EU: Recent Developments

Lord Pearson of Rannoch Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Bates]

My Lords, I wonder whether it is possible to be an economic sceptic but also a political enthusiast about Europe. I just want to unpick that a little from a slightly different perspective—that of having spent the past 10 months walking across Europe from Greece to the United Kingdom.

The noble Lord, Lord Dobbs, said that we must pitch ourselves to see what it would be like to stand on the streets of Athens. I was doing just that in April amid the tear gas and everything else that was going on. In fact, I arrived in Greece just as it had been downgraded. I arrived in Italy just as it was downgraded and I arrived in France just as it was downgraded. The Chancellor then begged me not to come back to the UK. I arrived back and there was a Moody's warning, but I promised him that I would return to France as soon as possible on that basis.

In the course of that walk, a couple of things began to crystallise in my mind. When I left this House in April, I would have described myself as moderately Eurosceptic in my approach to things. As I walked, two particular things struck me. The first was the point of Europe. This was brought home most forcefully to me a couple of weeks ago when I stood beneath the Menin Gate with the last post sounding in Ypres in Belgium. That incredibly moving event has been repeated every single evening since the First World War, apart from the time of German occupation. On that memorial are the names of 54,800 British and Commonwealth troops who died in that first Great War. They are part of nearly 1 million British and Commonwealth young lives that were lost in northern France and Belgium in the First World War.

As I walked the section from Arras to Lille and then Ypres towards Dunkirk, I walked alongside meticulous cemeteries maintained by the British and Commonwealth War Graves Commission. Their Portland stone headstones commemorate the incredible loss that was suffered in human life, not just on our side but throughout Europe. In many ways, the First World War gave birth to the Second World War, which gave birth to the Cold War. An incredible catastrophe was unleashed in Europe.

As a Conservative I resile from the petty bureaucracy and interference in the lives of business and ordinary citizens that constantly seems to come from the European Union. But I was left with a view that it might be better to be sitting arguing about what the label should read on the jar of Women's Institute jam than whose label should be on Alsace-Lorraine. It is far better that disputes, fallouts and arguments that we witnessed at the European Council meeting in November be played out in television studios, debating chambers and committee rooms than on the battlefields of Europe.

I know that that is an obvious point and that noble Lords know it well—very personally in many cases—but to me it was something of a dawning. The penny dropped. This is why Europe is important. We could no more stand aside from Europe in its economic crisis than in its military and political crisis in 1914 or 1939. In a globalised world we are all connected to the economic mainland. To borrow a phrase from the Chancellor, we are all in this together.

I had lots of conversations in bars and restaurants—probably a few too many, otherwise I could have been back a little earlier. In those conversations I discovered a couple of things. First was the enormous affection for British people and British culture across Europe, not least in somewhere like Belgium where people know the sacrifice that was made by the armed services of this country in defence of their liberty. You see people on the high streets wearing and carrying the union jack on bags, watching Premier League football, and speaking the English language. There is a huge appetite for British education.

At the same time, there is the argument of Robbie Burns about seeing ourselves as other people see us. After spending some time outside the UK, I began to see a little of how other people saw us. In relation to Europe, they would see us perhaps as a touch arrogant sometimes in looking at the problems that they were facing, as if somehow we had it all right and were sitting pretty and driving ahead with no pain or dislocation—as if we did not have a banking crisis and billions and trillions of credit card debt in this country. It was as if we had got a perfect world and were going to tell everybody else how to get it right. That was just a perception that people had of us. There was another perception, which said that Britain gets a pretty good deal out of the European Union given that we are not part of economic and monetary union and the Schengen agreement. I had to go through passport control at the borders of Slovenia and Greece but not in other countries. We are not part of that agreement and have managed to get a few different opt-outs here and there along the way. The noble Lord referred to our contribution. In net terms, Germany pays about €9 billion, France and Italy pay around about €6 billion and we pay about €4 billion. I am not saying—

[Lord Pearson of Rannoch]

My Lords, would the noble Lord be interested in the Pink Book figures, which put our net cash contribution to the European budget at £10.3 billion last year, and rising?

