European Council

Lord Strathclyde Excerpts

Monday 21st June 2010 Lords Chamber

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

This may be a useful point at which to hear a Statement made by the Prime Minister a few minutes ago in another place. The Statement was as follows:

“I am sure that the whole House will join with me in paying tribute to Trooper Ashley Smith from the Royal Dragoon Guards, who was killed in Afghanistan last week. He died serving our country and our thoughts are with his family and friends. We have also heard this morning news that a member of 40 Commando Royal Marines has died from his injuries. He is the 300th member of the British Armed Forces to lose his life as a result of the conflict in Afghanistan.

When such a tragic milestone is reached, we should re-emphasise our support for our Armed Forces, and for all that they do. Inevitably some will question our mission and purpose there, and we are paying a high price. Let me be clear that we are in Afghanistan because the Afghans are not yet capable of securing their own country from terrorists. It is for our own national security that we help them. When they can do it alone, we will leave. In the mean time, we will give our Armed Forces everything they need to get the job done.

With permission, Mr Speaker, I would like to make a Statement on last Thursday's European Council. It was rightly focused on securing the economic recovery, and it was unanimous that this required early action on budget deficits. The Council also dealt with Europe's growth strategy, the need to sort out the problems in the eurozone, and our approach to the G20. It also delivered important progress on Iran.

Let me take each in turn. On deficits, the conclusions could not be clearer. Delaying action would entail ‘major risk’, and the Council called on member states to meet budgetary targets ‘without delay’. Since the last European Council, the problems in Greece and the scale of the sovereign debt crisis have become apparent to almost everyone. That is why there is such unanimity across the EU on early action, and it is why President Barroso paid tribute to the efforts that the UK coalition Government are taking and said:

‘Consolidation is necessary for confidence and without confidence there will be no growth’.

On growth, the Council agreed a new strategy called Europe 2020. This follows on from the Lisbon agenda, whose aim was to make Europe the most competitive market in the world. The document has some worthwhile objectives, including raising the level of research and development, and improving education. This should not interfere with national competencies. So I secured explicit agreement that the new strategy must be,

‘fully in line with the relevant treaty provisions and EU rules and shall not alter member states’ competences’.

We should be clear that all the strategies in the world should not conceal the fact that EU countries all need to get to grips with the real problems that harm our competitiveness, not by endlessly setting targets but by taking action. This includes action on the extent of our debts, the affordability of our pensions, and on the scale of our welfare dependency.

Europe has never lacked strategies, but European countries have frequently failed to deliver them. We will continue to press for the real stimulus that European economies need—more trade, more international investment and breaking down barriers to business. This means pushing for agreement on Doha, reforming and completing the single market and making the process of trade easier. Even without Doha, there is a huge amount that countries across the world can do to facilitate trade. I want Britain to be one of the driving forces in helping to bring this about.

Next, the eurozone: Britain is not in the euro and—let me be clear—we are not going to join the euro. However, a strong and successful eurozone is vital for the British national interest. Already about half our exports go to the EU, fourth-fifths of this to the eurozone. However, as this House is aware, with the situation in Greece and the need for a support package from other eurozone members, there is no doubt that the eurozone as a whole faces real challenges. I was generally supportive of the Council’s efforts to strengthen the eurozone governance arrangements, but I was equally determined to ensure that our national interests are protected.

On budget surveillance, let me be clear: the UK Budget will be shown to this House first and not to the Commission. Of course, we will share projections and forecasts, just as we do with the IMF and other international bodies. Co-ordination and consultation, yes; clearance, no—never. On sanctions for those who breach their economic obligations, the Council agreed that:

‘Member States’ respective obligations under the Treaties will be fully respected’.

Because of this and because of the special opt-out negotiated by the last Conservative Government, under the current framework sanctions cannot be applied to the UK.

Sorting out the eurozone and adding to its governance arrangements are clearly vital for Europe. There may well be significant changes coming down the track. Whether they require treaty changes or not, our position will be the same. We will back measures that help to sort out the eurozone. We will not back measures that pass power from the UK to Brussels and, as we are not a member of the euro, we will not back measures that draw Britain further into financial support for the euro area.

