Genuine Economic and Monetary Union (EUC Report)

Lord Jay of Ewelme Excerpts

Wednesday 2nd July 2014 Grand Committee

[Lord Jay of Ewelme (CB)]

My Lords, I, too, congratulate the noble Lord, Lord Harrison, and the sub-committee on this report. As one would expect, it examines highly complex issues succinctly and clearly. I hope that, as another interloper in the debate, I shall be forgiven if I do not follow the noble Lord down all the burrows that he explored in his introduction.

I was British ambassador in Paris in the years leading up to the introduction of the euro in 1999. In those days, I had many conversations on EMU with some of the most acute monetary and financial minds around, some of whom, such as Jean-Claude Trichet, went on to play quite an important part in the evolution of the euro from its start. What was clear then—I was reminded of this recently when re-reading some of the notes that I had taken of those conversations—was that EMU was widely seen as an essentially political construct with real financial and economic risks, not least to France, which had managed its economy for the previous 10 years or so through, at least in part, a series of competitive devaluations. However, what was also clear was that there was an absolute determination to make EMU work and an absolute conviction that it would work. I entirely agree with the noble Lord, Lord Liddle, about the absolute political will that EMU, once started, would continue and would work.

One can argue that that approach to the formation of the euro was misguided, that it was risky and that it underestimated the difficulties that would come with a financial crisis. If the noble Lord, Lord Lawson, were still in his seat, I expect that he would be nodding at that. One can argue, too, that Britain was right not to take part, and I would argue that. However, particularly given the measures taken—for example, to shore up the Irish and Greek economies during the recent financial crisis—it would, in my view, be quite wrong to doubt the continuing political determination of the member states of the euro to make the euro work in the future.

I do not pretend for a moment that that would be easy, as the report makes clear. Sitting on various French company boards over the past few years, it has been brought home to me clearly the difficulty that France may have within the eurozone unless it takes the sorts of measures to raise its productivity—particularly vis-à-vis Germany—that its political tradition will make very hard to carry out. There will of course be difficulties for others, too—in particular, some of the newer European Union and euro members. However, as I say, it would be quite wrong to assume that because maintaining the eurozone will be difficult, it may fall apart. If that were to happen, it would be enormously damaging to our own economic interests and also, in my view, to the political cohesion of the European Union and of Europe, which is not a happy prospect in the centenary of 1914. So, again as the report makes clear, given the way in which our economy and financial system are so closely linked to the eurozone economies, our own interest must be for the eurozone to succeed and, crucially, to succeed within a European Union in which the single market remains intact and indeed is strengthened.

I have to say that some of us feared when the euro was introduced that one consequence of Britain’s non-participation—right though that was—would be a risk to the integrity of the single market as the inevitable integration within the eurozone happened over time. I think that time has probably borne that out. However, that merely strengthens the argument that the maintenance and strengthening of the single market, as well as a properly functioning eurozone, is a key British interest.

I am glad to see that Commissioner Barnier is reassuring about the importance of the single market in his letter responding to the committee’s report. However, that will require constant work and vigilance, and political nous. This will be, in part, a technical, a financial and a diplomatic negotiating task. It would be greatly helped if we made sure that we had in Brussels—in the Commission and elsewhere—more British people who really understood the British economic and financial system and the importance of a strong single market of all 28 member states. Will the Minister tell us what measures the Government are taking to strengthen the participation of British officials in the European institutions?

It will also, of course, depend on a strong, committed, influential British commissioner in Brussels. I was very glad to hear the noble Baroness, Lady Warsi, say in the Chamber earlier today that there was a strong list of candidates waiting in the wings. I look forward to them coming forward and one being chosen to fulfil those crucial functions.

The task is also, of course, a political one. As a Cross-Bencher, I wish to stay neutral on this point, so I would simply advise all Governments, before pursuing this rather delicate, difficult and sinuous task, to take advice from my noble friend Lord Kerr of Kinlochard.

As the report makes clear, the British interest requires a strong eurozone within a strengthened single market. That is in no way inconsistent with stronger British economic links with the emerging economies—with China, India, Brazil and Indonesia. It is perfectly possible, as Germany shows, to do both. There is no contradiction at all between those two. I believe it should be a fundamental British economic and foreign policy interest to work for a strong eurozone within a strong and strengthening single market. Could the Minister confirm that that is a goal, not just to be stated, but to be implemented?