European Council Decision: EUC Report

Lord Liddle Excerpts

Monday 21st March 2011 Lords Chamber

[Lord Liddle]

This debate has been a curious experience for me because, having listened to the contributions of the noble Lords, Lord Pearson of Rannoch and Lord Stoddart of Swindon, I am perhaps a much stronger supporter of what the Government are doing than I think I ought to be. I believe that the Government are right to support this measure and I think that both noble Lords are completely wrong in thinking that somehow it would be in the British national interest to pull the house of the euro down, causing currency chaos and economic disruption on a huge scale in order to pursue their own hatred and fanaticism in their opposition to the European Union.

[Lord Stoddart of Swindon]

My suggestion was not that we should pull the eurozone down but that it is not necessary for us to take these measures to bolster the eurozone at all.

[Lord Liddle]

Of course I accept what the noble Lord says, but the implication was that the euro would come tumbling down, and I think that the economic consequences for us, with our trade and economic links to Europe, would be very serious. Further, the instability that would be created by a German mark soaring and a Greek drachma plunging would be too horrendous to contemplate.

What I want to do in my brief remarks is to declare that I support what is being proposed, but with two qualifications. First, what we have seen tonight is an excellent example of parliamentary accountability. This motion has been put to the House and, before it is approved by the European Council, we have an opportunity to say whether we agree with it or not. If I may anticipate the debate tomorrow on the EU Bill, this is in sharp contrast to what will be proposed under the new arrangements. What we are going to have there is a requirement for the Government somehow to argue that, under the proposed criteria, a referendum would not be justified for this measure. I am totally opposed to multiple referenda and will be arguing that tomorrow, but on the basis that the Government are arguing, it seems extraordinary to suggest that what we have before us with the European stability mechanism is somehow not a big extension of competence and is not significant. It is extremely significant.

Indeed, I would argue that what is happening in the eurozone at the moment is as significant a development for the strengthening of its governance as we have had since the establishment of the single currency and the single market in the 1980s. It is a far more significant development than the Treaty of Lisbon or the constitutional treaty that preceded it. It is for European integration very significant.

One cannot argue that this is of no relevance to Britain. For one thing, the ESM will be one pillar of a new regime of economic governance that includes macroeconomic surveillance and a competiveness pact. I do not argue that these measures are perfect; in fact, they are far less than ideal and this should be very much work in progress. However, integration of economic governance is certainly proceeding.

The Government make the crucial error of thinking of this question in terms of a transfer of power to Brussels from the United Kingdom. They argue that, because Britain is not in the eurozone, there is no transfer of power. However, what in fact is going on within the whole of the European Union at the moment is a very big shift in the balance of power, with the likely creation of a eurozone bloc that has a much bigger influence on the economic policies of the whole of the EU. It is about this important change in the balance of power that we should really be concerned, instead of going on about transfers of power.

Perhaps I may cite one example that is directly related to the subject of the ESM: the issue of financial regulation. If we have a sovereign debt crisis in a eurozone member country and it is necessary for there to be a restructuring of the debt, it will logically lead to problems in the banks which own the bonds that have lost much of their face value. That will in turn require new rules on the capital adequacy of banks and on banking mergers. If there are to be in future stages restructurings of Greek and Irish sovereign debt, there will also be grave consequences for financial regulation and the banking system. We are exposing ourselves to real loss of influence on these matters, because it will be a eurozone bloc that decides in terms of its own interests what those regulations should be. We will turn up at the Council of Finance Ministers with that decision in practice having been taken, with majority voting there in the Council of Finance Ministers, and with very little opportunity for us to influence it. When one thinks that the City of London is one of our key interests, one realises that this is quite a serious threat to us.

Of course, the new regime is not ideal and it is work in progress—I dare say that my noble friend Lord Eatwell will say something about this. My strong view is that if something is not ideal we should use our maximum influence to try to change it. Obviously, there is no immediate prospect of us joining the euro and becoming part of the ESM, but we should try to involve ourselves intimately in the discussions that are taking place. I am worried that the Government, as far as I can see, are not doing that. Mrs Merkel, as I understand it, made an offer to the British Government whereby they could be part of the competitiveness pact that she was trying to negotiate. Apparently the British Government have said that they do not wish to be part of that pact, whereas Poland, which is equally not a member of the euro area, is anxious not to be excluded from these decisions on economic governance questions which go wider than the eurozone.

There is a significant problem here for the United Kingdom and the Government ought to recognise this. They should also recognise that something of fundamental importance to our economic future and, indeed, to our sovereignty is happening here.

