Economic and Monetary Union (EUC Report)

Lord Suri Excerpts

Wednesday 9th November 2016 Grand Committee

[Lord Suri (Con)]

My Lords, when the original five presidents’ report came out, I was aghast at the implications it contained. I remember reading it, thinking to myself that any British Government would never be able fully to commit to the various goals and targets set by the Commission, Parliament and central bank.

The mistake of many commentators in the British press was blithely to assume that such targets were not applicable to the United Kingdom. We were not in the euro, after all, nor were we in the Schengen area, nor did we ever really engage with the European Semester. However, the press were misguided, for they missed the importance of that report to our banking union. It felt odd reading the report as it was published in the heady days of May when the prospect of leaving the EU seemed risible and the referendum had not even pierced the collective imagination of this place.

However, there are a number of important points to consider in it, the first of which pertains to banking. The five presidents’ report is clear on the importance of banking for not just European monetary union but eurozone stability. Thus, the creation of the banking union, following the proposals put forward by the four presidents in 2012, is likely to be beefed up with additional powers and regulatory capabilities for all banks trading within the single market and especially those that clear euros.

It currently comprises a single supervisory mechanism in which the ECB has overall responsibility for the supervision of banking union banks and a single resolution mechanism run by a single resolution board. The upcoming negotiations will see whether the UK is able to maintain the financial passport, which effectively guarantees the rights of UK-based banks to clear euro-denominated trades and all the lucrative related deals.

In my view, there are two ways for the UK to maintain this access. The first way is to remain within the single market. This would be a Norway-style deal that would allow us full access to the single market. However, I fear this would be impossible, given the nature of restrictions on free movement and regulation that the Prime Minister wishes to make.

The second way would be more complex. The UK should stay within the banking union and then continue to trade as it does normally. The real issue with this is that the UK would then be under the auspices of the European Central Bank. This would not be in keeping with the mantra of the Brexiteers to take back control, but it may be the only way to safeguard a significant proportion of our lucrative trade with the EU. The ball will rest with the EU, but it is worth remembering this.

The eurozone is in a terribly fragile state. Greece’s problems are not yet fixed and the unresolved saga of Italian banks will be perilously hard to manage for any technocrat. If the EU disrupts this, there is likely to be significant knock-on effects for all members, including Germany, as the recent turmoil at Deutsche Bank has shown. For the single currency to survive, further significant fiscal integration will be required. There will need to be eurobonds and a Finance Minister who can raise funds in Germany and spend them in Greece.

It is in the interests of the UK to have a strong, well-functioning EU. Indeed, a prominent Brexiteer put it to me like this: we must be like Canada, a sovereign, free-trading country working efficiently with a far larger, federalised southern neighbour. Now that we are out of the way and our veto and influence will no longer be heard in Brussels, the EU can get on with the job of federalisation, which now falls to the current crop of continental politicians. I wish them well.