On the G20, the Council discussed our priorities for the upcoming meeting. As well as taking action on the deficit, the Council also agreed about the importance of reforming the financial system. It is vital that the meeting in Canada backs the right action on reserves and capital.

On the issue of a banking levy, the Council conclusions were helpful. We wanted the European Council to endorse the idea of countries introducing a levy on financial institutions to ensure that they make a contribution to rebuilding public finances. We did not want the Council to mandate a particular form of levy or how the money raised should be used. I am pleased to say that the Council conclusions reflect that approach.

On Iran, we have argued that it is time for actions, not just words. Following the UN Security Council’s recent adoption of Resolution 1929, the Council agreed to step up the pressure, issuing an unequivocal leaders’ declaration. This refers to measures including restrictions on trade, banking, transport and the oil and gas industry. Final agreement will be reached at the Foreign Ministers’ meeting.

The Council also reached important conclusions on Iceland’s application to join the EU. This country should be a good friend to Iceland and a strong supporter of EU enlargement, but Iceland owes the UK £2.3 billion in respect of compensation paid by the Government to UK investors following the collapse of its banking sector. We will use the application process to make sure that Iceland meets its obligations, because we want that money back.

Finally, it is important that, even in difficult times, we should be supporting people in the poorest countries suffering from severe poverty. The Council reaffirmed its commitment to achieve development aid targets by 2015 and, supported by the UK, to review this annually.

This was a Council that delivered good outcomes for Britain. Our citizens do not want new structures to talk about things; they want a new resolve to actually do things, such as getting to grips with our massive budget deficits, developing the single market and building the conditions for strong, sustainable and balanced growth. That is what this Council was all about”.

I commend this Statement to the House.

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[Lord Strathclyde]

My Lords, I thank the noble Baroness for welcoming the Statement, at least in part as I accept that she became slightly less welcoming as she continued her speech. However, she started extremely well by congratulating the Government and the Council on our position on Iran. She was right to do that because our position on Iran is unequivocal. It underlines the clear view in Europe that Iran’s pursuit of a nuclear weapon is unacceptable. Europe has asked Iran to return to the negotiating table and has made clear that the alternative is further isolation. I am unable to give the noble Baroness the timetable that she sought, but my understanding is that we await the next Foreign Ministers’ Council, where final agreement will be reached. I am hopeful that there will then be quick action to put in place the various sanctions that have been recommended.

The noble Baroness asked me rather a good question about the BBC Farsi programme. If I had an answer to that, I would give it to her, but perhaps I can write to her on that point. The Government have rightly been congratulated on continuing with the millennium development goal commitments, as the noble Baroness recognised. In our view it is very important that these commitments talk about European countries meeting and achieving their targets by 2015. There has certainly been no slippage on that on our part. Even in difficult times when we are having to make tough decisions in our own economies, it is important that we should support people in the poorest areas of the world suffering severe poverty. It is important that we maintain that commitment. The European Council reaffirmed its commitment to spend 0.7 per cent of GDP on development aid by 2015, and agreed to monitor progress towards this target annually. I cannot at this stage give a commitment on the legislative proposals that we will make as regards the 0.7 per cent target, but it is our intention so to do.

The new European 2020 strategy is focused on promoting conditions for growth and improving the single market. A stronger European economy is overwhelmingly in Britain’s interests, given that around half of the UK’s exports go to the EU. However, noble Lords will no doubt agree that action in Europe clearly needs to recognise the different circumstances faced by different member states and strike the right balance between European and national action. The conclusions that we came to at the Council thus make clear that the strategy will not affect member states’ competencies on, for example, education. However, it will help Europe recover from the crisis and come out stronger internally and at the international level by boosting competitiveness, productivity, growth potential, social cohesion and economic convergence. It was kind and thoughtful of the noble Baroness to show her concern about the EPP. I assure her that we are happy with the current arrangements.