[Lord Bates]

I would indeed be interested in that. I am going on other figures, which came from the European Union itself. I know that is inviting an immediate riposte, but I wanted to make that general point that there is a sense in which Britain does have an enormous influence within Europe and is respected. We need to view Europe as a community that we willingly chose and asked to be part of, and which is going through very tough economic times. There is a real desire for us all to pull together so that the reforms that are being suggested from an economic standpoint—which are absolutely necessary and which my right honourable friend the Prime Minister was putting forward—will strengthen Europe and therefore strengthen our greatest market. In strengthening the economy, it will also strengthen those political institutions that have done so much to bring us peace for 70 years in this country. As a parent, looking at those headstones really brought it home that it is something to be thankful for, to not treat lightly and to take with care, so that we are humble in the way that we communicate our grievances.

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[Lord Pearson of Rannoch]

My Lords, I hesitated to put my name down to speak today because I have already said most of what I have to say about the European Union—some of it several times, thanks to your Lordships’ enormous patience over the last few years. Most recently, I addressed the crippling economic costs of our EU membership on 25 November last year, at the Second Reading of my Bill to secure an impartial cost-benefit analysis. I dealt then with the Europhile propaganda, which confuses our membership of the EU with our access to the single market by claiming that we need to be in the EU to trade in the single market and by claiming that by being in the EU we influence its policies and benefit from its negotiating strength in the World Trade Organisation. As I tried to explain then, none of this stands up to rational examination and I regret that we have heard so much of it again today from noble and Europhile Lords.

[Lord Lea of Crondall]

Noble and Europhile.

[Lord Pearson of Rannoch]

Yes, I would not remove their nobility. That Bill passed through your Lordships’ House unamended and was killed off in the House of Commons by the Government, presumably because they do not want the British people to understand that we can no longer afford our membership. Nowadays of course, all eyes are focused on the euro and the suffering it—and it alone—is causing to the people of Greece and, soon, elsewhere. Much has been said about that today, so I will say no more, except that I am with those who favour Greece’s orderly return to the drachma, after which it could be supported by the IMF and return to growth with its own interest and exchange rates.

However, I will have another try at getting your Lordships and the Government to see that it is not just the euro that is designed for disaster. It is the whole project of European integration. I repeat, yet again, the big idea that launched it all: that the nation states of Europe had caused two world wars and much bloodshed over the centuries, so they and their unreliable democracies had to be emasculated and diluted into a new form of supranational government run by technocrats. That was the big idea that underpins the whole project. This well meaning but misguided experiment was supposed to bring peace and prosperity to Europe. Indeed, the Eurocrats still airbrush NATO out of history, and even have the nerve to justify their expensive and unaccountable existence by claiming that the EU has brought peace to Europe since 1945 and still does so today.

Surely, though, we can all now see that that big idea has gone wrong. The EU has instead brought austerity, slump and civil unrest, and will go on doing so. Apart from the tragedy of the euro, the debate in this country focuses on whether we should stay in the European Union, or on whether there should be a referendum to decide that question. However, I want to take the debate one stage further to its logical conclusion, as I have tried to do in Oral Questions without getting a satisfactory Answer: now that the idea that spawned it has failed, what is the point of the European Union at all? We clearly do not need it for our trade or jobs, it has been irrelevant for peace and it is now causing violent unrest. Can the Government tell us why the planet needs it?

For instance, do the Government think that the EU’s vast new foreign service is a help or a hindrance? Did we not have an adequate Foreign Office before? Why do we need the EU’s common agricultural and fisheries policies, with the immense suffering that the CAP has inflicted on the developing world? Why does Brussels need to have overall supervision of our vital financial services? Could we not do all these things, and much more, better by ourselves?

