Genuine Economic and Monetary Union (EUC Report)

Lord Maclennan of Rogart Excerpts

Wednesday 2nd July 2014 Grand Committee

[Lord Maclennan of Rogart (LD)]

My Lords, I, too, begin by indicating the value of the report and the work of the committee chaired by the noble Lord, Lord Harrison. The report is a useful gathering together of evidence from experienced people. Its conclusions seem to me to merit our support.

A strong and prosperous Europe and a strong and prosperous eurozone are in the interests of all members of the European Union. It is necessary for the Government to indicate as clearly as they can how they would engage with the strengthening of the eurozone. The long-term goals of fiscal transfers and, possibly, debt mutualisation—they may be unrealisable in the short term—have been envisaged and mentioned in the report, but they are not seen as immediate solutions. However, there are ways in which we, as a country with an extraordinarily strong banking system in the City, could give further support to the recovery of the eurozone. To my mind, that would be to the benefit of the City and the country more generally.

One witness strikingly described the process as,

“the euro continuing as an injured patient with a massive sticking plaster in the form of bailouts”.

That was an entertaining image but there is a degree of truth in it. I hope that, in coming back into the discussions about the future of Europe, the Government will seek to engage with their partners in the eurozone and seek ways of assisting the process of banking union. I strongly agree with the report that supervision and becoming a lender of last resort are compatible. The structures of these different organisations are well set out in the report, which describes how they can be both separate and together in making their respective decisions.

The noble Lord, Lord Liddle, made an important remark about will. The will to sustain the eurozone probably was best expressed by the president of the bank, Mario Draghi. He said that the bank would do “whatever it takes” to save the euro. That certainly had an immediate effect of calming the markets. It also made other countries feel less excluded from the discussions and more able to put forward recommendations. The bank has acted wisely in a number of respects—for example, in purchasing sovereign bonds not directly from the sovereign states but on the open market. That has done quite a lot to stabilise the situation.

I hope that the Government will respond to the committee’s recommendation that it may be ill advised to assert that:

“Banking Union is the sole province of the single currency for all time”,

and that participation could mean,

“further promoting and shaping the Single Market in Financial Services and the UK’s position within it”.

At the beginning, a number of proposals were put forward on outright monetary transactions which do not seem to have yielded anything very noticeable as of yet. None the less, they are still an instrument that is perfectly sensible to use.

The single resolution mechanism, by which the predicaments of those who are extremely tested could be resolved, has not come forward sufficiently developed to be enlisted in the battle against the collapse of southern states. However, the UK Government should, I believe, shape their arguments in terms of ensuring the overall stability and efficiency of the EU markets. That practical reform would give the Government much more influence in the direction of the single market than the sort of postures taken over the past few weeks in respect of the nomination of the President of the Commission. Deposit insurance is another method of supporting the banking system that, as yet, has not come to fruition. None the less, it could be of assistance.

I hope that the Government will also do their best to assist the bank with its comprehensive assessments of the banking system, its supervisory risk assessment, its asset quality review and its stress tests. All of these seem sensible means of reassuring the banking system. We ourselves have not been immune from the troubles that have afflicted other countries.

Notice also has to be taken of the evidence that was given to the committee about the lack of sufficient fiscal backstops to plug any gaps in the bank balance sheets exposed by the review. I hope that that, again, will be something that we can open up and show that there is a will to help.

The report has been produced at a difficult time for the European Union. Although the process has not been completed, as outlined on different sides by the Commission, by the bank and by Governments, I none the less think that the report was very timely. It has given us guidance and indicators as to how to proceed. We want to hear from the Government about their willingness and commitment to strengthen the eurozone. Some of the Ministers who gave evidence recognised that that was necessary for British industry. When they talk about the objective of the single market, they are also speaking of the need for that. I hope that my noble friend Lord Newby will be able to give us some reassurances about the Government’s position and not simply cast discredit on the steps that have been taken.