[Lord Eatwell]

My Lords, as noble Lords will be aware, this is the first time that a Motion of this sort has been debated in your Lordships’ House. We are, as the noble Lord, Lord Stoddart, said, creating a precedent, although I am not entirely clear how long the precedent will last with respect to the discussion that we will have tomorrow. However, it clearly is important that we should define the criterion that we ought to apply to our assessment of the Motion.

The Government’s Explanatory Memorandum suggests that they have clearly applied the criterion of the “UK national interest”. In support of this Motion to give the green light to the establishment of the ESM, the memorandum states emphatically:

“We therefore support this draft proposal to amend the Treaty to make clear that the euro area Member States can establish a permanent ESM. The UK will directly benefit”—

directly benefit—

“from increased stability of the euro area brought about by the ESM, without being part of the new mechanism or having any obligations under it”.

The noble Lord, Lord Howell, repeated at some length the idea that this is directly in Britain’s benefit. Indeed, so important is the ESM deemed to be to the UK that, as the Explanatory Memorandum tells us, and as the Minister confirmed, the Chancellor of the Exchequer eagerly proposed UK participation in the design of the mechanism—participation which has apparently taken place.

This repeated emphasis on the importance of the ESM to the UK and of UK participation in the design process sits rather uncomfortably with the other theme of the Explanatory Memorandum:

“The ESM established by the proposed treaty change will be set up by the euro area countries for euro area countries with no financial liability on the non-euro area Member States or the EU budget. There are therefore no direct financial implications associated with agreeing the draft decisions to amend the TFEU to establish the ESM”.

So on the one hand we have a direct benefit, but on the other hand there are no direct financial implications.

It is, of course, entirely possible to hold these seemingly contradictory positions at the same time. For example, the policies of the United States Government have a direct economic impact on the UK, and yet we have no responsibility for their financial implications. However, the key difference here is that we do have a direct responsibility—we have actually participated in the design of this mechanism. This Government have both a primary and a secondary responsibility for the mechanism agreed: primarily because we participated in its design; and secondarily because, as has frequently been acknowledged, the performance of the ESM is of direct national interest to the UK.

In his introduction the Minister told us nothing whatever about the ESM itself. It really is essential that, when he sums up, he remedy that failure and answer some of the pertinent questions about the impact of the ESM on the UK. He quoted my noble friend Lord Harrison, saying that we should support a stable and prosperous eurozone, which of course we should; but when my noble friend wrote that letter in February he could not have known what we know now. In the early hours of the morning of Saturday, 13 March, eurozone leaders reached agreement on the structure of the ESM, to be ratified by the European Council this week. The assessment of whether the agreement of 13 March is or is not in the best interests of the UK is the key issue and it should be based on one clear criterion: will it work? That is the fundamental question, which the Minister has not even bothered to address this evening.

--- Later in debate ---

[Lord Howell of Guildford]

All I can say is that this is how the debate has gone and these are the decisions that have been taken by those in the eurozone, which does not include us, who decided to go ahead and move from the EFSM to the ESM. The noble Lord has a different opinion of the financial aspects and is a financial expert of no small degree, so he may be right. However, that is not the view taken by the German Government or by the other Governments of the eurozone area.

My noble friend Lord Lamont also asked about the competitiveness pact. I can tell him that the latest draft of the pact makes it clear that:

“The Pact will fully respect the integrity of the Single Market”.

I am then advised that non-eurozone countries—such as us, among others—have been invited to join the pact and that we are assessing whether we should do so. I add that many of these points tonight point in the same direction and that we are really getting into the issues which we will be discussing on the new EU Bill tomorrow, when we shall have its Second Reading.

[Lord Liddle]

The noble Lord said that the Government were still considering whether to join the competitiveness pact. Is that the position: that this matter is still open?

[Lord Howell of Guildford]

That is different from what the noble Lord said, so he is not quite right that that is the position. I was going on to say that under the provisions of the EU Bill, which has its Second Reading tomorrow, any question of a movement of competence or powers from the UK to the European Union arising from any of these things is subject to the most rigorous procedures—in many cases, a referendum procedure but certainly an Act of primary legislation—which make it more or less impossible for them to be, as it were, slipped by or to be involved in any kind of competence creep. That is the position in answer to my noble friend Lord Lamont.

The noble Lord, Lord Pearson, took a familiar position and did not think that we should be propping up the eurozone at all. I admire his concern for the German taxpayer, as he is clearly worried about our German friends and the amount of tax that they might have to pay if liabilities arise. He asked if we were setting up a transfer union. My judgment—this is from outside because we are not a member—would be that the eurozone members are not setting up a transfer union because that would require a far bigger budget at the centre than anything that operates under the present European Union organisation and rules. I think that the answer is no, but really that is a question that was posed by German Bundestag Members and answered by the German Government.