EU: Recent Developments

Lord Kerr of Kinlochard Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Kerr of Kinlochard]

The Minister ranged widely in his elegant opening remarks but the debate has tended to concentrate on the eurozone crisis. It benefits from the report of the Select Committee under the noble Lord, Lord Roper, to which the noble Lord, Lord Hamilton, paid a sort of tribute. Like the noble Lord, Lord Hamilton, I sit on Sub-Committee A and, like him, I also wish to pay a tribute to the noble Lord, Lord Harrison, for his chairmanship. The noble Lord, Lord Hamilton, spoke of the markets as the elephant in the room. As I said, I serve on Sub-Committee A with the noble Lord: I can recognise an elephant in the room.

I want to talk about the new treaty to be signed on 1 March and to consider it in a totally deadpan, analytical style from four aspects: constitutional, legal, economic and political. I start with the economic aspect. I find myself in the awkward position of agreeing with the noble Lords, Lord Flight and Lord Hamilton, and the noble Lord, Lord Lamont, who has fled to avoid hearing me saying this. They are entirely correct: the economic significance of the new treaty is virtually nil. I think that it is irrelevant, or nearly irrelevant, to the crisis we face. It is a new version of the stability and growth pact—this time we have the stability and no-growth pact, which is even more Germanic. The eurozone needs: greater growth and competitiveness, born of supply-side reform and the deepening of the single market of 27; the correction of current account imbalances; the further strengthening of the banking system; the resolution of the Greek crisis one way or the other; and more fire-power for the EFSF and the ESM to fight the contagion risk, though I would rate that risk much lower than do the noble Lords, Lord Hamilton and Lord Flight.

The treaty is narrowly drawn and addresses none of these issues. Moreover, the new mechanisms in the treaty add relatively little to those that already exist at 27, or are being considered at 27 under Article 136, which permit us to take part in the negotiation of measures applicable to the eurozone and would have been—but for the line we took—for us precisely the ideal vehicle for the new formulations that now find their place in the separate treaty. However, the principal economic significance—perhaps the only economic significance—of these formulations is indirect: promises of future southern virtue, written in treaty form, in blood, and into national constitutions, may make it easier for northern electorates to contemplate greater generosity. That, presumably, is Chancellor Merkel’s calculation. I do not think this treaty matters much in straightforward economic terms. It probably does more harm than good. However, in institutional terms it matters a very great deal.

The key innovation, which is noted en passant at paragraph 77 of the Select Committee report, is that the treaty will come into force before all its signatories have ratified it. Once the 12th of the 25 signatories ratifies it, the treaty applies among those 12 and, when others ratify, it applies also to them. There is no EU precedent for that. Up to now the rule has been that the convoy moves at the speed of the slowest ship and a single failure to ratify sinks a treaty for all signatories. One could now envisage a member state—in this case hypothetically an Ireland unable to win a referendum, or a Hollande-led France talking of a renegotiation—stuck in a limbo, unwilling or unable to ratify but equally unable to prevent the convoy sailing on. I note that access to support from the ESM will depend on ratification. I think that tells us the answer to the question asked by the noble Lord, Lord King: how many will actually ratify? I would not bet on there being a referendum in Ireland.

The serious point, though, is that in the European convention in 2002-03, some argued that the constitutional treaty we were then drafting should have similar entry-into-force provisions, as the noble Lord, Lord Maclennan, will remember. However, I cannot recall that any single member-state Government supported them—now 25 have. An important precedent has been set and we in this House, with our EU referendum Bill debates fresh in our memories, would do will to reflect on it. As the noble Lord, Lord Howell, said of a different outcome, this really could profoundly change the nature of the EU. I am not sure that those who share his views on European integration have been firing at quite the right targets. I do not believe that this would have happened—that this would have been the entry-into-force provision—if this had been an EU treaty. In other words, this provision is here as a consequence of the position we took. Careful reflection is needed on whether that is a good or a bad thing.

