European Union (Approval of Treaty Amendment Decision) Bill [HL]

Lord Radice Excerpts

Wednesday 23rd May 2012 Lords Chamber

[Lord Radice]

My Lords, I thank the Minister for his lucid explanation of the Bill. I certainly support the Bill as far as it goes and in so far as it confirms the eurozone member states’ ability to set up the European stability mechanism. However, as our debate on Monday on the Select Committee report reminded us, much more will be required to solve the euro area crisis than this small Bill. Nevertheless, I welcome the Bill and the Second Reading debate as it affords the House another opportunity to discuss a very fast moving situation.

We debated this issue on 16 February and on 21 May. When we debated it on 16 February, it was a time of relative calm following a number of positive initiatives, including the agreement of the European stability mechanism, the fiscal compact and, above all, the European Central Bank’s enhanced scheme for bank lending in the form of three-year, low-interest loans, which the noble Lord, Lord Lamont, described in that debate as a game-changer. I agree with him, although I think that the scheme just bought time. If it had not occurred, the situation would have been disastrous, but it certainly bought time.

Since then, we have had the inconclusive result of the first Greek election, problems with some Spanish banks, renewed turbulence in the markets and increased borrowing costs for some periphery countries. All this has encouraged some critics, particularly political commentators in the media, not only to say, “I told you so”, but to envisage—indeed, sometimes almost to welcome—the break-up of the eurozone. They are wrong to do that. I accept that the credit crunch and the subsequent recession revealed shortcomings in the euro model. Monetary union was strong, but did not have effective fiscal co-ordination. The convergence that had been promised between the strong economies and the less strong has not occurred, or has not occurred fast enough, and the ECB is not a strong enough central bank. All the same, it is dangerous to talk about or even welcome the break-up of the eurozone.

Only the other day, Robert Chote of the Office of Budget Responsibility said about a possible Greek exit:

“The concern is that you end up with an outcome in the eurozone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession”.

He added that the UK could be plunged into recession for two years, with rising unemployment and a growing debt burden. If you think longer term, and if the eurozone broke up, there would probably be a series of competitive devaluations and all the impact that that might have on living standards. You very likely would have the spread of protectionism and barriers to trade—trade that has been such a strong part of the European Union and has been so beneficial, not only to the countries of the continent but to the UK. It could lead, like in the 1930s, to the rise of extreme nationalism because it has often accompanied the growth of protectionism. A break-up of the eurozone would therefore be a grave setback and a disaster to the continent of Europe and the UK.

My position is that we need a reform of the monetary union because that could provide a framework for recovery. Speaking on Monday, the Commercial Secretary to the Treasury said in an excellent speech that three things were required: first, the resolution to the eurozone crisis and the uncertainty about Greece; secondly, ring-fencing other vulnerable euro member states; and, thirdly, recapitalising European banks. He could, and perhaps should, have added the need to achieve a balance between, on the one hand, austerity and cutting deficits, and, on the other, growth. That is clearly a major problem, and is the issue being stressed by the director-general of the IMF, Christine Lagarde. Mario Monti, the Prime Minister of Italy, has also made that clear, and we now have President Francois Hollande, who was recently elected on a growth ticket.

Tonight, European leaders meet for an informal summit which the new French President will attend. We are told that they are likely to discuss a number of issues, including the idea of common Eurobonds, which, if introduced, would reduce borrowing costs for vulnerable states. That idea is, of course, opposed by Germany, precisely because it would raise German borrowing costs. There is also the idea of boosting the European stability mechanism, which we are debating, by borrowing from the ECB. That would be a game-changer and is something that I hope is pursued.

There are three other issues concerned directly with growth: first, European project bonds to raise money for infrastructure funds; secondly, extra funds from the European Investment Bank; and, thirdly, speeding up the application of European development funds. Those three measures are all very useful, but represent quite a small aid to growth. The most important assistance to growth in the eurozone in the near future would be continued expansion of the German economy, which grew over the past two years by 2% per annum, and in the past quarter by 0.5%. On this point, I think that the support of the German Finance Minister for an increase in wages for German workers—and it is fairly extraordinary for that to happen—is welcome news. Growth in German domestic demand would not only help Germany but suck in goods from other European countries, including the UK, to the benefit of their economies. I think we can all agree—although I may not carry the noble Lord, Lord Forsyth, with me—that it is essential that within the next few weeks European leaders come up, first, with a credible rescue plan and then with a longer-term growth plan to revive the euro area.

