office who the noble Lord, Lord Howell, very kindly brought along to brief Members of the House before today’s debate, and who spent a very long time failing to answer that question for the fourth time. I think it is reasonable to draw the conclusion that the honest answer to the question is none. That is not a surprise really since the main safeguards we needed were to ensure that the treaty’s objectives did not have any mandatory effect on non-eurozone members such as the UK unless and until they decided to join the eurozone; and, secondly, that single market issues will continue to be decided inside the normal EU treaty procedures. They are now there, enshrined on the face of the treaty.

[Lord Howell of Guildford]

I know we have been told not to interrupt each others’ speeches, and I apologise for doing so, but I think that the noble Lord is confusing varnish with lacquer. Layers of lacquer improve an object rather than destroy it or obscure it. In my opening speech I set out four very detailed areas in which—as the Chancellor made clear to the Treasury Committee subsequently—the safeguards were not available, and were not going to be available had this been a European Union treaty. If we had signed it, or gone ahead with the agreement that night, it would have become a European Union treaty. That would have changed the nature of the European Union. We did not want that. We do not want to be part of a fiscal union. We do not particularly want to be part of a political union. Therefore, we stood outside, and the remaining signatories have to work out intergovernmentally how they will solve their problem. I see no difficulty with that and I cannot understand why the noble Lord, with his considerable experience and brilliant mind, if I may say so, cannot get hold of this basic, simple, central fact.

[Lord Hannay of Chiswick]

I am very grateful to the noble Lord for having, after two and a half months, actually managed to extract an answer to some questions that I have been asking. The answer is, alas, unconvincing because it does not relate to the text of the treaty that is going to be signed in March; it relates to the wonderful Cheshire cat smile protocol which we are not allowed to see, which the Prime Minister put forward on 9 December, and which there seems to be a singular lack of enthusiasm for communicating to Parliament, despite Parliament’s role in scrutinising matters which are liable to become EU law, which was obviously the intention of the Government. Naturally I respect what the noble Lord said about the reasons relating to the protocol, but they do not relate to the treaty. However, I move away from that.

Myth No. 4 is that, in some mysterious way, the events of 9 December have strengthened the British Government’s hand in negotiating single market legislation regulating the financial services industry. The Government’s refusal to share with Parliament the text of the proposals they put forward on 9 December in that respect means that we cannot judge their value. What we do know is that they were rejected by all other member states. The situation with regard to financial services regulation thus remains exactly as it was on the day before the December Council. That, too, seems to be the view taken by the City in the briefing that the City Remembrancer has sent, I think, to all Members of this House, and which I received yesterday.

Myth No. 5 is that the treaty somehow makes improper use of the EU’s institutions, in particular the Commission and the Court of Justice. Fortunately, the Government have decided not to pursue that legal will o’ the wisp for the moment. If we really have ended up somewhere where it is not in Britain’s national interest to be, as I believe is the case, on the outside looking in as decisions that could have a considerable impact on this country’s economy are taken what is to be done? The simplest answer would be to sign the treaty, but I have no illusion that the Government are currently prepared to run the gauntlet of their rebellious Eurosceptic Back-Benchers. Alternatively, the Government could, if and when this treaty enters into force following ratification by 12 of the eurozone countries, give serious and constructive consideration to triggering the provisions of Article 16 of the new treaty, which envisage it being brought within the EU treaty structure. That is the course that follows the logic of the conclusions of the report that your Lordships’ EU Select Committee has made to the House, and I hope that the Minister who is to reply—and I am not asking for an immediate response—will recognise that and reflect carefully on it.

It may not be surprising that the eurozone crisis has dominated all other policy aspects at recent meetings of the European Council and seems set to continue to do so, but it obscures the fact that events in the world outside the EU continue to occur at a dizzying rate. The EU is now far too important an international player to be able to take time out from those events. Nor has it been doing so, and the Minister very reasonably brought us up to date on a number of the things that the EU has been doing. Recent decisions to tighten economic sanctions against Iran and Syria, and contemplating relaxing such sanctions following the welcome easing of repression in Burma, are all decisions of considerable significance and are welcome. They underline how much more effectively the EU can work in the foreign and security policy field when its members act together. The admission of Croatia in 2013 is a reminder, too, of the unfinished business of further enlargement, which holds the key to the stability of the Balkans and the eastern Mediterranean.

I conclude my remarks with a plea to the Government to put more effort and eloquence into promoting a positive agenda for the European Union. If Britain has plenty of positive ideas in addition to those that I have already mentioned, as I believe it does—such as completing the single market in services, energy and the digital industry, pushing ahead with negotiations for freer and fairer international trade, supporting the Arab spring and strengthening the EU’s strategic partnerships with the main emerging powers, such as China, India, Indonesia, Brazil and Mexico—the Government should surely be speaking out about these ideas, loud and clear. They should do it not only outside this country but inside it, where so much that is negative about the EU dominates the public commentary. Above all, the three main parties that support our EU membership should be finding ways of articulating the fundamental political and economic case in terms that update for a modern audience but do not supersede the arguments that led us to join the EU 40 years ago—I pay tribute the noble Lord, Lord Bates, who reminded us that those early arguments on the foundation of the European Union have not lost their value—and which were endorsed in the 1975 referendum by a two-to-one majority.