I have a further point about the legal issues. None is as significant as the constitutional point that I have been addressing, but the treaty is a bit of a mess in legal terms, and that too is largely of our making. It is good that the Commission and the ECJ are allowed to do their job, not least because they are the best defence for us against eurozone countries infringing the prerogatives of the Union of 27. However, the various divergences and overlaps of existing provisions would have been better avoided. So I agree with the Select Committee’s comments at paragraph 112 and 129 of its report that in the interests of all member states, including the United Kingdom, the folding of the new provisions into the main EU treaty framework would be desirable. I agree, and when that desirable outcome is achieved, all the legal issues that will worry the lawyers for the next couple of years will automatically fall away.

For the life of me, having read all six draft versions of the treaty, I really do not understand at all why we could not sign up to it. It contains no provisions that could damage UK interests. The provisions apply only to eurozone countries and to any others among the 25 signatories that choose to apply them. For us, there is no transfer of sovereignty involved, and there would therefore be no question of a referendum requirement. The UK negotiators who were involved in the negotiations did very well. I can see improvements, text to text. I see no sign that they were ever obliged to seek any of the mysterious “safeguards” that were sprung on the European Council in the middle of the night on 9 December and have been kept under wraps ever since, including today. That seems wise. I cannot for the life of me see any objective reason why we should not sign the treaty, but I am being entirely analytical and will not therefore press the point.

My final point is political. Does our self-exclusion matter? I fear so. I have argued previously in this House that leaving an empty chair is always unwise. The noble Lord, Lord Radice, must be right to say that it is easier to defend your interests if you are there. When the treaty becomes operational, our officials who helped in the drafting have to leave the room. Most of their colleagues from non-eurozone member states will be able to stick around. Are we sure that the Poles, the Danes and the Swedes have got this wrong and we have got this right? Why are we sure that they have got it wrong? When this group meets at European Council—Heads of Government—level, 25 Governments will be represented. The others will be able to influence the thinking of the eurozone and what it decides to do. Why do we not want to do that? For all this talk of a veto, all we vetoed was our own attendance. I cannot explain that. I shall have to ask our Czech friends—Kafka was a Czech, after all, so they may know.

I conclude with a personal reflection. I think I know what went wrong on the night of 9 December. We suddenly found ourselves without allies. This should never happen. There are alliances to be had all the time on every issue, bar one, in Brussels. Alliances overlap, they wax, they wane, they need continual cultivation, friends need to have the perception that they are being consulted—perhaps they really are being consulted—surprises need to be avoided, advice needs to be sought and taken, and other people’s priorities need to be understood. That is what usually happens. In this negotiation, Mrs Merkel was our natural ally, until we contrived to drive her into the arms of the French. When we got into a hole, the Dutch and the Swedes rode to our rescue and tried to help us out, until we spurned their help. There are natural alliances all the time—the free trade alliance; the northern liberal alliance; the blue water alliance with us, the French and the Spanish; and the budget disciplinarian alliance with the Germans, the Dutch and us in the lead. To find oneself isolated in Brussels is extraordinary. There is a huge alliance over there of those who believe that the EU needs to retain one great big global financial centre on a par with Tokyo and New York. These people will fight for the interests of London, because it is the only plausible candidate to play that part.

We do best in Brussels for the City when we advance the EU arguments for the City. That is what we do, usually, and I agree with the noble Lord, Lord Mandelson: the Chancellor of the Exchequer is clearly good at this. But it is not what we do back home. Fleet Street wants to hear about a Manichaean struggle, a gallant, lonely, Churchillian defiance of overwhelming odds. Everyone else is a monolithic bloc opposed to us. We stand alone. We triumph, or we veto.

It is not really like that over there. It would help us now to rebuild the alliances that we need if we could refrain from pleasing Fleet Street by shouting from the sidelines. I repeat the points made by the noble Lords, Lord Newby and Lord Monks. The raucous shouting from the stand to those who are engaged in a big fight to save their currency does not readily make friends and influence people. He who refuses to pay the piper should be cautious about calling the tune. Now I will follow President Sarkozy's sensible advice to the Prime Minister.