In conclusion—I am aware that a number of noble Lords want to speak—what about the UK, Europe’s third-largest economy? What is our role? Of course, as the Government are always quick to point out, and as the Minister rightly pointed out, we are not in the eurozone and therefore, the argument runs, it is up to its members to sort out their own mess. That would be fine if more than 40% of our trade were not with the eurozone. What happens in the eurozone is extremely important to us, as both the Prime Minister and the Governor of the Bank of England have made clear. Indeed, they have used it as an excuse—although that word is perhaps unfair—for the fact that we do not have growth in our own economy.

[A noble Lord]

It is an excuse.

[Lord Radice]

All right, if the noble Lord insists. As I said, what happens in the eurozone has a major impact on our economy and therefore it is very much in the UK’s interest for the eurozone to secure financial stability.

So what has Britain—this important power with the third-largest economy—done? Last December, we opted out of the fiscal pact. We all said what we thought about that in the February debate and I shall not go over it again, but it hardly made us more influential in the debate. Otherwise, we have confined ourselves to offering advice—too often, I am afraid to say, in quite strident and slightly contemptuous tones. The trouble is that, whatever we say, nobody in the eurozone appears to be listening. I happened to be in France the day after the election of President Hollande and he set out all the things that he was going to do, such as going to Germany, meeting the European leaders, going to the United States to meet President Obama and so on, and there was not one mention of the United Kingdom. I thought, “Good heavens. We’ve come to the point where we’re not even mentioned in relation to the euro”. It is not that they are saying nasty things about us; it is just that we are not in the game at all. That is a great pity because I think that sometimes our advice has been very sensible and ought to have been heard but has not been.

The question is: what do we do to increase our influence? My answer is that we have to try to sound as though we want to help, although quite often we do not sound like that. I have two practical suggestions, for what they are worth. In the debate last Monday, noble Lords remarked that the Prime Minister argues for growth on the continent while preaching the virtues of austerity at home. As Christine Lagarde said yesterday, we ourselves need to do more to boost our economy. She may say that she shivered but she then went on to say all sorts of things that she thought the Chancellor ought to be, but is not, doing.

First, if our economy started to grow, not only would this be good news for us but it would also be good news for the whole eurozone, because we are, after all, the third-largest economy. Secondly, instead of standing entirely aloof from the European stability mechanism and indeed boasting about it, which is keeping the Eurosceptic wing of the Tory party happy, I think that there is a case for a purely voluntary financial contribution from the UK as a symbol of our solidarity with our European partners when they are in difficulties. We are a member of the European Union and are affected by what happens. We could show some sympathy but we do not. If we made more of a contribution, we might find ourselves becoming more influential. In this eurozone crisis, which affects not only the member states but the interests of the UK, we are no more than bystanders—we have no real role. If we are prepared to make some positive moves—I do not know exactly what, but I have suggested some—we might play a more active role which I believe would be good not only for Britain but for Europe.

--- Later in debate ---

[Lord Giddens]

My Lords, it is an honour to follow the noble Lord, Lord Lamont. I am not sure how much I agree with the main body of his speech but I certainly agree with what he said at the beginning. This is a crisis of gigantic proportions. Enough of precipices, I would say, but this is the greatest social and economic crisis we have lived through and it is unfolding against the backdrop of a world economic recession which is still far from unresolved. As I argued in a speech that I gave a couple of days ago, this adds to the difficulties we are confronting in Europe, which do not simply come from within Europe itself.

I support this Bill, but, I have to say, perforce. That is because this one-page scrap of green paper is Britain’s, and especially the Government’s, ambivalence towards the European Union made manifest. I argue that it represents a position that is now disintegrating and for which there is no long-term future. I would like to sketch in the reasons why.

In a document that the Government sent round after the report that we debated on the euro crisis, they say:

“The decision not to be part of the Fiscal Treaty does not reduce our influence and has not damaged our reputation in Europe”.

That statement is absurd. The noble Lord, Lord Lamont, seemed to say that it does not matter who listens to you. It surely does because if people stop listening to you, you have no influence in the circles that you want to influence.

[Lord Radice]

To act as the mouthpiece of the noble Lord, Lord Lamont, as I understood it in his criticism of me, he does not think that influence is important.

[Lord Giddens]

That is what I was saying. Influence is very important because if you do not have it, how are you going to affect the course of developments in Europe? I have been around Europe talking to a range of European figures recently, as my noble friend has been as well, and it is true that virtually nobody listens to what the Prime Minister says. This is important. Britain is now marginal in Europe because we lecture Europe from the sidelines, and I have heard so much of that in the debates over the past few days. The Prime Minister wants what all other European leaders want: the stabilising of the eurozone. Yet he will have no influence over that process.