Why do we need the 70,000 expensive and unaccountable bureaucrats in Brussels with little to do but misspend our billions and strangle the European economies with their endless overregulation? Why should they blight the democracies of Europe with their interference in our immigration, rubbish collection, post offices, light bulbs, herbal medicines, car premiums, pension funds and working times? I think noble Lords know that I could go on with that list for a very long time; it now includes every aspect of our lives. Are the democracies of Europe not perfectly capable of deciding these things for themselves in friendly collaboration and free trade?

I ask the Government again: would Europe not be a happier and more prosperous place if the EU simply were not there—if we got rid of it altogether? What is the EU now for? I look forward to the Minister’s reply.

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[Lord Liddle]

My Lords, this has been a mammoth debate and a serious one, without any partisanship. In that spirit, I congratulate the noble Lord, Lord Howell, on his efforts to give a positive view of the Government’s European policy. I also thank my noble and learned friend Lord Davidson of Glen Clova for his analysis of that policy’s weaknesses. We have heard many excellent contributions and it is a privilege to listen to noble Lords with their vast experience as former commissioners, former diplomats and even as former Chancellors of the Exchequer, with their different perspectives from my own.

In particular, I pay tribute to the noble Lords who spoke up in favour of European unity. The noble Lord, Lord Bates, made an excellent argument for Europe. The noble Earl, Lord Sandwich, on the Cross Benches talked about his belief in a Europe of the peoples. From my own Benches, the noble Lord, Lord Grenfell, spoke about a federal Europe and the noble Lord, Lord Radice, said that it was not time to give up on the euro. The noble Lord, Lord Judd, talked about a social Europe, as did the noble Lords, Lord Monks and Lord Lea. These were inspiring contributions. Obviously, I cannot commit the Labour Party to every detail of what they said; none the less this is the case for Europe that needs to be made.

There have been two big themes in this debate: first, the trials of the eurozone; and, secondly, Britain’s position in Europe. On the trials of the eurozone, I think we have heard rather too much of a flavour from the Benches opposite of how the euro is doomed, and too much of the view that it is impossible to restore competitiveness without the recreation of depreciating national currencies. An internal devaluation is, of course, painful but it can be done. You only have to look at what Germany has achieved from the mid-1990s until the middle of the previous decade to know that adjustments in competitiveness can be made within a fixed currency arrangement. Therefore, that can be done, but obviously I would like to see a stronger plan for growth. Like the IMF, I would like to see countries that have room for manoeuvre to expand their economies taking advantage of it. We would like to see—as the noble Lord, Lord Newby, proposed—a greater emphasis on the single market and trade to create more job opportunities. However, we also agree with the noble Lord, Lord Giddens, that that has to be done in the context of a much wider reform strategy to which we all need to give much deeper thought.

The noble Lord, Lord Tugendhat, made an excellent speech in which he expressed fears about German policy. I did not entirely agree with that aspect. I read an excellent speech that Helmut Schmidt made to the SPD congress in December in which, at the age of 93, he spoke to 2,000 people. It was a most inspiring speech about Germany’s role in Europe which I recommend to all Members of the House. Like the noble Lord, Lord Monks, my own view is that we should never underestimate the political commitment to make the euro succeed. I suspect that the new Franco-German arrangements that come out of the French elections in May will result in a better balanced policy.

However, on the more significant point of Britain’s position in Europe, we on this side understand the inability of the noble Lords, Lord Kerr and Lord Hannay, to understand what the Government did in December, and why they did it. The noble Lord, Lord Howell, tried to explain that to us but I thought there was a fundamental contradiction in what he said between our objection to a fiscal union, which is a matter of principle, and the question of whether we would have signed up if certain safeguards had been met. However, I think that looking ahead is far more important. If we look ahead, there is a choice to be made for Britain between the view expressed by the noble Lord, Lord Lamont, that 20 years ago we made the choice not to be in the euro and we have to live with it, and the view expressed by my noble friend Lord Mandelson that in fact to make the euro work—which is going to happen—there is going to be a euro mark 2, which will have deep implications for the United Kingdom and its policies, and that we have to think through what those implications are. The noble Lord, Lord Brittan, made an excellent point in saying that he was not sure how deep integration had to go in fiscal terms to make the euro work. We need to think much more about these issues in our future discussions and debates.

