European Council Decision: EUC Report

Lord Lamont of Lerwick Excerpts

Monday 21st March 2011 Lords Chamber

It is a matter of urgency to support the setting up of the European stability mechanism, which must be ratified by all member states. The Prime Minister and the Foreign Secretary both said at the outset of their tenure that the viability and support of the euro was important for Britain’s financial future. That, too, must be underlined. I hope that the short document produced by the European Union Select Committee, on advice from Sub-Committee A, has been useful for this debate.

[Lord Lamont of Lerwick]

My Lords, I thank my right honourable friend for introducing the measure before the House. I accept 100 per cent that the provisions do not apply to us. I entirely support the Government's attitude that they should not in any way obstruct the setting up of the ESM. I thank the noble Lord, Lord Harrison, for the helpful report published by the Select Committee. I just have two brief questions for my right honourable friend.

[Noble Lords]

Noble friend.

[Lord Lamont of Lerwick]

My noble friend, my right honourable and noble friend, as he always is and always will be.

As the noble Lord, Lord Harrison, mentioned, at paragraph 6 of the report the Select Committee commented—admittedly, it was talking about the EFSM rather than the ESM—that it did not conflict with the no-bailout provisions in the original Maastricht treaty, now incorporated in the TFEU. Of course, I know only what I read in the report about how it was argued by witnesses before the committee that that did not constitute a bailout because the EFSM did not assume responsibility for the debts. The same arguments must arise with the ESM.

Does the Minister seriously, with a straight face, believe that that does not constitute an infringement of the “no bailout” provisions? It seems extraordinary to say that just because loans are being extended, if there is a rescheduling of debts, that does not constitute a bailout. I do not think that that is what the Germans had in mind at the time, when they argued against bailouts and for a “no bailout” provision in the Maastricht Treaty. Bear in mind that the new facility, the ESM, will, like the EFSM, issue securities which will be guaranteed by the member Governments of the EU. I know that this is a sideshow for our Government, but it is extraordinary to describe that as not conflicting with the “no bailout” provisions.

The second question I want to ask my right honourable and noble friend is more directly germane to the UK. When the German Government agreed to support the ESM, part of the package they insisted on, from what I read in the newspapers, was something called the competitiveness pact, which covered a whole range of policies including: the indexation of wages as applied to countries such as Belgium; the retirement age; and having a uniform system of corporate tax. All that was put forward as part of a quid pro quo that the German Government wanted in exchange for agreeing to the ESM, to which there was some resistance on the part of the German public.

As my right honourable and noble friend may have noticed, fears have been raised in the Economist magazine that those provisions could have an impact wider than the eurozone and might affect us and other non-euro members of the EU. I entirely support the Government’s policy of allowing what is happening with the establishment of the ESM to go ahead; for us to have nothing to do with it but to allow it to go ahead; but I am concerned by the points made by the Economist about how that could spill over into measures that would have an effect on competition and the competitiveness of the rest of the EU. The magazine argued that the competitiveness of the whole might be undermined by protectionist measures taken under the rubric of the competitiveness pact. I hope that my right honourable and noble friend follows my point. I would like to be assured that that is not the case. I would like to be told how the competitiveness pact will be given legislative effect and how we will ensure that it does not have adverse repercussions on us, and other countries not in the eurozone.

[Lord Pearson of Rannoch]

My Lords, it will come as no surprise to your Lordships that I rise to speak against the Motion. The heart of the Government's case is that it is in our national interest to help the countries in the eurozone, so we should not withhold our consent to the proposed European stability mechanism. To justify that, the Government even trot out the tired old propaganda about half of our trade being with the eurozone, which is irrelevant nonsense, as I have often pointed out.

The Government are really asking us to agree that the euro should be propped up, which is a very different and risky thing to do. I say that because the euro is so badly designed that it may be un-prop-up-able, certainly in the long term, probably in the medium term and possibly, if one looks at what is happening now in Portugal—not to mention Greece, Ireland, Italy and perhaps Spain—in the short term. The euro's main design faults, as some of us have been trying to point out since before it was born, are that it is a currency area without a federal budget. There is no mechanism for sending support from rich areas in the zone to the poor areas. Its different economies also suffer from a single interest rate and exchange rate with the results we are already seeing in the countries I have mentioned.

The Government’s answer to that in this Motion tonight seems to be that there is nothing to worry about because this new ESM means that the poor old Germans will pay and so will the French, the Dutch and the other countries that already donate to keep the whole unfortunate project of European integration afloat. The question is: will they? For how long? How much? Even if the cosy European political class thinks it is all a splendid idea, what about real people? What about the massive public protests in Portugal over the weekend and those we have seen in Greece? What about Marine Le Pen in France? Indeed, what about UKIP in the recent Barnsley by-election? [Laughter.] Well, I had to put that plug in.

What about another thing? This is a question to the Minister. What about the vote in the German Bundestag last Thursday, when five out of the six main parties gave their consent to the ESM but only with some strings attached? I know this is only a European Parliament, which is made irrelevant, as we know, under the project of European integration. It is not the European Union, but nevertheless, those strings are important. They included strengthening the stability and growth pact, guaranteeing the independence of the European Central Bank, guaranteeing that the EMS would be activated only in emergency cases, a restructuring procedure that would include private creditors and a guarantee that the eurozone would not turn into a transfer union. This last string looks something like shutting the stable door to me, but perhaps the Minister will care to opine. Does the ESM in effect set up a transfer union in clear breach of Article 125 or does it not?

The noble Lord, Lord Harrison, agreed with the Government that it does not breach Article 125, so perhaps it is worth putting on the record, very briefly, the key part of Article 125, which states:

“The Union shall not be shall be liable for or assume the commitments of central governments … A Member State shall not be liable for or assume the commitments of central governments”.

I agree with my noble friend—if I may call him that—Lord Lamont. Of course this does that. At the very least, even for Article 122, so roundly abused just before the present Government came to power, which was designed to help out with natural disasters and things like that, surely a loan which is not repaid becomes a commitment. Here with this ESM, we are in the clearest possible terms breaching Article 125. I would like the Minister to tell us: are we are helping to setting up a transfer union or are we not?

The Bundestag’s third condition—that the ESM should be used only in emergency cases—also looks a bit optimistic. It reflects the proposed additional paragraph to Article 136 which states that the ESM will be activated only if it is indispensable to save the stability of the euro as a whole. I think the Minister told us that this detail has not yet been worked out. We are voting for something that we do not know how it will work. Can he tell us who or what will decide when the use of the ESM has become indispensable? Will it be the Council, in which we sit, and if so will we have a vote, or will it be the Commission and/or the central bank? Will the IMF be involved, which again concerns us? In short, can the Minister tell us how the new European stability mechanism will be activated?