[Lord Higgins]

My Lords, I welcome the forthright attitude taken by the Prime Minister regarding the eurozone, but clearly the situation there presents considerable risks to the United Kingdom, even though we are not a member of the euro. Are we to understand that there was no detailed discussion at the Council on the widespread discussions taking place outside on the possibility that some members of the eurozone might find themselves in a position whereby they have to withdraw? Indeed, it has recently been suggested that it might be disruptive in that context if Germany were to withdraw, rather than the countries in the weakest position. At all events, the scheme was designed to prevent people withdrawing and it is important that we should not hide our heads in the sand regarding that possibility and we should make contingency plans. In particular, there is a major practical problem. Is there not perhaps some case for setting up a contingency fund of what we might call euro-exit notes and coins, which would be used if a particular country had to withdraw? Surely it is better that we should plan for that possibility, whatever our position might be on whether it is likely to happen, rather than suddenly finding that we are in a situation where nothing can be done because of the practical point that I mentioned.

[Lord Strathclyde]

My Lords, my noble friend raises an important and interesting issue. The eurozone is of course extremely important to the British economy. We want a strong and competitive eurozone area, but it is clear to anyone who has been following this subject in recent months that there are substantial problems with the euro and, most notably, with Greece. However, I am not in a position to speculate in any way on what may or may not happen in any other eurozone country or, indeed, on what contingency plans are envisaged over the next few months. The G20 has recognised that countries with serious fiscal challenges need to accelerate the pace of consolidation. In that regard, we welcome the recent announcements of further consolidation plans by the Governments of Spain and Portugal. It is important that to rebuild confidence all Governments implement in a rigorous manner the measures that they have announced. It is that confidence which will provide strength again to the eurozone. That in the long term will be to all our benefits.

[Lord Hannay of Chiswick]

My Lords—

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[Lord Dykes]

My Lords, I thank the Leader of the House for repeating the Prime Minister’s Statement in the other place. He highlighted the fact that, on a number of occasions, the Prime Minister repeated that we were going to play an active and engaged role in working with our colleagues to solve the international financial and economic crisis that affects all countries. Even if, under the coalition agreement, we are not for the moment committed to joining the euro—and a lot depends of course on what happens to the euro—does the noble Lord agree that the logic of the single market means that a single currency is really necessary later on? Conservative Ministers frequently enunciated before 1997 that you could not have a genuine single market without a single currency. That reality prevails.

Does the noble Lord not agree that we in this country should be careful not to be too complacent or gleeful about the apparent crisis in the eurozone, given that we have the only currency that was driven out of the preliminary arrangements before the euro was created? A notable and spectacular devaluation ensued; in fact, we have had seven devaluations since the war. That was always the easy way out, rather than solving problems with a disciplined currency system. Does he agree that this is as much a crisis of the banking statistics and asset bases of the commercial and investment banks as it is of sovereign debt, and that we need to deal with both on an active basis? Will he therefore emphasise that the UK Government are supporting the suggestion of the Spanish Government that stress-test figures should be published in the second half of July showing the different states of various banks in the member states, within and without the eurozone, including, I think, five or six banks from the United Kingdom? Furthermore, as the Prime Minister was, quite rightly, warmly received in Brussels, does the noble Lord agree that that adds to the arguments for his party rejoining the EPP, as the shadow Leader of the House suggested?

[Lord Strathclyde]

My Lords, I can give my noble friend no encouragement whatever that we are about to join the euro any time soon—an answer that he may find rather disappointing. However, all the evidence over the past few years indicates that we were entirely right not to join the euro, as the former Prime Minister, when he was Chancellor, ensured would be the case. That was the right decision then, it is clearly the right decision now, and we shall continue with that. However, that does not mean that we should not play an active and engaged role, as my noble friend Lord Dykes said, and we will continue in the way that we started. Indeed, my right honourable friend the Prime Minister was very much welcomed in Brussels for his positive attitude and constructive approach to a whole range of extremely difficult issues that face Europe. I say to my noble friend, as I did to the noble Baroness the Leader of the Opposition, that the EPP issue is not one that we shall reopen.

[Lord Hannay of Chiswick]

My Lords, will the Minister accept my thanks for allowing a question from Benches other than the government Benches after six minutes?

I congratulate the Government on the confirmation of the millennium development goals, which I think is a very positive step. However, do they not recognise that some members of the European Union—not the United Kingdom—are not fulfilling their obligations to move to 0.7 per cent of GDP? To give an example, Italy is cutting back on its aid. Does that not demonstrate the necessity for proper co-ordination at the European level when these commitments are entered into and the need to ensure that they are followed? Simply saying all the time that we are not going to do this or that in co-ordination has its disadvantages when we are in the lead and other people do not follow.