I also agree with the noble Lord, Lord Cormack, that what the coalition seems to lack is a bigger-picture view of Britain’s place in Europe and the world. The Churchill view on this at the end of the Second World War was of three circles: the maintenance of the British Empire, with the US relationship and Europe overlapping it, half a century later we know that the empire has become a Commonwealth. We know that there are a lot of good things about the Commonwealth but that it is not a trade bloc or a guarantee of economic benefits. We had a painful lesson on that with the Indian air force contract in the past few weeks.

As for our relationship with the United States, President Obama flattered us when he came to Westminster last year and talked about the special relationship. That was an easy compliment but the reality is rather different. It is of an America that is increasingly inward-focused, Pacific-facing, and cutting back on global engagement, and a Britain that, however much we may will the ends, can no longer financially bear the means of that kind of global role.

That leaves us with the third of Churchill’s three circles: Europe. To rework inelegantly Dean Acheson’s famous quote from the early 1960s, Great Britain exchanged an empire for a Commonwealth half a century ago, its relationship with America is no longer so special, but it has yet to find its confident European role. The idea of the European role has always been anathema to the anti-Europeans in this House such as the noble Lords, Lord Pearson and Lord Willoughby de Broke, but what I find worrying is the half-heartedness on the Benches opposite about the European commitment. It is the people who say, “Yes, we are in favour of political—”.

[Lord Pearson of Rannoch]

My Lords, does the noble Lord accept that we Eurosceptics are not anti-European; we are merely against the ill-fated project of European integration?

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[Lord Wallace of Saltaire]

My Lords, at the end of a seven-hour debate in which a very wide range of points have been made and perspectives have been introduced, it is of course impossible to answer everything that has been raised, so I promise that either I or my noble friend Lord Howell will write to noble Lords to answer the points that I am not able to reach. In some ways, it has also been a debate on the just-published EU Committee report, The Euro Area Crisis. It is unusual to have a debate on a report that is close to publication, and I am sure that the noble Lord, Lord Harrison, is pleased about that. The Government are very pleased with the report and we will of course be responding in due course.

The coalition Government have no doubt that the UK is better off in the EU, not better off out of it. We support a prosperous and competitive Europe and a strong single market. These are good for Britain. It is therefore in Britain’s interests that the eurozone sorts out its current serious problems. We want to see a reformed and strengthened European Union, better able to cope with the new international pattern of powers and influence. We want Europe to succeed not just as an economic force but as a political force—that is, as an association of countries with the political will, the shared values and the voice to make a difference in the world. European countries acting together pack a bigger punch in a changing world. To repeat what my noble friend Lord Howell said in opening this debate, Britain is part of the European Union not by default but by choice. It fundamentally reflects our national interest to be part of the single market on our doorstep and we have no intention of walking away.

The benefits of the single market are hard-wired into the UK economy. Half our trade is with Europe—not surprisingly, as this is our nearest and most open market. This trade has been growing faster than our overall trade without diverting British companies with global ambitions from trading more and more with the big emerging markets. There is an absurd view which I see when I look at some of the Eurosceptic blogs that somehow being in the European Union prevents us trading more with China and Brazil. They do not look at the figures which show that German trade with China and Brazil is four times as large as that of Britain and that currently French trade with China is twice that of Britain. These are not contradictions. The UK therefore continues to play an active role and to lead the way in the European Union, and the Government continue to act decisively to defend our national interests within it, as do other Governments within the European Union.

In October, the eurozone countries set out the package of measures that will be needed in the short term if the euro is to resolve its ongoing problems: Europe’s banks need to be recapitalised properly; the uncertainty in Greece needs to be brought to an end; and the firewall must be big enough to deal with the full scale of the crisis. In the longer run, proper fiscal discipline in the eurozone is essential, and the question at the December European Council was on how this process should be taken forward. My right honourable friend the Prime Minister sought sensible and reasonable safeguards to protect the integrity of the single market, and my noble friend Lord Howell has spelt out what those safeguards were. The eurozone countries and others have since reached an intergovernmental agreement outside the European Union.