One can say that the EU is at a crossroads—except that, as has been observed, the EU is always at a crossroads. This time, however, the forks of the crossroad are far further apart than ever before. On the one side, there is the possibility of the disintegration of the eurozone. Having looked at the scenarios in detail, I cannot see any which would not be catastrophic if this course were followed. Some have argued for what has been called a velvet divorce, whereby the eurozone could be progressively uncoupled. However, as in real life, there are very few velvet divorces and I could not see a scenario in which that could be achieved. Whatever one thinks of the eurozone—I have certainly had mixed feelings about the euro from the beginning—its disintegration would be catastrophic for Europe as a whole, and certainly for the UK as well.

There is only one other path. I think the path that Europe will certainly try to follow is a move towards federalism, and in a fairly strong sense of that term. Fiscal union is being forced on the eurozone, more or less, by the markets but it would have to go along with the ECB becoming a lender of last resort. We have a good understanding of the financial apparatus that it would presume, although we do not know whether there is enough money around to back it. These moves in turn would have to be accompanied by greater political co-ordination.

From these there follows the need for a process of democratisation and a reshaping of the institutions and procedures of the EU. Therefore, in thinking of the future of the EU and in charting, as I have been doing over the past three months, the enormous number of debates going on outside this country in the member states of the European Union, we are not talking about evolution. We are talking about a sort of revolution. We are talking about the end of the Monnet method of slow accumulation. We are talking about big transitions over a short period towards a more integrated eurozone that would, in the end, drag in most of the rest of the European Union. Jörg Asmussen, who is a German board member at the ECB and, incidentally, someone who has had a lot of influence over Angela Merkel, yesterday called for just such a programme. I think he gave his speech in anticipation of the meeting today. He argued that eurozone members should join in a,

“banking union, fiscal union and political union”.

Should the eurozone survive in a reasonably robust condition—and like the Government, I cannot see anything else that one can hope for—several other countries, such as Poland, have declared their intention to join it. At that point, British policy would surely have to change. There could be no more ambivalence, no more sitting on the fence and no more wanting the advantages of the EU without the commitments. Should, God forbid, the EU descend into chaos, the UK will be affected just as much as any country that has formally signed up to the euro. If a more federal Europe emerges, and I think that is the most likely outcome, Britain will no longer have the option of semi-detached membership. I think this also applies to the single market. I do not think that the idea that Britain can concentrate on the single market when the rest of Europe has moved to a much more tightly co-ordinated economy can work.

At that point, a momentous decision will have to be made: in or out. In my contribution to the debate on the Queen’s Speech I argued that at such a point there should be a referendum. I think this is the first time ever that there have been voices from all three major parties arguing for the desirability of a referendum. We would have to have a referendum if Europe has moved down a federal path and become a different entity far away from the position it was in when the UK entered it.

If a referendum is held, the results might surprise some of our more vociferous political commentators. I quote from a recent, very interesting study that I commend to anyone interested in opinion in Europe. It is by Michael Bruter and Sarah Harrison and is called How European Do You Feel? but it goes well beyond that. It is the largest study ever carried out across the 27 EU member countries about attitudes towards the European Union, reform and the future. The reason it is so important is that its methodology is far more sophisticated than the surveys that you read in the press from day to day. If you read the results of surveys in the papers of what people think of the European Union, they are sometimes based on a sample of only 200 or 300 people. They do not give you an in-depth understanding. This study uses a range of sophisticated techniques and goes up to 2012. I think noble Lords will agree that the results are quite counterintuitive. They show that European identity is strong across all 27 EU countries, with a majority in this country endorsing the statements about Europe in the study. Far from declining, in 2012, it is getting stronger. It has gone up from just under six out of 10 in their measures to over seven out of 10.

In the United Kingdom, there are some very interesting findings in the survey. Opinion is polarised, but intriguingly so. Younger people are far more positive about the European Union than the older generation. There is, the authors say, a new, younger generation of very committed Europeans in this country. In their conclusion, they say that in the UK there are,

“two publics, one fiercely non-European, and”—

this is important—

“one of the largest proportion of highly ‘Europeanised’ people in the whole of Europe”.

I would welcome the Minister’s comments on any aspects of what I have said, particularly on what plans the Government are making to respond to what is likely to be a quite different Europe from the one in which we have existed in such an ambivalent way until now.