The noble Lord mentioned education. Does he not recognise that our higher education sector is the leader in Europe, that we have four of the world’s top 10 higher education establishments and that we are extremely well placed to give the lead in this essential part of making Europe more competitive? I hope that the Government will take that to heart and will see how, without transgressing any transfer of powers, we can make more of a reality of co-operation in the higher education sector and make it a more competitive part of the European economy.

[Lord Strathclyde]

My Lords, with regard to the millennium development goals, the Council reaffirmed its commitment to spend 0.7 per cent of GDP by 2015. The important point that I think will encourage the noble Lord is that the Council also agreed to monitor progress towards this target annually. Therefore, if a country lags behind, no doubt this will be brought to the Council’s attention at the time and appropriate action will take place in that member country.

I agree with the noble Lord about the excellence of Britain’s university education system and that we have a lot to contribute to this debate, at least by example. That is why we believe that this matter should remain firmly as part of the national competencies and not be raised to a higher level through command and control and instruction by the European Commission and others. That is precisely why we got the conclusion in the final report with which we were happy—namely, that education would remain part of those national competencies.

[Lord Pearson of Rannoch]

I share with sorrow the sentiments expressed from the Front Benches about the two latest deaths in Afghanistan.

Turning to the Statement, does the noble Lord agree that it really is beyond belief that the EU should presume to examine our Budgets before Parliament debates them when its own internal auditors have been unable to sign off its own accounts for the past 15 years? Can he comment on that? Will he also comment on Mr Van Rompuy saying last week that the Government’s refusal to submit our Budget to Brussels is unfinished business? How will the Government react if they are outvoted on this in the autumn? Finally, and more widely, the Government’s protestations of their innocence do not exactly chime with the wording of the Council’s conclusions. I shall read three extremely briefly. First,

“we fully agree on the urgent need to reinforce the coordination of our economic policies”.

Secondly,

“All Member States are ready … to take additional measures to accelerate fiscal consolidation”.

Thirdly,

“The crisis has revealed clear weaknesses in our economic governance, in particular as regards budgetary and broader macroecononmic surveillance. Reinforcing economic policy coordination therefore constitutes a crucial and urgent priority”.

Which one is right—the Government’s Statement or the Council’s conclusions?

[Lord Strathclyde]

My Lords, the noble Lord, Lord Pearson of Rannoch, is right when he says it is beyond belief that the EU should wish to inspect our Budget before it is presented to Parliament. He is entirely right. In that there is not a cigarette paper of difference between him and the Prime Minister, or I suspect even the Opposition. We would all agree that the EU has no role and no place to look at our budgetary arrangements and, indeed, our parliamentary procedures. That position has been made entirely implicit in the Statement that I repeated a few minutes ago. It is not unfinished business; it is firmly finished business and we will be leaving it entirely the way that it is currently.

The noble Lord, Lord Pearson of Rannoch, made great play of looking at the conclusions and the Statement that we made. This is an old game to play and the noble Lord does it with great skill. I assure him that again there is no difference between the conclusions and the Statement that we made. They can live together entirely side by side and there is no difficulty for the Government.

[Lord Grocott]

My Lords—

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[Lord Grocott]

The Leader of the House has reported, quite rightly, that there were extensive discussions about the ongoing problem of Iran. Were there any discussions on the wider issue of the region and the ongoing problem of the blockade of Gaza? How can the suffering of the people of Gaza be relieved? How and when will there be discussions at some stage, as surely there must inevitably be, between representatives of the European Union and representatives of the current Administration in Gaza?

[Lord Strathclyde]

My Lords, there was a discussion on Gaza. Generally speaking, the conclusion was positive about the steps that have been taken and we very much hope that the measures taken by the Israeli Government will be part of reducing tension in the area.

[Lord Hylton]

Are the Government aware of the very delicate situation now existing in Kosovo? This is already sub judice at the European Court of Justice. In addition, it so happens that the new Patriarch of all the Orthodox Serbs will be enthroned in the historic monastery of Pecs in October. This event could be seen by the Albanian majority as provocation or an act of cultural assertion. Do the Government agree that this makes it urgent to normalise relations between all the Serb monasteries and their Albanian neighbours? These have been tense since 2000—10 years ago. Will the Government ask the European Union to commission and pay for an independent third-party attempt at conciliation, which has already, I am glad to say, been invited by both parties in the conflict? I conclude by declaring a non-financial interest in the NGO in question.