With the eurozone at the centre of the crisis, the UK is to some extent unavoidably at one side. Some say that we should have been more active, engaged and critical; others, such as the noble Lords, Lord Newby and Lord Kerr, say that we should not intervene too far—that unsolicited advice only irritates those who have to sort out the mess in which they find themselves. The Prime Minister, the Chancellor and the Foreign Secretary have all made it clear that the UK wants the eurozone to survive and prosper. However, we have also made it clear that the single market must not be threatened or sidelined, and there have been a number of noises from some other Governments who have suggested that they would not be unhappy to see aspects of the single market threatened. Europe needs economic recovery and growth, not the stability and no-growth pact of which the noble Lord, Lord Kerr, spoke. We are continuing to pursue that agenda in Brussels through active bilateral conversations as well as with groups of like-minded countries, with which the Government are fully engaged. We are neither isolated, nor ignored. There are many active exchanges in which all of us are fully engaged.

In a rather underreported speech the other day in Berlin, Chancellor Merkel went out of her way to say:

“Britain is essential and also more pro-European than some other countries. We want to have Great Britain in the European Union. We need Britain, by the way. I want to say this emphatically, because Britain has always given us strong orientation in matters of competitiveness and freedom and in the development of the single European market”.

This Government are actively engaged in close relations with Germany. After all, Germany is now the central power—the central economy—in the single market and therefore we all have to ensure that we are fully engaged with it.

Many noble Lords have quoted Keynes and said that they are already Keynesians. Halfway through the debate, I dashed out to find my copy of The Economic Consequences of the Peace, where on page 14 the young John Maynard Keynes argues against the very harsh reparations being imposed on Germany and that Germany was, after all, the natural centre of the European economy. I quote:

“Round Germany as a central support the rest of the European economic system grouped itself”—

it is talking about the 1890s and the 1910s—

“and on the prosperity and enterprise of Germany the prosperity of the rest of the Continent mainly depended. The increasing pace of Germany gave her neighbors an outlet for their products, in exchange for which the enterprise of the German merchant supplied them with their chief requirements”.

We are back to that position and we need to ensure that we erect the complex political mechanisms and exchanges in which we can ensure that we all manage to return to growth together.

There are tremendous problems in the European political system in which we operate about rhetoric and practice. Part of the problem, including in the past two or three months, has been that what people say is very often different from what they mean. The fiscal pact itself is a good example of that. The noble Lord, Lord Kerr, argues that we should have signed after all because it would not make any difference, to which one has to say that, if it will not make any difference, then it is not worth signing.

There are some very large issues in that respect. Institutional construction has been too frequent an alternative to policy change. The rhetoric on political union is still with us. Years ago when I was a graduate student, I remember Karl Deutsche saying that the concept of political union was immensely attractive to politicians because it means so many different things—indeed contradictory things—to many different people. The French and German Governments often believe contradictory things about what they mean by political union. “The European project” and “ever closer union” are phrases that are very loosely defined. We started with the threat of a financial transactions tax which was thought to be, and puffed up in Paris to be, a threat to the City of London. We are now in the process of discovering that what the French will propose is a stamp tax on share transactions at a much lower rate than the British already have for the City of London. What appeared to be an enormous threat turns out to be a very small step forward and attacks on Anglo-Saxon capitalism from Governments whose banks have been very rash in how far they have overextended themselves in lending to Greece and Portugal.

We need to promote, among other things, a greater interchange among economists, or at least a dialogue among economists. When I taught at the London School of Economics, I used to say to my international relations students that, if they went to lectures in the economics department, they would discover that according to the economics taught in the London School of Economics the German economy should have collapsed about 25 years before. I fear, at present, that if one follows the economics taught in German universities, we are pushing the Greek economy into collapse. We need to learn from each other and begin to understand how interdependent our approaches to financial economics and real market economics need to be. We also need to recognise that passing regulations is not the same as implementing them. Part of what we discovered about Greece was the extent to which it had simply ignored the rules of the single market. The noble Lord, Lord Pearson of Rannoch, said absurdly that the euro alone brought down Greece. What we are now discovering about the extent to which the Greek economy was running, with a structure of expensive restrictive practices and very extensive tax evasion, demonstrates that there was always a very large and deep domestically oriented problem there.