[Lord Strathclyde]

My Lords, I cannot confirm that there was a discussion at the European Council but clearly the situation in Kosovo is immensely tense and the noble Lord has great expertise on it. The words that he has spoken today will of course be taken fully into account by my colleagues in the Foreign and Commonwealth Office.

[Lord Trimble]

Further to the point made earlier by my noble friend Lord Higgins, I draw the attention of the Leader of the House to what happened under the Bretton Woods system of fixed exchange rates whereby on occasions Germany revalued the deutschmark upwards, thus taking account of the changes between it and other countries on competitiveness. Surely what we need in the eurozone is some mechanism of that nature whereby one can adjust for changes in competitiveness rather than force countries, as is proposed to be done, through incredibly tough measures which they probably are incapable of sustaining.

[Lord Strathclyde]

My noble friend raises a point that we could debate and discuss for a very long time. He is right to mention the Bretton Woods arrangements. As to whether there should be an automatic mechanism to adjust for competitiveness, that is a matter not for the Government but the European Bank. It must take into account all the needs of all the economies within the eurozone and it is one of the reasons—only one—why we supported the view of the then Government that we should not join the euro in 1999.

[Lord Stoddart of Swindon]

I want to make two points. First, with regard to the reference to budget surveillance on page 4 of the Statement, this does not go far enough. It says that,

“the UK Budget will be shown to this House first—and not to the Commission”.

It is not a question of showing the Budget to the House; it is a question of the House of Commons agreeing the Budget before the Commission has its way. Surely that is right.

Secondly, why on earth do the Government continue to harp on about 40 per cent of our trade being with the European Union? The world is a much bigger place than that these days, so would it not be better if we expanded our trade with China, South America, India and indeed the Commonwealth, instead of concentrating on the backyard of Europe?

[Lord Strathclyde]

My Lords, on the question of the Budget, the noble Lord is in danger of tilting at windmills. We are not playing any verbal gymnastics that somehow when we say that it will be presented to Parliament first it means that round at the back door we are busily presenting it to the Commission. We are not. Tomorrow there will be a British Budget which will be presented to the British Parliament first. After it has been presented it will be a matter of public record and knowledge. I dare say that the Commission may be interested; it may indeed be very interested in looking at it before it is finally agreed by Parliament. Therefore, I do not think that there is a fundamental difference between the two of us on this issue. Neither, incidentally, is there about what the noble Lord Stoddart of Swindon, said about trade with the rest of the world. It is an important plank of British foreign policy to expand our trade beyond Europe. That is vital to our long-term prosperity and the creation of jobs in this country. We are using all the natural advantages that this country has built up over many decades—centuries even—with countries whose economies are growing extremely quickly. To ignore them would be an enormous mistake. So I hope that I can put a smile on the face of the noble Lord, Lord Stoddart, by saying that I very much agree with what he said.

[Lord Martin of Springburn]

My Lords, the Statement mentioned the banking sector. We all agree that, less than two years ago, young couples with children, first-time buyers, were sometimes offered a mortgage of more than 100 per cent. It is understandable that the banks have to tighten their belts—or, perhaps, to behave themselves—but young couples are now being required to find 25 per cent of their new mortgages. For young couples with children to find £25,000 to £30,000 is very difficult. Can the Prime Minister speak to the banking sector to make the point that if young couples can buy homes, that will help the building industry and relieve tension on community-based housing associations and local authorities?

[Lord Strathclyde]

My Lords, that may not have been quite a matter for the European Council, but the noble Lord, Lord Martin, raises an important point for young people and people starting families who are trying to purchase a house. The background against which we operate is now extremely different from what it was only two or three years ago vis-à-vis the whole question of mortgages and deposits. I assure the noble Lord that the President of the Board of Trade, the Chancellor of the Exchequer and the Prime Minister himself are very involved in trying to ensure that lending is allowed and encouraged to people who can pay it back, not just in the commercial and business sector but in the domestic sector.