[Lord Pearson of Rannoch]

My Lords, perhaps I may put the question slightly differently. Would the Greek people be suffering as they are today without the project of European integration and its euro?

[Lord Wallace of Saltaire]

My Lords, in the context of a global recession, the Greeks would be facing a very severe run on the drachma and quite possibly also a default. As a number of people have remarked, the Greeks defaulted on a number of occasions over the past 120 years.

People talk also about a common European foreign and defence policy. When I am in Germany, politicians there often tell me they are deeply committed to it—and to a European army. However, they cannot explain the strategy, funding, structure or command structure that it would have. In practice, the United Kingdom contributes a great deal to a European foreign policy and to European co-operation in defence. The UK/France defence relationship continues to move forward very well. We are working with others to cope with the immensely complicated problems of the Syrian crisis. In Libya, we flew missions with our French, Belgian, Danish, Swedish and Italian partners. We have been working in Helmand with Estonian troops embedded in British battalions. When I went some weeks ago to the joint command centre at Northwood, I was briefed by a Latvian naval officer on the anti-piracy patrol. In practice we are very deeply embedded in co-operative defence and foreign policy in Europe.

We will have to work hard to defend liberalism in a recession. I mean liberalism in the broader sense of liberal societies, open markets and international co-operation. The noble Lord, Lord Judd, made a wonderfully liberal and internationalist speech. Nationalism, populism and protectionism thrive when unemployment rises and incomes go down. The noble Lord, Lord Monks, mentioned the problems in Hungary. The Commission is now in active dialogue with the Hungarian Government about the extent to which some of their new laws will fit with EU rules. I was fascinated to hear from my Finnish friends that there is now a sort of Eurosceptic International across the European Union, with Eurosceptics in Britain working with their Danish, Finnish and other colleagues internationally against internationalism, so to speak.

The problem of popular opinion across Europe is very severe. I suggest to the noble Lord, Lord Grenfell, that young people in Europe are often not immensely committed to internationalism. They take what they have for granted and they do not support the distant co-operation of elites through international organisations, which is what the European Union provides. It would be easy for us to give way to similar forces in the United Kingdom, in the belief that leaving the European Union would relieve us of international regulation. The demonisation of Germany is part of the way in which one finds easy answers to very complicated problems.

A number of noble Lords said that the fundamental underlying issue was that of Britain's place in the world. On my blog this morning, I came across references to a speech by Daniel Hannan MEP to the Conservative Political Action Committee in the United States, in which he praised Newt Gingrich and was in turn praised by Fox News. He made all the obvious references to Churchill and the Nazi threat, and suggested that Britain should leave Europe and blindly follow wherever the next American Republican Administration might lead us. Others would like us to become Switzerland with nuclear missiles or Norway without having to pay the very substantial sums that Norway contributes on a “voluntary basis” to the European Union. Our political leadership over the past 25 years, including the previous Labour Government, has failed to make the case for active engagement in Europe.

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[Lord Pearson of Rannoch]

I was going on Pink Book figures, which include a number of contributions which we make to the European Union that are outside the ambit of the Treasury. The Pink Book figure of €10.3 billion last year is the correct net figure.

[Lord Wallace of Saltaire]

We will continue to disagree.

The noble Lord, Lord Kakkar, raised the working time directive and asked a number of other questions. We are working to ensure that it retains a secure economy-wide opt-out. We would welcome more flexibility on the areas of on-call time and compensatory rest. On the General Medical Council and the overinterpretation of language testing, I am confident that that is also an issue on which the British Government are actively engaged. I will write to the noble Lord further about that.